“Every long-term strategic decision we either delay the discussion of, or do not properly approach in our board meetings, can lead to many short-term, reactive, and disconnected actions.” – Phyllis Yale, board member of Bristol Myers Squibb, DaVita Inc., Blue Cross Blue Shield of Massachusetts, and Aledade Inc.; advisory partner at Bain & Company
This comment illustrates the viewpoint of a growing number of corporate board members. When the National Association of Corporate Directors (NACD) recently asked over 500 corporate directors to list the top priorities for improving board of director (BOD) performance, strategy development and execution took spots one and two.
That strategy oversight is viewed as such a priority is perhaps of little surprise. Accelerated technological innovation, fragmentation of markets and proliferation of new business models, coupled with growing political, social and economic volatility, are spreading performance within industries, clouding competitive sets and disrupting sectors.
A McKinsey study found that the average span of a company listed in the S&P 500 is currently less than 18 years—down from 61 years in 1968—and that by 2027, 75% of the current companies listed will disappear. Strategic decisions are coming at a board level all the time—discussions about portfolio management, investments in digital capabilities, new business model ventures, etc.—and the need to assess and react in business strategy is more real-time and prone to disruption than ever. The risk of missing a strategic opportunity or threat can be as dire as missing a slip in compliance or governance. There is little reason to think the import of strategy will wane, any more than to expect the complexity of the business environment will decrease any time soon.
Interviews and surveys of BOD members and executives conducted by Outthinker underscore the fact that the nature of strategy design is evolving. Organizations are seeking to move strategy away from annual events to “always on” dialogues, in which BOD members are less often strategy reviewers but are instead collaborative problem-solvers, which means that management feels comfortable coming with questions rather than answers. Making this shift is naturally well-served by a professional experienced in engaging in the earlier stages of strategy development through these types of on-going, collaborative strategic dialogues—a chief strategy officer (CSO).
The Role of the CSO
Compared to c-suite roles like the CFO, COO, or CMO, the CSO is relatively new. Akin to the CMO role before the 1970s or the CFO role before the 1960s, the CSO role of present day is less understood and defined in comparison to other c-suite positions. Only 50% of Fortune 500 companies have a CSO. The responsibility for strategy and the role of the lead strategist are often represented under a number of titles, including chief transformation officer, head of innovation, digital transformation leader, business development executive, etc. Yet, the role has gained relevance in recent years and the outline of a more formal definition of the role is taking shape.
For this article, we use the most current definition of a high-performing CSO: the executive who performs the leading role in supporting organizations to set vision, goals, and choices based on evidence and data. The role often includes aligning projects, budgets, business processes, technology and investments. CSOs are also often charged with leading strategic partnerships as many organizations moving to ecosystems-based competition is becoming the norm. Performing this role well requires continuously monitoring new events and engaging decision-makers in discussions so the organization can realign or adjust paths. An effective CSO helps organizations connect dots between the dispersed signals, reach conclusions and make decisions to align corporate and operational activities to achieve long-term strategic intentions.
5 Key Competencies of a CSO
The specific functions a CSO performs depend on the organization, industry, and reporting structure into which the CSO or strategy office fits. CSOs may hold a variety of responsibilities including setting capital investments and divestments, partnerships and M&A, change and risk management, innovation and corporate venture, data analytics, performance management, internal corporate communications or heavy operational responsibilities.
Despite the variety of functions that compose a typical CSO role, a survey of CSOs from the Outthinker Strategy Network, a global network of strategy leaders from $1B+ organizations across industries, reveals five competencies that are associated with successful CSOs:
1) Pattern recognition: Recognizing patterns across environment trends, technologies, macro-economic changes, socio-demographics, and new business models
2) Problem framing: Framing contexts and problems in ways that lead to productive discussions
3) Informal influence: Influencing decision making and strategy implementation across multiple levels
4) Strategic governance: Balancing strategic choices with operational capabilities, financial priorities, and resources
5) Aligning strategy to action: Translating vision and priorities into action through transformation projects, mergers and acquisitions, new product development, venture launches, etc.
Three Misconceptions of the CSO
Through our research, we found several outdated misconceptions of the CSO profile persist. The stereotype of the strategy role as a rotational one, performed by an analytic thinker, pulled from a consulting or finance role, who has little operational experience or organizational acumen contrasts starkly with the profile of the modern CSO.
Here are three common misconceptions refuted by the realities of the strategy role:
1. CSOs lack operational expertise: In fact, most CSOs are responsible for operational efforts, getting deeply involved in integrating acquisitions, launching new products, coordinating transformation initiatives, and working across siloed operational units. Many develop strong operational chops from these responsibilities. Beyond this on-the-job experience, more than 70% of current CSOs held operational roles before being promoted into the CSO position.
2. CSOs don’t have experience with people and culture: Today, most CSOs are heavily involved in people, culture and organizational efforts, as these factors have become increasingly central to a successful strategy. For example, software companies are dependable on scarce talent for many emergent technologies. Outthinker Strategy Network CSOs in these segments are deeply involved in the development of people strategies that consider how to develop a culture and new talent to deliver on the strategy.
3. The strategy office is a transitional role: While the role may have been rotational in the past, today the average tenure of a CSO exceeds six years, based on an analysis of 777 current CSOs. The role is becoming a long-term functional career choice, akin to CFOs, COOs, CHROs and other c-suite members.
Fielding a Full Team
The corporate BOD members we interviewed recommended a reframe. While trends over the last two decades have led companies to bolster one set of skills on their BODs, it is important to complement these with another set.
BODs usually manage their competencies by carefully selecting their members. They identify vital skills, knowledge, perspectives, and capabilities and conduct systematic searches for individuals who bring these to bear. The goal is to round-out a full “team” that collectively addresses the complete breadth needed to guide the company.
Over the last two decades, events such as amplified regulatory and governance pressures after the 2009 financial crisis, the climate crisis, and growing cybersecurity risks have driven boards to seek out legal, financial, technological, and sustainability executives to fill important board roles. While recruiting board members with such skills is important, the board members we interviewed acknowledged that the recruitment priorities of recent years have put weight on internal controls and defensive risk mitigation.
But these same board members recognize that today’s fast-paced and uncertain competitive environment demands pairing such internal control orientations with the kind of forward-looking strategic orientation commonly found in the modern CSO’s toolkit. While spotting, understanding, and moving on emerging strategic opportunities has always been important, the risk of missing such opportunities is increasingly viewed as a critical risk. Board members we interviewed expressed the importance of ensuring productive conversations about strategy between board members and management.
How Boards Can Best Leverage a CSO Member
A high-performing board of directors must reach beyond a fiduciary role. That, in turn, demands trust between BOD members and management, which is a requisite context for the kind of open dialogue which enables the BOD to serve as strategic partners, balancing support and supervision. The public board members we interviewed for this article shared that they strove to do much more than attend annual strategy offsites or review strategic plans that were already fully baked and packaged. They want to engage in strategy before the strategy is set, to be part of the formulation and not only the blessing, to wrestle with questions during the early stages of strategy design and not only pressure-test the answers after management has arrived at them.
The kind of dialogue BOD members say is needed in today’s uncertain business context suggests a board should look for a CSO that can contribute in four ways.
1. Increase strategic acumen
Experienced CSOs are required to leverage knowledge from diverse backgrounds and perspectives to get a comprehensive understanding of opportunities, risks, and trade-offs and guarantee minimal buy-in for execution. To be effective in the strategy role, they have learned how to frame questions in ways that open new possibilities.
In an interview with Gregory Goff, former CEO of Andeavor and climate-focused ExxonMobil board member, echoed that sentiment: “Good directors inquire. They ask questions and make us think about things in new ways.”
2. Add an outside-in perspective
Many research studies have shown that a board’s efficiency increases when it does not allow an inside-out perspective (or the focus on efficiency, process, and resources) to cloud the outside-in view of macro-environmental trends, customer tendencies, the emergence of new business models, competition, etc. Experienced CSOs will have developed a sense of the external forces that influence the future of the business. They not only bring an understanding of the trends within their industry, but must, in their role, develop the peripheral vision to be familiar with trends across other sectors that may become relevant—always supporting their projections with models, data, evidence, and narratives to help stakeholders appreciate the implications of such trends.
The CSO can challenge management constructively to think about missing facts, perspectives, and approaches that can strengthen strategic decisions. For example, during the COVID-19 pandemic, many companies were immediately separated from clients in traditional channels. Those that succeeded were the ones that were able to engage with alternative external ecosystems, solution providers, and even competitors to offer new channels to their clients, instead of trying to develop their own solutions that would take time and resources and would not amend the immediate impact caused by the pandemic. CSOs in BODs can be the ones pushing for these alternative arrangements based on a good understanding of the external forces
3. Raise healthy tensions
CSOs are usually awarded for clarifying a future vision and helping organizations move toward it. This means that they often clash with other important decision-makers whose views, driven by a natural pull to the status quo or short-term objectives, are not supported by long-term strategic logic.
Naturally, such tensions emerge at the board level. Effective CSOs will have built the interpersonal and political skills to leverage such tensions, to help ensure they lead to better decisions. For example, it’s common for organizations to discuss investments in new business or digital models, necessary to position organizations to an emergent business environment. But these investments can take a long time to mature and are highly susceptible to failure, in which case organizations are usually pressured to stop them. An experienced CSO would approach this tension looking for the cost of learning, or, the minimal conditions to keep the organization learning about this emergent business context, acquiring new competencies and tacit knowledge that can become a key resource for future investment decisions in the field.
4. Act as a thought partner to strengthen strategic narratives
Many BOD members we spoke to expressed a concern that management not fall into the trap of turning the BOD into reviewers and approvers of strategic plans management has already agreed on. There are several risks to this approach. First, it leads to higher-risk strategies which, once approved and funded, rob the company of the freedom to evolve by making small bets, learning, and adapting. Second, it robs the company of the opportunity to inform its strategy through the experience and intuition of its board.
A company with a CSO or former CSO on its BOD will enjoy a member who can more naturally lead conversations toward battle-testing assumptions and exploring alternative paths. Experienced CSOs are used to performing data-backed analyses to develop strategic propositions and recommendations. On BODs, this experience allows for healthy inquiry to increase the robustness of strategic decisions. Also, multiple iterations of such strategic conversation can increase psychological safety and mutual accountability between management and BODs, which a plethora of research shows leads to better outcomes.
An experienced chief strategy officer offers critical skills that make them a good fit for inclusion on today’s board of directors. The CSO role is less understood than more mature c-suite roles such as CFO, COO, or CHRO, but a background in the strategy role polishes the skills needed to effectively contribute to a board in today’s fast-paced competitive landscape: an ability to connect the strategic dots and link them to a broad perspective of the operational and strategic elements of the business, paired with an ability to balance opposing viewpoints and influence without direct authority to align the business to long-term strategic trends. While recent evolutions of board makeup have rightfully prioritized internal controls and risk mitigation, the emerging demand of the board to help navigate a fast-changing environment means that those who have held the strategy role possess skills critical for a well-rounded and high-performing board fit for the future.