Episode 74 - In conversation with Virgin Group: a reputation for reinvention

Welcome to PwC's Business in Focus podcast, our guest today is Virgin Group's CEO, Josh Bayliss, who will be in conversation with Pete Brown MBE, leader of PwC's global workforce practice. Today we'll be exploring how, after 55 years, Virgin continues to pair disruption with purpose and agility with reinvention. And with 40 companies in five continents covering health, finance and wine, alongside holidays and telecoms, there's no shortage of business insights and stories to uncover.

Pete Brown: Josh, it's absolutely brilliant to have you here, thanks so much for your time. Virgin Group is famed for its ability to reinvent, and find new markets and opportunities. Indeed, it has a longstanding reputation for continuous reinvention and disruption in various sectors. How do you walk the walk to combine disruption with purpose to change business for good?

Josh Bayliss: You know, Richard [Branson] was a trailblazer in many ways, in inverting the pyramid of shareholder value to ensure that you don't start with the shareholder but you end with the shareholder. So when we think about that very broad approach to business and to purpose, it really does define the way that we go about transformation, as you say, or disruption, but actually just everything that we do. In terms of the disruption itself, I mean, again, I'd say the brand is something that really sets the bar for us. Virgin, which Richard established 55 years ago, has always been about disrupting the status quo, it's always been about trying to find a better way and in that sense it's a truly entrepreneurial brand. Of course, we have one of the greatest entrepreneurs of his generation, probably the leading entrepreneur of his generation anywhere in the world, in fact. Richard, as the founder of the group, continues to be very actively involved with the business, so he's driving us hard to continue to be disruptive and entrepreneurial. But, as I say, I think the brand itself is something that sets the standard. We want people who come to the brand, either as employees or as customers, to have a great time, be able to be included, involved, and express themselves, and we think the way to do that is to be looking for a better way of doing business.

Pete: I love that view, particularly around the focus on the customer but the way you talk about your employees, because actually they are one and the same, and that comes across very loudly. Now, I know that Virgin Group has signed and is a member of the Better Business Act, what does that, can you tell us a little bit more about that and why you're signed up to that?

Josh: So, the Better Business Act is something that has been around for about three or four years and it says that when directors are executing their fiduciary duties they shouldn't just have regard, or even primary regard, to the interests of shareholders. We're very attracted to this because, actually, it's the way that we've always done things. Certainly, purpose is something that has been part of the brand since day one. So when the Better Business Act came along, it wasn't like a bolt of lightning from the blue for us, it was just an acknowledgement of things that we've always done. So we adopted it, “we” being Virgin Management, which is the centre of the Virgin Group, Virgin Red, which is our loyalty business, and Virgin Start Up which supports entrepreneurial businesses across the UK.

We all decided that we would adopt the Better Business Act. What we've done is we've actually amended our articles of association with the top companies in the Virgin Group (Virgin Management, Virgin Red, Virgin Startup) so that the directors on the board of Virgin Group, of which I am one, and Richard is another, have to have regard to that broader set of considerations when we are making any business decision. This year, for instance, it was a target for us to adopt science-based-targets for our portfolio of business, and of course we recognise that our portfolio includes businesses that certainly do have an impact on the environment, there's no question about that. We've made it a priority to achieve net zero before 2050, as have a number of other businesses, and we're really reaching into the portfolio and looking at ways that we can address the deficit that we currently have.

So for example, we recognise that sustainable aviation fuel will be a part of that journey. You may have seen that Virgin Atlantic flew across the Atlantic Ocean last year using sustainable aviation fuel which, while it doesn't entirely eliminate carbon emissions, it certainly significantly reduces them and is going to be a hugely important part of the bridge from where we are today to where we need to be. It’s that concept of really trying to work in partnership with others, whether that's governments in relation to the formation of policy, or suppliers in relation to, first, second, third impact of emissions . We're always looking to challenge ourselves and hold ourselves to account to ensure that we're able to meet those targets. And so, the SBTI was a natural programme for us to partner with and to adopt, and we will be judged not just by the board who decide to pay our compensation, but by our customers and our employees on whether or not we are able to address and achieve those objectives.

Pete: What comes across loud and clear is, dare I say, the constant fidgety-ness of Virgin Group and probably yourself. The fact that your markets are changing, your customers are changing, technology is changing, the climate is changing, and it sounds like you are constantly reacting to that, planning for that, trying to stay ahead of that. Every year at PwC we conduct the annual CEO survey. I think we had some 4,500 who responded this year and we launched it at Davos. And what that revealed, really, is the evolving nature of how business leaders view transformation. That it's no longer just about growth, it's holistic and it's tied to an organisation's survival more than ever before. Given the vast and diverse portfolio that you have within Virgin Group, how have you managed that constant transformation? And what's been your overarching approach?

Josh: I agree with you in relation to the need for businesses to reinvent themselves in exactly that way. Just before I answer your question I'll just also add, I personally think that businesses also have a responsibility in doing that and a role to play. I think the reality is that customers, people, and citizens all over the world look to business to play a far more responsible role than they did previously. Partly to fill the gap but also to reallycash the cheques that people write when they place trust in businesses and in brands, when they make decisions to select a product or a service from a business, there's a lot more to that decision nowadays than there once was. So, I just feel that the entire game has changed, the context has changed, and in a world where we have social media and if you don't get it right you are going to be told PDQ that maybe you need to reassess and revaluate the way that you are going about your business. I think it's a wonderful instant feedback loop.

For us, the need to disrupt is something which has been there since day one, 55 years ago. It's not something that we've come to or happened upon, and so we think that continuing to push ourselves all the time, we say “being brave in business”, making bold decisions, even when they're not necessarily in your best interests from a financial point of view, but because they are the right thing to do, we think that's really at the core of it and so if you hire the right people and you put them at the front line of your business and you entrust them with the ability to make decisions, empower them with the ability to judge in the moment, really what is in the best interest in the customer and deal with the situation accordingly then over time you tend to create better outcomes for customers. That empowerment, of course, means that you create a business environment where people do feel a sense of belonging.

We talk about the Virgin family. Lots of businesses talk about families.

It could be a bit reductive I suppose, but I certainly think that inclusion, which nowadays is a very, very oft-used word, it's really the cornerstone of everything. If we open our doors for people to be included, no matter where they come from, what their background, and to express themselves, of course consistently with the right sets of values and legal rules and what have you, then we think in the end we're going to create a better environment for those people, and that will be for everybody's benefit.

Pete: Josh I think that link between the way you view your customers and your employees being, kind of, one and the same comes across there. And it's no surprise to me that I think in a world where there is a global shortage of key talent and skills talent, I think the attrition rates at Virgin are amongst the lowest in the sector which, I think, speaks volumes for the culture and the organisation. And if I could touch on culture, Josh, it's been written about you somewhere that you are a leader in the fight against sludge tax, you know, the battles against initiatives against unnecessary bureaucracy, meetings and processes. And I think, you know, well documented I think, probably twenty years ago but if anybody wore a tie it would be rapidly cut off by a pair of scissors from Richard. How do you ensure that the agility of the brand remains intact through your people? And, if I may, why do you think some other businesses struggle to replicate that?

Josh: At risk of repeating myself, I suppose first and foremost I would say that I think it's about trust and that's a two way street, you know? Empowerment means that you trust your people to do the right thing. We are also very fortunate that, I think, the brand tends to attract people who want to do the right thing, not because it's what the book tells them to do, but it's just the right thing to do and that appeals to them and so it's a virtuous circle. I think that's right.

We do try to ensure that the point between decision and action is as short as possible, and what I mean by that is that I am frequently struck by the bureaucracy in large businesses especially but, actually, it can become endemic even in small businesses, and it's something that we try very hard to guard against. I think one of the things we've been very fortunate to have done is, rather than build one huge, international organisation called Virgin, we have spawned dozens and dozens, if not hundreds, of companies, which are all self-standing, self-governing, self-regulating in the sense that they make sure that they do things the way that they see fit.

And if we look at our CEOs of those businesses, almost like entrepreneurs in residence who are empowered to be able to take the brand and very often our capital and partner's capital as well, and operate in their industry in the way that they see fit in order to achieve the objectives that we provide to them through the brand. Those are considered not to be, "red lines”, if you like -t's much more a supportive relationship where we give people some guard rails, some guidance on what we think will show the brand in its best light. These include the things I've talked about, about empowering your people, about creating differentiated experiences, about creating moments of magic and about eliminating moments of friction, all of those concepts of entrepreneurialism - stick to that recipe.

Virgin Atlantic has been flying for 40 years in the most competitive air corridor in the world. We could probably name fifteen or twenty airlines that have come and gone in the time that Virgin Atlantic has existed in that same air corridor, and yet it continues to be an incredibly successful airline because of this point of differentiation. Virgin Voyages launched during the pandemic, which is a very strange time to launch a cruise line, I can assure you. But because Virgin Voyages has, again, maximised the points of the brand that create that differentiation, it's effectively reinventing a sector of the cruise industry; It's not because the vessels are any different, the vessels are state of the art vessels built by Fincantieri in Italy (just like Virgin Atlantic's aircraft, our Airbus and Boeing aircraft that everybody else flies). I’s the experience that people have end to end when they touch the brand that enables them to feel that sense of individualisation and personality, of something that’s just a little bit special.

Pete: You said you never cease to be surprised by the amount of bureaucracy often in large organisations. That’s something that’s actually reflected in a survey that PwC does every year, called ‘The Hopes and the Fears Survey.’ It’s the largest survey of its kind, we ask some 56,000 workers in 55 countries about their attitude to their careers and their employers. Both workers and CEOs are aligned around the point around sludge tax and that unnecessary bureaucracy. What both constituents also believe is that Gen AI could help reduce that sludge effect, but it can’t just be fixed by technology alone. Gen AI is becoming a key enabler of growth across many industries, how is Virgin leveraging GAI to stay ahead at the forefront of innovation? how do you see it contributing to Virgin's growth and customer experiences?

Josh: Well, it's such an important question in relation to technology generally. I mean, it's interesting, isn't it? Just to cast your mind back to 2019, I can remember at the outset of the pandemic we had our final ex co meeting with all our ex co from around the world present in London. In mid-February 2020 we decided that it was time to close the office, to retreat to our bunkers, as it were, and that we'd all stay in touch via Teams and Zoom. Now, if you fast forward to today, I think we've all become slightly used to the idea, a little bit too used to the idea, that every time you have a meeting you should do it via Teams or Zoom and you don't do a phone call any more. Instead, you invite lots and lots of people and you all have your cameras on, and I actually happen to think it's maybe gone a little bit the wrong way and that we should just go back to a good old fashioned conference call with the minimum number of people involved and make it for the shortest amount of time possible rather than being a standard hour-long exercise.

Now, AI poses a completely different set of challenges and, obviously, it's something that's at the forefront of, I think, every business leader's thinking so far as technological development is concerned right now.

I guess where we start from is that we think AI ought to amplify rather than hinder human potential. We think the ethics of this is really important. I've heard a number of business leaders say, 'AI is brilliant because it means I'll be able to reduce my workforce by X percent.' We don't see it as a zero-sum game, in that way.

So we've developed a set of principles which we think are relevant to us so far as the brand is concerned. We've developed a collective of people from all over our business to keep abreast of AI and what it means for their people, for their customers, for their ability to deliver on the brand promises that I've already talked about. And really importantly, how we can remain consistent with our purpose as a business in delivering AI. Undoubtedly, there will be significant innovation. I was really interested to read last week about a Senior Executive at Google saying that it's not certain that the productivity gains of AI will, in fact, all come true. There are a number of things that have to align for us to get there and I think it's really important that as a society and as business leaders we talk about that being a transition for everyone. So, we've got a number of examples of, how we have used AI already in our business, for example.

I talked about Virgin Red, our loyalty programme which joins the dots for our Virgin customers across different businesses that they interact with. We have a data science machine learning team and they use AI to build a rewards assistant for Virgin Red so that people can use AI to work out how to optimise their points in order to make the most of the rewards that they are seeking to benefit from. We just recently completed-, it's not yet launched, so I won't give too much away, but we've just built an AI avatar for TikTok which we think will really capture the essence of the brand on a really important platform that, with its significant drawbacks, I think, is no doubt the fastest-growing and most important social media platform in the world.

Within our core business if I think about my own day-to-day, we have given people a secure version-, access to a secure version of ChatGPT. So, we can use AI within our business, and I must say I use it, I would say, most days, if not every day, to some extent. It's not a replacement for, but I think rather an augmentation of, the tools that we already use within business, and we'll see how it develops from here.

Pete: It's interesting that you use it almost every day. In the same survey of Hopes and Fears, when we asked people that question, 'How often do you use gen AI?' only 10% of workers say they use it every day. I think 60-odd percent said they've used it at least once in the last twelve months. Now, clearly that will change. I was quite surprised, given all the noise around gen AI, I was expecting much greater take-up, even at this early stage. We also did some research-, to your point around the links with productivity. We surveyed some half a billion job adverts in a piece of research called the AI jobs barometer, and what we found there, interestingly, was that, in some sectors, where they are really feeling the pinch in terms of the talent shortage, financial services, IT, and professional services, actually, we're seeing AI used very much as you described there, to augment, to release capacity, to take away the mundane, the repetitive stuff that people frankly don't enjoy in their job. It's still very early days, but it was really quite interesting to see that, I think, slightly optimistic view around how gen AI can be used in conjunction with human beings.

Josh: Pete, sorry to interrupt, but just on that point, so far, I think a lot of the generative AI that we're seeing in the workplace, and in the world more broadly, is built upon LLMs, large language models. So, we're getting the benefit of the knowledge that we have written down, and which has been digested by these machines.

If I just contrast that, for just a second, for instance, with a business that we are investors in, it's called Auticon. So, Auticon is a business that employs people who are somewhere on the autism spectrum. The reason I raise it is because the point of differentiation at Auticon is that these people, who have a different set of skills and experiences, those different sets of skills and experiences enable them to do tasks, whether it is assessing an underwriting agreement for an insurance company in a way which is different to the way that somebody who maybe graduated with a commerce degree from a university would have. They look at the words on the page in a different way. They experience the material in a different way. I just wonder whether it's an important guide for the future that it's really important to have multiple different viewpoints, multiple different sets of experience.

I'm not sure that AI alone is enough to supplant that richness of human experience, myself. So, I think it'll be part of the mix, but I'm not sure that it replaces the human element of it. That's just one example.

Pete: No, I completely agree with Josh. We talk a lot with the organisations we work with around that essential, sort of, harmony between technology and human beings, and particularly in the context of gen AI, but not exclusively. And the Auticon-, I was unaware, actually, that you invested in Auticon. I know it reasonably well, and a couple of the organisations I work with use Auticon for precisely the reason you described. I think, as an example of enlarging inclusivity, it's a brilliant example. So, we've covered Josh, technology, strategy, and many other things. I just want to focus a little bit around what it means to lead in the world in which we live. Upfront, you talked about climate, and we've talked, throughout this conversation, around disruptive technology. We haven't really touched on, but things that we know are on the mind of many around the world, social instability, the obvious geopolitical tensions, and I've talked about the ageing workforce.

That led us at PwC to create The Centre for Transformative Leadership, about three years ago, principally in response to many of the organisations we were working with saying that many of the leaders within their organisations were really struggling to adapt in the world against that context. Lots of short-term crises against longer-term trends that we need to solve for. If I may ask you, in terms of, as the CEO of Virgin Group, what are the attributes you think are so important and critical for leaders, both at Virgin Group and more broadly?

Josh: Well, I think you just touched on one that is really critical, and, actually, I think I certainly am a beneficiary of, and that is timescales. So, we are a private company. I think I'm right that our average hold period in our investment portfolio is something like seventeen years.

So, that sets us apart from public companies, sets us apart from private equity, in a pretty significant way. I think that the idea of being very long-term in your view on risk and reward is a great starting point for how to think about this. We've just come through a pandemic which had a significantly negative effect on our portfolio for three years. It was really very, very difficult for a number of our businesses, and it's only really been 2024, maybe 2023 in the last half, but 2024 as a whole year, where things have come back. So, that ability to be very long-term in your thinking, I think, is a really important foundational aspect for decision making. We talked earlier about purpose, and about the changing role of governments and business. I think that's also absolutely foundational to this question. Businesses have a broader responsibility than Milton Friedman espoused.

It doesn't really matter whether you come at that as a matter of economics, or whether you come at it as a matter of politics and history, but it certainly is the case that, in modern society, business and business leaders have a different set of expectations, obligations, relationships, networks, than they once did. It's really important that those are used to maximum effect for the benefit of as many people as possible, in my view. That means that you have to take into consideration the impact of war, or geopolitical strain, in thinking about both the impact that it has on your people, but also the brand ramifications of decisions that you make, the places that you are willing to deploy capital, or perhaps stop deploying capital. That could be geographically. It could be industrial. All of those considerations are really highly relevant.

I send an email to our employees every Friday, and I would say most Fridays, certainly over the past three or four years, my note has some reference to geopolitical events that are happening in the world, rather than being narrowly focused just on what's happening within our own business. That is simply because those events are highly relevant to the context we operate in.

Pete: Josh, we're very nearly close to the end. Before we close, could you share one piece of advice for business leaders who are trying to navigate the challenges of transformation, technology, and culture in today's dynamic environment?

Josh: I think the most important thing that every business leader must do is be adaptable. The world is a volatile place, for sure, right now, but even when it isn't a volatile place, that famous Mike Tyson line, 'Everyone has a plan until they get punched in the mouth,' I think is really very apposite for business leaders. It's certainly been my experience. So, I remember, shortly before I became CEO, sitting down with Richard, with a beautifully curated strategy paper that I had pulled together, saying, 'When I take over as CEO, these are all of the strategic objectives that I will set, and these are the things that we will do.' I walked him through it. He listened very patiently. We got to the end. He said, 'This is excellent. This is really, really good, but don't be constrained by it. Make sure that you remain opportunistic, that you remain open-minded, and that you're prepared for whatever might come your way.' Having taken on that piece of advice I think is one of the best things that I did in my time as CEO. So, I'd commend it to others.

Pete: Josh, thank you so much for a brilliant conversation. I could have continued all day, but time's against us. Thanks ever so much indeed.

Josh: My pleasure Pete. Thank you very much for your time.

Well, as expected, that was an enlightening exploration of the insights and experience Josh has to offer from his thirteen years at the helm of Virgin Group, and it just shows the power of the Virgin brand, and how much of brand preference is down to how it makes you feel. Thank you so much once more to both Josh and Pete for their time, and thank you to you, our listeners, for joining us. Make sure you subscribe so you don't miss out on future episodes of PwC's Business in Focus podcast.

Participants

• Josh Bayliss
• Pete Brown