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Tuesday, 2 July 2019

Motorsport Aftermarket Group (MAG)

Charvat - "My work here is done"

In what might go down in powersports industry history as the ultimate 'mic drop,' Motorsport Aftermarket Group (MAG) CEO Hugh Charvat left the company at the end of June 2019.
In May he announced delivery on his plan to "unwind the errors of the past" with the strategic decision to "unwind the vertical" by "spinning out" MAG's individual business units into stand alone, independent operations. 

Hugh Charvat, now former CEO of MAG told AMD "My work here is done. The individual component parts, the six business units will now report independently and directly to the MAG board and no longer be integrated into a "vertical" business model that restricted their freedom to compete."

His view is that decisions taken following the LDI/Tucker Rocky acquisition of MAG - to integrate manufacturers, brands, distribution and retail into a multifaceted channel busting tall business model - were mistakes that "compromised the ability of the individual business units to conduct their business in the ways that had made them great companies and brands in the first place."
Worse, Charvat believed that in a relationship-based industry such as the powersports market, one where "people buy from people", this 'vertical' model alienated many of the group's largest customers as it positioned MAG and its constituent parts as potential competition.

'unwinding the vertical'

His solution, announced in May, was to "unwind the vertical" and re-establish the individual business units in smaller groups of sympathetic manufacturing, brand and sales management operations and return to them the freedom and flexibility to respond individually to their own specific market challenges and opportunities.
At the time Charvat announced what he (rightly) described as a "new and significant change to managing the multi-brand organization," he said "we've asked each of our senior leaders to focus 100% of their efforts on creating value, delivering growth and expanding the entrepreneurial mindset within their business unit and their brands," stating that "when we do this, we will become nimbler, more aggressive and have a greater focus on the market and on our customers.
"We'd rather have a portfolio of successful companies with complete independence than force them to integrate - which turned out to be detrimental to several of our brands. While our business units will continue to collaborate where helpful, there will be no corporate mandate to do so.  We’ll ensure complete independence between Tucker Powersports, J&P Cycles and our four other business units.
"By making them stand-alone businesses we are empowering each of our talented management teams to make the decisions that best suit their business opportunities. The board and I feel that this is the time to unleash those individuals and all of our great employees to return our brands to the status they've enjoyed in the past, without the operating restraints that have been in place as MAG.
"There's no question that we damaged a lot of carefully built relationships. By recreating the independence among the business units, they will have the freedom needed to be able to re-establish those relationships."

'recreating the independence'

Speaking with him again after he announced his departure, he said that he'd had various scenarios and timescales on which the "unwind" could be achieved, but "even I underestimated just how quickly it would 'snap to fit' - just how soon it would become apparent that we'd be unleashing the kind of dynamism and entrepreneurial leadership we knew we had at each of the businesses and groups.
"The logic of the strategy is that I and CFO Tony Vacchiano are now redundant. Our role has been as enablers, and if an executive level remained between the talented business unit managers and the board, then we'd be getting in the way and adding unnecessarily to exactly the kind of complexity we are trying to eliminate."
Charvat was eager to make sure that the market understood that the decision that his job should go away was purely strategic and not, as some have worried, as sign of further financial trouble. "Far from it" he says. "The decision has been entirely strategic, not financial."