Diversity Pays Off

Friday, November 6, 2015

Let’s say your company intends to build its own answer to the red-hot GoPro action camera stuck on the wrists and helmets of virtually every self-respecting extreme sports freak on planet Earth. Where should your company start? What should your design team look like?

Look toward diversity for top results.

Research conducted by Cynthia Wang, an associate professor in the Department of Management at the Spears School of Business, suggests mixing people of different races, ethnicities, cultures, genders, political persuasions, etc., within a workforce benefits workers and companies. 

Diversity, it seems, makes people smarter.

“Diversity can have a very positive impact on group performance,” Wang says.

It’s more than simple exposure to different perspectives. Working with different types of people stimulates more thought — and here’s a key finding — just before meeting that person, Wang’s research shows.

So a person works harder in preparation. And smarter.

When meeting someone of a different race, “just knowing that you’re actually going to meet that person in the future, that starts preparing you in a particular way that actually ends up benefiting group performance,” Wang says.

Research suggests this advantage extends right into tasks taken on by the group as a whole.

“You actually analyze the information more thoroughly. Then when you meet as a group with this person, you actually perform better because of that,” Wang says.

Wang’s team gathered 186 people who identified themselves as Democrats or Republicans and asked them to read and crack a murder mystery. Subjects wrote essays explaining who they thought was the murderer. All participants were told their partner disagreed with their opinion. Half were told they would use their essays to help make their case to someone of the opposing political party and half were told they would need to convince a member of their own party.

Researchers found subjects of both parties prepared less for the discussion when told that their disagreeing partner was of their same party affiliation. This suggests disagreement from a socially different person makes people work harder.

Diversity jolts the mind into action in ways that sameness simply does not, noted a recent article in Scientific American that described Wang’s work.

The surprise benefit from diversity translates into everyday life outside that imaginary flashy camera company, too.

“Instead of maybe being apprehensive about working with somebody who’s different from us,” Wang says, “this could be an opportunity to say, ‘Hey, there might be actually huge benefits to not only the organization but to myself by working with these different types of people.’”

How does this finding translate into dollars and cents for businesses?

“If you’re making the right decisions within a group, that can definitely translate into better decisions overall for the organization and, as a whole, help your bottom line,” Wang says.

An Explosion of Cultures

Wang’s interest in diversity research grew perhaps naturally out of her upbringing, raised in Boston and central Illinois by Taiwanese parents.

“I feel very diverse, I guess,” she says.

Along with her diversity research, Wang also researches how different cultures respond to ethical and unethical behavior. As a Northwestern University graduate student, she became fascinated with the ethical field as the world watched corporate fraud and corruption famously unravel big companies such as Enron, WorldCom and Tyco International in late 2001 and 2002.

“When I was in graduate school, there were a lot of explosions on the ethical front. So you can think of Enron, Tyco. Things were melting down,” she says.

Executives with former energy trading company Enron recorded fake revenues through their shell companies that made earnings appear fabulous. Shady transactions further concealed tremendous debt, and the media found that big banks worked with executives to hide these deals. Ultimately, Enron’s chief auditor ordered the shredding of thousands of documents in an attempt to conceal the cooked books that helped bring down the company in December 2001.

In the case of Tyco International, the former chief executive and former finance chief were convicted in 2005 of stealing more than $600 million from the company to finance lavish lifestyles that included luxuries such as a $6,000 shower curtain and a $2 million toga birthday party.

“So I was thinking, ‘Why is this really happening?’ ” Wang says.

“I wanted to know why people weren’t responding to this negative behavior and how did it get to this point?”

Wang’s research provides insight into these issues and why business misconduct and criminal activities may became bolder and bolder. Her team’s study has shown that people reward honesty more often and intensely than they punish deception.

People are twice as likely to reward an honest person as punish a deceptive one. And the reward amounts for honesty are 16 to 24 percent larger than the punishment amounts meted out to deceivers, her work suggests.

The research also suggests that people prefer to avoid a deceptive person than to approach an honest person. And the tendency to go easy on deception may allow these problems to escalate. The research further suggests that different, complex psychological mechanisms drive punishment and reward.

Wang says part of the issue is how incentives are put together so that people will strive to get a reward but they will cut corners to get there.

“So really understanding how these different types of rewards and punishments affect people I think has really opened my eyes to saying, ‘Hey, there’s a lot of things that are going into these decisions,’ (and) that it’s not always bad people,” she says.

Wang says her research will not end anytime soon.

“My research is completed, well, I guess the day the Tycos stop happening. (When) the big ethical quandaries stop happening.”

That’s probably not going to happen tomorrow, she says. “But if we can alleviate it from happening every 10 years, something like that.” Then, laughing, she adds, “Maybe make it 20 years.”

Wang says her diversity research will probably end when costs and benefits are fully understood and organizations apply that knowledge.

“And then seeing the fruits of that diversity. Let’s say you have diversity policies, but you don’t really know how it impacts the bottom line. Having a clear line between that and trying to understand that would be great,” she says.

“That’s like 200 years from now,” she laughs.