Where to Find the Best Chief Digital Officers

More American companies are hiring executives exclusively charged with identifying and developing new digital business opportunities, though they’re still in the minority and conjecture remains about which backgrounds are best suited to the job.

Should the so-called Chief Digital Officer come strictly from a tech background, or should they have experience in marketing, strategy or finance? Many advances in digital technology, such as smartphones, are bringing companies closer to their customers, perhaps making marketing experts most suitable. The rapid pace of technological change, however, means they may be ill-equipped to fully comprehend the capabilities on offer and apply them smoothly and cost-effectively.

Wherever they come from, CDOs are certainly becoming more abundant. A new analysis of the world’s largest 2,500 companies by PwC found that 19% now have a designated executive to handle digital matters, up from 6% a year earlier, whether they be called Chief Digital Officer, Chief Knowledge Officer or some other name.

The finding gels with the results of a KPMG and Harvey Nash survey released last month, which found a quarter of medium-sized to large companies now have a CDO, based on responses from 4,498 CIOs across 86 countries.

“Getting there requires an executive with a strong background in tech, as well as experience in navigating the political and governance issues involved in approving major technology investments and implementing the new systems.”

The kind of digital business opportunities identified by CDOs could include setting up advanced customer communications channels, perhaps by harnessing artificial intelligence or virtual reality, or developing more tailored products utilizing advanced manufacturing capabilities.

Questions remain, however, over whether CDOs are really necessary, given many key functions already are performed by other executives, including Chief Information Officers, Chief Marketing Officers and Chief Strategy Officers. For many companies, a crucial need to take an all-encompassing approach to transformation justifies the creation of a role that can pull together all the strings.

Not surprisingly, the rise of the CDO first occurred in customer-facing industries shaken by the e-commerce revolution, including communications, media, food and travel. More recently, however, CDOs have started popping up elsewhere.

Some 35% of insurance companies now have a CDO, according to PwC’s latest survey, leap-frogging communications, media and entertainment companies, of which 28% have a CDO. Next came banking and consumer products & retail, with 27% each.

The industry mix is changing as more companies go further than simply improving their customer experiences. Instead, they’re seeking to fully digitize their internal operations, whether it be by establishing enterprise social networks to allow staff to communicate more effectively, or using sensors to cut operating costs on the factory floor.

And that’s why the best person for the job may no longer hail from a marketing background. According to PwC, 53% of CDOs in 2015 came from marketing, sales and customer service backgrounds, while just 14% had acquired their primary expertise in a technology field.

Just a year later, things have changed dramatically. The percentage of CDOs hailing from a tech background has more than doubled to 32%, while marketing and sales whizzes have fallen to 39% from 53%.

“As more companies reach digital maturity, they need CDOs who can navigate the intricacies of both legacy IT architectures and new digital applications,” the report’s authors said.

“Getting there requires an executive with a strong background in technology, as well as experience in navigating the often fraught political and governance issues involved in approving major technology investments and implementing the new systems.”

Of course, the ideal person for the job would have experience across various functions, including technology and marketing. And that desire for multi-talented executives could be an indicator of where CDOs are headed, not just where they’re coming from, according to executive recruitment firm Russell Reynolds.

“In many cases, the CDO will be the senior executive handling the fastest growing revenue streams within the business, or will be the executive holding the keys to the company’s future—placing him or her squarely in line to replace the CEO,” it said in a recent report.

“CDOs who demonstrate their ability to manage change and transform their businesses almost certainly will lead the way in the rise of the Digital CEO.”