Rethinking the role of diversity in top management teams
Companies invest in diverse leadership teams, yet not all situations benefit from diversity in the same way.
In today’s business landscape, diversity in top management teams is widely seen as a competitive advantage. With the aim of fuelling innovation and better decision-making, companies invest in assembling leadership teams with varied gender, backgrounds, experiences, and perspectives. Still, does diversity actually equal increased innovation?
A recent study from NHH challenges this assumption. It shows that whether diversity drives or hinders innovation depends less on the team itself and more on the situation the company is facing.
Read the entire scientific article here.
Diversity and business model innovation
The study, conducted by Magne S. Angelshaug, Tina Saebi, Lasse B. Lien, and Nicolai J. Foss at the Norwegian School of Economics, draws on CEO-level survey data to examine how firms respond to two common situations: uncertainty and urgency. The study also looks at how these contexts influence whether diverse leadership teams help or hinder business model innovation.
Business model innovation refers to significant changes in how a firm creates, delivers, and captures value. While such innovation is often necessary in response to technological change, new competitors, or shifting customer demands, not all firms succeed in adapting their business models effectively. Despite the increasing emphasis on diversity in top management teams, the study shows that its impact depends heavily on context.
Uncertainty: When change is hard to interpret
One situation firms frequently face is uncertainty, often driven by environmental turbulence such as rapid technological change or shifting customer preferences. These conditions generate what the study describes as weak signals: information that is ambiguous and difficult to interpret. Managers may detect that something is changing, but it is unclear what the change means or how the firm should respond.
In such contexts, diverse teams may struggle. Because team members bring different perspectives and experiences, they may interpret the same signals in very different ways. This can lead to disagreement, slower decision-making, and difficulties in aligning on a strategic direction. As a result, diversity can hinder rather than help innovate the business model when the situation is difficult to interpret.
Urgency: An obvious need for change
A different situation arises when firms experience declining financial performance. Unlike environmental turbulence, poor financial results provide a strong signal. The problem is clear, measurable, and difficult to ignore, creating a shared sense of urgency within the top management team.
In these situations, diversity becomes an advantage. Rather than disagreeing on what the problem is, team members align around the need to act. Their different backgrounds and perspectives then help generate a broader range of solutions, increasing the likelihood of more extensive business model innovation.
Takeaways for firms
The study offers a more nuanced view of leadership diversity. In situations of uncertainty, diversity may amplify disagreement. However, in situations of urgency, diversity may strengthen problem-solving. The key difference lies in how clearly the situation is understood. When signals are ambiguous, diversity can create fragmentation. When signals are clear, it can create alignment and momentum.
For business leaders, the findings suggest that simply increasing diversity is not enough. Instead, firms need to consider how team composition interacts with the challenges they face. In uncertain environments, stronger coordination and clearer decision processes may be needed to avoid standstill. In contrast, when performance is declining, diverse teams can be particularly effective in driving change.
The study ultimately shows that diversity is not inherently beneficial or detrimental. Instead, it is context-dependent. By understanding when diversity helps and when it hinders, firms can better leverage their leadership teams to navigate change and innovate their business models.