Why Companies Bring on a Chief Strategy Officer

“Strategy”, both formulation and execution, is important for businesses of all sizes and research indicates that many companies fail, or experience disappointing results while remaining in operation, because of issues relating to strategy.  While the chief executive officer (“CEO”) is ultimately responsible for all important decisions regarding the direction of the company and its business, including the strategic direction of the company, firms are realizing that there is value to creating a separate position within the executive team for a person who will focus almost exclusively on developing and managing strategic planning processes, generating strategic alternatives for the CEO and other C-suite executives to consider and, perhaps most importantly, acting as a mentor and change agent within the organization to facilitate effective execution of the chosen strategy.  While different titles for this position may be used, it is common for the role to be designated as the “chief strategy officer”, or the “CSO”.  

The CSO was the subject of an extensive study described by Breene et al. in an October 2007 article published in the Harvard Business Review.  Breene et al. began by going through a sample of large global companies to identify executives who were either considered, or considered themselves, to be the chief strategy executives within their organizations, a process that led to creation of a database of more than 200 senior managers.  In order to get a handle of what the role and responsibility of the CSO entailed, the researchers analyzed press releases and media coverage of over 100 CSO appointments and conducted in-depth interviews with CSOs from various industries and a divergent backgrounds. 

Breene et al. cited several reasons why more and more large companies are adding a CSO to their executive teams:  

  • Companies need to cope with an increasingly dynamic and unpredictable business environment that includes complex and sophisticated organizational structures, rapid globalization, new regulations and pressure to innovate.  A CEO cannot deal with all these challenges simultaneously and needs help on key initiatives such as strategy execution. 
  • Strategic planning is no longer done by appointment one or two times a year and, in fact, the consensus is that development of strategy must occur in a continuous, not periodic, process and that important decisions regarding the strategic direction of the firm must be confronted and made all the time. 
  • CEOs have realized that overseeing execution of a chosen strategy is a full-time job and that a CSO plays an invaluable role in explaining and interpreting the strategy to line managers and other employees and make sure that those people act in a manner that is aligned with the goals and expectations of the leadership team rather than their own definition of strategy.

The increased use of a CSO position can also be attributed to the lack of a suitable alternative within the traditional executive team structure.  Breene et al. noted that while it is true that the CEO is ultimately responsible for the “vision and strategy” of his or her company, the reality is that the CEO has too many other demands on his or her time to do justice to all of the activities assumed by an effective CSO.  Among other things, the CEO of a global business must deal with the challenges of operating across multiple time zones, cultures and regulatory environments.  CEOs of large companies must oversee a complex network of business units and alliances and keep up with new trends in technology and customer preferences.  The CEO must also worry about delivering short-term performance, a situation that makes it very difficult for a CEO, who is seeing his or her average tenure shrink, to take long-term strategic objectives seriously.  Breene et al. also pointed out that it is the CEO who must be the face of the company to a wide array of external stakeholders including shareholder advocates, members of the financial community, regulators and legislators, environmental activists and non-governmental organizations (“NGOs”).  Breene et al. reported that one study had found that, on average, top management spent less than three hours a month discussing “strategic issues”, including mergers and acquisitions, or making strategic decisions.

Adding “strategy” to the portfolio of other members of the executive team, such as the COO or the CFO, has been criticized by those who argue that those executives will likely be hamstrung by conflicts of interest.  Breene et al. quoted from an article published in the Harvard Business Review in 1979 in which an executive explained the difficulties a COO might have in overseeing “strategy”: “a fundamental conflict between what is easy to execute and what is right to execute often leads the chief operating officer away from the tougher decisions”.  This is not to say that all COOs will be unable to participate effectively in strategic decisions and execution; however, there will be issues to the extent that a COO is charged with delivering short-term operational results.  The CFO has a similar dilemma, particularly as the holder of that position has become the principal communicator to a financial community fixated on quarterly results.  It is easy for the CFO to get bogged down in explaining variances from earning estimates and neglect to emphasize long-term strategic initiatives and the competitive advantages associated with the company’s intangible assets, human capital and capacity to innovate.  While the aforementioned conflicts are real, it does not mean that a COO or CFO will welcome a CSO.  A CSO will necessarily intrude on traditional ways of handling operational and financial issues and Breene et al. pointed out that when a CSO is hired “[t]he CEO may need to do a hefty amount of evangelizing and relationship management to get the top team to buy in to this restructuring of the org chart”.

Breene et al. summed up the various reasons that companies have taken to creating a CSO position and assigning important and challenging responsibilities to the persons who are appointed to fill the role.  First, the CSO can proactively assume ownership of the decision making process for each new strategic opportunity that arises for the company.  This means that the CSO can bring together all the parties required to reach a decision and get them engaged in the opportunity from the very beginning.  Second, since their role is focused on strategy, CSOs have the time to reach out to the heads of business units throughout the organization to make sure they are acting in ways that are consistent with the company’s strategic plan.  Third, a CSO brings a strategic perspective to analyzing and assessing opportunities that might have otherwise been vetted purely from a financial lens.  Fourth, the CSO can assist the CEO and the rest of the company by developing and maintaining top notch strategy development and execution capabilities that include both internal resources and a sophisticated network of outside consultants.  Finally, Breene et al. point out that many CSOs are interested in the position because they would like to run the entire business at some point in the future and many of the skills required of a CSO are necessary for being an effective CEO.  As such, companies may use the CSO position as a tool in the overall succession-planning process.

Source: R. Breene, P. Nunes and W. Shill, “The Chief Strategy Officer”, Harvard Business Review (October 2007), 85.

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