BRG CSO Consortium Exchange: Q3 2016
Eleven chief strategy officers (CSOs) from major global companies met by phone to share leading practices and discuss topics of mutual interest based on an agenda created through advance interviews. The group represented a cross-industry perspective including healthcare, retail, pharmaceutical, staffing and HR management services, film, railroad, educational services, and financial services.
Quotes of the Day
“We are looking at complexity, whether it’s of products, distribution, or a range of customers, and trying to take a lens on whether reducing that complexity is advantageous or whether there are tools that could manage that complexity in a way that creates robustness. [That is a change from] how we might have looked at it five or ten years ago, given the role technology continues to play in allowing you to stitch together and manage complexity in different ways, in the face of uncertainty.”
“There is always going to be inherent tension between CFO and chief innovation or growth officer. There are never enough resources to go round.”
“A big part [of securing innovation investment is] making sure that, at a leadership level, they understand what these investments are designed to do [and that,] in some cases, the value will be created in other parts of the organization.”
“There is no right answer [in the innovation space], no single thing that is going to be successful. Markets are all being disrupted in different ways … the only thing I can be relatively certain of is that whenever we start one of these exercises, whatever plan we drew up is wrong before the ink was dry.”
Scenario Planning and Risk Management in Uncertain Times
- Members shared views on planning tactics and risk management, with a focus on scenario planning and links to enterprise risk management (ERM). Destabilizing factors cited included the Brexit referendum and the upcoming US presidential election.
- To avoid an infinite number of combined variables, one member uses only two five-year outlooks: a positive and a negative. They establish a series of “no regrets” moves that benefit either scenario. It was noted that predicting what will happen in the next five years is less important than the discussion around what actions to take.
- Members agreed that the hardest decisions apply to only one scenario. Expert help—internal and external—is needed to manage these. It was noted that “no regrets” decisions often relate to the macro/enterprise level, while those that apply to only one scenario are often sector or market specific.
- BRG asked what events might alter a five-year scenario. While it was agreed that changes to macro/enterprise-level plans would be unusual, exceptions cited as examples were Brexit, major mergers, and political and regulatory changes.
- The group discussed links between scenario planning and ERM processes. In most cases, risks identified by scenario planning are prioritized and fed into the ERM process. Close links between ERM and strategy are seen as strengthening both. For several CSOs, ERM is co-led by audit and strategy.
- The ability to identify and make investments that would allow for greater future optionality, or “agility investments,” is seen as an underdeveloped strategy, with one member describing themselves as “neophytes” in this area.
- It was suggested that companies may begin to see complexity as an advantage. This is due to the pace of digitization (externally and in internal operating models) and the creation of environments where networks are seen as having inherent complexity, plus flexibility and robustness. In certain cases, this may be more useful than fully optimized near-term plans.
- The group shared organizational innovation experiences. The conversation highlighted the importance of personal and project relationships for innovation success, with one member saying their key learning has been that most issues come down to whether you feel comfortable with the team you are investing in—internally or externally.
- The conversation also indicated a trend toward corporations becoming the new venture capitalists (VCs). The shift raises questions about how this might change the innovation space, including: Do corporations and VCs have different investor perspectives? Will the entry of corporations change ROI/success timelines? What are the emotional impacts of having a corporate-startup sponsor relationship, versus a VC-startup one?
- One CSO shared an overview of their two-year organizational innovation project, coupled with top-down restructuring. The key learning from the project was that substantial capability investment only bears fruit once vision, strategy, and culture are aligned. Until then, success only happens at the edges.
The member’s sector had been massively transformed by continuous digital disruption and dramatically changing consumer expectations, leading to a top-down restructuring. The innovation project involved investment in critical capabilities, such as data and analytics, and the first-time establishment of a “discrete” innovation capability (which the member now leads), as well as the ingress of seasoned intrapreneurs and entrepreneurs to accelerate capabilities and learning. Some new personnel (who came from places like Amazon and PayPal and/or had been serial entrepreneurs) came with ready-made businesses that could be exploited to accelerate the strategic innovation agenda. The company has also invested in critical partnerships with MIT Media Lab and Techstars.
The CSO said the restructuring was largely successful, but the communication around it was less so. The result was that the company had to spend several months retelling the story of why it had changed and helping people connect with the new strategic agenda and new culture and growth visions.
- One member said that while they aspire to be an organization that drives company-wide innovation, decentralization of the innovation agenda would be premature given current capability. Therefore the bigger “game changers” are, for the foreseeable future, centralized and strategically led by the innovation practice. The practice then pulls in business owners with domain expertise for (and who may be ultimate beneficiaries of) specific projects. This is coupled with heavy investment in documenting and disseminating best practices to improve day-to-day decision making within the core business.
- One member said they received appropriate funding due to the nascence of the company. This was helpful to define areas of exploration and exploitation, and a great deal of attention was given to budget methodology and defining how project decisions are made. This ensured the CFO and board had enough confidence in the judicious use of resources to allow the innovation team to take “leaps of faith.” This strategy supported a broader “unlocking” of innovation and revenue generation, both inside and outside the company. For example, this might be simply a dramatic reduction of the SG&A cost base.
- One CSO said handling communications with other leaders, particularly those being requested to tighten belts or stop “being exploratory,” is a balancing act. It requires support from the top and explanation of innovation’s role and benefits to holistic enterprise wellbeing. It is also imperative that explanations of who is best equipped to innovate are carefully communicated.
- Other members added that it is essential to manage the leadership team’s expectations, as it can be hard for them to understand investments in projects without clear ROI or definite business plans; ensure that leaders understand what innovation investments are designed to do; and demonstrate that the value being created might ultimately be realized in a completely different part of the organization.
- Discussing the startup investment timelines, one CSO with experience in early startup involvement said that, while there is money to be made, it can take five to six years to find out whether the market has traction. More recently, the CSO has pivoted from early investments toward later-stage ones. They also suggested members ask themselves whether they are the right entity, in the right innovation space, at that time.
- BRG raised a question around incubator relationships. For one member, this boils down to an ability to stand back and be “more scientific” with smaller/earlier-stage investments—essentially allowing the company to make its own way, while the innovation teams gathers information. For later-stage/bigger investments (anything over $5 million in this case), business unit involvement is a prerequisite.
- The idea of having chief strategy and innovation officers was raised. It was agreed that strategy and digital seems to mesh well, as so much innovation is related to digital. It is also felt that CSOs must be growth architects, defining vision and its enablement. However, another member said that departments should be encouraged to take innovation ownership, with, for example, Marketing becoming the leader in digital marketing initiatives.
Meeting and summary notes protocol
This BRG CSO Quarterly Consortium session was held under the Chatham House Rule, which reads: "When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed."