Chief Strategy Officer: Promotion or Demotion?
This piece is based on my own experiences when I left as a partner and that of many colleagues who left as principal or partner, and took roles as the chief strategy officer or head of corporate strategy and planning.
Note that when I say chief strategy officer, I am referring to the senior most level where you are working with the CEO and his executive committee. I am not referring to leading a smaller strategy unit within a division of a bank or a company. I am only looking at the senior most strategy officer who has the ear of the CEO. Though, the insights apply just as much to all levels of strategy leaders.
In terms of full transparency, I have been offered such roles. I have declined them, politely, for the reasons I will mention here.
Let’s look at an example of a colleague who joined a large industrial conglomerate. I have changed some details to hide his identity since he is still in this role.
Luis was a McKinsey strategy principal specializing in manufacturing and advanced materials. He had the typical career path from FMCG/CPG to a top school in Europe and then 7 years at McKinsey. He was a solid partner who was capable, friendly and well liked.
He was head hunted to take over as a chief strategy officer at a rapidly growing diversified European conglomerate. The company was growing so fast that the board wanted the CEO to ensure the appropriate rigor was being applied to strategy, growth, investment and efficiency measures.
When I spoke to Luis before he made this decision, I voiced by strong concerns about the enormous limitations of the chief strategy officer role. To avoid repetition I will discuss my concerns at the end of this piece. Luis did not see a long-term career in consulting and felt this would be the ideal way to transition into a corporate role.
Just to be clear about this, 90% of BCG and McKinsey partners are considering operating roles. At a certain point partners no longer want to advise, but want to control the situation.
Every single consultant, except the most senior partners or lucky junior consultants (analysts, associates etc.) will have to enter corporate through some form of role in the internal strategy department.
Luis took the role and I did not hear from him for about 9 months. I sent him a short follow-up message and he responded asking to speak, seeking some advice on his career.
This is what happened to Luis
At first, all was fairly wonderful. Luis inherited a team of 5 and was allowed to build this up to a team of about 10 people helping him think through issues important to the company. Luis had spent time in his first 2 to 3 weeks touring the divisions to understand the major issues facing the company.
After his travels, he returned, fairly excited at that, and wrote up his views on the problems/opportunities the company was facing. The genesis of his argument was the company was investing a ton of cash in businesses that generated a good but not great return.
Moreover, the conglomerate underestimated the amount of investment needed to take substantial share in each of these markets. Luis believed the company was investing in too many initiatives, none they could fully see through to completing, and many were low margin endeavors.
Luis raised this point with the CEO who asked him to address them point by point with the CFO. Though the CFO listened carefully, nothing really happened.
Luis was encouraged to help build a screening process to assess future acquisitions. Luis reasoned that if his team built an effective screening process for M&A they could prove their worth and be given access to broader leadership discussions. At this point, it is important to remember that the company was still moving well ahead with their program of acquiring and integrating a bucket load of companies.
Luis worked with his team to build a new M&A process. I have not personally seen his approach, but given that he was a partner and M&A processes are not complex to develop, it is fair to reason he probably delivered a lot of value.
Again, Luis was asked to brief the CFO on the process and, thereafter, present to the management committee by facilitating a daylong session to get the leaders of the business units to rethink their approach to M&A.
The process went well and Luis felt he had allowed the divisional leaders to explore a new more effective way to think through the process of identifying and integrating new acquisitions. Despite expecting time to educate the board on his approach, Luis was, thereafter, tasked with coming up with a post-merger integration approach all the divisions could use.
The post-merger work was positioned as an outcome of the successful management committee meeting. The CFO and CEO mentioned that given how much interest he had stirred among the generally impatient operating leaders, Luis should use this opportunity to help them with the integration and, therefore, build better relationships.
Luis went ahead and began a fairly large internal project to have his team map out the full sequence of steps divisions would need to follow to complete the integration of acquisitions.
The work was complex since different divisions had very different integration considerations. As a diversified conglomerate, each of these considerations had to be mapped out and a solution developed.
For example, sectors like insurance faced different needs versus sectors like textile sales. Within sectors, different countries had different legislation. The operating systems for technology differed across regions, countries and divisions. Labour standards were uneven and the operations adhered to global guidelines to varying degrees: some did while others routinely ignored them.
Is Luis frustrated? Yes, he is. He joined as the chief strategy officer with the intention to help a rapidly growing conglomerate chart its future. He expected to be working with the CEO and board to think through where the company should operate and what should be their next move.
Unfortunately, he was working on the operational side of business development: target screening processes and post-merger integration.
In fact, BCG had been appointed to help the board determine if they should bid to enter the power sector. To Luis, this felt like the ultimate insult. After all, that was meant to be his role.
To understand what happened and what chief strategy officers do, we will unpack this with a set of questions.
Did Luis make the right move joining as chief strategy officer?
Luis absolutely made the right move joining as chief strategy officer. Given his background and lack of operating experience, this was the ideal role. This role was perfect for two reasons.
First, it helped him directly leverage his prior experience as a strategy partner. Second, it allowed him to learn about an operating company before taking on an operating role.
In a previous piece and podcast I discussed why internal strategists are not given as much respect as those working on the operating side of the business. I will not repeat those points here. What is crucial to note is that moving from consulting to internal strategy, en route to an operating role is a good path to follow.
However, moving from an operating role to internal strategy is, 9 times out of 10, the end of a career. For a very senior person at the operating, executive or management committee level, moving to strategy is always a move to sideline a person’s career.
I cannot think of a single executive, that I personally know or in the media, that moved from a major operating role into the strategy advisory role and it improved his or her career.
Moving from running a profit center with thousands of people to running a little cost center think-tank with 20 people, if you are lucky, and a personal assistant leaves you with little room to influence a company.
There are surely people who have made the move work. I would say they are the absolute minority and they had unique skills to understand the limitations/punishment of their move and find a way out of it.
If Luis made the right move from partner to chief strategy officer, why did it fail? The reason is simple: no two chief strategy officer roles are the same. Beyond the title, you need to consider many items when making this decision.
Where there mismatched expectations?
When a CEO wants to bring a chief strategy officer, does he want him/her to conduct high-level corporate strategy or merely inject the skills of a consulting firm into an organization?
In many ways, this was a failing on Luis’s part. While he had a discussion about the changes taking place at the company, and the company’s priorities and issues, he assumed the company’s priorities would mirror that of the chief strategy officer.
That is a common mistake we make when accepting these roles, or any role for that matter. We assume our understanding of a role is the same as that of the hiring party. In this case, that would be the CEO.
Luis went in thinking that if his title was chief strategy officer that it was reasonable to assume his priorities would mirror that of the company.
It would have been much more effective for him to have a candid discussion about some of the priorities the CEO wanted him to tackle once he arrived.
What is good strategy advice?
You may not have picked this up, but Luis was being forced to report to the CFO and Luis did not have a seat on the board. This is a problem since the board makes strategy decisions. It is a myth that the CEO makes the decision.
The CEO can recommend a strategy but the board must endorse it. By having Luis report to the CFO, it indicates that the CEO assumed the strategy work was finished when the analyses was done. The CEO assumed that once the analysis was handed over to the CFO, everything would click into place and the recommendations would be accepted.
This demonstrates two problems.
First, given the reporting line to the CFO, it was fairly clear Luis would be doing a lot of business development work. That explains why he was being asked to report into the CFO. Business development is interesting but it is not strategy. Being able to determine the viability of acquiring a paint company and extracting value from the asset is not even close to understanding how to reorganize a bloated conglomerate.
Business development can be highly numbers oriented with M&A target screening or very operational around securing sites and integrating assets.
This shows a common misunderstanding about strategy on the part of the CEO.
Second, Luis was not on the board. When the complex strategy decisions where being discussed, he had no way of influencing the decision. Good strategists have the analyses on hand but also the skill to explain their points and test the pulse of the board.
They, thereafter, alter their approach to explain the best course for a company. It is a common myth to think strategy is all about analyses. That is the starting point but the ability to communicate is far more important.
If you are not on the board of a corporation, irrespective of the title chief strategy officer, you are not influencing the corporate strategy.
Is a brilliant insight enough to influence a company?
A brilliant strategy is usually counter intuitive. If it is not counter intuitive we typically respond by claiming, “anyone could come up with this.” If a strategy is counter intuitive, then it requires significant “selling” or convincing of the management team.
This raises two very important considerations when taking chief strategy officer roles.
First, a chief strategy officer, assuming they are lucky enough to do corporate strategy, must be able to influence the operating units and management committee. That is pretty tough to do because the operating units do not report to the chief strategy officer and, therefore, would likely ignore him or her.
The operating units also do not report to the CFO and usually do not pay that much attention to him or her either.
Influence is driven by respect, power, credibility and impartiality.
The point about impartiality also explains why external firms like BCG will always do the corporate strategy work even with a chief strategy officer present.
It is extremely naïve to think that just because someone is credible, they will be listened to. The world just does not work that way.
Imagine you are the divisional executive vice president of a $2B unit being told that the only way for the company to succeed in the future is that if you lower your growth targets so that another unit could use the cash to grow?
No executive vice president is going to do that unless it came straight from the CEO, and even then, some executives do not listen. Most chief strategy officers fall into the painful trap of trying to be too logical. They assume that there is some brilliant piece of analyses that can convince the executive vice president.
There is none. The chief strategy officer can never ever know more about the division than the executive. The chief strategy officer may be able to see an additional insight, but that is not going to change the executive’s mind because the resistance to change is not driven by the validity of the answer.
This is about understanding power structure within a conglomerate and understanding how economic decisions affect an executive’s overall positioning with a company.
A great chief strategy officer will, therefore, recommend a strategy, which creates economic value while considering the personalities of the key executives. This is a very practical point because in strategy studies it is widely overlooked.
When I was an associate I once worked on the reorganization of a massive oil company. The analyses recommended that the CEO centralize decision making to reduce waste and inefficiency. On paper, this was a sound analysis. However, in the first meeting the CEO called, none of the 3 operating division presidents arrived.
The operating division presidents were powerful, controlled the assets and had the support of their employees. The CEO had no power to compel them to attend and could not fire them because the turmoil would have led to an even larger drop in productivity.
In this situation, an economically sound strategy did not consider the personalities at play. The CEO eventually resigned because he could not control the operating units.
It took 9 years for a new CEO to come in and implement the strategy by offering the operating heads a change in their power base, but not a reduction of their power.
It is far too easy to get entranced by spreadsheets about enterprise value and economic profit, but you need to be able to understand how the strategy changes impact the organizational power structure.
Anyone losing power is going to fight the changes. Therefore, they must be offered something of reciprocal value or they will hold onto the status quo.
The crucial point is that unless the chief strategy officer sits on the board, or can influence the CEO, he will not be able to recommend such tactics.
Who is responsible for corporate strategy?
It is the role of the CEO and board to set strategy. Period.
Even in a company where the chief strategy officer is celebrated and comes the closest to setting strategy, he is not doing it.
Think about this in practical terms. Do you really imagine this chief strategy officer comes in from Monday to Friday and sits with his team to plot and plan the future of the company? Do you think that 4 months later he asks for time to present his final thoughts to the CEO?
The best a chief strategy officer can do is to serve as a sounding board for the strategy discussions taking place, facilitate the discussions or analyze discrete areas for the CEO or board.
To put this in perspective, remember that the CEO cannot institute merger discussions without the board’s approval. If the CEO cannot do so, why would the board allow the chief strategy officer to control strategy?
Therefore, the chief strategy officer is really a wise ear for the CEO. That is why you typically see two types of strategy officers.
The first type is usually grizzled veteran of the company with 20 or 30 years experience. They typically do not want the stress of an operating role but know enough about the company and have sufficient credibility to help the CEO think through issues.
The second type is a usually younger ex-partners of BCG and McKinsey. This type is usually brought in when the company wants to run a series of operating interventions, which require a high degree of energy. A new metric needs to be rolled out, process efficiencies need to be created or a new operating model must be created.
Sadly, this requires a lot of work: typically not what chief strategy officers had in mind when they accepted the position.
The first lesson is not to be enamored with the title of chief strategy officer, head of strategy or even strategy analyst. Many companies use the titles as bait to lure in talented consultants and even their own employees. Be critical about evaluating the actual on the job responsibilities you will have.
Second, unless you can personally see some unique way to leverage a strategy role into a better operating role, never ever give up an operating role if you intend to stay in corporate for a long time. There are some unique exceptions to this.
Earlier in my career, when I was a consultant, the newly appointed CEO of a power producer asked the firm to second a consultant to serve as his chief of staff for about 6 months. I was given that role. Chief of staff is a fancy word for executive assistant to the CEO. In many ways I was his personal number cruncher.
That was a good role. Not many consultants get to sit in on board meetings at the age of 24!
If you work in operations and have the opportunity to serve as the chief of staff to the CFO or COO, it is not a bad idea, provided you are at a relatively early stage of your career.
Third, remember that strategy consultants tend to come in on a back foot in a corporate setting since we have little operating experience and tend to play up our analytic strength. It is important to focus on building your communication, influence and listening skills. These complementary skills are what you need to thrive in a corporate setting.
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Image from Trey Ratcliff under cc, cropped.