People, Planet & Profit

Business diversity: Supplier diversity for a new era

Business diversity reframes supplier diversity as a strategic business imperative at the core of ESG strategy.

Supplier diversity in today's business world — as a label and a concept — hasn't kept up with the times.

It's true that building inclusive supply chains is just as urgent for today's corporations as it was a half century ago, when the U.S. government created the first programs to support minority business enterprises. However, forward-thinking organizations are now evaluating their impact on businesses and communities through the much wider lens of "business diversity".

What a difference a word makes. The long march from "affirmative action" to "equal opportunity" to "diversity, equity and inclusion (DE&I)" mirrored and shaped our ever-growing understanding of systemic bias and the value created by workplace inclusion. In the same way, business diversity expands the current definition of supplier diversity, making it less about compliance and reframing it as a strategic business imperative at the core of ESG. Supplier diversity is rooted in procurement and the industrial economy (construction, manufacturing, facility management); business diversity branches out to encompass technology and professional services and other fast-growing sectors that have a larger community impact.

"Business diversity is a broader category," says Kim Waller, Senior Client Partner in Korn Ferry's Organizational Strategy and DE&I practices. "It's a shift. A pivot."

Business diversity recognizes the reality that our fastest growing sector of businesses now also includes those in technology and professional services. It's more than a buzzword; it's a vision and a program.

Supplier vs. business diversity: What's the difference?

Champions of business diversity are rallying corporations across the spectrum to think bigger, optimize procurement and reimagine their business relationships from top to bottom through a broader strategic lens. These same leaders are also upcycling the tactics of supplier diversity and systematically scaling them across their own organizations.

Business diversity is an important shift in mindset that elevates and expands the scope of supplier diversity in several key areas, as outlined in the below table and sections.

	Strategy	Leadership	Services	Reporting
Traditional Supplier Diversity	Tactical and compliance-driven, geared toward procurement and contracting	Led by procurement and supply-chain functions, limited visibility or involvement from senior leadership	Narrowly focused on services such as construction, manufacturing and facility management	Total procurement spend with diverse suppliers (and the number of diverse suppliers)
Business Diversity	Fully embedded in DE&I, ESG and organizational strategy	C-suite and board are involved, informing strategy and driving accountability throughout the organization	Holistic view of business relationships, encompassing high- margin professional services (e.g., legal and financial)	Broader impact on the community as measured by job creation, social determinants of health and other socioeconomic factors

	Traditional Supplier Diversity	Business Diversity
Strategy	Tactical and compliance-driven, geared toward procurement and contracting	Fully embedded in DE&I, ESG and organizational strategy
Leadership	Led by procurement and supply-chain functions, limited visibility or involvement from senior leadership	C-suite and board are involved, informing strategy and driving accountability throughout the organization
Services	Narrowly focused on services such as construction, manufacturing and facility management	Holistic view of business relationships, encompassing high- margin professional services (e.g., legal and financial)
Reporting	Total procurement spend with diverse suppliers (and the number of diverse suppliers)	Broader impact on the community as measured by job creation, social determinants of health and other socioeconomic factors

Business and supplier diversity: Creating impactful business relationships

Supplier diversity originated in government contracting and small business funding "set-asides" back to the 1960s. Although innovative public-private partnerships and industry-led advocacy groups such as the Billion Dollar Roundtable have helped elevate supplier diversity over the years, many organizations are still stuck on working with specific business designations and narrow categories of procurement spend—the "compliance mindset," Waller calls it.

Business diversity challenges organizations to take a broader view of their operations and partnerships. "How can you optimize your supply chain in a new way?" Waller says. "Can you partner with more innovative and agile companies? How do you drive value through the business that you do?"

Consider a manufacturer that issues a request for proposal (RFP) for a product pilot. Stuck in a compliance mindset, the company might pass over innovative RFPs from diverse startups in favor of an established partner, pointing to capital requirements, capability gaps or the risks of entrusting an important project to an unknown business. Business diversity shakes up this narrative (a longstanding one in the supplier diversity space).

With a business diversity mindset, that same manufacturer will take the time to assess each startup's capabilities, growth prospects and readiness to scale, choosing not to base their RFP decision solely on track record alone. The product pilot becomes a catalyst for capacity building and long-term partnerships.

Business and supplier diversity: Encouraging boardroom engagement

Supplier diversity programs have tended to be tactical, bottom-up initiatives—a cog in the procurement machinery. Even with organizations that aspire to more, executive involvement in supplier diversity has rarely reached higher than the Chief Procurement Officer or Chief Supply Chain Officer.

With business diversity, the CEO is involved—along with the Chief Financial Officer, the Chief Sustainability Officer, the Chief Diversity Officer, the Chief Information Officer, the Chief Marketing Officer, the Head of Shared Services and every other leader with a budget. Business diversity is fully embedded in ESG strategy, and executive leadership drives alignment and accountability across the "entire ecosystem of the corporation," says Nadia Quarles, Assistant Vice President of Business Diversity at the University of Chicago.

"Business diversity is tied to every department within the corporation," says Quarles, an early champion of business diversity who cites the support of her university president as instrumental to her own efforts. "There's a different strategy for every department. It's not just, 'What are we looking to procure?'"

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Business and supplier diversity: Expanding scope to professional services

Partly due to its roots in small business procurement, supplier diversity has skewed toward manufacturing, construction, distribution and facility management functions such as catering and custodial services. Organizations swept along by this historical trend are limiting the range of opportunities available to diverse suppliers. By focusing on lower-margin services and industries, businesses also run the risk of limiting the long-term economic impact of their procurement spend.

As business diversity and ESG come together, leaders are applying the logic of supplier diversity to higher-margin professional services. Retooling supplier diversity for functions outside the traditional supply-chain orbit—including finance, legal, accounting and marketing—should increase both the quantity and the quality of the financial opportunities available to diverse businesses.

"We still need to focus on the traditional opportunities," Quarles says. "But we really need to look at creating opportunities for minority- and women-owned businesses that are underutilized or not being utilized within professional services in those real wealth-building industries."

Business and supplier diversity: Focusing on spending impact

The focus on higher-margin services indicates a broader shift in how organizations measure the impact of business diversity. Corporations and government entities that track supplier diversity (including the U.S. Securities and Exchange Commission) rely on two main metrics: the annual amount an organization spends with women- and minority-owned businesses and the corresponding share of total procurement spend.

Though a useful benchmark and a good place to start, these metrics fail to capture the full downstream impact of business diversity. Measuring that will require assembling data on profits and job creation among suppliers, the trickle-down effects on the supplier's suppliers (known as Tier 2 reporting), and — even further downstream — the long-term impact on the fortunes and well-being of communities.

"Leading-edge organizations are starting to track economic impact," Waller says. "For every dollar we spend, how many jobs are created in the community? How do those dollars impact social determinants of health and economic investment?"

Take the next steps towards achieving business diversity

This line of questioning, as it comes full circle, sums up the business diversity mindset. Suppliers are no longer just suppliers; suddenly they have become partners, colleagues, employers, neighbors and customers. Learn more about the shift from supplier diversity to business diversity by watching our on-demand webinar, Activating ESG and Sustainability through business diversity.