Technology cycles are shortening and disruption is rife, and yet, there is a worrying level of inconsistency in how the function is structured, what its mandate is, how CTOs are being developed and chosen, and how outcomes are being defined and tracked. To get to a first-hand view on what works and what doesn’t, we spoke to a number of experts in the field, including a diverse set of current and former Chairs, CEOs, and CTOs from technology-intensive companies, in the United States, the United Kingdom, and Europe. We coupled these interviews with data analysis of CTO functions and CTO profiles from select high performing companies across the globe.
Four major themes emerged:
According to our research, most CTOs have scientific PhDs. More than 80 percent of CTOs in the data set we examined had this credential. Furthermore, the PhDs were in scientific areas of high relevance to the companies in question. For example, when we looked at Chemicals / Speciality Chemicals companies, almost 100 percent of CTOs had a PhD in Chemistry or Chemical Engineering. But do you need a PhD to effectively perform the role of the CTO, or has this just become conventionally accepted wisdom?
A senior former CTO we spoke with strongly believed the PhD was a necessity. “If you don’t get the Tech, you don’t stand a chance” the CTO said when asked about how CTOs can build credibility within the scientific community and with business leaders. Also important is the ability and discipline to develop great technology management credentials as a functional skill-set over the course of a career. Too often current or aspiring CTOs are pulled out of tech-focused roles and put into business roles to help them gain commercial skills. This could be a trap, and is fraught with risk, especially if it is for a lengthy period. Technology talent is often ill-equipped, temperamentally or through lack of developmental support, to thrive in these more commercially focused roles, and by the time they return to the CTO function, they can lose relevance and credibility within the scientific community. Companies need to be mindful of ensuring that their technology talent do not lose their fundamental underlying technology edge in the pursuit of business acumen. “P&L leaders often don’t make great CTOs, and vice versa,” said another leader. Excluding talent that wants to consciously leave the CTO track for a commercial one as a matter of personal preference, companies would be better served by supporting technology leaders by helping them to incorporate commercial discipline within the technology function through developmental support, rather than taking them out of the function for too long in non-technology related developmental roles.
If you don’t get the Tech, you don’t stand a chance.
There is another talent management paradox in tech that needs managing that came up in our conversations with leaders. “Unfortunately, the most creative and innovative scientists rarely make the best CTOs.” This means the way companies think of their CTO talent pipeline will need to be nuanced; the star scientists in the research lab may be less relevant from a CTO succession standpoint than a credible scientist who displays the collaboration, influencing, team leadership and commercial acumen. The rock-star scientists of today may not be the CTOs of tomorrow, and talent management models need to be adaptable to reflect this.
A Custodian of Conscience
Talking about conscience too liberally within a for-profit enterprise runs the risk of raised eyebrows -- at a minimum -- and outright skepticism. However, the notion of the CTO being core to the “innovation conscience” of the company clearly emerged in our expert interviews. “The CTO should be the guardian of the company when it comes technology gaps and threats,” said one senior leader. “Spending on R&D is not a right, it’s a privilege,” said another. “When I see my company use R&D spend metrics as a marketing tool, I shudder,” said another executive. The best CTOs influence key stakeholders within the company -- especially the CEO and business unit heads -- to make the right long-term technology bets and encourage them to think beyond hitting the quarterly and annual business plan targets. Earning the credibility to encourage long-term thinking on technology implies that a CTO needs a track record and confidence to pull the plug on technology bets that have not worked or are highly unlikely to fulfill their commercial promise. CTOs who are known to recommend pulling the plug on initiatives, without having the gun put to their head by a nervous CEO, seem to be the ones who are the most respected, and more likely to be heard when they do demand technology-led risk-taking. Though the maxim, “If you don’t take risks in tech, you won’t truly innovate,” does ring true in most cases, CTOs need to earn that right.
Spending on R&D is not a right, it’s a privilege.
Having the grand ambition to be one of the key conscience keepers of the company comes with natural consequences on organizational structure. Our data show that most major corporations (more than 75 percent in our dataset), had the CTO role as a direct report to the CEO and as a member of the executive committee. In cases where the CTO was not on the executive committee, the person representing the function on the executive committee tended to be a “true believer” in the technology function, in many cases having an R&D background in their career or a strong trusted relationship with the CTO who reported to them. Companies that did not have a dedicated CTO on their executive committee were slightly sheepish about it, and it seemed more a matter of “we haven’t found the right caliber individual or the right structure” or “we are thinking about doing this in the next couple of years” rather than “we don’t believe the role should be on the executive committee.”
A fascinating insight we picked up during our research was that though R&D efficiency and effectiveness metrics are being increasingly used, a loss of technology edge is often difficult to identify, and can be extremely difficult to recover from. The nature of technology rhythms and lead-times from lab to commercial maturity mean that the health of the technology function and innovation pipeline are often out of sync with the current financial performance of the business. The slope from “living on past glories” to “resting on your laurels” to “the calm before the storm” can be a treacherous one, –and a great CTO needs to anticipate these inconsistencies, and be brave enough to swim against the tide of management opinion and what the metrics and current financial realities suggest, when the situation demands it.
To “Bud-get” or to “Fudge-it”?
Money and budgets are not taboo words to the best CTOs, but ownership and accountabilities must be clearly defined, and are often not. The overwhelming recommendation from our interviewees was that all significant initiatives undertaken by the CTO function need clear sponsorship from the business to create both a sense of ownership and commercial discipline. Furthermore, CTOs are often not in charge of market assessment or business development, and for good reason. You can lose perspective, confuse accountabilities, and lack the commercial assessment and business development skills to make a success of it.
Good CTOs also avoid the “not invented here” syndrome and can dispassionately decide whether it makes sense to build relevant technological capabilities in-house or to procure them externally. Strategic partnering with external bodies to share risk, especially with organizations that have complementary but separate objectives, is usually a good idea, and has the added benefit of exposing your best scientific and technical talent to the outside world, and spotting and attracting the best minds and recruiting them into your company.
“Beware the trap of the exciting technology, unless you have the competencies to commercialize it,” were the wise words of a former CTO. “If a major initiative does not have a natural P&L sponsor, check if the CEO is willing to stake their own reputation on it, or don’t do it” was another piece of advice from someone who had battle scars to show for it.
Beware the trap of the exciting technology, unless you have the competencies to commercialize it.
From Lab to Fab
The best CTOs add value across several major dimensions of innovation: product innovation (new revenue streams for the company); process innovation (applying technology to rethink the cost structure of a company); and application development innovation (the last mile of making technology fit for customer adoption) being the most common. Each of these require almost equal emphasis, while less developed CTO organizations seem to disproportionately index themselves around just product innovation. CTOs also play a lead role in technology due diligence, both internal and external, but best practice dictates that this be done with clear business unit budget owners. Similarly, having the CTO build a close and productive relationship with the head of strategy and M&A is vital -- alarm bells should sound if that is not the case, and your technology roadmap feels out of sync with your strategic plans and M&A agenda. Skill-pool management is also vital, especially in matrixed structures where R&D teams and technical services teams are co-owned with the business unit, and may not have a direct reporting line to the CTO. The CTO needs to be the last line of defense in ensuring that in the legitimate interest of making everyone’s mindset customer-centric, the science doesn’t get knocked out of the scientist. Some CTOs hire business development professionals onto their teams, and while this might be tempting, it rarely seems to work.
A well-structured CTO function led by an excellent CTO can achieve wonders for a company, but it won’t happen without deliberate actions by the organization and CEO. Avoid the temptation of saying “but we are different”, because the flip-side of not having a world-class CTO function can be catastrophic to the long term viability of the company, and the corporate world is replete with companies that have, or maybe about to, miss the boat.
We would urge CEOs, in partnership with their HR directors, and with expert input as needed, to take stock of the situation along the following dimensions, to identify and address pain points
Talent: What is the current health of my talent pipeline, how does it benchmark externally, and what interventions may be needed in terms of development support to my leaders, and external talent injections?
Culture: Do we have a true culture of innovation in the company where the most promising internal and external technology bets are being pursued with passion and conviction, and how is the CTO championing this?
Structure: What is the ideal structure of our CTO function, is the rest of my leadership bought into it, and how far are we from it?
Leadership: Is my CTO striking the right balance between influencing business decisions, and incorporating business input into technology decisions?
Role clarity: Are key role descriptions and associated accountabilities clearly defined for the CTO, and in terms of the interaction of the functions with other functions in the organization?
Measurement: Are the right financial and nonfinancial measures in place to build a common language in the organization on the outcomes expected from and being delivered by the CTO function?
About the Author
Satyajeet Thakur, based in London, is active in Egon Zehnder’s Industrial and Financial Officers practices. He advises on a range of topics, from senior executive search to management assessments and leadership consulting. Prior to joining Egon Zehnder, Satya was Director and CEO of a consumer sector business in India, where he continues to serve as a nonexecutive director. Previously, he was a Principal with Booz & Company, based in London and Dubai, and worked with energy and industrial clients in Europe, the Middle East, and West Africa. Earlier, Satya was a Navigating Officer in the Merchant Marine.