One argument in favor of the ongoing need for supplier diversity is the continued economic disparity that exists between diverse business owners and non-diverse business owners, whether it’s lack of access to capital or networks, lack of resources, or any other number of issues that derail business growth.
Take, for example, the impact the COVID-19 pandemic has had on diverse businesses. Of course, entrepreneurs across the board took a tremendous beating, but COVID-19’s effect on minority-owned small businesses in the United States was much more dire and extreme, according to an article by McKinsey & Company. It noted that of all vulnerable small businesses, minority-owned businesses were the most at risk and that many were in financially precarious positions even before COVID-19 lockdowns began. The pandemic disproportionately impacted minority-owned small businesses for two critical reasons:
These outfits tend to face underlying and systemic issues that make running and scaling successfully more difficult.
They’re more likely to be concentrated in industries most immediately affected by the pandemic, making them more susceptible to disruption.
Their vulnerability was compounded because many minority-owned businesses lacked emergency funding. A large percentage of minority businesses weren’t able to take advantage of relief funds from the government because they didn’t have the commercial banking relationships that larger companies had. (Many banks focused on their larger, long-term clients with established credit relationships.) The Center for Responsible Lending, a nonprofit group that combats abusive lending practices, estimates that nearly 90 percent of minority-owned businesses had little chance of receiving a Paycheck Protection Program (PPP) loan through a mainstream bank or credit union.
95 percent of Black-owned businesses
91 percent of Latino-owned businesses
91 percent of Native Hawaiian or Pacific Islander-owned businesses
75 percent of Asian-owned businesses
Looking at reasons supplier diversity is still necessary
Obviously, as a supplier diversity consultant and author, I have definite opinions around this subject. However, this section isn’t a declaration on how I feel. My leanings are based on factual and anecdotal observations that support the need for supplier diversity.
When goals are attached to projects, utilization improves.Goals in this context are percentages established on projects administered by public agencies — that is, local/state governments, higher education institutions, K-12 schools, and the federal government. Conducting disparity studies can help justify the utilization of goals. A disparity study is an analysis that examines whether differences exist between the percentage of dollars that minority- and women-owned businesses received in contracts during a specific period and the percentage of dollars that those businesses would be expected to receive based on their availability to perform those contracts. It may also look at other factors, such as legal considerations around creating programs for these businesses, conditions in the local marketplace for these businesses, contracting practices, and business assistance programs currently in place.Based on the results of such a study, organizations can establish goals, usually on their subcontracting opportunities, with the hopes of improving the utilization of diverse businesses. For example, a project can have a goal of 30 percent, which means that a prime contractor (a contractor who has a direct contract with an organization) must ensure that at least 30 percent of the total contract value will be spent with small or diverse businesses. If it can’t do so, it must provide a valid reason. In my experience, prime vendors often overindex on the utilization of small and diverse business spend when a goal is attached — that is, they spend more than 30 percent (or whatever the goal is) because they want to maintain a good relationship with a client and to report this number for future project pursuits. With a robust program, a prime vendor may be penalized for not meeting goals and risk winning future contract opportunities with a client.
When tracking, compliance, and reporting measures are in place, utilization improves. Accountability measures such as project tracking, contract compliance, and reporting let project teams and supplier diversity monitor the progress of a project in somewhat real time and take action if the prime contractor looks like it’s not going to be able to fulfill a goal. This approach is a more collaborative one where supplier diversity can provide support to help connect the prime contractor to small and diverse businesses.
When organizations or individuals think their livelihood may be in jeopardy, they change their behavior. This concept is a relatively new one that many organizations are embracing. According to supplier.io, many of the Top 50 Companies for Diversity (as recognized by DiversityInc magazine) are placing more emphasis on achieving diversity/supplier diversity goals and tying executive compensation to the effort. This move not only provides additional incentive to hit supplier diversity goals but also reinforces the importance of diversity as a core value in the company.
Considering what supplier diversity needs to do to stay relevant
If supplier diversity is to continue to evolve, maintain its relevancy, and usher in a new era of supplier diversity, some pointed actions need to occur:
Continued investment in current and pipeline professionals: As supplier diversity evolves, so must the professional profile of its leaders. Organizations have to have a clear understanding of the function when drafting job descriptions and hiring (as I note earlier in the chapter, this position isn’t a catchall). Today, certification and training programs offer professionals an opportunity to build their skills in this area to ensure that they’re prepared to hit the ground running and not necessarily learning on the job. I discuss building a career in supplier diversity in Part 6.
Development of industry standards: People have long complained that the industry can be fragmented because of different standards and requirements across industries. For a long time, supplier diversity took its cues from the federal government. But as corporate supplier diversity grew, those programs began establishing their own standards, which sometimes creates confusion for the small and diverse businesses (and even industry professionals). It has also created a bit of a chasm between professionals that work in public supplier diversity and private (corporate) supplier diversity. The industry has to work together to create standards that help uplift the entire industry, an act that would likely go a long way in crafting a message that makes gaining buy-in at the organizational level easier.
Proactive mindset shifts from senior leadership: Like anything, priorities shift. New leaders have different ideas for where the organization should focus its energies. As much as you may want everyone to be proactive and progressive, they just aren’t. This area is one of the reasons supplier diversity is a continual process that requires constant work on culture and change management. So much so that everyone, even a leader, will have to get with the program, or they may find themselves a poor culture fit.
A strategic focus with key performance indicators (KPIs) that align with big-picture goals: Supplier diversity has to shift its narrative to one focused on strategy. Some organizations still likely treat this initiative as a charity or philanthropic effort rather than a true strategic management function. Supplier diversity has to develop those KPIs that align with the organizational goals to demonstrate the value that it brings in achieving them.
Reputation management: Supplier diversity can sometimes be a mixed bag of results in a mixed bag of perceptions. I’ve seen programs that are wildly successful and those that are just treading water. Unfortunately, the latter programs/leaders are the ones that