The Evidence that Diversity Does Not Improve innovation

Executive Summary

  • It is considered politically correct and broad-minded to state that diversity improves innovation.
  • However, there is no evidence for this diversity improving innovation.

Introduction

It is sometimes proposed that diversity improves innovation. In this article, we review the academic literature to determine what it says on the topic.

The Studies

We performed a search for academic articles on this topic we found the following:

  1. Diversity & Inclusion and Innovation: A Virtuous Cycle (Vol 47 No. 1 2015 pp 1-7)
  2. Diversity of Systematic Innovation Thinking (IMP Journal, Volume 9, No 1, 2015)
  3. Board Diversity and Innovation Performance in Malaysia (Int J Business Governance and Ethics Vol 12, No 3 2017)
  4. R & D Collaborations: Is Diversity Enhancing Innovation Performance? (Technological Forecasting and Social Change, Volume 118 – May 1, 2017)
  5. Diversity is Strategy: The Effect of R&D Team Diversity on Innovation (R&D Management, Volume 47 (2) Mar 1, 2017)
  6. Driver or Inhibitor of Innovation? (Kybernetes, Volume 47, 10 – Feb 5, 2018)
  7. Does Cultural Diversity of Migrant Employees Affect Innovation (International Migration Review, Volume 48 – Sep 1, 2014)
  8. The Nexus Between Labor Diversity and Firm’s Innovation (Journal of Population Economics, Volume 27(2) – Oct 23, 2013)
  9. Workforce Composition and Innovation (Journal of Product Innovation Management, Volume 34(4) – July 1, 2017)
  10. Diversity and Innovation (Applied Economics Letters, 2016 Vol. 23, No 14, 1037 to 1041)
  11. Can Diversity Lead to Innovation? (Journal of Leadership Studies, Volume 10, Number 1, 2016)

Here are some quotes from many of the studies. A few of the studies did not seem like real research studies, but more white papers, and calls for more research.

Study: Diversity is Strategy

  • (Pro) “Diverse teams are less prone to groupthink.”
  • (Neutral) “The diversity literature offers inconsistent results regarding the relationship between gender diversity and performance outcomes.”
  • (Con) “Some scholars have reported that generate heterogeneous groups tend to exhibit increased conflict, low cohesion and increased turnover.”
  • (Pro) “On the other hand, several scholars have found that gender diversity promotes innovation, creativity, and productivity.”
  • (Pro) “Innovation studies show R&D teams gain significant personal experience from interactions amongst team members with different knowledge bases and skill sets.”
  • (Neutral) “Diversity studies have shown inconclusive results regarding the impact of educational diversity.”
  • (Neutral) “R&D team size has a significant positive effect on the likelihood of introducing radical and incremental innovation; however the quadratic effect is negative indicating that additional increases in R&D team size will reduce the probability of additional radical and incremental innovations.)
  • (Neutral) “that although larger firms tend to introduce more incremental innovations than small firms, the oversize can general monitoring costs and management problems that decrease the probability of introducing incremental and radical innovations.”

Study: Driver or Inhibitor for Innovation?

  • (Neutral) “Empirical studies who contradictory effects of functional diversity in teams. While teams with high functional diversity have a higher potential for creative and innovative ideas, they also show more conflicts and communication barriers than teams with low or medium diversity.”

Study: Does Cultural Diversity Effect Innovation?

  • (Neutral) “We argued that the impact of cultural diversity of employees on innovativeness is theoretically indeterminate due to the coexistence of a range of positive and negative influences.”

Study: The Nexus Between Labor Diversity and Firm’s Innovation

  • (Pro) “Ethnic diversity seems to facilitate firms’ patenting activity in several ways….we find that a 10% change in ethnic diversity increases the number of firms’ patent applications by approximately 2.2%.”
  • (Neutral) “Regarding the results of education and demographic diversity on innovation, their effects typically vanish when we include the full set of controls or once we instrument the diversity measure.”

Study: Workforce Composition and Innovation

  • (Pro) “Higher education diversity is also positively correlated to more incremental innovation.”
  • (Con) “Ethnic diversity, however, does not seem to be correlated to incremental innovation. This outcome could be rationalized by recent findings that suggest that ethnic diversity is more exposed to generating conflicts due to social categorization.”

Study: Board Diversity and Innovation Performance in Malaysia

  • (Pro) “The call for board composition that consists of individuals with a broad range of criteria, such as diversity of age, gender, and education level is made due to the advantages that can be offered by having a diverse group of decision makers.”

However, the study seems to think that innovation occurs in boards of directors. Boards of directors do no innovative work themselves. Therefore the study is only focused on the makeup of BODs. The question is whether diversity in the work teams increases innovation.

Study: Diversity and Innovation

  • (Con) “Ethnic diversity may have a negative effect on national innovation if a significant portion of a nation’s resources is used to manage inter-ethnic conflicts. Alesina and Ferrara (2005) explained that diversity could result in individuals giving preference to or transacting exclusively with members of their own group.”
  • (Pro) “Conversely, it is also likely that ethnic diversity can contribute towards innovation by increasing levels of creativity leading to better performance of companies.”

Study: R&D Collaborations

  • (Con) “Despite the opportunities that external collaborations offer to acquire or to access complementary and supplementary knowledge, the literature finds mixed evidence on their role in innovation performance.”

Homogeneous Examples of Innovation and a Lack of Innovation

Let us take Germany as an example.

Germany has the highest percentage of innovation and invention in the field of chemistry. Many of the most fundamental discoveries in chemistry are German and developed in a time when few non-Germans lived in Germany.

Therefore, those inventions were created by a mostly homogeneous culture.

On the other hand, there have been homogeneous cultures that had produced so little innovation that they were in the stone age when outside civilizations came into contact with them. The American Indians and Hawaiians would be good examples of this. Therefore, does this argue in favor of homogeneous cultures or against?

Conclusion

It should be noted and recognized that nearly all of the studies started with the hypothesis that diversity increases innovation.

Why?

The reason is simple. Proposing that diversity is negative for innovation is not politically correct. Therefore the hypothesis is “bounded” by what is an appealing outcome, not by what would be expected — which is hypothesis on in each direction.

However, even with this hypothesis, the only diversity dimension that could be found to improve innovation outcomes consistently is the diversity of educational background — which is normally not included as part of corporate diversity initiatives. Secondly, it brings up the question of “how much.” For example, does it increase innovation outcomes to involve trained anthropologists or people educated in animal husbandry with technologists?

The research does not describe how far afield the educational background is supposed to be.

It should also be recognized that corporations do not have any particular objective to be innovative. Their corporate charters state very clearly that their goals are increasing shareholder wealth and increasing profitability. These objectives can be met more easily and a lower cost through posing as innovative (as is common in the pharmaceutical and software industries) and engaging in anticompetitive business practices.

For example, the return on investment through political lobbying is far and away far superior to any return from investments in innovation. With a return of 76,000% on lobbying funding, there is a very weak argument to redirect those funds to innovation.

How Companies Fake their Interest in Innovation

Furthermore, there are all manner of things that could be done to increase innovation in all countries that aren’t done. One major factor that would cause a dramatic rise in innovation is to break up companies, particularly the largest companies with the most monopoly power. However, this is not even proposed. And it is not proposed because it would reduce the profits of monopolistic entities. Many of these entities use fake innovation as a cover for what are actually anti-competitive rents extracted from the economy.

Therefore, there is not only no consistent evidence that diversity outside of educational diversity leads to higher innovation, there is no evidence that corporations actually have it as a goal to be innovative.

References

Corporations Lobbying Government Reap 76,000% Return On Investment