What does a chief transformation officer do?

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Gray pebbles neatly arranged from small to large
Gray pebbles neatly arranged from small to large

To understand the role of the chief transformation officer (CTO), we first need to understand the “T.” Transformation isn’t just a fancy word for cost reduction, and it’s more than another surface-level change program that comes and goes every two years. Transformation is a rigorous, holistic, organization-wide journey to deliver and sustain significant improvement in performance and organizational effectiveness. Done well, transformations build foundational and functional capabilities. They mobilize the whole organization, engaging colleagues in a new way of working rather than delivering an incremental objective. Successful transformation is something employees do. It is something they are part of, not something that is done to them. And within transformations there’s a powerful link between ownership, plan creation, and implementation.

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Kevin Carmody is a senior partner in McKinsey’s Chicago office, Olivier Gorter is a partner in the Amsterdam office, Louisa Greco is a partner in the Toronto office, and Chris Hagedorn is a senior partner in the St. Louis office.

That’s where the CTO comes in. The most successful CTOs—and transformations—enable employees from all across an organization to contribute in ways that directly improve an organization’s overall operations, execution, and impact.

The CTO holds a special place in the C-suite. Effective CTOs maintain an independent perspective—one that is not associated with or hindered by past decisions—and have experience in leading organizations through prior challenging or ambiguous situations, with an unrelenting focus on impact delivery aligned to strategic priorities. They have the full support of the board, CEO, and top management. They are able to comfortably manage short-term improvement and long-term value creation while working with limited resources. And their compensation should be clearly linked with accomplishing the transformation and enterprise goals.

For more on the CTO role—as well as a refresher on transformation basics—read on.

Learn more about McKinsey’s work with chief transformation officers.

What is a business transformation?

Put simply, a business transformation is how an organization can make the right moves to achieve its full potential, including better ways of working that enable material changes in performance and capabilities. Transformations are not optional; they’re critical for organizations to not only compete but to thrive.

But the kinds of transformations that CTOs manage go beyond your garden-variety business transformation. What we mean here is transformation with a capital T: an intense, organization-wide program to drive significant growth, for instance, an earnings improvement of 25 percent or more.

These kinds of transformations drive near-term performance improvements, including top-line growth, capital productivity, cost efficiency, operational effectiveness, customer satisfaction, and sales. They also set the stage for a more sustainable long-term future, because they demonstrate how internal alignment around a common vision and strategy can translate to better performance. And they inspire executives and other leaders to develop superior execution skills, which can motivate the whole organization to continue improving results year after year.

What is a digital transformation?

A digital transformation is the fundamental rewiring of how an organization operates, undergirded by technology and increasingly, AI. The goal of a digital transformation is to build a competitive advantage by continuously deploying tech at scale to improve customer experience, lower costs, and improve the company’s tech capabilities and ways of working.

Digital transformations are different from regular business transformations. For one thing, they are focused on technology. They are also ongoing and continuous by necessity to reflect the ever-evolving nature of technology. For example, given the growing importance of AI in generating business insights and enabling decision-making logic, any digital transformation should also be an AI transformation.

Learn more about McKinsey’s Transformation Practice.

How does a transformation office play a key role in success?

Project management offices (PMOs) have been long known as managers of day-to-day progress tracking. Although the PMO role continues to be important in complex organizations, a transformation office (TO) may be better suited for holistic transformations, whether at the function, business unit, or full enterprise level. Because a TO is specialized in guiding an organization through a transformation, it is better able to rigorously define goals, solve everyday problems, role model new ways of working, measure performance independently and objectively, engage leaders, and integrate the overall work. A successful TO changes the “metabolic rate” of an organization and acts as a steward of the new performance standard. When structured well, a TO is the beating heart of a transformation, propelling an organization forward at a new speed and instilling a new culture of delivery.

One of the ways a TO can drive results is through action-oriented weekly meetings. These are fast-paced sessions of no more than 60 minutes, led by the CTO and designed to solve problems, remove roadblocks, and enable action and ownership. The meetings are small and focused. Aside from the CTO, attendees can include a sponsor for each area of work, the associated initiative owners, and often a technology and a finance leader.

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What are the three archetypes for the CTO role?

The CTO role isn’t a one-size-fits-all position. The context, scope, and objectives of a transformation vary depending on an organization’s needs. Generally, the demands of a CTO can be broken down into three major categories, based on the conditions leading to the transformation and the level of change required:

  • Responder. These CTOs respond to a crisis or major setback, including macroeconomic pressures, competitive threats, or shifts in customer preferences. Responders must stabilize the business and enable rapid and substantial financial improvements by building new levels of discipline and speed, as well as capabilities tied to execution.
  • Revitalizer. CTOs can find themselves in a revitalizer role when a business has seen its performance degrade over time. Revitalizers are expected to drive accelerated performance improvements with an emphasis on sustained, long-term change. These CTOs emphasize mobilizing and empowering an organization, digging deep to rally and inspire employees for the new journey ahead.
  • Reinventor. These CTOs lead the organization through substantial strategic changes, for example, by shifting a business model from brick and mortar to digital or entering an entirely new product category or market. Reinventors should articulate a clear strategic vision and deep focus on building new capabilities to support that vision.

These archetypes aren’t set in stone. CTOs might be asked to start out as a responder and then transition to a revitalizer. And there are some transformation leaders who don’t fit any of these archetypes. “Reporters,” for instance, are a subtype who play more of a project management role. But as we’ve seen, a project management–based transformation seldom achieves structural change.

Learn more about McKinsey’s work with chief transformation officers.

How does the CTO work with the CEO?

The CTO should be an extension of the CEO, with the mandate and authority to make decisions about priorities, investments, talent, and operations. The CTO may have purview over hundreds of initiatives; responsibility for making day-to-day decisions and implementing those initiatives lies with line leaders, transformation managers, and other initiative owners.

The CTO and TO more broadly need a mandate from the CEO to challenge others up and down the organization—including the CEO—if targets and milestones are not being met. This mandate must include the ability to reward overdelivering sponsors and initiative owners, and impose consequences on those who underdeliver.

What role can financial incentives play in a transformation?

One of the ways a TO can increase the metabolic rate of an organization is by setting up a generous and specific incentives system that inspires outperformance from employees. Companies that implemented financial incentives directly tied to transformation outcomes achieved nearly a fivefold increase in total shareholder returns compared with companies without similar programs. Companies can apply seven principles to help ensure a transformation incentive program achieves results:

  1. Tie incentives directly to transformation outcomes within the control of participants. Tying incentives to purely general outcomes weakens a program’s effectiveness, because this metric is ultimately beyond employees’ direct control.
  2. Encourage outperformance rather than just good performance. Exceeding expectations should be encouraged with incentives.
  3. Use the incentives program to encourage broader participation. Total shareholder returns of a transformation increase as the share of employee involvement expands. This can be encouraged via incentives, mobilizing every employee to participate in the program.
  4. Include performance metrics beyond financial impact. Financial impact is not enough to radically and fundamentally improve an organization’s overall level of performance. A holistic view of organizational change includes metrics on customer experience, organizational health, capabilities, and ESG (environmental, social, and governance).
  5. Ensure payouts are made soon after initiatives are completed. This creates a clear link between action and incentive, which reinforces behavior change.
  6. Tailor the program to the organization’s strategy and culture. Factors like geography, industry, strategy, culture, nature of unionization, and current compensation structure can influence how an incentives program should be designed.
  7. Keep the design simple yet precise. These attributes will not only increase the perception of fairness but also enable better alignment on the program among employees.

Our research suggests that a strong CTO has support from the CEO to design a financial incentives program to increase the metabolic rate of the transformation.

What are some examples of how CTOs and TOs can have an impact?

Here are some specific instances of how CTOs and TOs can make a difference, based on our research and expertise.

One company structured its TO in a way that maximized the chances for transformation success by allocating a small part of the transformation incentives pool to employees and initiative owners. As a result, the organization unleashed a ground swell of bottom-up idea generation. Employees were newly motivated to challenge the status quo, understand best practices, and identify ways to improve performance.

Another company’s TO had a mandate to educate stakeholders about the company’s tech-enabled transformation and help cultivate new ways of working. The TO began by conducting tailored workshops and training sessions for working teams and C-level executives over several weeks. This up-front investment of time helped both groups better understand the mechanics of resource allocation, solution releases, agile methodology, and development timelines during the transformation.

Learn more about McKinsey’s Transformation Practice and the work we do with chief transformation officers. And find out about transformation-related job opportunities if you’re interested in working for McKinsey.

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