Obsessed with the Spend
It’s not how much but hoe well we spend that really counts
By Melvin J. Gravely, Ph.D
We are obsessed
with how much we spend with minority and women owned businesses. I used to
think it was just a strong interest but I am now convinced it is a full
fledged obsession. We have set-up roundtables to recognize it, elaborate pass
through business structures to increase it, rallies to celebrate it, and
tradeshows to facilitate it. Some have moved ownership from husband to wife to
take advantage of it and government agencies have set project goals to reach
it. Minority business development generally and supplier diversity
specifically is obsessed with how much is spent.
Before you e-mail me your “Mel, you
have lost your mind” response, know that I deeply understand the importance of
how much we spend with diverse suppliers. I understand that it is the easiest
metric to track, set goals by and to grow. I understand the public relations
and political realities associated with being able to report how much is
spent. I get it. I understand that spending with diverse suppliers provides
the sales volume needed to grow diverse businesses. I understand that spending
goals often create the opportunity for inclusion that is not naturally
present. I am a fan of goals. I am an advocate for measuring spend.
I like it, believe in it, would like to
see more of it but I never thought that our level of spend was the end game. I
never understood the level of spend with diverse suppliers was the mission of
our supplier diversity efforts. The obsession with how much we spend has taken
our focus away from the long-term impact of the spending. The mission of
supplier diversity was never to spend more, it was (and still is, I hope) to
develop a base of competitive diverse suppliers. How we spend is at least as
important as how much. Over the last 40 years this measure of our progress has
morphed into the mission of our actions. This obsession with spending levels
is hurting what should be our real mission. The general feeling now is that if
an organization spends more they are doing better. For a number of the leading
organizations that is true. For most it is a false sense of progress that may
keep an organization from dealing with the realities of how they spend and the
success of the diverse firms they spend with.
For example, an organization passes
supplies through a minority or women owned distributor to be able to “count”
the spend. The diverse firm adds little value to the transaction, grows no
capacity, enhances no technology, gains no new management capability and
receives lower than industry average margins. The major organization spent
more but the mission of developing competitive diverse suppliers got lost.
Or maybe a diverse firm partners with a
larger majority firm to work together on a project. The diverse firm is
relegated to only doing the low margin, low tech, non-critical elements. We
increase spend but the diverse firm is no more competitive.
If the mission is to develop
competitive diverse suppliers then how we spend must matter at least as much
as how much we spend. There are organizations and diverse suppliers who are
increasing the business they do with each other with the mission of more
competitive suppliers in mind. But as more and more organizations engage in
the concept of supplier diversity, the race to spend more has too often become
the mission.
Not only is this focus on spending more
against the mission of supplier diversity, it also does more to damage the
real value of diverse suppliers. Our focus on how much at the expense of how
well propagates the notion that truly diversifying the supplier base cannot be
achieved. I fear it pushes forward the idea that diverse suppliers are not,
and worse yet, can not be competitive. It hints of an industry retreating to a
belief that the best we are going to get is to “give” them a small percent of
the pie and forever prop them up.
I am not suggesting we stop spending
but I am suggesting balance. Begin measuring elements such as how well we are
spending across the continuum of the things purchased by major organizations.
Consider how well diverse suppliers are doing at gaining contracts for mission
critical parts, supplies and services? How successful are they at gaining,
performing and retaining more long term, higher margin business? How well are
they growing and gaining other customers? How able are they to invest in the
training, talent and technology needed to be more competitive in their
industry?
I agree that how much we spend is
critical. This article should not be misunderstood as an excuse to spend
less. This is a call to spend more in ways that develop the competitive
capabilities of diverse suppliers. It is the only long-term opportunity for
true success in supplier diversity. Competitive suppliers compete and provide
value to their customers, their shareholders and their communities. These are
the outcomes that are sustainable and the only ones worth our investment.
Dr. Mel Gravely is the developer of COMSDA.com, an online
benchmarking tool for supplier diversity programs. He is also the author of
When Black and White Make Green: The Next Evolution of Business & Race
and the Managing Director of the Institute for Entrepreneurial
Thinking. Email Dr. Gravely at Mel@Entrethinking.com.
