Diversifying PG’s Supplier Base (B) 9 622 029 O C T O B E R 7 , 2 0 2 1 Professor Kris Ferreira, Senior Lecturer Kym Lew Nelson, and Executive Director Carin Isabel Knoop and Case Researcher Sarah Me.
t rP os 9- 2 - 029 O CTO BER 7, 2021 KRIS FERREIRA KYM LEW NELSON CARIN-ISABEL KNOOP SARAH MEHTA op yo Diversifying P&G’s Supplier Base (B) After the February 2003 meeting at P&G, Carl Satterwhite, president and co-owner of Infinity Services, spent the next week pitching partnerships with the five non-minority-owned suppliers he trusted Scott Robertson, president and owner of Globe Business Interiors (GBI), was last on his list “Because Scott had recently bought out his family, I thought he might be less interested in taking on another big deal with me The four other companies I approached unambiguously said no They believed that P&G was serious in its push for more inclusive supply chains, but they didn’t see any way to diversify They didn’t believe that 1+1 could equal 3.” tC But Robertson did see potential, and the two men agreed to meet for breakfast at a restaurant every Friday morning for several weeks “At the beginning, we were just calibrating,” said Satterwhite “It was, ‘What did P&G say in your room? How did people receive the news?’ But this soon gave way to discussing how we could bridge the cavernous gap between a white leader of a 40-year-old, familyowned business and a minority-owned company that had started in corporate America and then transitioned to owning a facilities management business.” No For his part, Robertson felt comfortable partnering with Satterwhite “I came from a background that taught me to embrace diversity,” he said “I spent time within the minority community and had developed many strong personal and professional relationships.” Added Satterwhite, “Scott was a white leader in this community who walked in rooms with people of color It wasn’t a new conversation for him.” He contrasted Robertson’s orientation to some of his non-minority-owned peers “For many, it was a matter of checking the diversity box when they were responding to an RFP,” he said “They would find an MBE to unpack boxes or unload trucks, but negotiating at an ownership level was often out of the question Scott embraced the true meaning of diversity.” Structuring a Deal Do Once the two men agreed that it would be mutually beneficial for them to partner, they began to consider how to structure a deal To secure MBE certification, Satterwhite would need to own at least 51% of any joint venture they created After considerable discussion, Satterwhite and Robertson Professor Kris Ferreira, Senior Lecturer Kym Lew Nelson, and Executive Director Carin-Isabel Knoop and Case Researcher Sarah Mehta (both of Case Research and Writing Group) prepared this case It was reviewed and approved before publication by a company designate Funding for the development of this case was provided by Harvard Business School and not by the company HBS cases are developed solely as the basis for class discussion Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management Copyright © 2021 President and Fellows of Harvard College To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School This document is authorized for educator review use only by NGO XUAN BINH, Banking University of Ho Chi Minh City until Mar 2023 Copying or posting is an infringement of copyright Permissions@hbsp.harvard.edu or 617.783.7860 Diversifying P&G’s Supplier Base (B) rP os t 622-029 decided to make the ownership split 55/45 instead of 51/49 “It just felt better to both of us not to split hairs and to be truly minority-owned,” said Robertson They asked attorneys George Vincent and Calvin Buford for legal advice Vincent was a friend of Robertson and legal counsel for P&G Buford was a friend of Satterwhite and legal counsel for the local NMSDC certifying council “Because he held that latter role,” said Satterwhite, “whatever sausage had to be made for our joint venture to be MBE certifiable, Calvin was the king He would make sure that we didn’t end up as a front and that our paperwork was complete.” Given their roles, these two men were uniquely qualified to advise Satterwhite and Robertson on their joint venture op yo Buford explained that to be a certified MBE at scale, Satterwhite and Robertson needed to prove three things: care, custody, and business control “My background could prove care and custody,” said Satterwhite “What we needed to prove was control Scott needed to allow my wife and me to buy 55% of the business he’d already built He had to digest that.” For Robertson, the math was simple “At the end of the day,” he said, “Carl had to believe that 55% of a bigger pie was worth more than 100% of Infinity’s pie And I had to believe that 45% of a bigger pie was worth more than my 100% of GBI I fully believed this I knew that a joint venture would present growth opportunities.” The terms of their deal gave Satterwhite seven years to buy Robertson’s share of the business Satterwhite could use proceeds from growth to pay Robertson “But,” said Satterwhite, “if we didn’t grow, I fully bore the risk It was possible that I would buy 55% of the business and pay more than the market would bear only for us to go under.” The deal’s structure guaranteed that Robertson would recoup 55% of the value of his business in 2003 terms “But Scott bore the risk of relinquishing control of GBI only to get back a potentially fatally wounded business,” said Satterwhite Added Robertson: tC There was no guarantee of business just because we were a certified MBE We knew we also had to be best-in-class With clients, we didn’t lead with our MBE status We led with the fact that we were an excellent company that happened to be minority-owned We understood that P&G’s desire to have inclusion in the supply chain was not a social program It was an economic program They said, “We don’t sell to only white people; we sell to everyone So we want our supply chain to look like our customers.” For Carl and I, that was the best language used for this, and we’ve seen the impact What Procter has done to advance inclusion There’s no second place They’re pushing the marketplace No Robertson and Satterwhite agreed to the terms and launched a joint venture called River City Furniture (RCF) in autumn 2003 With Buford’s help, RCF became MBE certified that same year Do Robertson noted that the fact that RCF already had a book of established accounts upon creation immensely helped to ease the pressure “At the time, we had P&G, Cinergy (now Duke Energy), and Kroger, among others It would be hard for any person to just start a furniture dealership from scratch, so that helped.” Robertson also believed that his and Satterwhite’s personalities and work styles were complementary: “He allows me to be who I am, and I allow him to be who he is You wouldn’t want two of me in a room, and you wouldn’t want two of Carl in a room It’s the combination that allows us to work well together.” But even with their existing accounts and complementary styles, the transition from GBI to RCF was not without difficulty A few months after launching RCF, a supplier requested a down payment on a purchase “This is a company that GBI had been buying from for 25 years,” said Robertson, “and suddenly they want a down payment We asked why and they said, ‘Well, you’re a minority-owned company now.’ I was shocked and angry Several things like that happened that I just couldn’t believe.” This document is authorized for educator review use only by NGO XUAN BINH, Banking University of Ho Chi Minh City until Mar 2023 Copying or posting is an infringement of copyright Permissions@hbsp.harvard.edu or 617.783.7860 622-029 rP os t Diversifying P&G’s Supplier Base (B) In addition, Satterwhite felt pressure to ensure that RCF benefitted not only him and his wife but also the broader community At the time, not a single person of color worked at GBI “It’s not that there was any overt racism,” said Satterwhite, “but there were strong biases at play.” He knew that RCF would need to be an intentionally inclusive workplace As he recalled: Early on, I received a call from the NMSDC CEO Their review of RCF’s paperwork had made it to the national level She said, “If, in 15 years, this company is successful and has grown, and Scott is richer, and you and your wife are richer, but you haven’t impacted the community, you haven’t hired people of color, you haven’t taken what you’ve learned and helped the broader community, I will come back and hunt you down.” op yo Performance The men were determined to succeed “Failure was not part of our vocabulary,” said Robertson “By the sheer force of our will, Carl and I would make RCF successful.” Their efforts paid off The company exceeded its revenue goals in its first 12 months and doubled revenue in year two In 2004, RCF was rebranded as RCF Group as the company grew into more than an office furniture dealership by launching an asset management division They continued to expand into other verticals, adding a move management division in 2005 and a landscape management division in 2006 Within seven years, Satterwhite completed buying out 55% of the company from Robertson By 2008, RCF Group was reporting roughly $35 million in annual revenues Satterwhite’s ambitions for RCF Group were broad “Our goal was to eventually $100 million in revenue,” he said “We knew that if we focused on the broader North America marketplace, we could achieve our goals.” Do No tC RCF Group was also deeply involved in the Cincinnati community and had made strides in inclusive hiring Over time, the proportion of employees of color at RCF increased from 1% to 10% Satterwhite and Robertson continued to build on that, both internally (in hiring) and externally (in purchasing from other minority-owned suppliers) Robertson remarked on the value of diversity at RCF Group: “We’re now entering the marketplace looking and thinking differently We are better because we are diverse We really are We think differently together.” This document is authorized for educator review use only by NGO XUAN BINH, Banking University of Ho Chi Minh City until Mar 2023 Copying or posting is an infringement of copyright Permissions@hbsp.harvard.edu or 617.783.7860 ...Diversifying P&G’s Supplier Base (B) rP os t 622-029 decided to make the ownership split 55/45 instead of 51/49 “It... styles, the transition from GBI to RCF was not without difficulty A few months after launching RCF, a supplier requested a down payment on a purchase “This is a company that GBI had been buying from... infringement of copyright Permissions@hbsp.harvard.edu or 617.783.7860 622-029 rP os t Diversifying P&G’s Supplier Base (B) In addition, Satterwhite felt pressure to ensure that RCF benefitted not only