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The ‘business case’ for gender diversity

Gender diversity in top management teams can boost ‘psychological safety’ and help firms innovate, finds new study of Chinese hi-tech firms co-authored at Cambridge Judge Business School in advance of International Women’s Day.

The 'business case' for gender diversity

Gender diversity in top management teams (TMTs) can enhance “psychological safety” and thus help firms find and implement innovative strategies, says a new study co-authored at Cambridge Judge Business School in advance of International Women’s Day (held on 8 March).

This indirect effect of gender diversity in TMTs plays an important role when firms face adverse situation, and once psychological safety is developed it can help companies forge and execute innovative strategies regardless of the company’s condition.

The findings thus point to a “pivotal mediating mechanism of TMT psychological safety in driving the positive effects of TMT gender balance on firm strategic behaviour,” concludes the study, which is based on small- and medium-sized enterprises (SMEs) in China.

Despite significant documentation on the percentage of women in boardrooms and executive roles, there has been relatively little academic research on the strategic implications of gender diversity in TMTs – so “we know little about how TMT gender diversity affects firm strategies and outcomes.”

The study aims to address this by looking at how TMT gender diversity affects the relationship between “psychological safety” (a shared belief that a team is safe for interpersonal risk-taking), “firm ambidexterity” (how companies balance potentially contradictory innovation approaches, including the exploitation of existing opportunities and finding new ones), and “strategic capability” (skills that enable firms to best utilise their assets to gain sustainable competitive advantage).

Past research had shown that gender diversity can “enhance team cooperative learning and participative communication, all of which are central to psychological safety.” The new study develops a model to link such psychological safety to firm behaviour, to present “an integrated understanding of how and when TMT gender diversity shapes firm strategies.”

The study – entitled “Balancing the Yin and Yang: TMT Gender Diversity, Psychological Safety and Firm Strategy” – is co-authored by Shi Tang, a PhD candidate at Cambridge Judge Business School; Sucheta Nadkarni, Sinyi Professor of Chinese Management and Director of the Wo+Men’s Leadership Centre at Cambridge Judge; Li-Qun Wei of Hong Kong Baptist University; and Stephen Zhang of the University of Sydney.

Professor Sucheta Nadkarni

Professor Sucheta Nadkarni

“The study presents a clear business case for gender diversity in top management teams,” says Professor Sucheta Nadkarni of Cambridge Judge Business School. “The study shows that gender diversity can help build the psychological conditions within teams that help identify new innovations and implement existing innovative strategies.”

The study is based 122 SMEs of between 10 and 500 employees in four Chinese high-tech industrial parks – Beijing in the north, Guangzhou in the south, Shanghai in the east, and Chengdu in the west. China is reported among the countries with the highest percentage of women in senior leadership roles, and firm ambidexterity is especially important for SMEs given the lack of large organisational structures.

The study controls for such factors as CEO gender, team size, and TMT tenure and educational background.

The researchers found that that TMT gender diversity promotes firm ambidexterity and strategic capability when firms face adverse situations. The study found further that a company’s past performance and slack resource constraints moderated the relationship between TMT gender diversity and psychological safety, but did not moderate the relationship between psychological safety and firm strategy.

“This indicates that adversity provides a strong impetus for gender-diverse TMTs to develop psychological safety,” the study concludes. “However, once psychological safety is developed, it facilitates firm strategy regardless of firm conditions. This highlights that the learning benefits of psychological safety could serve as safeguards against adversity, but also lend opportunistic benefits in favourable firm conditions.”