“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.