MD Genesis Corporate Solutions
One of the biggest philosophical debates in the turnaround profession is whether change is best implemented in reaction to an event or should change be taking place on a continuous basis within businesses. Drive disruption from within or face forced disruption from elements outside of the company.
It is no secret that our profession benefits from reactionary change. However, as Genesis Corporate Solutions implements more business rescues and turnarounds, it is becoming more apparent that change does need to happen on a continuous basis within any business.
This needs to be driven by a C-Suite executive tasked with this business function. I recently read an article by McKinsey which points out that the role of the Chief Transformation Officer (CTO) will only become more important in the years to come.
The CTO role: The current state of play
The article points out that McKinsey research found that of one hundred prominent consumer packaged goods (CPG) and retail companies—the top 50 in North America in each category—23 percent employ enterprise-level CTOs, defined as executive-suite transformation officers reporting directly to the CEO. When expanded to include transformation leaders at the level of vice president or higher (those who may have enterprise or functional transformation responsibilities), that number rises to 35 percent. Of the CPG and retail companies with established CTO positions, 86 percent say their current CTOs came to their roles in 2020 or later, indicating that many companies are newly embracing this function.
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There are more CTOs in CPG and retail companies of various sizes today, but the scope of the role itself remains inconsistently defined. Some of this is understandable, since the context, scope, and objectives of a transformation vary. For example, some CTOs told us they were tasked with specific and relatively targeted financial mandates (for instance, to reduce supply chain costs by 200 basis points). Others were given broader goals tied more closely to corporate strategy—for instance, to help the company achieve 10 to 12 percent growth over the next three years, or to shift the business toward a direct-to-consumer model. Finally, others were asked to achieve culture- and capability-oriented goals, such as breaking down silos between functions or increasing digital adoption across the company. Some, in fact, were asked to take on many of these challenges simultaneously.
The article added that, at the same time, many of the transformation leaders we spoke with recognize that the role of the CTO is also uniquely challenging. CTOs often “own nothing but are accountable for everything.” They must balance providing accountability with offering sufficient support and delivering on ambitious targets. They often have a small team of their own but are mobilizing and training hundreds of people. They might be perceived as a glorified cost cutter or project manager if not empowered appropriately. Additionally, because the role has not existed as long as others in the C-suite, there isn’t a clear road map of what it takes to do the job successfully.
And indeed, the McKinsey survey of transformation leaders themselves revealed some of these common challenges. At the top of their list was the problem of competing priorities within the company, followed by a lack of authority to make changes and a lack of motivation within teams. They saw boosting organizational involvement in the transformation and elevating their authority as crucial ways to have more impact.
CTO archetypes: The three ‘Rs’
The McKinsey article points out that it is not surprising that the CTO role isn’t a one-size-fits-all position. In fact, the general demands of a CTO can be broken down into three categories, based on the conditions leading to the transformation and level of change required within it.
The Responder. As the name suggests, these CTOs are put in place primarily to respond to a crisis or major setback; examples from our interviews included heightened macroeconomic pressures, existential competitive threats, or shifts in consumer preferences. Responders must triage and stabilize the business and almost always need to enable rapid and substantial financial improvements. Responders tend to focus their cultural changes on instilling new levels of discipline and speed, and build capabilities tied to execution rather than new technical skills. Although personal styles can vary, responder CTOs are more likely to suggest a need to bring more “edge” to bear to achieve results.
The Revitalizer. Revitalizers may well be expected to drive significant performance improvements, but that often comes with an added emphasis on sustained, long-term change. CTOs can find themselves in a revitalizer role when a business has seen its performance degrade slowly over time, or if it is coming off a series of cost-cutting events and wants to create a new and lasting culture of continuous improvement. These CTOs will place a heavy emphasis on mobilizing and empowering the organization, helping it build new foundational and leadership capabilities to sustain change over time. In the absence of a traditional burning platform (as the responders have), these CTOs often need to dig deep to find ways to rally and inspire employees for the new journey ahead.
The Reinventor. Whereas responders and revitalizers are typically driving change within the existing strategy of the company, reinventors are often asked to lead the company through substantial strategic changes—for example, by shifting a business model from brick and mortar to digital or entering an entirely new product category or market. Given the nature of change involved, reinventors often need to help employees build completely new and unfamiliar capabilities (and, potentially, new organizations or teams). For these CTOs, the ability to connect the dots across functions is especially important, as is the ability to articulate a clear strategic vision of the future state.
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The McKinsey article adds that, as described above, CTOs in each archetype tend to emphasize and demonstrate different strengths, closely linked to the situations they face. Equally, each archetype must be aware of potential risks specific to their situation. For example, responders—justifiably focused on near-term performance improvements—might have neither the capacity nor the luxury to think beyond the next six to 12 months and the detailed tactics that will help the company thrive in that turbulent period. Meanwhile reinventors, working in service of a grand strategic vision, may be less focused on near- or midterm financial performance.
It is worth noting that while the archetypes are clear and differentiated, the CTOs playing the roles might not be. That is to say, transformation journeys (and the environments in which they exist) evolve, and the CTOs at the helm could be asked to do the same. This might play out in a natural sequence, with a CTO going from responder to revitalizer to reinventor as the company recovers from financial challenges, sets a sustainable foundation, and then evolves strategically. But the journey can also be unpredictable: for example, one consumer products CTO started out as a revitalizer but had to pivot to a responder role as acute supply chain challenges emerged and threatened the business.
Finally, the McKinsey article points out that there are some transformation leaders who do not fit into any of these three archetypes. They are not responders, revitalizers, or reinventors but rather reporters. They tend to play more of a project management role and are effectively asked to collect and “report the news” on how these projects are progressing. But this remit, while helpful on the surface, can limit the potential of the CTO role. Companies and CEOs have an opportunity to elevate reporters from a role that’s administrative to one that’s truly transformational.
In my next editorial, I will focus on the CTO skill set and what companies can do to ensure that CTO’s can be successful.
Phahlani Mkhombo is the MD of Genesis Corporate Solutions and is a Senior Business Rescue Practitioner.
