7 Ways Diversity Can Improve Your Decision-Making

Diversity Blog

Diversity is a growing issue of importance for most organizations today. How can diversity improve your decision-making processes and risk assessments? We’ve all experienced “sunflower management” – when everyone looks up to and agrees with their leaders’ ideas – but these path-of-least-resistance approaches rarely, if ever, produce the best possible results. Here’s why diversity on your team will make a difference:

  • Diverse groups perform better and make more accurate decisions than non-diverse groups 1,2
  • Companies with more gender and ethnic diversity in top management teams have better performance and better financial returns 3,4
  • Ethnically-diverse groups use more information and make better contributions to discussions than non-diverse groups 5,6
  • Diversity on a team helps eliminate groupthink 7

Making the right decisions around risk identification and mitigation is crucial – and in order to do this, you have to look at the risk from all angles. If everyone involved has a similar perspective, the chance of overlooking key information is far too high. Having one or more stakeholders dedicated to evaluating, criticizing, and challenging plans is an effective way to make sure you’re considering all the options and avoiding unnecessary risk:

  • Red teaming (i.e., evaluating and challenging a plan or decision as if you were a competing team) offers new insights and improves your decision-making 8

  • Having a designated devil’s advocate evaluate and challenge your ideas can keep discussions rational, non-emotional, and lead to better decisions 9,10

  • Performing a project “pre-mortem” (i.e., imagining that you have implemented your project and it has failed, then listing all the possible reasons why and how it could have failed) is an easy, effective way to identify weaknesses in your project and tackle them before they have a chance to actually occur 11

When making decisions and assessing risks, you don’t want a bunch of “yes-men” in the room – you want to involve a diverse group of stakeholders with different backgrounds, inputs, and opinions. If you’re not getting 360 degrees of perspective on an issue, you are quite likely missing something huge – and that something could mean the difference between failure and success, profit and loss.

Diversity creates dissent, and you need that. Without it, you’re not going to get any deep inquiry or breakthroughs.
— Paul Block, CEO of Merisant
References:

1 Phillips, K. W., Liljenquist, K. A., & Neale, M. A. (2009). Is the pain worth the gain? The advantages and liabilities of agreeing with socially distinct newcomers. Personality and Social Psychology Bulletin, 35(3), 336–350.

2 Sawyer, J. E., Houlette, M. A., & Yeagley, E. L. (2006). Decision performance and diversity structure: Comparing faultlines in convergent, crosscut, and racially homogeneous groups. Organizational Behavior and Human Decision Processes, 99, 1–15.

3 Perryman, A. A., Fernando, G. D., & Tripathy, A. (2016). Do gender differences persist? An examination of gender diversity on firm performance, risk, and executive compensation. Journal of Business Research, 69, 579–586.

4 Hunt, V., Layton, D., & Prince, S. (2015). Diversity Matters. USA: McKinsey & Company.

5 Sommers, S. R. (2006). On racial diversity and group decision making: Identifying multiple effects of racial composition on jury deliberations. Journal of Personality and Social Psychology, 90(4), 597–612.

6 Bergold, A. N. (2017). Diversity's impact on the quality of deliberations. CUNY Academic Works. http://academicworks.cuny.edu/gc_etds/1859

7 Hewlett, S. A., Marshall, M., & Sherbin, L. (2013). Innovation, diversity, and market growth. New York, NY: Centre for Talent Innovation.

8 Hoffman, B. G. (2017). Red Teaming. New York: Crown Business.

9 McKinsey & Company. (2017). McKinsey on Risk (3rd ed.). USA: McKinsey & Company.

10 The Wall Street Transcript. (2015). Making rational decisions with a consistent, predictable and repeatable process. http://www.marvistainvestments.com/The_Wall_Street_Transcript_Mar_Vista_Investment_Partners_10_12_2015.pdf

11 McKinsey & Company. (2010). Strategic decisions: When can you trust your gut?. McKinsey Quarterly March 2010. http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategic-decisions-when-can-you-trust-your-gut