Understanding Diversity in Teams
& its Impact on Performance

Diversity has been categorized in many dimensions such as demographic (race/ethnicity, gender, age), psychographic (attitudes, beliefs, values, personality traits), organizational (e.g. workplace tenure), functional (education, KSAs, information), and social & network ties. A broad definition of diversity is any attribute people use to detect/identify differences among individuals. To influence its impact, we must understand its effects, causes, and linkages.

Effects of Diversity: It is generally assumed that diversity is good – e.g. ‘good for business’. Diversity can potentially generate two beneficial effects: (1) improved performance (described in article #1V4) and (2) improved intra-group interaction. Everyone seeks the first, but many don’t realize it depends on achieving the second. Improving group interaction is achieved through two mechanisms: team composition and team processes. The Value-in-Diversity hypothesis proposes that when a task is cognitively complex, combining diverse cognitive perspectives should generate better decisions (through constructive conflict, debate, creative problem-solving), resulting in better performance.

However, empirical testing of this hypothesis has produces mixed results, likely due to variations in the types & factors of diversity employed. Generally, a diverse composition based on surface-level social factors (e.g. demographics) has produced negative effects in functioning effectively, typically because composing diversity along these lines frustrates the similarity-attraction/social identity paradigms leading to poor social interaction without the compensating benefits that a more relevant diversity holds. In contrast, group composition diversity based on an information-processing perspective incorporating factors more salient in organizational decision-making (e.g. functional background, education, personality, contacts/networks, etc.) tends to be positively associated with group effectiveness.

Mannix & Neale (highly cited authors on this subject) recommend a balanced perspective that integrates the social categorization and balanced perspectives. The former creates the pull of surface-level homogeneity while the later helps members understand how “differences can create novel approaches, learning, and enhanced performance through interaction and the constructive exchange of information”. They conceptualized the Diversity-Process-Performance-Linkage to help us “understand under what circumstances groups will be able to overcome the natural disruptive effects of diversity in favour of its benefits”. This article identifies two types of functional diversity (intra-personal and dominant) and key elements and antecedents of a process for teasing out individuals’ potential differential contributions to the team task (p.6-7).

In article #3T4, I describe how growth-oriented entrepreneurial ventures (‘GOEVs’) need different teams (‘founding teams’ and ‘entrepreneur management teams’) for their substantively different phases of development (exploration vs. exploitation). Mannix and Neale have suggested that the innovation, creativity, divergent thinking, and problem-solving required in exploring for solutions to problems/opportunities in the exploration phase require heterogeneous teams (high diversity). Further, they have argued that more homogeneous teams may be appropriate for exploration activities (e.g. commercialization) but do not rule out heterogeneous teams. Other authors have expressed opposing views where more homogeneous teams find it easier to communicate and solve the innovation problems. I posit that functionally diverse teams are required in GOEVs initiating commercialization and attempting rapid growth because the environment continues to be highly uncertain and diverse perspectives for venturing into an unknown market with a partially validated product/service solution are still essential to enumerate the possibilities and through the sensitive management of cognitive debate, achieve consensus and commitment to the most viable strategy.

The article explains several mechanisms and techniques for managers to use in realizing diversity’s benefits. These include bridging, creating a collectivist culture, ensuring a complete exchange of information, and developing relevant social interaction skills. It also discuss the roots of functional diversity including different mental models of members developed due to taking different pathways to the current group/team. A notable takeaway from this research was the apparent superiority of mental models of CFOs.