Six Business Challenges that Lie Ahead for the CTO
Six Business Challenges that Lie Ahead for the CTO
This article describes six roles of the Chief Technology Officer （CTO） from a practical viewpoint.
As AI and big data-based digital transformation rapidly becomes more and more important in corporate activities, the importance of the CTO, who manages such key assets as technologies, will increase but never decrease. As a member of an executive team, the CTO will intensively engage in management judgement and execution in a broad domain across three areas of product services offered, including science, engineering, and business. In recent days, as a result of data and AI computing-oriented development approaches and worldwide recruitment, new management factors including geographically distributed development cannot be ignored, and CTOs are facing business challenges that they have never faced before. In this article, I will explain six roles of the CTO from a practical viewpoint.
Please note that the opinions described here are based on my personal views.
- Point 1: CTO roles that will become increasingly important
In addition to technical development, a perspective on management of technology is much more important..
- Point 2: The universality of CTO roles that go beyond technological area
Regardless of the technological areas managed, the management that the CTO should exercise is common.
- Point 3: Technology development rapidly changes and evolves, and is implemented on a global scale
Continual action is required to stay at the cutting edge.
- Point 4: Approaches that lead to success while tolerating “failures” are required
Development approaches assuming rework and obsolescence in technology development are required.
I. CTO roles that will become increasingly important in the future
Not many companies officially establish a CTO position, and it appears even companies having the said position often assign the head of the development and design unit as the CTO.
It is safe to say that leading development and design itself is one of the key elements of a company’s technology-related business operations, but a CTO’s job goes beyond this. In a word, the ultimate role of a CTO as a member of an executive team is to manage and direct people, products, and capital in an optimal manner, and make technologies management assets for the company, but this actually requires various other management elements. The domain supported by a CTO is very broad and covers three areas, science as a fundamental principle of the product services offered by a company, engineering that commercializes the fundamental principle, and business to run and operate enterprises （Refer to Chart 1）.
Chart 1: The domain supported by a CTO
Some product services may require a CTO to cover a broad scope of technologies, ranging from nanotechnology such as semiconductors for systems, to cloud, AI, and big data that use global networks. The scale of an annual development budget also ranges from millions or tens of millions yen to multibillion yen or more for large-scale development.
In addition, the time-to-market required for development and design varies in length, sub-project groups have dependencies, or the premises originally established at the project kick-off may change during a project period. A small development budget or scale doesn’t mean implementation is easy. Needless to say, we will face various difficulties in any project.
II. Six Business Challenges
Business challenges that CTOs may face on a daily basis are divided into the following six categories.
- Management of a development investment portfolio
- Supervision of development teams that are often organized in distributed environments at a global level
- A more proactive examination and execution of investments in technologies than the CEO and business units
- Exit from outdated technology assets or so-called tech debts, and migration to new assets
- Development design management that occasionally requires a contingency strategy
- Management of development environments with a potential diversity in engineers’ preferences and opinions
1.Management of a development investment portfolio
Technologies evolve on a daily basis, so a policy decided last year may not necessarily be maintained in a perfect state. Also, any disruptive events can happen to defy the conventional wisdom. Specifically, if a significant change of technology infrastructure is expected, upgrading a development investment portfolio as usual compared to the previous year may not suffice.
As we know it today, the transformation from on-premise environment to cloud environment is a typical example. The closer a change occurs to the foundation of technologies, the greater the impact. With this in mind, a CTO must rearrange people, products, and capital in a proactive and forward-looking manner. As changes in underlying technologies trigger non-technical issues related to internal processes and rules, industry rules, and relevant laws and regulations, a CTO will resolve them with other C-level officers.
How we acquire what is lacking for an in-house development is key to managing a development investment portfolio. There are a series of options, including the acquisition of an entire company through M＆As, absorption-type mergers as represented by Acqui-Hire （M＆As primarily for the acquisition of human resources） to primarily acquire technical capabilities, takeover of other companies’ products and services by licensing-in, development by another company in a group, and in-house development. Each option has advantages and disadvantages in general, so a CTO will likely be put in a difficult position in making business decisions on which option to choose. While risks and advantages can be analyzed for respective options and transparency will be provided in the decision-making support, CTO can minimize the effects of contingencies arising from temporary environment changes by making judgments from a mid- to long-term perspective.
2.Supervision of development teams that are often organized in distributed environments at a global level
It is no longer easy to organize a sufficient structure for establishing a software engineering and scientist team equipped with technologies including computer science in Japan alone. Therefore, many development and design offices are established in overseas cities where leading universities are based. As remotely located offices lead to individual optimization, many small and large issues are identified as a whole.
Having conference calls for a concurrent development performed in three offices in different time zones is no easy task, so a creative solution of sorts will be effective, such as working on a certain development theme with a location group limited to about two time zones. As each country has different holidays and new year schedules, scheduling service releases in view of such differences could improve the success rate of development.
Geographical distribution also means that common wisdom and rules may conflict. For such global collaborations, it is recommended to frequently check a targeted goal and share its background. Particularly for a large-scale development project, once it is kicked off, even a CTO will have difficulties in correcting a course against its momentum. Therefore, in addition to kicking off a project with deliberation, it is recommended to plan weekly, monthly, and quarterly events in advance with the purpose of checking the progress and issues, and correcting the direction as necessary. By doing so, project members can prepare information for these events. Further, adopting flexible rules and operations that allow for a budget reallocation during a period can be a good measure for improving the project success rate.
3.A more proactive examination and execution of investments in technologies than the CEO and business units
You can easily imagine it is too late to develop technologies only after a business unit demands them. One of the key roles of a CTO is to be one step ahead of anyone else in a company in terms of technologies required in the future. To this end, either outside sourcing or in-house development will do. It is essential to accumulate technology assets that will enhance your company’s competitive edge in view of various factors of expected changes in markets, technologies, and legislations.
I also recommend that you always keep an eye open based on the CTO’s various personal connections, and be the first to identify signs of potential changes. Social media posts of friends and acquaintances who are conscious of new technology are very helpful, and understanding the statements of industry opinion leaders and their background “insights” will enhance your own insights in looking ahead to the future.
When I look at social media, I realize cutting-edge technologies are often mentioned by the same person. Thus, it is recommended to pay attention to such “edgy people” in each technology area.
As for emerging technologies, there is usually no case of adoption in other companies so a risk assessment is not easy, and the vision leading up to implementation tends to be unclear. Only adopting technologies proven in other companies limits the possibility of differentiating the products and services created by your company, and this will not enhance your technological edge. The preemptive adoption of new technologies is also one key role as CTO.
4.Exit from outdated technology assets or so-called tech debts, and migration to new assets
It is challenging to break away from so-called tech debts or outdated technology assets that are still being used in business units, considering many internal stakeholders. However, unless the CTO exercises leadership to make them understand that the migration to an alternative new technology will bring more advantages than the currently used technologies, existing users will not migrate to new technology assets due to their strong momentum. I assume that, in most cases, an annual budget will be fixed in the order of more certain cases, or based on the operating costs of the current system.
The CTO should set aside a budget for the system to discontinue, meaning the budget to exit from the legacy system. A management approach to shift the internal momentum toward new technologies might be required by internally declaring the termination of a system, for example in three years or so.
As opposed to the concept of tech debts, many excellent technical capabilities and insights technologically evolve and are handed down from competent technologists to those in the next generation. To establish a robust technology team, a CTO should also provide opportunities for next-generation talent to demonstrate their abilities, and create operations for them to gain capabilities and experiences as next core technologists.
5.Development design management that occasionally requires a contingency strategy
In the case of a challenging technology development, the commercialization of all components is not assured 100%. I mean, you must always bear in mind that “failures” will occur. As CTO, you should bear in mind the correlation between development components and the level of difficulty and constantly seek alternatives for difficult components on a daily basis.
Development components planned may lose significant value due to new technology and product releases. In such cases, you may need to refine the development design, including a large-scale rework. You may also find out that a simple change in adopted technologies, as well as different resources who can use new technologies, are required. If a CTO can predict an emerging new technology, he/she should be able to adjust the management resource portfolio in advance, including existing resources. So the responsibilities taken on by the CTO will not be small.
If you are conscious of contingencies on a daily basis, you will be able to stay calm and address any actual events, so day-to-day information gathering and desk simulation is key. For a giant project, a CTO cannot figure out all contingencies on his/her own, and therefore it is essential to make managers in each technology area conscious of always being prepared for any contingencies.
6. Management of development environments and styles with a potential diversity in engineers’ preferences and opinions
In software engineering established based on computer science, new tools, languages, and development environments and styles are proposed on a daily basis. Although each has its own advantages and disadvantages, engineers’ personal preferences make this matter more complicated.
Engineers usually want to use trendy tools or something buzzing in the media, and their responses are absolutely valuable in terms of incorporating new system and functions internally. Therefore, it is better for us to avoid outright refusing something new. On the other hand, we do not want to think twice about implementing anything with insufficient qualities and immature functions, which are common in new things, in a commercial system. You can provide judgment criteria to your teams by establishing the procedures leading up to an official introduction, from defining a pilot project and conducting a verification test to officially introducing tested tools.
Although there is no correct answer as to how a CTO should manage this, there seems to be no other way but to set a clear goal as to what a development project intends to achieve, and encourage stakeholders to have constructive discussions. Such discussions should not be based on subjective views, such as likes and dislikes regarding tools, languages, and development environments. Rather, it is recommended to encourage technology experts to conduct analyses and draw a conclusion from objective viewpoints, including good/bad, useful/not useful, or effective/ineffective.
As described above, I divided the business challenges faced and addressed by CTOs into six categories to explain each challenge and propose solutions. A group of technologies managed by a CTO is usually individualistic, as it reflects the uniqueness of each company. For a business that develops product services comprising various technology areas, a structure of human resources tends to be diverse. Management of “people” with diversified talent, as well as the transfer of technologies to the next generation, is one of the key roles of a CTO. This is a difficult issue with no general answer, but even if we enter an age where AI will be performing various tasks, human resources will continue to play a leading role in companies. Therefore, the roles of a CTO who manages excellent technical talent will become more and more important in the era of AI.
CTOs make decisions on and operate business related to three broad elements, science, engineering, and business, on a daily basis. The underlying “technology management” elements will not change significantly and will remain as the responsibilities of a CTO, even if a shift occurs in the parameters of technology management, including industries and business fields, target product services, scale of development and budget, and development period. I hope this article will be useful for those who engage in management of technology, including CTOs.
KPMG Ignition Tokyo
Partner Masayuki Chatani
*Professional affiliation and official position in the article are at the time of publication.
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