In the Wake of the Virus Opportunities Will Abound, but CEOs Must Have a Mission, a Plan, and Know When to Seek Help
In 2005, the longtime Legg Mason executive was at the forefront of a $3.7 billion deal in which the Baltimore money management firm traded its brokerage unit for Citigroup, Inc.’s money management business. He later co-founded Finix Business Strategies and held senior executive roles at DST Systems and Broadridge Financial Solutions managing large scale integrations and transformations.
Last September, Musgrove was named managing partner of Think, the Baltimore-based technology and operations advisory. And he established SPS Philanthropic Advisors, where he is president and COO.
Musgrove, a horse owner and racing fan, also joined the board of The Backside Learning Center, a non-profit organization dedicated to enriching the lives of equine workers and their families at Churchill Downs.
Talk about change. All during a pandemic that has utterly transformed business.
For many corporate executives, change comes slowly. With the pandemic, companies were forced to change, virtually overnight. We caught up with Musgrove recently to ask how companies are responding to these unprecedented changes brought to bear by Covid-19.
Q. Covid has transformed how business does business. Give us some examples.
A. Sure. Let’s start with digital transformation. For 10 to 15 years, many companies said they were on the digital transformation trajectory, but it just never got focused and prioritized. What was it going to take? An event that in three months could bring a 15-year transformation, and that’s exactly what has happened. I say in my consulting: You as a business have been disrupted and transformed by Covid. You needed to do that in order to survive.
Q. Are these changes permanent?
A. Anytime you have changes that go on this long, it’s not going back. While many say we are at a New Normal, I think of it as the Next Normal. I think there is more to come as innovation continues and consumer expectations change. From a consulting standpoint, we see that businesses have scrambled so hard just to stay alive and create the new business model that they haven’t been able to ensure that their operating model has evolved with the business model.
That does a couple things. It could be introducing business you don’t know about, because the way you do business just changed. You could have a whole set of risks that you don’t understand, and on the other side, there could be gaps in the operating model. It could be efficiencies that have been created by the operating model. Your business model has just changed. You have to ensure that your operating model is in alignment. And that’s where the consulting effort comes in. Even before Covid businesses faced natural constraints to having enough resources with the right experience and skillsets to work on critical projects like transformation
Q. So they turn to partnerships and outsourcing? What changes do you see there?
A. An organization that realizes it’s been disrupted needs a combination of subject matter expertise, processing framework and a tool to deliver it. They’re going to be looking externally for a partner who has done this type work before. You need to make sure that your operating model is aligned with your business model. And then, you need to be willing to bring in the expertise.
While it would be easy to look at this as an expense they can’t afford, the conversations we are having with clients focuses on the value add of the expertise and framework you’re going to get it done faster than you could on your own, using less of your resources. All they need is the knowledge from your team to run the process. At the end of the day, hopefully you get risk reduction and efficiency so, in theory, it could pay for itself. This idea of a disrupted new business model needing to ensure an operating model from both an optimization and risk-mitigation perspective — I think that’s real.
Q. About this disruption, paint the picture: What types of business have been most affected?
A. This really has impacted every business in some way. Many businesses have had their move to e-commerce accelerated. They’ve had to change the way they deliver their services to clients. A classic example is the large, suburban wine store that was always crowded. Then, stores like that evolved. You could put in an order and pick it up. You could use a mobile app. But now, with Covid, they’ve gone to curbside pick-up and delivery exclusively. So, what used to be an on-site model is now entirely driven by an app, and there are no customers in the store. The pandemic has transformed their business model and changed the way the services are delivered. They used to rely on people walking up and down every aisle, and now it’s all about the online experience. And I don’t think people will want to go back to a crowded store anytime soon.
Q. Any other examples come to mind?
A. Sure. Look at a company like Zoom. They existed in the pre-Covid world trying to be a platform for virtual meetings. Overnight, they became an essential service! Their challenge was on of volume and scale, client expectations exploded overnight. Also, think of all these training companies that used to rely on in-person seminars to make money. Now, they need to learn to host virtual seminars to get that revenue. If they don’t adapt, they’re dead. When’s the next time you’re going to go to a 1,000-person event? Same is true for so many traditionally in-person businesses.
Q. Exactly. You can do it virtually. It won’t be perfect, but you can do it and keep your customers.
A. Not only that, you can expand your customer base. Because people who wouldn’t be able to take part if it were in person only are now able to join remotely. So, you’re able to expand your base because you are virtual.
Here’s another quick example. The Backside Learning Center at Churchill Downs in Louisville is a non-profit that supports the backstretch workers, the equine workers at the track, and their families. Typically, they have one large, yearly fundraiser – an in-person event. It made them a lot of money, but that’s not happening this year. We are taking the event virtual and doing an online auction, instead. So now, their local auction becomes a national online auction. It will include people who couldn’t take part in it before, because they weren’t in Kentucky. And, who knows, the bidding could go through the roof. This is an opportunity, because of Covid, to expand the base online.
Q. How have consumers’ expectations changed during the pandemic? And how does that affect the business model?
A. Consumers have increased their expectations. They now need a world that’s frictionless. For many of us, the goal is to never have to deal with a human being. We’ve had to create that because of Covid. And today more than ever, you have to be able to meet consumers where, when and how they want. That’s not going to change. We’ve seen the future. How would you roll that back?
Q. Andrew Yang says we’re going to lose 16 million jobs as a result of Covid
A. Yes, that’s what I’m getting at, because the new business model is frictionless. I don’t think the world will ever go back. Some jobs will be gone. It’s all about the digital transformation and automation. Think about how many jobs are connected to bars, restaurants and commercial real estate, tell me when all of those are coming back.
The jobs being created are the manual support for the automation and online e-commerce platform — jobs in Amazon warehouses, for example. Right now, the stock market and economy are somewhat living in a pretend world. The world has changed, and it won’t come back.
Because Covid has created transformation and increased consumer expectations. The hope is that we will see a rise in innovation that will create new businesses and new jobs to offset some of the loss in the short term
Q. What other major changes have taken place in the work force?
A. The other reality is the idea of a remote work force. I read something about the migration of workers from cities. Now you have people that have shown you that you can work remotely. You can’t say that you can’t do it.
And even if I’m still living in New York, for example, and I’ve got an hour and a half commute, I’m now not doing that every day. People arenot going to commute because they’ve gotten two precious things back, time and money. A company that doesn’t accept remote working will lose talent.
Talent is what makes an organization successful, so changing and being able to run a model that is remote is huge. There are challenges to that. How do you run a remote workforce, how do you keep your culture, get new employees onboarded to that culture… Companies are going to have to learn how to operate remotely.
Q. Returning for a moment to digital transformation, what sectors of the economy were putting that off?
A. Restaurants, retail and many of those places that relied on in-person transactions. Gyms are a prime example. And now, I would say if this isn’t happening inside companies, people should be getting fired.
Q. Ideally, what else should company executives have learned from Covid?
A. About the risk of trying to do commoditized functions – or CF — by themselves. It’s a bad idea to do CFs that is not a differentiator for your business and that someone else can do better for you — in a way that doesn’t add any risk.
Companies have to look at their strategy and priorities and focus on the one that bring the greatest value for growth. They should be outsourcing CFs; You can’t do it better than someone who does it for a living and has built scale.
If I’m doing a CF in house, I’ve got to worry about how many people will be out with Covid, and I’ve got to worry about keeping the same skill set. Companies running their own CF’s, particularly after Covid, should lose the risk and transfer it to an outside organization that does this for a living.
Q. What’s your definition of risk?
A. It’s the operational risk of having the right resources and retaining them. If you own it, you’ve got to keep it right and retain the talent. If you have a CF in one or two places, you’re at risk; Covid showed that you need diversity. Most organizations that do these functions themselves aren’t set up to actually do it in a risk mitigation way from a talent and logistical place. Don’t do in house what you don’t need to.
Q. So, what’s your bottom line about how the pandemic has affected business?
A: There will be winners and losers. The question is: Did you have the ability to adapt, or did you get caught like a dinosaur?
Q. Interestingly, there’s been an explosion of new businesses forming–even new restaurants. Why is this happening? Are we too optimistic?
A: The U.S. needs entrepreneurship. That’s the encouraging part. Some people are doing it as a way to survive, because they’re out of a job.
Is it too optimistic? It all comes down to the business plan. You’ve got to have a foundationally solid business plan to launch a successful business. With a lot of start-up companies, the founder will have a good idea, but may not be able to operate a business. Or the founder doesn’t know when to bring in other talent.
A new business must have a mission and a plan. You’ve got to know when you need help.
We will come out of the pandemic with some things that will be better in our lives. Other things will disappear.
Successful businesses have creative friction. There will be new opportunities depending on how we come out of this pandemic. Think about the money that was made from masks. Masks are the new iPhone case. Think about the people who realized that and the money made from selling custom masks. The people who adapt will see the opportunity. It’s interesting to see how many companies will really understand it.
There are fewer jobs now. The good news is, there’s a much more efficient environment with less risk, but the problem is that’s where the jobs disappear.
Q. Talk about changes to the sales operation.
A. The way we sell has been changed forever. It’s going to be mostly video based. And even if it is in-person, it will be a small team allowed to be there. It will come down to a company’s ability to articulate the problem it’s solving and the value proposition they have for the customer.
I don’t think business travel will ever be the same. Before this, people would say it’s critical to be on the road. I talk to these same guys now and they will never do it again. I won’t. I was the classic guy– I would have a two-day trip for a one-hour meeting. Now I think: Why would I ever do that again? I’m more productive now, not spending three to four hours in airports.
Companies will say that going back to those pre-Covid ways doesn’t make sense economically. They can reduce the footprint from a real estate standpoint. That includes the rent, the supplies, the coffee, the equipment. Their T & E went to near zero. There’s a whole new set of expectations.
Some people, some companies, will figure out how to do it. There’s only one way to get to digital transformation. You’ve got to convince the consumer of the benefits of digital transformation. It was the same thing with going paperless. At first it was like, “Hey save a tree,” but that only convinced some consumers, and then it was like, “I’ll give you $5 off…” But nothing changed consumer behavior the way Covid did.
Q. Post-pandemic, does any of this return to the way it was before?
A. The only way it goes back is for something like experiential travel. Companies that create the travel experience are what people will be searching for. During these times, people have been hiking and going to state parks. They will want to travel more after this is all said and done but the destinations will matter.
Q: Any final words of advice?
A: If you’re in a business and you have financial pressures, you need to focus on the differentiators, and the only way to do that is to get rid of the noise.
People need to realize that what they think is necessary may not be, and the fact that they’re spending time on it is taking them away from being able to compete in the new world. The fact that you’re spending time on CFsis taking time away from you handling the critical things and moving your business forward. And, by the way, your competitors aren’t wasting their time. Every dollar and resource spent on CFs that you could outsource is taking away from your ability to invest in the changing new world.