Mark Cartwright, CPSM, CPSD
Director of Supplier Diversity
Commonwealth of Virginia mark.cartwright@governor.virginia.gov
(804) 786-9135

 In 1970, the acclaimed economist Milton Friedman captured the sentiments of many when he stressed that “there is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits.”
 In 2012, this sentiment is still held by many and translates to many organizations continuously striving to increase productivity, lower costs and develop new markets.
 From the VPPA…To the end that public bodies…obtain high quality goods and services at reasonable cost, that all procurement procedures be conducted in a fair and impartial manner with avoidance of any impropriety….that all qualified vendors have access…and that no offeror be arbitrarily or capriciously excluded…
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 The Commonwealth of Virginia has been named the best state for business numerous times. While such accomplishments should be celebrated, there is great cause for concern. Despite past efforts to make the
Commonwealth more inclusive from a procurement perspective, willing and capable diverse businesses continue to struggle to establish a foothold.
 Overt efforts to exclude such businesses from the supply chain have greatly diminished, but the
Commonwealth clearly has not exhausted all of its options in an effort to ensure equal opportunity and access for all.
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 Small and diverse businesses drive our economy and contribute to the fabric of our local communities.
Fostering an environment for entrepreneurial, highgrowth companies to succeed leads to job creation for all Virginians.
 As our economic base expands, it is imperative that we foster an inclusive procurement environment that creates the broadest opportunity for everyone.
 Competitive opportunities must be awarded on merit and potential for success. Diverse businesses across
Virginia have clearly demonstrated that when given the opportunity, they more than rise to the challenge.
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 Can open competition can be accomplished without granting preferences based on race or gender?
 Yes, however, policies that conforms to the race and gender neutral mandate do not and should not be race and gender numb. We have data that tells us that the
Commonwealth has done a particularly poor job of fully engaging women and minority vendors.
 Being race and gender numb means failing to acknowledge the problem and failure to take specific actions to address the deficiencies.
 Under the leadership of Governor McDonnell and SOA
Lisa Hick-Thomas, we have a plan in place to address the deficiencies at multiples touch points. 4

 The historic under participation of diverse firms in the
US economy is a huge problem because we are just one of many players in hypercompetitive global market.
 Whole industries can seemingly migrate overseas overnight. Jobs disappear, revenue streams are lost, capital dries up, and tax revenues vanish. The US is then lacking the cash needed to upgrade its infrastructure and maintain critical services. Once in that downward spiral, it’s painfully difficult to recover.
 We need all citizens fully contributing to the country’s economic well-being, as minorities are well on the way to becoming the majority of our workforce and entrepreneurial economy.
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 It is well established that small businesses are the biggest source of job creation in the US, so most of the money needs to end up in the hands of entrepreneurs.
In recognition of this, Governor McDonnell recently declared 2012 as the Year of the Entrepreneur.
 It is also well established that access to capital is more difficult for diverse firms. However, increasing access to funding without making sure the money will generate long-term revenue streams is not the solution.
 The emphasis needs to be on the development of small and diverse businesses. It involves a comprehensive, integrated set of interventions.
Standalone, piecemeal solutions will not work.
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 In the past, emphasis has been on helping diverse firms gain access to the traditional supply chains. I call this the PO strategy. To clarify, advocates have generated opportunities for diverse businesses to compete for a small percentage of relatively unimportant, non-critical items.
 Due to heavy competition, the prices have been beat down to the point that the business owner can barely sustain his business, let alone grow his business. This course of action is in stark contrast with best-in-class procurement, in which the objective is to work with high potential suppliers to help them get better.
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 In addition to the threat to our future prosperity, we have seen throughout history that when an economic underclass becomes the majority, the established order becomes unstable.
 This may seem counterintuitive, but sociologists point out that revolutions do not happen when people are completely down and out; they happen when there is a glimmer of hope that people’s situations will improve.
Those on the bottom rung of the economic ladder have higher expectations when their circumstances seem to be improving and consequently have less tolerance for their predicament.
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 A community of people who do not see how they can get ahead in life and have given up trying is a drain on the economic system.
 The demographic shift brings with it a simmering problem that is growing in magnitude each day. The highly educated and experienced baby boomers are beginning to retire en masse.
 They will need to be replaced in the workforce and the entrepreneurial economy. Demographic changes predispose their replacements to be primarily minorities.
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 If we do not foster inclusion, the impact will extend beyond the disadvantaged community to constrain
GDP and national affluence. Instead of contributing robustly to the national economy, the disadvantaged will remain on the sidelines of their value chains, generating little wealth, fewer jobs, and less revenue.
 Instead of reaping the benefits of inclusion, we will have to divert funds that could instead be invested in infrastructure or services. The issue of inclusion is not about the poor becoming better off at the expense of the rich: it is about all Americans becoming progressively worse off than they were before.
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 To prosper, diverse firms need to play an important role in value chains. They must be strategically focused and proactive. Those who are passive, or deal in “commodity” services or products set aside to achieve diversity-spend targets —are unlikely to prosper.
They will take on peripheral roles to major value chains, and come up against hordes of competitors desperately underbidding each other, driving down profit margins.
 Growth is required for full participation in the value chain. Major organizations are increasingly less willing to absorb the inefficiencies of dealing with a large number of small suppliers.
There are three strategic options for achieving the necessary scale: organic growth, acquisition, and strategic alliance.
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 As a nation, we need diverse businesses to succeed; therefore, we need to enable their survival, growth, and prosperity.
Government has a role to play in fostering the development of commercial activities. Government should remove barriers to entry and burdensome legislation, such as lessening the bonding requirements on construction projects which was championed by the Governor Office.
 Entrepreneurs are independent thinkers and doers. They have high aspirations, a high rate of innovation —and a high rate of failure. Even with sufficient support, a large number of start-ups are ill conceived and can’t be rescued. That sounds harsh, but selection mechanisms operate in business much as they do in biology. The real problem in an economic system arises when businesses that ought to succeed end up failing.
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 The role of supplier diversity professionals is to ensure that diverse suppliers become not only as good as they can be, but world class.
 Getting buyers to deviate from longestablished SOP’s is not easy.
Without articulating a compelling business case —the challenge facing supplier diversity professionals is all uphill. Corporations and entities have not integrated diverse suppliers into value chains in proportion to their presence in the population.
 The mediocre results are attributable not to a lack of effort but, rather, to outdated procurement approaches. Old-school purchasing is tactical rather than strategic: it focuses on costs and benefits rather than on competitive advantage. Supplier diversity is viewed as an add-on process and is resented by many buyers as an operating constraint.
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 The supplier diversity movement was established more than a quarter century ago. Since then, outsourcing processes have evolved to become strategic supply chain management, but supplier diversity processes are still largely geared to the old purchasing paradigm. It is time for new thinking, new leadership, and new approaches.
 Capacity development is important. To fulfill a sustainable role in a value chain, small and diverse firms must deliver real value; otherwise, support organizations are accomplishing little more than channeling corporate philanthropy in the form of diversity spend.
 Development of capacity involves ensuring that small and diverse firms have adequate access to education, mentoring, technical consulting, capital, and whatever other assistance is needed.
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 Old-schooI purchasing sets goals for a percentage of volume to be placed with diverse suppliers, usually involving goods and services that are peripheral to the core value chain. Success is judged in terms of diversity spend, impact on image, and/or averting negative publicity generated by aggressive watchdog groups.
 Many advocacy and certification organizations reinforce the oldschool paradigm and celebrate compliance rather than success. It is therefore possible to be honored for doing well when in fact there is very little impact.
 Entities need to identify value-chain roles where diverse suppliers can meaningfully participate, recruit diverse businesses with the highest potential for long-term value creation, and then marshal the full spectrum of resources to develop suppliers’ capacity.
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 Advocacy involves making the business case and shaping public policy to achieve inclusion in mainstream value chains.
Certification must be conducted to rigorous standards, but at the same time it needs to be focused on the needs of diverse business and those that want to do business with them. The burden should never fall on diverse firms to go through certification more than once.
 Too often support organizations focus on their own self-fulfillment rather than a disadvantaged firm’s needs. The focus is on encouraging inclusion in the bidding process rather than ensuring vendor development. Thus support organizations need to step back and ask the hard questions about whether they are fulfilling their core mission of reversing economic under participation..
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The supplier diversity challenge is large and complex, calling for strategic action and concerted effort among all of the players. Any hope for significant progress requires visionary, collaborative leadership and a willingness to move beyond the traditions that were established in the 1980’s. The business world has changed a lot since then, and the need for inclusion has increased dramatically. We can’t afford to fail.
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Open Forum
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