Does Workplace Diversity Boost Team Performance? A PLS-SEM Analysis of Innovation as a Mediator in Nepal's Banking Sector

Abstract

Background: Workplace diversity can broaden teams' knowledge and perspectives, but its benefits depend on how differences become new ideas. Evidence on this mechanism in Nepal's banking sector remains limited. Purpose: This study examines how gender, religious, and educational diversity influence innovation and team performance, with innovation as a mediator, among bank employees in Kathmandu Valley. Design/methodology/approach: An explanatory research design was adopted, grounded in Diffusion of Innovation Theory. Data was collected from 398 bank employees selected through convenience sampling, using a structured questionnaire administered via KoBo Toolbox. The data were analyzed using Microsoft Excel and PLS-SEM in Smart PLS 4.0. Findings: Educational diversity (β = 0.397, p < 0.001) and religious diversity (β = 0.118, p = 0.046) had significant positive effects on innovation, while gender diversity did not (β = 0.080, p = 0.094). Innovation significantly improved team performance (β = 0.438, p < 0.001) and mediated the effect of educational diversity on team performance (β = 0.174, p < 0.001). Mediation was not significant for gender diversity (β = 0.035, p = 0.090) or religious diversity (β = 0.052, p = 0.055). The model explained 24.5% of the variance in team performance. Conclusion: Educational diversity improves team performance mainly by fostering innovation. Banks should combine diverse teams with inclusive practices and open communication so that all forms of diversity contribute to innovation.