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Human Resources

How diversity can be leveraged to drive organizational performance

Published 24 May 2021 in Human Resources • 4 min read

Greater diversity doesn’t necessarily equal better performance, and organizations still have to be mindful of how diversity is managed in order to improve performance, writes Richard Holden 

Breaking down the old boys’ club in business, government, and other organizations is intrinsically important. Ensuring greater diversity in organizations – on gender, racial, ethnic, and other lines – is, simply put, the right thing to do. 

But some advocates of greater diversity make an extra claim: that it improves the quality of decisions, and hence an organization’s performance. Do the right thing and increase profits or effectiveness. What’s not to like? 

Robust empirical evidence to support this claim – that more diverse organizations perform better – is tricky to provide. One can look at more diverse organizations and compare them to less diverse ones. Suppose that more diverse organizations do, in fact, perform better. What does one conclude? 

Well, what one should definitely not conclude is that greater diversity causes better performance. 


Correlation doesn’t prove causation 

Those things may be correlated. But that could easily be because higher-quality organizations want to, or can afford to be, more diverse. Or it could be some other factor correlated with diversity is the true driver of superior performance. Economists call these “endogeneity problems” – challenges to interpreting a mere correlation between two variables (A and B, say) as evidence that A causes B. 

Yet the causal effect of diversity on the performance of organizations is a deeply important question. Ideally, one would like to run an experiment where diversity within teams in an organization is randomly assigned. 

Just as pharmaceutical trials randomly assign some patients medication and others a placebo, economists in recent decades have performed field experiments to measure the impacts of all manner of interventions. The quintessential example of this paradigm is the experiments that led to development economists Abhijit Banerjee, Esther Duflo, and Michael Kremer winning the 2019 Nobel Prize in economic sciences. 

A pharmaceutical trial of, say, heart medication can determine its causal effect by looking at the average number of cardiac events in the group taking the medication compared with the control group (those on the placebo). Field experiments in economics can determine the causal effect of all manner of social and economic interventions. 

That is why a research paper by three economists – Benjamin Marx, Vincent Pons, and Tavneet Suri – published in April 2021 is both interesting and important. It is about just such a field experiment centered on diversity and team performance. 

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