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New CTO Study released: CHIEF TRANSFORMATION OFFICER (CTO)
Game-Changer for Successful Transformation!
Click on the “Download” button to download the study brochure free of charge
Many companies are facing the major challenge that the conditions in their industry are fundamentally changing. They must respond to the challenges posed by digitalization, sustainability requirements, changed market and competitive conditions, or a shortage of skilled workers. To remain successful in the long term, it is necessary to adapt to these changes, i.e., to transform. A transformation is a holistic task that must include aspects such as strategic realignment and business model redesign, cultural change, organizational development, and project management.
Especially in medium-sized companies, management often reaches the limits of its capacities and in-house expertise when facing this challenge. Appointing an experienced, implementation-strong Chief Transformation Officer (CTO) offers a way out. A CTO is an expert who provides interim support to companies in transformation situations. Unlike classic restructuring and special situations where a Chief Restructuring Officer (CRO) is deployed, transformation ideally begins well before an (earnings or liquidity) crisis becomes acute. Since CTO and CRO thus operate at different stages of corporate situations and are tasked with different focal points, the role of the CTO represents a new professional field that is gaining importance against the backdrop of accelerated change.
The objective of this study is, therefore, to scientifically investigate the role and deployment possibilities of CTOs. In addition, the ideal personality and competency profile of CTOs – also in contrast to CROs – is described. This study is aimed at all managing directors, executives, shareholders, financiers, interim managers, and consultants who shape transformation processes in companies. We are convinced that in a world that is changing ever faster, transformation competence will become a key competence and the role of the Chief Transformation Officer will become increasingly important.
The strong and positive response to our study has shown us the high importance of the topic for the industry. We thank all 520 participants as well as the associations DDIM (Dachgesellschaft Deutsches Interim Management), TMA (Turnaround-Management Association Deutschland), and the Fachverband Sanierungs- & Insolvenzberatung des BDU (Bundesverband Deutscher Unternehmensberatungen) for their kind support.
Warm regards,
Your Author Team
Prof. Dr. Henning Werner,
Dr. Johannes L. Sauerwein,
Georgiy Michailov,
Michael Hengstmann
“Only those who react at an early stage keep the “reins of action” in their hands and can act in a self-determined manner”
Executive Summary
Successful Transformation Requires the Right Setup of Relevant Players
A common reason for the failure of transformation projects is that they are not pursued with the necessary consistency and persistence. Appointing an experienced CTO can help here and make an important contribution to the successful implementation of a transformation. The prospects for success associated with the use of CTOs are generally rated positively.
The Primary Field of Application for CTOs Lies Outside of Acute Crisis.
The CTO is considered an expert who is predominantly used outside of an acute crisis. His main tasks lie in strategic realignment and business model redesign, the further development of corporate culture, and the generation of growth.
A Majority of Employees Are Unaware of the Need for Change at the Beginning of the Transformation Project.
The vast majority of the experts surveyed stated that less than half of the workforce recognized the urgency of the need for action at the beginning of the transformation project. This poses a major challenge for successful implementation. Willingness to change requires employees to realize that something needs to change. Leadership is thus required to convey the so-called “Sense of Urgency” to employees.
The CTO Should Be Equipped with Comprehensive Powers of Action.
To have the necessary decision-making competence, the CTO should be appointed either as a managing director/board member or as a general representative.
Transformation Projects Are Primarily Initiated by Internal Stakeholders.
Unlike restructuring and turnaround projects, which are mostly initiated due to external pressure, transformation projects are mainly driven by internal stakeholders. Accordingly, financiers play only a relatively minor role as initiators in transformation projects, unlike in restructuring situations.
There Is a Difference in the Ideal Competency Profile of CTOs and CROs.
In terms of functional competencies, the CTO should be stronger in the areas of “Strategy and Business Model,” “Change Management,” and “Digitalization” compared to the CRO, while CROs should have a higher competency level in the areas of “Turnaround/Crisis Management” and “Finance/Liquidity Management.” In terms of personal competencies, the CRO needs to be particularly strong in implementation during acute crisis phases, and their creativity and empathetic abilities are of lesser importance during this phase. The CTO, on the other hand, should impress with their inventiveness, creativity, and curiosity and should be able to involve the team in the change process. In terms of social and networking competencies, the CTO should have a higher ability to further develop corporate culture, while it is particularly important for the CRO to have a relevant network of specialists (e.g., legal experts, financiers, etc.).
The Market Environment for Transformation Experts Is Rated Very Positively.
Nearly 80 percent of the transformation experts surveyed expect an increasing market potential. The highest need for adjustment is seen in the machinery/plant engineering, automotive, consumer/retail, and raw materials/energy/chemicals sectors.
Transformation Projects Are Often Started Too Late.
To initiate a transformation in a targeted manner, companies must implement an early risk detection system that identifies potential influencing factors on the business model as early as possible. Only those who react early, i.e., act proactively, keep the “reins of action” in their hands and can act independently. If the risk factors have already developed into a success or liquidity crisis, the pressure to act increases, and the scope for action is significantly restricted by external constraints.
1. INTRODUCTION: MANAGING SUCCESFUL TRANSFORMATIONS
The transformation of a company refers to a fundamental change in the strategy, business model, culture, and organization of a company. It involves profound changes aimed at adapting the company to changing market and competitive conditions, technological developments, regulatory requirements, or other challenges. Transformation is thus a holistic task that can encompass the following areas of action, among others:
Strategic Transformation
A strategic transformation involves a fundamental realignment of the company’s strategy along with an accompanying adjustment of the business model. Currently, many companies are focused on answering the question of how to meet the challenges of digitalization and compliance with environmental, social, and corporate governance (“ESG”) requirements. The strategy addresses the question of where the company aims to be in the future from the customer’s perspective to differentiate itself in the market. The business model describes how customer value is created.
Cultural Transformation
The goal of cultural transformation is to develop a corporate culture that promotes constructive collaboration, high openness to change, and innovation capability. This regularly requires a change in leadership behavior, open communication, and a high level of care for employees.
Organizational Transformation
Organizational transformation involves redesigning the structures, processes, and workflows of the company to become more efficient and agile. The goal is to reduce hierarchies to strengthen employees’ self-responsibility and decision-making authority. This aims to enhance the organization’s adaptability to changes. To develop, manage, coordinate, and monitor all measures and individual projects to be implemented within the framework of a transformation project, setting up a Project Management Office (PMO) is advisable. The PMO ensures that projects are initiated within the company and keeps track of the implementation status of the necessary measures. It is also responsible for documenting individual measures and creating key figures and reports. Its central task is to ensure that the measures planned within the framework of the transformation project are implemented within the scheduled timeframe and budget.
Neglected or only half-heartedly pursued transformation is often why a company fails. Temporarily involved change experts, known as Chief Transformation Officers (CTOs), can provide a remedy if brought on board early. The role of the CTO represents a new professional field that is gaining importance against the backdrop of accelerated change and is distinct from the already established role of the Chief Restructuring Officer (CRO).
The following presentation of the CTO study results outlines the role and deployment possibilities of the CTO and develops an ideal CTO requirement profile.
2. IDEAL PERSONALITY AND COMPETENCY PROFILES OF CTOs AND CROs
A CTO is an expert who provides interim support to companies in transformation. Unlike classic restructuring/turnaround, where the Chief Restructuring Officer (CRO) is deployed, transformation ideally begins well before a severe (earnings or liquidity) crisis. In this early crisis phase, the company generally still has a significant entrepreneurial and financial scope of action and can independently decide on its further development. The further the crisis escalates, the more the financial scope of action decreases, the time pressure increases, the trust of stakeholders is damaged, and the decision-making freedom is constrained by external pressures.
Since CTO and CRO thus operate at different stages of corporate development and are tasked with different focal points, we want to address the question of whether there is a difference in the ideal personality and competency profile of a CTO compared to a CRO, and if so, how these profiles differ. Over half of all transformation experts (58 percent) state that there are fundamental differences in the ideal personality and competency profile of CTOs and CROs, with an additional 26 percent seeing even significant differences. Thus, a large majority of 84 percent of all transformation experts see a difference in the ideal competency profile of these two roles.
In the following, we will examine how the ideal competency profiles of both roles are structured in the areas of “Functional Competencies,” “Personal Competencies,” and “Social and Networking Competencies.”
Functional Competencies of CTOs and CROs
The results show a clear picture: While the CRO should possess a high level of competence in Turnaround/Crisis Management (3.5 points) and Finance/Liquidity Management (3.4 points) during an acute crisis, the CTO should particularly excel in the areas of Strategy & Business Model (3.3 points), Change Management (3.4 points), and Digitalization (2.9 points). In the area of Operational Management, however, no significant differences are discernible.
Personal Competencies of CTOs and CROs
In terms of personal competencies, the CRO tends to be more active in the so-called “firefighting mode” to enforce measures that quickly and consistently prevent further crisis development. Therefore, he should have a particularly high level of assertiveness (4.0 points). The CTO, on the other hand, should have higher competencies regarding the ability to create a shared team vision and involve employees (3.3 points). Additionally, the CTO should bring a higher openness to new experiences (3.2 points) to be able to find new and creative solutions.
“The CTO is convincing because he is inventive, creative and curious”
Social and Networking Competencies of CTOs and CROs
Generally, when considering the ideal personal competencies, it can be noted that the CRO needs to be particularly strong in implementation during acute crisis phases, and their creativity and empathetic abilities are of lesser importance during this phase. The CTO, on the other hand, impresses with their inventiveness, creativity, and curiosity and knows how to involve the team in the change process.
The responses of the surveyed transformation experts regarding the ideal competencies in the area of social and networking competencies make it clear: In a crisis mode, it is particularly important to be able to rely on a functioning network of specialists to find holistic solutions for their clients. Therefore, the importance of a relevant network should be significantly stronger for the CRO (3.3 points) than for a CTO (2.5 points).
In the area of stakeholder communication, the ideal competency levels are very close. CTO (3.1 points) and CRO (3.3 points) should thus be equally capable of bringing all stakeholders on board and winning them over to the new path. This can be explained by the fact that without the support of the relevant stakeholders, neither an acute crisis can be resolved nor a transformation can succeed. Stakeholder management is of central importance in both situations. Successful stakeholder management is a highly demanding task, the central success factor of which lies in the clever balancing of the sometimes conflicting individual interests of the involved parties.
However, differences are evident in the ability to further develop the corporate culture. In this area, the CTO (3.2 points) should have a higher competency level than the CRO (2.6 points). To develop a corporate culture that promotes constructive collaboration, high readiness for change, and innovative capacity, leadership must convey and exemplify clear values, maintain open communication, support employees in their development, and foster an appreciative interaction with one another. CTOs should have a high degree of ability to further develop the corporate culture and involve employees in the change process. If this fails, the well-known quote applies: “Culture eats strategy for breakfast.”
3. PROMISING FRAMEWORK CONDITIONS FOR CTO ENGAGEMENTS
Deployment of CTOs by Stage of Company Development
When are CTOs deployed, what role do they play in the transformation, and with what powers of action should they be equipped? Below, we will take a closer look at the fields of application and the role of the CTO in transformation. Regarding the question of at what stage of company development CTOs are deployed, 66 percent of respondents indicate that CTOs are used outside of the acute crisis (post-crisis 13%, pre-crisis 25%, stakeholder & strategy crisis 28%). Twenty-seven percent also see deployment possibilities in the acute crisis up to the point of insolvency (7%).
Initiation of Transformation Projects
According to the experts surveyed, 79 percent of transformation projects are initiated internally. The primary initiators are shareholders (27%), management (27%), and supervisory bodies (22%). Employee representatives play only a minor role as initiators of change, according to the experts, accounting for just 2%. Only 21 percent of transformation projects are initiated externally: here, financiers (13%) and consultants, lawyers, and auditors (7%) play a role as initiators.
The overwhelming majority of experts, therefore, call for a “strong” CTO equipped with comprehensive powers of action. From what company size does the use of a CTO make sense? Transformation experts believe that the use of a CTO is particularly useful in medium-sized and mid-sized companies: 31 percent of respondents indicate that the use of a CTO is already sensible in companies with a turnover of less than €50 million. 41 percent of respondents see the minimum size between €50 million and €150 million, and 24 percent believe that the company size, measured by turnover, should be between €150 million and €500 million. Only 4 percent of transformation experts state that the minimum size, in terms of turnover, for companies where a CTO should be deployed must be more than €500 million.
Average Tenure of CTOs in Mandate
All surveyed transformation experts agree that deploying a CTO for a period of less than 6 months is not worthwhile. Overall, it is noted that the deployment of a CTO is only considered meaningful for a duration of up to 3 years: 25 percent approve of a tenure of 6 months to 1 year, nearly 48 percent approve of a tenure of 1 to 2 years, and 21 percent approve of a tenure of 2 to 3 years.
According to transformation experts, the average daily rate for a contracted CTO mostly (78%) ranges between €1,501 and €3,000. It is also interesting to note that approximately 5 percent of respondents rate the CTO daily rate either particularly low (6 %, < €1,501) or particularly high (5 %, > €3,501).
“Transformation projects often start too late, wasting valuable resources”
Assessment of CTO Appointments
Overall, the transformation experts surveyed have had positive experiences with the appointment of CTOs in the past. The goals associated with the use of CTOs were largely achieved (3.9 points), the strategy and business model were realigned (4 points), profitability was improved (4 points), and corporate culture was positively changed (3.9 points).
The highest level of agreement, however, is with the statement that the transformation should have been started earlier (4.6 points). According to the experts, many transformation projects are started too late, resulting in the waste of valuable resources. This statement underscores the importance of early and proactive action by internal and external stakeholders.
4. EXPECTED MARKET DEVELOPMENT FOR CTOs
“79% of study participants see increasing market potential for CTOs”
Of the study participants who assess the market potential as increasing, 45 percent expect a slight increase (increase < 20%), 47 percent expect a moderate increase (increase 20-50%), and 8 percent even expect a strong increase (increase > 50%). The market environment for transformation experts is thus assessed very positively. Overall, all industries are affected by a need for adaptation. The highest need for adaptation is seen in the machinery/plant engineering, automotive, consumer/retail, and raw materials/energy/chemicals sectors.
5. CONCLUSION & OUTLOOK:
CTO ENGAGEMENT AS A GAME-CHANGER FOR A SUCCESSFUL TRANSFORMATION
Many companies are facing the major challenge that the conditions in their industry are fundamentally changing. To remain successful in the long term, it is necessary to adapt to these changes, i.e., to transform. A transformation is a holistic task that includes strategic realignment and business model redesign, cultural transformation, and organizational transformation.
Experience shows that existing management, particularly in medium-sized companies, often reaches the limits of its capacity and expertise during such phases. In this situation, the temporary appointment of a CTO can improve the prospects of successfully implementing transformation programs. With a CTO, additional resources, expertise, consistency, intensity, and often a significant level of trust are brought into the company. The ideal CTO has extensive experience in such turnaround situations. He is strategically competent and has the necessary expertise to systematically develop the business model. He understands how to foster a corporate culture that promotes constructive collaboration, high readiness for change, and innovation capability by conveying and embodying clear values, maintaining open communication, supporting employee development, and practicing appreciation.
His primary field of application ideally lies outside an acute crisis (earnings or liquidity crisis). This has the advantage that the company generally still has a large entrepreneurial and financial scope of action and can independently decide on its further development. However, the challenge in this phase is that a majority of employees are not aware of the need for change. The CTO is thus required to convey the so-called “Sense of Urgency” to employees.
To have the necessary decision-making competence, the CTO should be equipped with comprehensive powers of action and appointed either as a member of the management board or as a general representative.
Since missed or only half-hearted transformations, such as in digitalization or omitted adjustments to the business model, are often the reasons why a company ultimately falls into a deep crisis or even insolvency, temporarily involved CTOs, if brought on board early, can make an important contribution to the successful implementation of a transformation. The role of the CTO represents a new professional field that experienced executives, interim managers, and restructuring experts can fill, provided they have the specific competencies for transformation. For actors who can fulfill this role, the market environment appears very positive. Due to the increasing dynamics of change in many industries, a growing market potential is expected. The highest pressure to adapt is seen in the machinery/plant engineering, automotive, consumer/retail, and raw materials/energy/chemicals sectors.
In conclusion, based on the findings from this study, we would like to derive specific recommendations for action. These relate to the question of when the deployment of a CTO is particularly useful and to the question of what the ideal profile of a CTO looks like.
The stronger or more pronounced the following factors are, the more sensible it appears to appoint a CTO:
- Company size
- Radicality of changes in the market and competitive environment
- Complexity and number of necessary adjustment measures
- Diversity of particular interests within the stakeholder group
- Hierarchical structure of the organization
- Lack of expertise in the existing leadership team regarding transformation management
The ideal profile of a CTO is characterized by the following attributes:
- Significant and verified references of successfully managed upheaval situations (extensive experience)
- High strategic competence and experience in business model development
- Strong communicator with the ability to inspire
- Strong leader with a role model function, capable of building trust, promoting teamwork, fostering employee development, and showing recognition and appreciation
- Unconditional trust from all stakeholders and a high ability to balance individual interests
- High implementation orientation
About the Study and the Surveyed Experts
The study began with a systematic review of the research on the role of the CTO. A total of 10,102 hits were identified through an electronic search of relevant databases. After evaluating content and formal criteria, a total of 67 hits were analyzed. Based on this, a questionnaire was developed as the basis for the quantitative survey and tested and optimized in a pre-test. The survey was conducted online from April 19 to May 15, 2023. We received 520 responses in total, of which 442 were complete.
52 percent of the surveyed experts are primarily active in the role of CRO, CTO, or interim manager. Almost one-third (33%) are primarily engaged as restructuring consultants, and 9 percent are financiers (primarily debt capital). Only 3 percent of the respondents act as insolvency administrators, 2 percent as shareholders in family businesses, and 1 percent as private equity investors.
Professional Experience of the Experts
Our experts possess extensive experience in the field of transformation. Thirty-eight percent of the respondents have more than 20 years of professional experience related to transformation, and over one-third (34%) have 11 to 20 years of experience in this field. Seventeen percent of the respondents have 5 to 10 years of professional experience, and only 11 percent have less than 5 years of experience related to transformation or turnaround. Notably, those surveyed who work in roles such as CRO, CTO, interim manager, and restructuring consultant have a significant proportion of over 20 years of transformation-related experience.
ABOUT THE EXECUTIVE INTERIM PARTNERS
EXECUTIVE INTERIM PARTNERS GMBH (EIP) was founded in Munich in 2005 and is a leading company and owner-managed partnership of experienced interim managers at the C-level for special situations.
The partners of EXECUTIVE INTERIM PARTNERS support you and your company as interim managers or consultants, particularly in special situations that require immediate entrepreneurial action, such as:
- Restructurings
- Liquidity crises
- Refinancing/recapitalizations
- Exit preparations and company sales
- Value enhancement/creating exit readiness
- Business acquisitions and integrations (PMI)
- Complex transformations
- Strategic corporate crises/revenue and growth crises
- Operational turnarounds
- Leadership crises or leadership vacuums
- Digitalizations
All partners of EXECUTIVE INTERIM PARTNERS have proven successes as managing directors and board members – both as interim managers and in permanent positions. Approximately 80% of our mandates result from organizational functions as interim managing directors or board members (e.g., as CEO, CRO, CFO, COO, CDO, or CSO).
Clients of EXECUTIVE INTERIM PARTNERS include medium-sized family businesses, private equity investments, and corporate groups. Our interim managers operate in the German-speaking region (DACH), other European countries (including France, Sweden, Denmark, Czech Republic), as well as other international locations (including the USA, Canada, South Africa, China, Korea).
About the authors
ABOUT THE AUTHOR
Michael Hengstmann is the Managing Partner at Executive Interim Partners, the leading company and owner-managed partnership of experienced interim managers at the C-level for special situations, and Managing Partner at Management Capital Holding, an investment company focused on medium-sized businesses. Previously, he was a Senior Partner at AlixPartners and the then Private Equity firm of JP Morgan, One Equity Partners. Mr. Hengstmann has been active as an interim manager in various medium-sized companies and subsidiaries of corporations both domestically and internationally. He has successfully implemented restructurings, turnarounds, strategic realignments, and sales offensives in his roles as Chief Restructuring Officer, Chief Executive Officer/Chairman of the Management Board, or Chief Operating Officer. Additionally, Mr. Hengstmann supports various companies domestically and internationally as a chairman or member of supervisory boards or advisory boards.
E-Mail: hengstmann@eip.de
ABOUT THE AUTHOR
Georgiy Michailov is Managing Partner at Struktur Management Partner (SMP), one of the leading transformation and restructuring consulting firms in Germany. After his initial studies in Business Administration in Uzbekistan and intermediate stations in Turkey, the Netherlands, and Germany, Georgiy Michailov completed his studies in Economics in Freiburg in 2003. During his studies, he became acquainted with Struktur Management Partner as an intern and subsequently joined as a consultant. In 2009, he became a Partner, and in 2013, he was appointed Managing Partner. Over the past 20 years, he has successfully overseen more than 100 mandates in the upper mid-market in transformation and turnaround projects. Internally, he is responsible for innovation management and method development. He is the author of several books, a lecturer, and a podcast host.
ABOUT THE AUTHOR
Dr. Johannes L. Sauerwein is a research associate at the IfUS Institute for Corporate Development and the scientific director of the Think&Do Tank GRANTIRO. Among other responsibilities, he is tasked with developing solutions for seemingly inevitable closures of company locations and preserving industrial cores, especially in peripheral regions. This involves combining the methods of classic restructuring with innovation management techniques.
E-Mail: johannes.sauerwein@grantiro.de
ABOUT THE AUTHOR
Prof. Dr. Henning Werner is a Professor of Transformation, Restructuring & Turnaround at SRH University Heidelberg and the Director of the IfUS Institute for Business Development & Restructuring based at the university. He is, among other things, the editor of the standard work Crone/Werner “Modern Turnaround Management” (6th edition), a scientific advisor of the BDU Specialist Association for Restructuring and Insolvency Consulting, and an editorial board member of the KSI Journal for Crisis, Restructuring, and Insolvency Consulting. Since 2021, the IfUS Institute has offered a unique certification course in Germany for Transformation & Turnaround Managers. This course provides practical tools for the effective implementation of transformation projects.
E-Mail: henning.werner@ifus-institut.de
About the partners involved
SRH University Heidelberg is one of the oldest and largest private universities in Germany. Currently, around 3,300 students are enrolled in six faculties. The university offers future-oriented degree programs in business, computer science, engineering, social sciences, law, therapy sciences, and applied psychology. Since 2012, the university has been teaching according to its specially developed CORE (Competence Oriented Research and Education) model. By employing innovative teaching, learning, and assessment methods, active and self-directed study is placed at the forefront. SRH University Heidelberg is state-recognized and accredited by the Science Council. It is part of the SRH Holding university network, an independent foundation that operates educational institutions and hospitals nationwide.
The IfUS Institute for Corporate Development & Restructuring, located at SRH University Heidelberg, offers practice-oriented training programs, events, and specialized information in the areas of transformation, restructuring, and turnaround (www.ifus-institut.de). The IfUS Institute conducts certificate courses, including Restructuring and Turnaround Advisor and Transformation & Turnaround Manager programs.
We are the number one contact and leading value enhancer for the upper echelon of the German mid-sized sector, with a team of 100 experts. We specialize in successful turnarounds, growing entrepreneurial resilience, and effective digitalization, boasting a recommendation rate of 98%. Our motto: We are there when it’s serious or sincerely meant, from concept to implementation. We deliver the highest return on investment with our proprietary value-oriented business model approach.
EXECUTIVE INTERIM PARTNERS (www.eip.de) is an entrepreneurial team of experienced interim managers that supports companies in special situations, such as restructurings, turnarounds, or transformations, at the C-level in an executive capacity. EIP’s clients include medium-sized family businesses, private equity investments, and corporate groups.