How to reduce risks and build diversity to boost performance
The pandemic and social unrest of the past year have triggered a collision of organizational stressors and business transformation, with workforce strategies sitting right at the center.
The collision forced seismic changes in operating models, especially in industry sectors that depend on dynamic workforce strategies for growth and success. “In the professional services sector, organizational risk profiles shifted in a meaningful way,” said Grant Thornton Strategic Risk Services Leader Yvette Connor.
“In the professional services sector, organizational risk profiles shifted in a meaningful way.”
Professional and business services firms needed to make some immediate adaptations to navigate the pandemic. However, these firms also recognized that the new normal would require longer-term workforce realignments and diversification. Failure to act was risky and could have revenue and brand impacts in both the short term and long term.
“What we have noticed in recent requests for proposals (RFPs) is that diversity, equity and inclusion (DE&I) have become a critical factor when choosing vendors,” said Grant Thornton Global Services Industry Leader Sean Denham. “It is now becoming common that RFPs require company diversity statistics, and contracts are being awarded based upon these factors. That means diversity becomes essential for growing your flow of new work and your top-line revenue.” Some firms are taking DE&I requirements further, like the Goldman Sachs requirements for board diversity at clients. And “a dozen states have enacted or are poised to enact requirements to enhance diversity on boards,” as Harvard Law School outlined. One risk is that firms might not meet these growing expectations. If a firm cannot meet DE&I requirements, the demand for its services effectively drops and its revenue curve will follow.
But another risk relates to performance. A Harvard Business Review research study established that, “diversity significantly improves financial performance on measures such as profitable investments at the individual portfolio-company level and overall fund returns. And even though associating with similar people can have social benefits for people who do so, it can lead investors and firms to leave a lot of money on the table.” Similarly, the World Economic Forum has said, “Successful organizations are powered by the diverse perspectives, skill sets and life experiences of their employees. To tap into the full potential of human diversity, organizations need to hire diverse talent and create an inclusive working culture underpinned by a fundamental sense of belonging, fairness and equity, enabling people to bring their ‘full self’ to work.”
Meaningful and lasting DE&I involves a cultural shift, which is a difficult change to make in any organization. However, it can also be essential. “The number one thing that services firms rely on is people. We have clients where their culture is a tremendous asset to their business – the collaboration that happens drives efficiency, drives trust, drives results,” Connor said. “When that culture begins to fray or becomes somewhat dysfunctional, it can most certainly impair your business model.”
While the scope and nature of DE&I risks will vary across professional and business services firms, there are key areas to consider in the immediate, short and long term.
Mitigate immediate risks
Existing workforces have already undergone tremendous stress from the events of the past year. If a firm has not already acknowledged and addressed this stress, it is important for the firm to form a plan and awareness for any risks. Consider taking actions such as:
Form a community
Connor suggested, “Be very intentional, thoughtful and empathetic. Create a community where people can converse a little bit differently than they might have, prior to social justice conversations in the past 12 months in particular.”
Form a collaborative effort
“Encourage managers, directors and executive leaders to really look across their teams and determine if there are opportunities to diversify the voices that are heard on the teams,” Connor said. This can include adding team members or forming collaborations for work assessment or execution.
“Being aware that you have an issue is the first step,” Denham said. But it can be unclear how best to resolve an issue. “If your firm’s leadership has no diversity, it could be more difficult for leaders to identify what to do,” Denham said. That’s where leadership formation and further risk mitigation may be the next step.
Mitigate short-term risks
As clients, business partners, agencies and regulators begin to form diversity requirements, firms must mitigate the risk of lost business and productivity in the short term with actions such as:
Examine your metrics
“First off, you need to identify the DE&I statistics throughout your organization,” Denham said. “Without presenting the statistics, you cannot move forward. It’s a cultural awareness of ‘Here’s where we are today, here’s where we want to go and here are the steps that are going to take us there.’” In professional and business services, where workforce is the cost driver, this evaluation includes a demand and revenue analysis. But that must feed into a cultural change that permeates through the organization. As our Return on culture research outlined, any cultural change begins with benchmarking current performance metrics.
Establish partnerships where needed
If a firm’s metrics are not where they need to be, the firm can consider which minority and/or women-led business partners can help expand its market and diversify its perspective. “Teaming partners is a good answer,” said Connor. “Outside of the bona fide teaming partner, you have individual subcontractors that you can immediately bring into the firm. Once we have found people who are a good fit, we have seen organizations successfully hire them as permanent employees. That just accelerates the path for the firm,” Connor said. To help external partners collaborate for a specific client or project, the firm might want to consider an outcome-based client billing model that departs from the traditional hourly rate model.
“You need key leaders – CEOs and boards – that establish DE&I as one of their driving principles. Without that, everything breaks.”
Establish top leadership
As with any pervasive cultural change, top-level leadership is essential. “You need key leaders – CEOs and boards – that establish DE&I as one of their driving principles,” Denham said. “Without that, everything breaks.” A Chief Diversity Officer (CDO) can help ensure that a firm continues to consider important questions and take effective actions related to DE&I. For instance, the CDO can help evaluate “Where are we today? What is the extent of our board and leadership team diversity? Where and why do we need greater diversity, equity and inclusion in all aspects of our organization? How does this issue play into compensation, or even firm acquisitions?” A CDO can help keep these questions in front of the organization, establish goals and ensure that strategies are implemented to achieve those goals.
“When you identify the risk and interpret what it means for your business, you can mitigate it. You can determine how to establish a path forward that will help your firm grow and remain resilient, and how to leverage these DE&I concepts as you go,” Connor said.
Mitigate long-term risks
As professional and business services firms consider the growing requirements for diversity, it’s important to initiate a strategy to foster the firm’s desired future with actions such as:
“Winning more accounts, retaining accounts and having a bigger footprint across existing accounts is part of not only the risk management strategy, but also the overarching workforce strategy.”
Plan business development
To help size and mitigate DE&I business risks in the long term, firms need to consider them in the context of their long-term business goals. Firms need to outline the accounts that they want to retain, expand and acquire over time, and any DE&I challenges that might put those goals at risk. “Winning more accounts, retaining accounts and having a bigger footprint across existing accounts is part of not only the risk management strategy, but also the overarching workforce strategy,” Connor said.
Align recruitment
Recruitment is often at the top of a CDO’s agenda, and firms need to consider their traditional sources and strategies for acquiring new talent. “What are the business schools, law schools or undergraduate programs where you recruit? Some firms might be very deliberate in their attempts to pull from schools in their backyard, but there can be a risk to that. One risk is ethnocentricity, if you happen to live in a community that is not diversified,” Connor said.
Consider recruitment alternatives
There is growing competition to recruit top college graduates from under-represented populations. With that in mind, firms might want to foster new channels for recruiting and developing candidates. Branded college internships and training programs are a common alternative that can serve as a tool to help identify top potential candidates. But some work, such as information security, requires targeted skills that could open the door to candidates outside of college with technical certifications or veterans with military training. “Look for particular elements of your services where the requirements are more about on-the-job experience,” Connor advised. Some firms have proactively begun spotting talent and establishing brand awareness very early. “We’re already seeing a lot of programs that are reaching for kids in high school, beginning to introduce brands very early and saying, ‘If you’re thinking about prelaw or another consultancy field in college, we want to stay in touch.’” This early connection can have a big impact – both in building brand loyalty and in strengthening a student’s vision of the future.
Develop leaders
“It’s not just hiring a diverse range of candidates – it’s also putting the right structure in place, from hiring to education of all employees,” Denham said. This structure can include broad awareness initiatives, affinity and ally-based resource groups that include executives for awareness and skill development mentors to help provide employees with a clear career path that has stewards along the way. “If you don’t have women at the top of your organization, then women at the bottom of your organization might look up and say, ‘This isn’t a place where I can achieve what I want to achieve,’” Denham said. And, while business partnerships can help address short-term risks, they are not a comprehensive long-term solution. “You have to understand where you have diversity, equity and inclusion gaps, and create a plan to remedy those gaps,” Denham said.
“What you’re really doing there is risk-mitigating your pipeline,” Connor said. “You’re adding more volume contextually over a longer period of time, and building the stickiness to your brand through the brand awareness.”
Create your path forward
Above all, firms must be honest about where they are and what they are doing, and they must communicate both internally and externally. “Bringing your own evolution into the daylight is important. I think it demonstrates trust and it demonstrates strategy,” Connor said.
“What some organizations have done wrong is to just keep their heads down and not acknowledge what’s happening outside their business model,” Connor said. “And so, after traumatic events, there’s not a discussion happening. If there’s not a pause, to check in with employees and acknowledge that they might be feeling the impacts in a pretty painful and disruptive way, you might be impairing your culture.”
“I think really good organizations are, number one, recognizing the issue,” Denham said. “They might not have the answer, but they are recognizing the issue.” DE&I issues can be challenging and time-consuming to address, but they are critical.
“When we work with executives who are concerned with implementing their business models, hitting targets, growing business and anticipating blind spots, their workforce strategy is at the center of that,” Connor said. “The people you have, what they’re doing and how they help you retain, expand and gain new customers determines your success.”
Our featured risk, compliance and controls insights
No Results Found. Please search again using different keywords and/or filters.