“Tomorrow’s CTOs will have to hear the grass growing” – Interview with Dr. Frank Melzer

Marcel Ramin Derakhchan - 24. February 2021

Dr. Melzer, how has the role of the CTO changed in recent years?

In the classic functional world, the CTO is responsible for development projects, especially where there is a high share of software and digital structures. The CTO, however, can no longer continue to play this role as he or she did before. This is due to the fact that companies increasingly have to venture into areas that are highly uncertain for them in terms of technology. There is a lack of history and experience, which is evident, for example, when we look at AI topics. Most companies involved in developing AI-based products today are charting unknown territory. There is also another dimension of uncertainty – markets and customers. Particularly in the context of digitalization, customers also lack experience and routines, and it is often not clearly evident what is really needed – for example, with regard to the use of an AI solution in manufacturing, to stay with the example. The typical interaction between sales, channelling customer requirements, and the CTO, who develops products and services based on them, will no longer be able to function smoothly.

Does this mean that CTOs themselves will have to get closer to customers because the requirements first have to be defined together?

That’s correct. There is a need for much greater proximity to the market. The CTO must develop the requirements together with sales and the customers. And that means zooming deeper into the technologies relevant to customers, but also into their strategy, restrictions and business cases.

This insight is the foundation for effectively testing technology ideas. You then have to enter the market quickly with strong teams and projects to see whether the idea is viable, whether it creates differentiation for my company and added value for my customers, and how this added value can be capitalized. It is especially in close collaboration with customers, under market conditions that one’s own capabilities can be reflected upon and, in some cases, completely reassessed and prioritized, and customer requirements clarified.

Sales alone will not be up to this task. When it’s no longer just about the next generation or customizing existing products, the CTO is called upon. He or she must keep an eye on the changes in technologies and focus not only on evolutionary development, but above all on new technologies that open up high potential for differentiation. In this context, the person who quickly recognizes which topics are currently gaining momentum on the market has the decisive speed advantage. It is impossible to maintain this advantage if you develop first and then look to the market, or wait for customers to hand over a highly structured requirements package to sales.

If you had to scout for your successor now, what would you be looking for today? What does he or she need to bring to the table in addition to what you’ve just outlined?

Good basic knowledge and a sound technical education will continue to be indispensable. The role of the classic development manager, who grasps technical topics quickly and comprehensively, brings them forward and provides guidance, will remain in place.

What is now additionally called for is the ability to read market signals. To recognize where technological dynamics and leaps are emerging and what impact they can have on existing and future customers. And how this can also give rise to new business potentials for the company itself. To do this, the CTO must on the one hand participate in discussions with customers in order to understand what is moving them and where their challenges lie. On the other hand, they must also establish their own communication networks at high corporate levels in order to take in as many of these signals as possible.

However, it will not suffice to ask customers what moves them and what they need. CTOs must have a strong technological vision of their own in order to explore the potential of new technologies with customers, to develop new paths and to verify their own vision, and putting it to the test with regard to its market potential. Expressed in sales terms, this means moving in the direction of new business and not in the direction of maintenance. This strong external orientation is a particular characteristic of future CTOs.

Does the CTO of the new generation also have to be a social leader who manages highly complex and heterogeneous employee constellations in a firm and confident manner?

Yes, absolutely. In today’s world even leading technology companies that command an enormous breadth of knowledge don’t have a chance to adapt all the relevant technologies quickly enough without looking outward. But I won’t be getting these signals, or I won’t be able to read them, if I’m not a bit extroverted, open, ready, and willing to accept new forms of cooperation and exchange. And I also have to deal with things, with technologies that are not yet fully developed and standardized, that can still be shaped and designed, that are in flux. This has a strong influence on how I lead, how I am able to convince people and evaluate, as well as how I formulate a vision and allow for experimentation. And also on who I lead. We’re talking about a network of strong, self-confident partners and experts inside and outside the company, rather than a clearly defined team of engineers who are proud to do everything themselves.

That’s one aspect. The other is that in such constellations, you can’t limit yourself to leading and managing. It’s also very much about moderation, observation, bridging cultural differences, partnerships, M&A activities … These aspects are still often underestimated. It’s about an ecosystem – and ecosystems cannot be managed in the conventional, linear sense of the word.

Trying things out and entering new territory inevitably leads to a massive increase in risks and uncertainty that CTOs will have to deal with.

This is perhaps the most important point, the biggest step to take. In conventional terms, CTOs are trained to be technical and analytical. They are used to deploying their engineering skills to create a high level of certainty and control as many parameters as possible. Given today’s market and technology dynamics, however, it is no longer possible to maintain this standard and the management understanding based on it. That’s why new topics are popping up on the CTO’s agenda, such as risk management, iterations, co-creation, prototyping and so on. And, of course, dealing with project cancellations, detours, veering off on the wrong track that are all unavoidable within the context of new topics. Consequently, it is vital to learn from mistakes and see them as a valuable knowledge resource. Many highly successful companies tend to learn from their own success stories. But this is a very limited reservoir. The problem areas are the genuine learning areas. A modern CTO must have the ability and confidence to deal with problems and make them productive.

Should a CTO also be capable of being a CEO? Also in terms of company error culture and bringing about the necessary change?

I don’t know whether the question can be answered in general. But in companies that are rapidly moving into new areas that are shaped by technologies, the convergence of the two functions is obvious. There is a need to understand the technological foundation and manage the uncertainties associated with new, technology-driven business models. Especially when major technological leaps and investments are involved, as in the semiconductor industry. Over the past decades, the CEOs in such companies very often had a technical background.

In this context, the legendary Intel manager Andy Grove, or also Steve Jobs come to mind as very good examples. In many instances, such personalities have developed leadership models that have enabled them to deal effectively with high risks and uncertainties, the constant threat of disruption. This also includes a strong intuition, the ability hear the grass growing, to recognize where new technological dynamics are developing in the market and to link them to one’s own vision and to constantly put one’s own technology course to the test.

In addition, there is a need to think less in terms of technological missions and more in terms of implementation-oriented business cases in order to keep risks manageable and scarce resources focused. The CTOs of the future will have to bring more business knowledge to the table, think more in economic categories and work a great deal more closely with customers than they did ten years ago.

Consequently, with regard to these points, at least in technology-driven companies, there is a strong convergence between the CEO and the CTO. But do these roles need to converge in one person? I don’t think so. But close interaction and just the ability to leverage each other’s perspective is definitely crucial. Time and time again we see technology companies on the market that do not have a CTO in top management failing to prosper over the long term.

Dr. Franz Melzer is CTO a Festo. As a Management Board member, he focuses on Product and Technology Management, which includes Digital Business and Corporate Research and Innovation. Franz Melzer heads the steering committee of the Industry 4.0 platform for the digitalization of the economy in Germany.

Marcel Ramin Derakhchan is responsible at dla digital leaders advisory for filling top management positions in business & professional services companies as well as in software and high-tech companies. He specializes in complex search mandates that call for an interdisciplinary approach to search, organizational consulting and individual coaching.