Supplier Diversity and Social Change in the U.S.: A Time Trajectory of External Drivers
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1 TITLE Supplier Diversity and Social Change in the U.S.: A Time Trajectory of External Drivers AUTHORS Gwendolyn Whitfield, University of North Carolina, US
2 Supplier Diversity and Social Change in the U.S.: A Time Trajectory of External Drivers Introduction Supplier diversity is a relatively new business phenomenon and as a research subject, it is void of much theoretical treatment to date. Defined as a proactive business process that seeks to provide all suppliers equal access to supply opportunities (7), supplier diversity promotes representation from diverse business communities and encourages economic development. The recent increase in population diversity in the U.S. and the growth rate of minority-owned businesses has brought supplier diversity into greater prominence in the last decade. This research will focus on the minority business enterprise, specifically, and theorize a time trajectory for understanding the proliferation of supplier diversity program adoption as social change. While changing demography and globalization have made supplier diversity of increasing interest, little attention has been devoted to theory building. Emerging trends in markets call for a deeper understanding of the theoretical underpinnings of supplier diversity. The paper will examine a sociological theory of social change and theorize how it can be applied to understand the shift of power in the supply chain and in markets as supplier diversity increases. Supply Chain and Corporate Social Responsibility When supplier diversity practices were established in the early 1970 s (in response to civil rights legislation), they were typically considered a form of corporate social responsibility (CSR) in the United States. CSR can be broadly defined as an organization s commitment to operate in an economically and environmentally sustainable manner while recognizing the interests of its stakeholder (4). Most often, CSR issues relating to supply chains tended to focus on labor standards in supplier factories in developing countries (3). However, early supplier diversity practices were aimed at leveling the playing field for minority and women-owned enterprises in the public procurement. With shifting demographics and growing numbers of minority enterprises in the U.S., firms are no longer looking at supplier diversity as a social responsibility, but as a source of competitive advantage for economic gain. The Evolution of Supplier Diversity Supplier diversity as a global concept is growing. The practice of including diverse suppliers is on the rise across the globe with established supplier diversity programs in countries such as the United States, the UK and Canada. In the United States for example, the growth of supplier diversity is being driven primarily by changes in consumer markets and spending power. In the next few decades, more than half of the population in the United States will be African American, Asian American and Hispanic and these groups will make up the majority of the population in the U.S. by 2040 (6). This demographic shift will mean more diverse customer bases and increased spending power in communities of color. For example, minority purchasing power is expected to increase by $ 3 trillion between 2000 and 2045 (5). In addition, the growth rate of minority business enterprises is increasing at a fast pace, and is expected to grow 70% 1
3 during the same time frame. This growth is important because small businesses are the backbone of the U.S. economy and minority business enterprises are becoming an increasingly important part of future economic health. Current minority business enterprises contribute over $400 billion in economic impact annually (5). In fact, introducing diverse suppliers into a supply chain also means more people from underserved communities are hired and it gives the purchasing company a way to attract more customers from diverse communities. The purpose and benefit of supplier diversity have taken on new meaning. Unlike the set aside programs of 1970 s, 80 s, and 90 s, the benefits of supplier diversity now go far beyond satisfying a government mandate or doing good in the community. While programs in these early decades yielded benefits, set aside programs for public procurement were not necessarily tied to markets and were established long before demographic projections predicted major racial shifts in the United States. When Execute Order was passed in the 1960 s requiring federal contractors to take affirmative action to open contracting opportunities to all races, few people in the United States imagined a country where minorities would be the majority and competitive advantage would one day become a primary strategic driver for supplier diversity. The motivation to include diverse suppliers has progressed from fulfilling legal requirements to a necessary business imperative. It s a business imperative because the consumer base is becoming more and more diverse, and wielding greater and greater buying power. Moreover, digital commerce and globalization has heightened competition by broadening purchasing choices, so companies are facing more complex competition. Today, diverse suppliers can provide access to emerging markets and innovative ways to penetrate them. Diverse suppliers have business acumen, broad capabilities, and higher expectations about representation in the supply chain. They also have greater spending power as consumers and they are part of large, networked communities. Moreover, since minority businesses tend to hire people from minority communities, supplier diversity contributes to economic development in these communities and strengthens their buying power to purchase the goods and services that are produced from the supply chain. Diversity and Organizational Culture Given the changing demographics of the last decade, it s no surprise that organizational diversity has risen in recent years. When it comes to diversity in organizations, research has shown, organizational culture is important for firms seeking to adapt to external forces such as changing demographics (2). Specifically, the researchers found that regulatory oversight from government programs is less important than corporate culture, and that the prevalence of diversity within an industry is a predictor of the adoption of diversity programs. In other words, diversity programs are adopted more when driven by social pressure and corporate culture and less by regulatory oversight. Simply put, the absence of workforce diversity or being under regulatory scrutiny did not lead to adopting diversity programs. Rather, what led to adoption is a firms past pattern of response to new societal norms. 2
4 Firms that adopted diversity programs did so because of their propensity to adopt to a new societal norm, rather their need to diversify their workforce or in response to regulatory monitoring. Moreover, when there is greater prevalence of diversity programs within an industry, it leads to increased adoption of diversity programs. Companies have to feel the pressure from consumers and industry competitors in order to adopt diversity programs and firms with a cultural history of making commitments to new social norms are more likely to establish diversity programs. Time Trajectory View of Supplier Diversity Drivers Since literature has shown an evolution in what drives supplier diversity adoption, this research paper introduces a time trajectory of the driving forces behind supplier diversity since its inception and makes some projections of the future direction of supplier diversity. From the 1970 s through the 1990 s, supplier diversity was primarily driven by affirmative action and government set aside programs. It resulted in little growth because firms saw supplier diversity as a government mandate with few economic benefits beyond a government contract. From Figure 1, supplier diversity driven by government compliance is flat between the time it was introduced in the 1970s and throughout the 1990s, when compliance started to become less of a driver for supporting supplier diversity. During the 1990 s consumer advocacy groups began raising questions about workforce diversity, which resulted in more supplier diversity questions as diversity advocacy work picked up momentum. Supplier diversity advocacy groups were introduced in the 1970 s, but were not as much of a driving force for supplier diversity adoption as compliance was. For example, the National Minority Supplier Develop Council was founded in 1972 to advance the business opportunities of minority business enterprises, and by 1990 s it had a growing corporate and MBE membership. We started to see a rise in diversity issues among advocacy groups and supplier diversity was becoming a growing focal point. By the late 1990 s many Fortune 500 companies began creating supplier diversity programs in response to consumer voices that raised questions not only about equity, access and fairness, but also about spending power. By the new millennium, the U.S. Census began projecting major shifts in the racial composition of the United States in the coming years. As early as the late 1990 s, the Census was publishing projections that the minorities in the United States would be the majority of the population by the year Forward thinking firms and industry leaders began to look at diversity as a source of future competitive advantage and made strategic investments in both supplier diversity and workforce diversity. By the year 2010, demographic shifts were in full swing, and competitive advantage was becoming the major driver for supplier diversity. 3
5 7 6 Intensity Drivers: Consumer Regulatory CompeDDve Time Figure 1. Time Trajectory of Supplier Diversity Drivers Supplier Diversity as Social Change Phenomena The changing external drivers point to new society norms emerging and companies adopting diversity strategies in response to new norms. The trajectory of supplier diversity over the last five decades has demonstrated that external pressure from changing racial demographics has influenced firms to adopt supplier diversity programs. While there is no overarching framework for the analysis of all social change, this research will build a theory of social change for supplier diversity based on theories of societal change rather than individual change. The dominant paradigms in the field of social change are psychological, social psychological, sociological and anthropological (1). The four levels of human interaction related to the dominant paradigms respectively are individual personality, interactions among individuals, the group or social system, and the cultural system. This research will begin building a sociological theory of supplier diversity related to changing demographics in the United States based on the group or social system. A sociological treatment of the social change driving supplier diversity provides an opportunity to analyze emergent properties of buyer groups, supplier groups, customer groups and social groups. The ways of acting within and among these groups is a reflection of an external constraint exterior to the individual. Here, then, are ways of acting, thinking, and feeling that present the noteworthy property of existing outside the individual consciousness. These types of conduct or thought are not only external to the individual but are, moreover, endowed with coercive power, by virtue of which they impose themselves upon him, independent of his individual will. (9). In other words, it is outside of the buyer s ability to stop the progression of supplier diversity because 4
6 changing demographics is a social fact, that is both external to the individual and imposing upon business practice. A buyer or a firm may chose to ignore changing demographics and its impact on the future of business, but doing so creates a major competitive risk. Theories of societal change help us understand change at the society level and the social change that accompanies it (by social we mean interactions among individuals). It is the goal of the research to better understand the ramifications of the societal change in demographics on the social structure within the supply chain; specifically the interactions among buyers and minority suppliers. We theorize how societal changes in U.S. demographic patterns impact the social system level (group of buyers) and the cultural system level (culture to adopt to new norms). In sociological research, change can be defined in three distinctive ways (10): (1)Magnitude of change (large scale vs. smallscale), (2)Time span of change (long term vs. short term) and (3)Effect on the changing organization (process change vs. structural change). When supplier diversity was driven by compliance, it was considered a small-scale change with a small-scale impact on markets and profitability. It did not require significant organizational resources or commitment and was easy to implement and reverse. As demographics, buying power and new business starts start to diversify, organizations will be need to integrate largerscale change in order to adjust to new societal norms and access the potential and power of supplier diversity. More than a change in the purchasing process, supplier diversity will require a structural change the way in which innovation, new product development, go to market strategies, and recruitment and retention are done in organizations. Once considered a concern for the longer horizon, demographic projections are accelerating and those companies who made investments in supplier diversity in the 80 s and 90 s will be at and advantage over those who are lagging behind or fail to reposition. Like globalization and technological change, shifting racial demographics in the United States is an external factor that has garnered significant attention in the last several years. Viewing supplier diversity trends and future projections as a social change phenomena, provides a lens to view the evolution of the supply base. As far back as Darwin, the question of species adapting themselves to the environment has been raised. Variants are constantly being introduced into the environment and those that adapt best survive while others cease to exist. Future Research The research has introduced a time trajectory to help explain the shift in supplier diversity drivers from compliance to competitive. The research predicts that supplier diversity will continue to be a competitive driver well into the next two decades and beyond and that theories of societal change is an appropriate framework for understanding the evolution of supplier diversity in the U.S. since the 1970 s. Future research should focus on building upon this theoretical foundation by further examining the relationship between societal change, organizational culture, external pressure, new norm adoption, change management and supplier diversity evolution. 5
7 References (1) Appelbaum, Richard P. Theories of Social Change. University of Chicago (2) Dobbin, Frank; Kim, Soohan; and Kalev, Alexandra. You Can t Always Get What You Need: Organizational Determinants of Diversity Programs. American Sociological Review Volume 76 Number 3 pages (3) Fabian, T. and Hill, C., Sourcing Overseas for the Retail Sector: CSR and the Ethical Supply Chain. Price Waterhouse Coppers, London (4) (5) National Supplier Development Council, 2014 Annual Report. (6) United States Census, (7) Whitfield, Gwendolyn and Landeros, Robert. Supplier Diversity Effectiveness: Does Organizational Culture Really Matter? Journal of Supply Chain Management (Fall 2006): pages (8) Wu, Jiyun. The Impact of Corporate Supplier Diversity Programs on Corporate Purchasers Intention to Purchase form Women-Owned Enterprises: An Empirical Test. Business and Society. Volume 49 Number 2 June 2010, pages (9) Durkheim, Emile. The Rules of Sociological Method. New York: Free Press (10) Smesler, Neil J. Essays in Sociological Explanation. Prentice-Hall: Englewood Cliffs, NJ
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