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The Evolving Role of CTO: Innovation Leader

 

The chief technology officer (CTO) role is evolving. Beyond their classic mission as the company’s most senior science and technology executive and an expert resource on technology issues, CTOs are becoming completely fledged members of the top management team. They are increas-ingly viewed as the sponsors, architects and champions of their firm’s future product and process offering. In the most advanced companies, CTOs are actually positioned as tomorrow’s ‘new business creators. ’

For decades, R&D and its senior managers have been shielded from short-term business pressures. That perspective of the world is changing quickly. The development of global markets and technologies, the increasing complexity of companies and the increasing pressure to maximize shareholder value are forcing CTOs to consider short-term results. Market and financial expectations for top- and bottom-line numbers are these days passed on to technology chiefs. Increasingly, CTOs are being inquired to contribute directly to the company’s growth and profit. Long-term monitoring of R&D projects and their profitability is another challenge CTOs have to master.
These pressures are inducing CTOs to transfer their focus from managing functions, people and assets to leading a transformation.
This shift implies instilling a sense of purpose, direction and focus in all technical departments. Aligning scientists and engineers with the company’s strategic direction facilitates to build cohesion and increases the company’s chances of success. Nevertheless, inspite of this trend toward a more strategic engagement in company affairs, CTOs will always be evaluated on the company’s overall R&D effectiveness. If there are not a lot of new products in the company’s pipeline, CTOs will not be convincing as full partners at the strategy table. R&D must be witnessed to be efficient with time and money and successful by introducing competitive new products and features. In short, the trustworthiness of CTOs depends on R&D’s results. To keep a seat at the executive management table, CTOs have to earn the respect and trust of their colleagues in their functional area.

Raising a Sense of Objective in the Role of Technology
CTOs have continually been envisioned to produce and optimize technical competencies and R&D funds. These days, they require to raise a new sense of goal within their staff, reminding them frequently that they are responsible for contributing to the future growth of their company by means of winning new products and processes.

Pressures for growth and performance typically induce a renewed sense of goal and urgency at all levels. Sitting at the top of their scientific and technical community, CTOs will be anticipated to get ready for a quantum leap in R&D’s contribution to business success. Having climbed the steps through R&D management, their classic emphasis was on functional productivity. When they attain the top team, this aspect of their job diminishes in importance.
However their role as guardians of the company’s long-term scientific and technological competitiveness is quickly expanding.
This considerable change in management agenda and emphasis is clearly highlighted in an opinion survey carried out by IMD among CTOs from leading international companies. These senior executives were requested to list their priorities in the past five years and the ones that could retain their attention over the next five years.
Out of the eight broad challenges offered, the vast majority of executives mentioned declining importance in two traditional aspects of their job:
• Coordinating R&D for a global world, i. e. spreading R&D resources to tap scientific brains and operate in all parts of the world.
• Coordinating for technology management, i. e. addressing traditional R&D organization issues, technology funding and technology management processes.

In contrast, the survey highlighted a continuing emphasis on three perennial strategic missions:
• Managing technology more strategically, i. e. linking technology and business strategies more efficiently, especially for the long term.
• Increasing knowledge and competencies, i. e. concentrating on creating, using, sharing and protecting knowledge, as well as discarding irrelevant knowledge.
• Striving for better R&D performance, i. e. enhancing R&D’s contribution to business success, effectively through more strategic project selection.

These important goals call on leadership skills more than on organizational or managerial abilities.
Eventually, three priorities appeared with raising brightness on their radar screen, all relating to the ability of CTOs to renovate their organization, which usually requires strong leadership qualities:
• Transforming the mindset in R&D, i. e. introducing a stronger business focus and a more acute perception of urgency among the scientific and technical community.
• Developing a seamless innovation process, i. e. communicating and working more effectively with other functions, for instance marketing or manufacturing.
• Leveraging business technology resources, i. e. paying higher consideration to technology insourcing and outsourcing to capitalize on the specific strengths of technology partners.

Providing a Sense of Direction in Technology
CTOs have often been expected to assist their company manage and enhance its technology portfolio. Today their mission is, more than ever before, to preempt the future by discovering and investing in critical new technologies that may sustain the businesses of tomorrow. CTOs are turning out to be their company’s ‘chief navigators. ’

Certainly the most demanding part of the job is that CTOs are estimated to provide the board and top executive team with clear directions on where and how much to invest in science and technology. Determining the appropriate level of R&D spending – commonly expressed as a percentage of sales – is one of the most debated top management issues in technology-intensive industries. CTOs are, undoubtedly at the center of that debate. The R&D budget, whatever the method used to make it look rational, is eventually the responsibility of CTOs. Investment allocation in R&D will reflect:
• a perspective of where and how technology will shape the future of the business and develop opportunities;
• management’s level of ambition concerning the risks it is willing to take in presenting new technologies;
• belief in the power of science and technology to outperform or out-innovate competitors.

Creating a Vision for Technology
CTOs perform a major role in bringing about management’s vision, ambition and faith regarding technology. That process, which can be called ‘technology visioning, ’ is similar to what process management teams use to sharpen, reorient or renew their business vision. Specialists assert that a company vision is composed of two linked aspects:
• A picture of an ‘envisaged future, ’ featuring a desirable future state of the company, and how it prefers to be perceived by its stakeholders.
• A ‘core ideology, ’ revealing what the company stands for vis-àvis its stakeholders and the values it promotes.
This is often distilled into a short policy statement that is communicated to the outside world. The same process can be applied to technology, which usually is a means of enacting the business vision. Ordinarily, the business vision will drive the technology vision. However, in technology-intensive industries, the opposite frequently happens.
Through a process of technology visioning, CTOs have to present a sense of direction to the company’s R&D efforts.

Envisaging the Future Concerning Technology
Envisaging the future involves determining the scope of the company’s technology coverage and figuring out competencies that are critical for the company to master. It is up to CTOs to recommend which areas of R&D should be investigated, developed and grown (or pruned). CTOs as well play a major role, along with CFOs, in recommending and justifying the funding level for future investments.
Envisaging the future likewise implies defining the role of technology in the company strategy. Cisco Systems Inc. provides a fine example of the link between business and technology visions. The company’s vision – turning into the preferred internet-enabling company and total solution provider on the basis of its product superiority – has quickly been translated into a clear technology vision and a serial technology acquisition strategy (a strategy that was only feasible when the company’s stock price was high). The company has discovered how to select technology targets carefully, acquire them rapidly and integrate them immediately. Its vision has been translated directly into action.

A company will by no means be able to maintain a technological lead from only its own resources. CTOs have to guarantee their organization is open to using the best technologies, irrespective of the source. It is generally less expensive to license or acquire a new technology instead of developing it in-house. In fact, it is not unusual for companies nowadays to post technical challenges online and receive bids from other companies to accomplish some of their technological needs, as P&G did with its ‘connect & develop’ strategy. The strategy was not to get rid of P&G’s scientists, but to better leverage them. From about 15 %, the proportion of external innovations has thus increased to more than 35 %, and 45 % of the initiatives in the company’s product development portfolio have essential elements that were discovered externally. This strategy has already led to a remarkable increase in R&D productivity and innovation success rate.

Creating a Core Ideology Regarding Technology
Some CTOs have gone further than envisaging the future. They have developed and promoted policies and proposed desirable behaviors, beliefs and values about technology as well as a guiding framework for its deployment and management. For instance, at 3M, technical managers realize that the technologies deployed belong to the company and not to their business units. Everybody in 3M’s technical community is anticipated to practice the values derived from such a belief: A systematic sharing of technologies across labs and business units – an elusive goal in many corporations.
The softer side of a technology perspective deals with changing working behavior and the way of thinking about technology in the organization. Clarifying this ideology and getting it adopted is one of the major leadership roles of CTOs. This includes:
• Setting up and building a consensus of beliefs and values within the company’s scientific and technical community;
• Making most of these beliefs and values explicit, for instance in the form of a ‘technology charter, ’.
• Having the technology charter supported by management and communicating it widely to R&D’s business partners;
• Creating and running a program of change to embed the new behaviors into day-to-day lab reality.

A remaining aspect brings us to one of the fastest-growing areas of concern harnessed in the CTO survey: Transforming the mindset in R&D. The nature of the new mindset is typically company-specific. In companies with a powerful central R&D function, the objective of the change program is frequently to make the staff more responsive to business demands. R&D is anticipated to be flexible to business demands, to be cost-conscious and pay close attention to the speed of development. In other companies with a robust growth objective, such as Dow Chemical Co. and Royal Philips Electronics, the efforts could focus more on entrepreneurship and new business creation. In the pharmaceutical industry, CTOs frequently promote a more efficient collaboration between research centers, both within the company and with external technology partners (for instance with smaller associated biotech firms. ) Irrespective of their focus, these programs are likely to require continuous attention from CTOs. Transforming the mindset of the people working in R&D is not an easy or short-term task.

Enforcing a Sense of Emphasis on Technology
CTOs have generally been expected to be the guardians and promoters of their company’s competencies. Nowadays, their priority is to ensure that they emphasis their internal resources on core – i. e. differentiating – technologies while encouraging their staff to be open and to accept and leverage external technologies.

As future-oriented leaders, CTOs will certainly be expected to guide the company and align the technological concentration with the company’s strategy. Being accountable for the long-term technological competitiveness of their company, CTOs often have the following formal responsibilities in their job description:
• Recognize technologies that have the greatest competitive impact on the company’s businesses today. Discover technologies that will or might replace existing methods and be disruptive to the entire business or industry.
• Review the company’s competitive technological position in a realistic and objective method. Examine opportunities and threats that might result from major technological strengths and weaknesses.
• Incorporate the risk of technology fragmentation. Make sure that enough resources are committed to the company’s most vital technologies even at the expense of reducing investments in less critical areas.
• Make investments in new critical technologies ahead of time (but not too early). Pick out investment strategies that reduce risks to an acceptable level while maintaining flexibility.
• Use outsourcing for non-essential technologies that waste resources and do not offer any particular competitive advantage. Outsource in a manner that guarantees access to key technologies needed to remain competitive.
Every single item highlights one of the most fundamental roles of CTOs, and one that requires a lot of courage on their part: Help to make choices and focus.

Intel’s Andy Grove recognized that deciding on to focus all his company’s resources on microprocessors and abandoning memory development and fabrication was perhaps the most tough decision in his career. In spite of the forecasted growth in demand for computer memory and Intel’s competitive position, Grove became aware that he could not expand the memory business in parallel with the promising microprocessor business. There was the serious risk that Intel would become a mediocre competitor in two businesses. The company’s extraordinary growth shows how inspired this decision was to concentrate on microprocessors, a domain where Intel maintained a leading technological position. Not all companies have to deal with dilemmas of such magnitude. However, the need to focus on certain technologies with its corollary – abandoning or outsourcing other technologies – is common.

The sensitive task of identifying candidates in the two categories – technologies to be acquired and developed and technologies to be abandoned or outsourced – evidently belongs to the CTO. But the task does not stop here. The most essential part of a focused technology strategy is implementation, where three significant challenges need to be addressed:
• How to obtain and deploy new knowledge time- and cost effectively. To cope with this issue, the CTO will frequently recommend strategic acquisitions or partnerships. Here, leadership skills will be tested because the new technologies (and often the associated people) have to become established in the ‘new’ organization. Grafting new knowledge onto a relatively skeptical R&D organization is not easy.
• How to stage out less critical technologies without sacrificing competitive advantage. This challenge is even more sensitive. Technologies equate to knowledge and knowledge resides in people.
Abandoning an already important area of knowledge often means sacrificing essential people. Not all scientists and engineers can be easily re-trained, and sometimes the target is to reduce headcount and internal costs. CTOs must be acutely aware of the threat of demoralizing staff. Avoiding that risk without giving up on the company’s overall objectives is a different strong test of their leadership capabilities, and probably the most difficult task of all.
• How to help make scientists and engineers ‘unlearn’ the technologies that have become irrelevant, get rid of their traditional perspective and fully adopt the new technologies or work methods. Getting the capacity to ‘unlearn’ or shed obsolete knowledge is a survival skill for all companies confronted with an accelerating series of technology waves. Sony’s retarded reaction in riding the wave of flat screen panels was, to a large extent, brought on by the inability of its engineers to shift gears quickly enough, which meant discarding old cathode-ray-tube knowledge to leave room for the new PDP and LCD technologies.

Change in Roles Awareness
One concern that CTOs face is in helping their executive management colleagues understand (usually with the help of the CEO) that the CTO role has changed in at least four key areas:
• Change in positioning: From being a specialist resource within the senior management group, CTOs are progressively becoming full members of the top executive team, sharing in key business decisions, not just technology ones. This widening of horizons is bringing about a dramatic change in perspective. Their loyalty is no longer oriented toward R&D or the scientific community, but toward company stakeholders and management colleagues. This switch is putting pressure on CTOs to turn into credible business partners, sharing the same understanding of business dynamics and the same vocabulary as their management educated colleagues.
• Change in scope: From managing a functional piece of the corporation – R&D and technology – CTOs are increasingly being asked to steer a number of critical business processes involving numerous other functions. Common examples comprise the innovation process from idea and technology to market and the new business creation and venturing process. Moreover, because so many technologies come from outside the firm, the partnering or supplier management process can also fall within the CTOs’ realm. Another challenge for CTOs to master is to steer cross-functional management teams and negotiate trade-offs between conflicting technological and business objectives.
• Change in objective: From creating and optimizing the use of corporate assets, both technological competencies and R&D funds, CTOs are progressively being asked to deliver tangible output. Introducing winning new products and processes and sustained growth and value to customers and shareholders is an expectation of the job – not a stretch goal. This change in expectations is again putting pressure on managers, who may have started work in an environment in which management expected R&D to justify its efforts, but not its results.
• Change in focus: From managing hard issues (i. e. technologies), CTOs are increasingly being asked to focus on softer ones as well. Managing changes in culture and mindset, teamwork, communications and motivation, not just inside the labs but also across functions, is another new challenge. This change in focus is making new demands on the traditional management skills of CTOs. It clearly calls for a greater and broader sense of leadership.

 

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