Supplier diversity is on the menu for big-name corporations and other institutions nationwide, but too many of them apparently follow frameworks that shortchange minority- and women-owned businesses.
Two nationally recognized experts on minority business development spoke Monday at a University of Minnesota conference aimed at beefing up the school’s own dealings with diverse businesses, as well as linking suppliers with potential customers.
Diversity is an increasing priority for groups nationwide. The city of Minneapolis held a business fair last week to bridge its own supplier gaps and Gov. Mark Dayton said this week he would push for greater diversity in his cabinet.
But the rationale behind inclusion often lumps such efforts in with affirmative action rather than better business. The result? A misguided and sometimes damaging approach, especially in the business world, said Ralph Moore, a minority and women business development expert.
“I cringe when I hear people talking about the ‘right thing to do,’” he said. “It has to be the smart thing to do.”
The most successful inclusion programs, he said, are the ones with the highest standards for quality. For them, supplier diversity isn’t charity – it’s good business. They recognize a growing emphasis on fairness and diversity in politics and among the public, and match their practices with those ideals.
Moore’s client roster includes some of the world’s most recognized brands, from Wal-Mart to Nike. Locally, he has worked with Blue Cross Blue Shield of Minnesota. On a national basis, he has helped Major League Baseball develop one of the most robust supplier diversity programs in professional sports.
Meaningful change can only happen, he said, when companies prioritize diversity in a thoughtful and permanent way. That means honing methods that support inclusion that have a proven payoff, like seeking out high-performing minority- and women-owned businesses.
“Until you have a compelling value proposition, you will not be able to change the process within your organization,” Moore said.
Not enough companies incorporate supplier diversity throughout the sourcing process – a hallmark of a successful program, he said. By factoring in diversity early on, companies can get a wider variety of prospective vendors at the table.
When done right, inclusion initiatives reverberate into a broader economy dogged for generations by racial and gender disparities.
A lack of investment in minority businesses in particular is feeding into persistent gaps elsewhere in the broader economy, said Fred McKinney, who heads the renowned minority business programs at Dartmouth College’s Tuck School of Business. Black and Latino Americans claim about $1 in household wealth for every $10 that funnels into white communities, according to the most recent federal figures.
Unemployment rates are higher for blacks and Latinos virtually across the board. Nonwhite Americans buy homes at a substantially lower rate than white Americans – a gap that’s especially large in Minnesota.
Nationwide, minority businesses with employees are about half the size in terms of gross receipts than their non-minority counterparts, according to the Minority Business Development Agency. That’s despite having nearly $2.5 trillion in buying power, according to the agency, a figure comparable to a decent-size European economy.
“Today, segregation is completely different. Today, it’s economic segregation on top of racial segregation,” said McKinney. “Part of the solution, in my view, is wealth creation through minority business development.”
Productivity is frequently higher for smaller minority-owned outfits, McKinney’s data shows.That means a dollar goes further in creating jobs and otherwise boosting business.
“What you’re doing [by] supporting minority firms is not only helping owners of those firms but it’s also addressing some much broader social issues,” McKinney said.
Still, minority businesses appear to be growing much faster than white-owned, white-run businesses. By some estimates, based on U.S. Census data compiled over the past two decades, the number of businesses run by people of color increases by nearly 20 percent annually. By that count, the number of overall minority businesses doubles every four years.
The number of white-owned businesses, meanwhile, remains virtually flat.
To stay ahead of the trend, companies and other agencies need to soften their tone when they talk about inclusion strategies, said Darryl Peal, who heads the University of Minnesota’s business and community economic development office.
“We’ve got to take the emotion out of doing supplier diversity,” he said. “It becomes very aggressive and argumentative when in reality it really does make perfect business sense.”