Even though I've been won over to supplier diversity as a tool to promote private sector revenue growth and customer intimacy -- don't get me started on the absurdity and wastefulness of supplier diversity in public sector procurement -- it appears as if few organizations are actually making supplier diversity programs deliver on promised returns. Recent Hackett research suggests that most companies are failing to deliver on supplier diversity results and measurement. The challenge, in part, is that "most companies still make major errors in how they operate and measure the performance of their supplier diversity efforts. Most rely on overly simplistic measures to evaluate the progress of supplier diversity programs, and never truly assess whether programs are meeting corporate objectives. Most companies also fail to consider whether a few large suppliers or many smaller suppliers best supports their corporate goals."
But while supplier diversity programs are generally aligned with high-level corporate objectives, most companies use relatively simplistic performance metrics to measure progress, and do little to ensure alignment at an operational level. About 90 percent of all companies in the study rely on metrics such as "Percent Spend with Diverse Suppliers" or "Recognition by Industry." Less than half of the companies in the study track the percentages that diverse suppliers represent, and only about 10 percent of all companies assess the impact of supplier diversity efforts on revenue or market share.
One of the mistakes companies make with supplier diversity programs is that they fail to "align program objectives with decisions regarding the number of diverse suppliers with whom they work." To this end, Hackett's report suggests that "nearly 70 percent of diverse suppliers have less than $100,000 in annual diversity spending with a particular company, and this collectively represents less than 6 percent of the total supplier diversity spend." Companies are also failing to take supplier diversity programs global, even when worldly diversity metrics factor into the original intended goals of such programs. To wit, "While nearly 80 percent of all companies studied were global businesses, over 90 percent tracked metrics only for U.S. suppliers. But more than two thirds of the companies said globalization of supplier diversity programs is either very important or critical."
If we step back for a minute and consider the findings of this study, it should not be overly surprising. Far too many companies have implemented supplier diversity programs either to simply check the box on government reporting or because they're afraid of Al Sharpton and Jesse Jackson shaking them down. In reality, only a handful of organizations I've met with over the years (e.g., Bank of America) seem to really understand the revenue and customer intimacy benefits associated with best-in-class supplier diversity programs. Hopefully, this Hackett study will serve as a wake-up call for procurement and finance leaders to better align their supplier diversity goals with their overall procurement strategies, starting with creating the right goals, metrics and benchmarks to measure and report on their supplier diversity efforts.
I might also add that it would also help here to bring in the right types of high powered folks to run supplier diversity programs. Historically, far too many companies have relied on washed-up HR types to drive these efforts. What are needed for successful supplier diversity initiatives are the same types of skill sets that companies use to drive strategic sourcing and supplier development efforts. As a final thought, companies that really want to push the limits of what they can do with supplier diversity efforts might want, from both process and managerial perspectives, to integrate these efforts fully with supplier management and supply risk management programs.
- Jason Busch