Transcript
Speaker: It's the fall of 2020. Do you know where your business is headed? We're going to hear where 300 chief financial officers and chief human resources officers think their businesses are going on the next episode of The Market That Moves America. Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid -sized companies and help you take advantage of new opportunities.
Speaker: It's the fall of 2020 and businesses pivoting from response to the COVID -19 crisis and the recession that's unfolding, from an immediate response to a prolonged response. What's our strategy? What's our plan? What's inside the heads of the people in charge of the money, of the people in charge of the people, the CFOs and the CHROs of America's businesses as they move to the end of this year and the beginning of 2021?
Speaker: That's the topic for this week's issue of the market that moves America. I'm Tom Stewart. I'm the executive director of the National Center for the Middle Market at the Fisher College of Business at The Ohio State University. The National Center for the Middle Market is the nation's leading research group studying mid -sized companies, those which account for
Speaker: about a third of US GDP and employment and the lion's share of economic growth. It is indeed the market that moves America. The National Center for the Middle Market is a partnership between Ohio State and CHUB. With me today is an old friend and a special guest. Nick Arrocco is the CFO of Achieve Next, a Philadelphia -based organization that brings together CFOs and CHROs and others in a
Speaker: sort of a learning and then sharing environment. And it's also done a lot of research into what's going on in the minds of these critical, these important leaders in this pretty weird time at business. Nick, welcome to the podcast. Thank you, Tom. It's a pleasure to be here today. And you and I, I'm sure have a lot to talk about.
Speaker: Well, let's dig right in or a pilot right up, whichever metaphor you want to follow. You guys have just released a sentiment study, talked to what, 300, 350 CFOs and CHROs, mostly in mid -sized companies across the country. What have you learned? What are they telling you about where they are and where they're trying to go?
Speaker: Yeah, such an interesting time to be tapping into the minds and hearts of finance and HR leaders from the mid -market. And because of our partnership with the center, we utilize a number of the reports and indicators that you produce on an ongoing basis to really stimulate their minds and hearts. And in this case, here's what they shared with us, Tom.
Speaker: You know, while enterprise plans and performance remain contingent upon how and what happens as it relates to this pandemic through the remainder of this year and into 2021, and how society and science can contain it and we react and respond to it, most of these finance and HR leaders from the mid -market really truly foresee better times ahead. And a majority of them
Speaker: said that they expect revenue and overall enterprise performance to increase in Q3 and Q4 of 2020 compared to Q2. No surprise there in that they expected to get better, but the optimism that they shared had a bit of a more immediate and longer runway ahead of it.
Speaker: Now they're entering a time where they're talking about what did we learn about ourselves and our employees and our customers and how do we apply that not only to make our way through the remainder of 2020 and into 2021 but maybe
Speaker: maybe longer term, what's gonna stick? And maybe how does that impact the way we approach our business and industries, the markets we serve and the employees and the customers that are a part of everything that they're a part of? Yeah, I sort of feel it the same way. I mean, the metaphor that's in my head is that in the spring and in March and April when the pandemic hit, it was like a, you know,
Speaker: car spinning out of control off a ditch, off a cliff, off into the side of the road, and smoke coming out of the radiator. And our data from that time gave the sense that people were saying, am I alive? What just happened, and am I alive? And what we heard people's concern about was, number one was sheer uncertainty, like what the hell is going on? And number two was,
Speaker: keeping the lights on, business operations, like am I bleeding out? And that was sort of phase one. And then as we came to the summer, it started looking like, okay, I'm alive, nothing seems to be broken. Obviously there were some people for whom things were seriously broken, but now what? How do I get out of here? And that's sort of phase two. And then phase three, which you're suggesting people are starting to enter is,
Speaker: And what have i learned so that i will be stronger or at least different or more resilient in the future so.
Speaker: What just happened? How do I get out of here? What have I learned? What can I learn? Three stages. How does that show up in your findings? Yeah, I think you hit the sentiment dead on from the minds and hearts of these mid -market and finance and HR leaders. I don't think, phase one and phase two,
Speaker: I think we can liken it to the last time there was a financially driven cliff drop.
Speaker: In 2008, 2009 timeframe, you had a different trigger event, but you had a series of financially driven crisis that these individuals, many of them had to react, respond and address. But the biggest difference, I think is in the third stage of what you kind of have summarized there and what we're feeling in the fall of 2020, which is a more immediate
Speaker: and a more comfortable overall attitude that, hey, maybe some of what we had to do
Speaker: should and can stick to how we do what we do going forward, who we do it for, and who does it. I think some of the lessons learned have a more immediate impact and stickiness than the discovery period and the analysis period that seemed a bit longer last time around.
Speaker: Well, and you know, last time around it was like an infarction in the financial system, right? But this has been in my operations, not just my bank. But let's break it down. You talked to CFOs and CHROs, and what are they learning and what are they planning? And it's sort of Mars and Venus, right? So you got them both in there.
Speaker: What are the top two or three things that CFOs are saying they've got to do in the next few months? It's interesting because we're entering budget season. Part of it is the budget, but it's also, as you think about building capability and a more resilient organization, what are the top two or three things on the CFOs agenda? I'm going to ask you for the top two or three things on the CHROs agenda, and then we'll see whether they meet.
Speaker: I mean, that's what makes it fun, right? You have both these sources of synergy and sources of tension. And I think both executives and their teams believe that maybe they could be more confident and impactful drivers of performance across the enterprise and across the business if they take a little bit
Speaker: of lessons learned from each. So let me first go into the mind and heart of CFO and that office of finance and that team. So I will tell you that two things, that security and automation remain top of mind. The ability to rely upon and have others more comfortable with
Speaker: data -driven decision -making I think has only been emphasized further during the reaction response and recovery period of 2020. The CFOs have been preaching for some time to their colleagues who say, hey, my instinct built these mid -market businesses. My instinct guides my decision -making. The CFO has said, hey, listen, I'm not trying to thwart that.
Speaker: But I think we can and should talk about how I could either challenge or validate your confidence in decision making by anchoring upon or utilizing data and information that we have now at our hands that can be trusted, can be used in real time to really help ensure that we are making that right decision. So I can tell you that they intend to and more than half have said that they're increasing their investment
Speaker: in technology that will drive financial planning and analysis to a greater degree than they did just a year ago and will continue to do so even in this year of challenge and dealing with things that may have not been on their plate to deal with. So I think it's the financial focus that now gives them a greater sense of reach than ever before in terms of data and information.
Speaker: So let me poke at that a little bit because I think it's really interesting. Our data showed that the one area of investment that people were not holding back on was digital. I'm going to hold off on the new plant equipment. I'm going to hold off on my market expansion. I'm going to hold off on hiring, but the digital investment is going to go this game. And I heard you say security, automation, and analytics sort of as three things.
Speaker: And sometimes when I think about digital, I think about digital as being two things, like Moore's law, cutting costs, and also transformation, seeing new opportunities and expansion, sort of the cost wing and the growth wing of the digital bird.
Speaker: So, are you seeing the CFOs saying, this is our chance to advance with both of these, with the cost piece and knowing the business better and preparing for growth business, or are they leading with cost?
Speaker: Yeah, I can. I can tell you, Tom, over the first few days of September 2020, we brought together several hundred finance and HR leaders for peer discussions on this topic. And first, let me say I won't deny the cost side of this equation will always be
Speaker: an area of responsibility as well as quote ownership that CFO and mid -market enterprises will undertake. So don't get me wrong, this pandemic forced a lot of enterprises
Speaker: to approach the do what we do, make what we make, deliver what we deliver differently. And in many cases, it did lend itself towards not just efficiency plays, but a cost efficiency plays driven by the forced move to digital relationship, digital delivery
Speaker: and or virtual decision making. So don't get me wrong, they will smile and say, we've realized and maybe we've been able to provide ourselves with runway for growth because we embraced the cost containment side. But nature of the discussions and the attitude and the runways I'm talking about in Q3 heading into Q4 2020 are primarily driven by growth.
Speaker: How can we expand, exploit, and do more now that we have these efficiencies in play and now that we're comfortable that it can and could work differently? Not only as it relates to the limitations many, if not most, have had on business reentry and the physical shutdowns that have occurred of
Speaker: of the physical workspace, even for the essential businesses, the kind of new way they need to do things. But some have just said, hey, it seems to be working better. I mean, 25 % of our members said that participated in this study, said that their culture was tested but stronger in this Q3 of 2020 than it was at the beginning of the year.
Speaker: I was talking to a couple of CIOs about some of this, and I was saying to them that they actually have the opportunity to wear a hero's hat by saying, hey, I can save you this much money, which we can put into this much growth and make those things work together. What's happening on the other side? I mean, the CHRO, the Venus side of this Mars and Venus, what are the priorities, the two or three things that are top of mind for them?
Speaker: I will tell you that the health and safety of the employees and customers they serve are at the forefront of every discussion that we're having with the CHROs. They seem to be on the, quote, front line from an enterprise standpoint of fielding
Speaker: both planned and unplanned potential disruptions individually or collectively to the business. So there is some fatigue in the mind and heart of the CHRO and the mid -market enterprises.
Speaker: that the longer this goes, one of our CHROs likened it to a rubber band being pulled and stretched. Constantly, day to day, there is a sense that this is trying and will continue to be trying for them. I think they liked their CFO
Speaker: would appreciate a week that could go by without something unforeseen being pushed their way. You know, I was thinking about one of those old Gallup findings. I think the key finding in those Gallup employee engagement surveys is that the number one
Speaker: indicator of employee engagement and loyalty is a positive answer to the question, do you have a best friend at work? And you think, where is work? Yeah, I have a best friend at work. I haven't seen her in six months, or I haven't seen him, and we haven't been in the same place. And I got to think that if you look from a CHRO's perspective, you've got a whole lot of stuff about
Speaker: How do we build camaraderie and engagement and connection and those human things that are so important? That's on the soft side. But then on the hard side, you've also got the, how do I set expectations? If I say, this is your job description, you're responsible for doing one, two, three, four, five, six, seven.
Speaker: Well, if you're working nine to five, that's one thing. But if you're working half from home and with the kids running around, depending on school and so on and so forth, how do I rethink job descriptions? How do I rethink performance reviews? I mean, all of the sort of machinery of HR I would think would be like really, you know, like buried in sand and you'd have to figure out new ways of doing things. And it must be a tremendous challenge.
Speaker: It is, but Tom, I'll tell you, a group of CHROs from the Northeast met last week to talk about this, and the collective opinion was our first and immediate concern was to make sure that these employees were safe and had the ability to do their job. Once we got them in a place to do their job,
Speaker: Most, if not all, said that they saw the, I would say, line between and boundary between on the clock and off the clock, regardless of whether or not you were a part of the professional staff, white collar, or if you were in manufacturing or on an hourly wage.
Speaker: That line was greatly blurred for a 60 to 90 day period in late spring into early summer. The CHRO said we worked hard to ensure that and reinforce that a boundary had to be had of on the clock versus off the clock if physical meant that all of that was being done in one place.
Speaker: If they were working from home, they needed an ability to know when on the clock and off the clock would be in a boundary there. Otherwise, it was not sustainable, which is why you had pushes in midsummer around productivity and concerns about sustainability. Where the CHRO and the CFO have converged is a concern about how to address upskilling of talent in this environment, especially if we're going to remain
Speaker: in this either staggered or virtual environment from work for the foreseeable future. Not just the ability to retain and engage, but to train and develop. And there's where I think the focus and shift really is going to be as we move into Q4 and into 2021.
Speaker: is how do we make sure that this workforce individually and collectively has that ability to continue to progress and not be stuck? Because there's where you'll see frustration and a lack of alignment and potentially unforeseen talent movement occur in 2021 if it's not met.
Speaker: Boy, that's really interesting. I want to connect that to something that we've seen, which is that oftentimes, as you know as well, the HR department of a mid -sized company has got big company opportunities and small company resources. Three -hundred -person company may have an HR team of four people. One of the things that we saw during the best times is that
Speaker: There's not a lot of formal training and development that is done. A lot of the training and development is informal, it's on the job training, it's learned by doing, it's job shadowing, it's mentoring, so on and so forth, but there's not a whole lot of sending people out to schools or setting up formal training programs. They just don't have the resources to do it.
Speaker: And if that ability to shadow and be informal and so on and so forth, if that is compromised and it clearly is going to be, then this development issue becomes really complicated. And as you suggest, it's a really interesting opportunity for the guys with the talent for numbers and the guys with the numbers of talent to try to come together to figure out how are we going to build these skills
Speaker: particularly because you don't want to just go let those people go and hire new people because that's going to be breaking another kind of contract with. I agree. I mean, I was this is so simple yet so complex at the same time, Tom. A group of CFOs last week from Denver got into a real time debate about how to handle something as simple as young staff needing help with
Speaker: with an Excel formula question, right? And in a normalized environment,
Speaker: That meant a pop down to the office or a quick pick up the phone. And, you know, what prods the CFO concern is, he said, I look at my schedule now and I'm blocked for nine hours a day on meetings and or tasks. And I think I've created an environment where my team doesn't know how to reach out to me to ask that simple question.
Speaker: It's not even the big stuff, Tom. It's some of the little stuff that's now feeling like, you know, how do we do that when it was so simple to do?
Speaker: I had this one conversation with a lawyer who was saying that about the associates and research in his office, researchers in his office. We partners sitting from home, we're not having a problem, but I'm not satisfied with the quality of the work we're getting from the junior people. And the speculation that we had was, you know what? They do a lot of sharing of ideas. Hey, Nick, hey, Tom, have you got any ideas about this? That that sort of informal poking your nose in is so important for learning and development.
Speaker: and you break that and you may be having, you may be creating some, not just cultural problems, but productive and quality problems down the road. So a lot of work to do in 2021. How are we going to get it done, man? You know what? I think that, I think a critical component is for us to continue. And I think about us, I think about the work the center does and the work that peer networks like CFO Alliance and CHRO Alliance do.
Speaker: to create the most efficient and effective way for best practice sharing, for debate, and for, in some cases, to help these individuals and enterprises realize they're not alone in tackling these challenges. So the more that we can
Speaker: give a voice to this, the better? I can tell you, I feel good about that because of the optimism. You know, while there's still always and will be a concern about the ability to get things done, I am
Speaker: thrilled to see how, I don't know, the mind and heart of the mid -market finance and HR leaders, how collectively they've responded and reacted in a positive way to, we can get through this, we will get through this. It may end up looking, sounding, feeling differently on the other side, but hey, we're here and we're making our way, and every day we can mark another day off the calendar in 2020 is a good day.
Speaker: True words never spoke. And listen, I want to echo this as we come to wrap this up. I think one of the things that we learned in this conversation is exactly what you were saying there at the end, Nick, that finding ways to gather and share information is critical.
Speaker: And to that end, Nick Aracco at AchieveNext. It's AchieveNext .com. That's one word, A -C -H -I -E -V -E -N -E -X -T .com. Is their website, there's a whole lot of, there's this sentiment study, but a whole lot of opportunity to learn more and connect with peers and join that organization.
Speaker: Let me commend it to you. It's a great group. And let me commend to you also us at the National Center for the Middle Market. Our website is middlemarketcenter .org. And I'd like to thank you all for listening to The Market That Moves America. Never miss a new episode. You can subscribe to the podcast on iTunes, Stitcher, Google Play, or wherever fine podcasts are found.
Speaker: And as I said, you can subscribe and learn more about us at our website, middlemarketcenter .org. Nick Arachos, thank you very much. Thank you.
