A more diverse workforce can provide an organization with a broader talent base and a wider range of knowledge and perspectives. Recent trends of increasing globalization, migration, and aging have enhanced workplace diversity in terms of age, gender, and region of origin to an unprecedented degree. Thus, argue HKUST researcher Yaping Gong and colleagues, it is now more important than ever for organizations to be able to effectively harness the value of their diverse workforces.

An organization that minimizes bias and discrimination and that supports the integration of culturally different employees can promote organizational effectiveness by enhancing its employees’ job satisfaction and performance, the researchers explain. Therefore, the cultivation of an inclusive work environment—one in which all employees feel that they are valued members of the organization—is key to maximizing value creation.

Through knowledge management capacity (an organization’s ability to capitalize on its employees’ knowledge and expertise), an inclusive climate can foster both incremental and radical innovation. These are “an important foundation for sustained competitive advantage,” the researchers say.

To consider both internal and external factors that affect the relationship between inclusive climate and knowledge management capacity, the researchers studied employee management as well as business environments. They hypothesized that an inclusive organizational climate boosts an organization’s knowledge management capacity and subsequently innovation, especially in organizations with demographically diverse workforce, or organizations conducting high level of environmental scanning.

The researchers developed a model that they tested using survey data collected from employees, human resource managers and executives in over one hundred organizations. They found that an inclusive organizational climate strengthened an organization’s knowledge management capacity which in turn boosted both incremental and radical innovation. Furthermore, workplace age and regional diversity strengthened the positive effects of an inclusive climate on an organization’s knowledge management capacity and subsequently on its innovation.

The findings of Dr. Gong and his research team have a number of practical implications. First, the researchers found that an inclusive organizational climate plays a central role in promoting knowledge management capacity and, thereby, innovation. “Thus,” the researchers say, “it is important for organizations to cultivate work environments” for employees from different identity groups and to adopt a multicultural perspective that recognizes and values employees’ cultural differences.

In addition, the researchers say, it is vital for organizations to be aware of any potential disconnects between their espoused and enacted practices and employees’ perceptions of such practices. Organizations must also “be conscious of the unintended consequences of diversity initiatives” and “closely monitor the progress and effectiveness of their diversity goal progress and potential spillover,” the researchers explain.

The researchers also note that “it is important for organizations to increase the representation of different demographic groups,” such as by actively recruiting a diverse pool of candidates and ensuring equal hiring opportunities. Organizations can also benefit from providing diversity training, customizing career management interventions to help employees manage their career goals, and adopting opportunity—enhancing management practices to maximize the contributions of employees of different ages and from different regions.

These novel findings on how and when an inclusive climate fosters innovation highlight the importance for organizations of the synergistic potential of their internal human resources and the external environment. By understanding these factors, organizations can more effectively use their inclusive climate to maximize their knowledge management and innovation.