The Case for Minority Suppliers
By Anaga Dalal
Success for a minority or woman-owned small business is more than just a function of your market share, or the strength of your product: it is also—in large part—a function of the cohesiveness, productivity and motivation of a company’s workforce. A successful company may begin with a vision and a dream, but it is the everyday execution of that vision by employees and managers that translates into solid market share. And yet, minority suppliers traditionally focus their energies on securing a contract while paying little attention to effectively managing the inherent risks of human capital. An over-emphasis on securing a contract without a commitment to improving the long-term health of a company can bring failure to your doorstep faster than you can spell s-u-c-c-e-s-s.
Worth the Risk? Lessons from Enronssons from Enron
No modern business story began as fairy-tale like as Enron—and few have ended with as nightmarish a fall. Why the rapid spiral to disgrace? Risky decisions by employees who should never have been trusted and a lack of accountability, transparency or integrity in the office were all to blame. In an article for Qfinance (qfinance.com), international business strategist and management consultant Thomas McKaig writes “At the extreme end of the [human capital risk] spectrum, there is a widespread pattern of ‘pushing the boundaries’ of everything from accounting rules to disclosure rules for public companies, lax internal controls, managements that focus on doing deals rather than managing, outright fraud and theft, and incentive systems that reward the wrong actions. Enron followed this pattern. The case of Enron shows how a combination of intellectual laziness and groupthink by a large number of employees, consultants, and analysts allowed a group of greedy and ambitious individuals to get away with massive fraud. Enron was not a case of one or two people at the top undertaking a complex scheme unbeknown to others, but rather a case of many individuals who knew what they were supposed to do, but didn’t do it. This was a case of analysts who never really questioned how Enron made its money, of accountants who didn’t ask simple questions, and of employees and board members who saw dubious things but were afraid to stand up and ask the questions they should have.”
Beyond the accounting scandal that brought Enron down is another important lesson: without personnel quality controls and a commitment to human capital risk management, bad things can—and will—happen. The way to prevent this worst case scenario is to adopt proactive risk strategies to manage your workforce. These range from instituting fail-proof quality and security control measures to solid metrics that measure the value of human capital to your organization. But what exactly is human capital? It is what management and human resources experts call an intangible asset that includes everything a worker brings to his or her position: their passion, commitment, experience, productivity, intellect, energy, creativity and knowledge. In monetary terms, it is the sum of the salary, benefits, training and professional development invested in employees. The value of individual employees, however, cannot be quantified but is the very backbone of a company’s success.
Taking a Long-Term Perspective
“Minority and women-owned suppliers do not place sufficient emphasis on maximizing their game after they win a contract. The belief is that 90% of the job is securing a contract, but in reality that is just the beginning,” says James Lowry, a Chicago-based Senior Advisor for the Boston Consulting Group (BCG). “These companies must place more emphasis on and investment in not only research and development, but human capital. At BCG, we put a high premium on human capital—this is not a luxury, it is essential for long-term success.” In the end, says Lowry, the success of a supplier is measured by repeat business contracts and that is a function of how effectively and efficiently a company works.
In the minority and women-owned business community as well as in the non-profit world, BCG’s Lowry says, the tendency is often to hire people for the wrong reasons: someone you may take a liking to, someone you learn about through a family connection, someone you like to be around. But with low business margins for minority suppliers, there is less room for mistakes so it is important to evaluate each job function and worker to determine if they are delivering and then either train, develop or fire them. “Most icons in business have had a reputation for picking good people and the strength to fire those who were not performing,” says Lowry. “During my career, I was known for giving tough love. What is vital is that a company—particularly its CEO—be honest in analyzing the strengths and weaknesses of themselves and their employees and develop a game plan accordingly. You should offer constructive criticism, but don’t sugarcoat the truth. Candor is essential.”
At TAG Holdings LLC, a minority supplier with 2008 revenues of $753M and 450 employees worldwide, Chairman and CEO Joseph Anderson has put in place measurable, individualized performance metrics for employees that directly affect compensation. He and his management team establish operating goals and objectives for the calendar year that directly impact compensation. When employees fail to perform, they can be released. “It is very difficult for me as a minority and someone committed to diversity to fire a minority worker,” says Anderson. “But if they are not performing, I cannot keep them on. I go out of my way to hire minorities, but I will not lower my standards. There can be no double standards when it comes to work performance.”
Preparing for the Rogue Employee
The damage that a dishonest employee can cause a business is potentially massive—and not a risk worth taking. To better protect your company’s security, experts advise creating a system of checks and balances so that the employee who handles the bookkeeping should not also be charged with making bank deposits. Implementing a system of controls and checks is essential for protecting against the security risk that some employees may pose. Extensive background checks alone cannot prevent against an employee who may pursue individual gain at the expense of their employer.
Yet despite an employer’s best efforts, a rogue employee will always find a way to create damage so consider surprise tactics such as random checks and requests for an explanation. In addition, many e-mail programs or other electronic infrastructure programs come with security measures that employers may not always use so understand the business software you have in place and take advantage of the opportunities it provides to intervene when suspicious behavior is detected. You should remain vigilant about the potential risks to your company and systematically review the systems you have in place to address them. Bottom line, good hiring practices and stringent control mechanisms should help manage the security risk of human capital. When a determined rogue breaks through a security system, act swiftly and decisively to limit the damage and remove the threat and potential threat of the break in security.
In an ailing economy, the potential risk goes up. During the current recession, minority-owned businesses have taken an oversized hit, says Paul Ruffin, Executive Director of Supplier Diversity Practice of CVM Solutions LLC. Part of the reason why minority, women-owned and small businesses have been hit so hard, he says, is that they often supply non-core goods and services. As the economy faltered, non-core business saw earlier and more severe cutbacks as a percentage of revenue. Also, since these are, by definition, smaller enterprises, a decrease in spending by a key vendor can be more devastating to the overall business. Recently Delta Air Lines, with CVM Solutions technology, announced an initiative to relieve some of this pain. “Since 2008,” says Ruffin, “CVM has seen more than a 50% drop in the number of diversity suppliers receiving spend from our customers. But last quarter, we did notice that spend has started increasing across most diversity categories. CVM hopes that with supplier diversity announcements such as the one Delta Air Lines just issued, we will see continued growth in the use of diverse suppliers.”
Maximize Your Competitive Advantage
Minority suppliers have the unique perspective of bridging two cultures: a non-minority business culture and the specific needs and potential of a minority community. The best way to make the most of this divide is to leverage the culture difference through the people you hire, thereby maximizing your sensitivity—and potential business opportunities—to both cultures.
In addition, minority suppliers are founded on the principle of diversity and hiring employees who are committed to this can engender greater loyalty to your company and more enduring commitment to its success.
“My company makes better business decisions because we have a diverse staff,” says TAG Holdings Anderson. He offers the example of his recent hire of a woman to his previously all-male management team. He made clear to his team that he wanted to hire a woman for the position. The search took longer than normal and there was some pressure to forego the commitment to diversity, but Anderson held his line. “I have always been very open with my staff about my commitment to diversity,” says Anderson. “I told them that I may not always hire the most experienced person, but I will never hire an unqualified person. And given the right opportunity for growth and expansion, I believe a diverse candidate can flourish as well as anyone.” Because his staff was committed to his personal and professional commitment to diversity, there was no backlash or resistance. Anderson says the increased diversity of experience and perspective that his female manager brings to the table leads him, his staff and his company to make better business decisions. In addition, he says, his customers are themselves committed to diversity so they look for suppliers who share that value.
Joseph Anderson is well suited to understand the strategic importance of diversity: his grade school class in Topeka, Kansas was desegregated in 1954 following the U.S. Supreme Court’s landmark decision in the case of Brown v. Board of Education. “My philosophy is ensuring fairness and equity wherever I go in an effort to correct what I myself lived through as a child,” says Anderson. And he is not alone: the commitment to diversity in American business is growing—the Executive Leadership Council, which Anderson belongs to, is a network of African-American business executives that has grown from just 20 members in the 1980s to now close to 500 members.
“I believe the key to success for minority and women-owned business,” says BCG’s Lowry “is to embrace and develop your minority advantage. These businesses should not limit their aspirations. They should think big. If you get it right, hire the right people, you can get there.”
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