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The Quarterly

RRAonLeadership: The Year of the Digital Leader

RRAonLeadership:The Year of the Digital Leader

Welcome to the first issue of the RRA Quarterly—a collection of timely and

thought-provoking articles, interviews and surveys that address the concerns of

global leaders today.

Our first issue focuses on perhaps the most disruptive force now at work in the

business world: digital transformation. Managing digital transformation particularly

is challenging because it requires

companies to rethink what “digital”

means in the first place and how

they respond to it. Ten years ago,

digital basically was a set of platforms

and technologies—web sites and

e-commerce and so on. Today, it’s not

just entirely new products and services

but, more important, a completely

different set of relationships among companies, customers, suppliers and other

stakeholders, driven by shared information, fluid decision making and flattened

hierarchies. It tests not just what leaders do but what leaders are.

The spoils go to those who can best imagine state-of-the-art products and creative

relationships—and then successfully rewire their enterprises as needed. Not

surprisingly, those with a track record of success at this are few and far between—

and not always found in the places you might think.This issue’s articles on chief

digital officers, digital leadership across the C-suite and the next generation of

e-commerce grew out of our ongoing conversations with some of the world’s most

innovative and successful executives. We hope these insights contribute to the

discussions within your organization as well.

4 Do You Have the Digital Leaders You Need?These days, you can’t have a business conversation without discussing digital—social, local, mobile, big data, the cloud. But that’s just talk.

6 Got Digital?Digital Matters: The digitization of information is causing market disruption, upending traditional business models and changing the way people interact. As a result, organizations across sectors and regions of the world need leaders – starting in the boardroom – who can help frame the strategy to transform the business and leverage digital technologies effectively.

10 The Rise of the Chief Digital OfficerThe challenges and opportunities for businesses in this digital age are enormous. Companies need to be fleet-footed to keep pace with changing technology and consumer behavior.

14 The Search Is On: Seven Questions to Ask When Recruiting E-commerce LeadersAs business shifts into E-commerce 3.0, corporate leaders and hiring executives at consumer retailers, as well as organizations in financial services, technology, healthcare, government and even nonprofit, are seeking guidance on the kind of talent they need to lead their e-commerce businesses.

20 The Future of Automotive Leadership: From Car Guy to Mobility LeaderIt’s not easy these days being an automotive executive. More than ever, they must apply multi-phase thinking and take courageous action to adapt a strategy for success in a changing environment—and that’s just the beginning of what is expected of them.

The Quarterly Table of Contents

4 | Quarterly Report

These days you can’t have a business conversation without discussing digital — social, local, mobile, big data, the cloud. But that’s just talk. We wanted to discover what companies are really doing about this new world, so we analyzed the backgrounds of the CEOs and directors of America’s largest companies.

The answer is surprising.

Only nine companies — less than two percent of the Fortune 500 — are what we would call “highly digital.” To be highly digital, by our definition a company must pass four tests: it generates a high percentage of revenues digitally; its leadership (both the CEO and the Board) has deep digital experience; it does business significantly enabled by digital channels; and it’s recognized as transformational in its industry.

If you narrow the scope to the Fortune 100, the data are still relatively weak. Seven percent of companies are highly digital. Perhaps, more surprisingly, only 13 percent have highly digital boards of directors.

You might focus exclusively on company leadership, but, of course, boards matter: they provide strategic counsel to the CEO and, crucially, they plan for CEO succession. To guide companies in innovative ways, boards must know what innovative looks like.

It’s clear the tide is turning — and it’s turning fast. We believe it’s no coincidence that the largest and most successful companies in our economy are leading this change. Just consider what some established companies have done recently to address their digital capabilities gap at the highest levels of leadership and governance.

At HP, Meg Whitman, the former CEO of eBay, has moved from board director to CEO. At old line retailer JCPenney, Ron Johnson, the former head of Apple’s retail operation, was recently appointed CEO — though the news of late calls into question how well these marriages of new and old worlds will fare.

Predictably, companies with the most digital boards are in sectors of the economy where digital matters most, either because it’s the core of the business or because it’s disrupting the core business. It’s no news to confirm that technology companies — such as Amazon, Apple, Cisco, Dell, HP, Google, Intel, Microsoft, and Oracle — have boards awash in digital expertise.

Perhaps the most significant finding is that there are boards on their way to becoming highly digital in sectors where you would least expect them, such as consumer packaged goods: the boards at Pepsi and Procter & Gamble. In retail, there’s Wal-Mart. In distribution, there’s Ingram Micro and Sysco. In financial services, there’s Berkshire Hathaway. And in services, there’s FedEx — though you might argue that FedEx has always operated as a highly digital company that happens to have planes and trucks attached.

Given the increasing influence, even dominance, of social and mobile technologies, we expect to see a similar evolution take place in more “unlikely” sectors: healthcare, industrial goods, natural resources.

Do You Have the Digital Leaders You Need?

Quarterly Report | 5

At the board level, when done right, certain patterns emerge: leading companies have jumped in with both feet. Leaders have recruited between two and four directors (or more) with hands-on or board-level digital experience. A token digital director is no longer sufficient. While many recruits are digital CEOs, companies are widening their aperture to consider more youthful, non-CEO candidates. Disney added Sheryl Sandberg of Facebook; Wal-Mart added Marissa Mayer of Google; and eBay has added Katie Mitic, also of Facebook. In other cases, candidates are coming from non-public, venture-backed firms.

Some CEOs are learning by doing. Bill Ford of Ford Motor is a director at eBay; and Bob Iger of Disney serves as a director of Apple.

If you’re in a leadership role at an F500 company, we think it’s clear where your priorities should lie. Those companies “born digital” — such as Amazon, Google, and Facebook — inevitably have top talent to match their businesses. Companies in technology, media, and communications, for example, which have not attracted such talent, are paying the price. Just look at the damage done to high-tech players in the mobile industry when leadership misses a major technology trend like the advent of the smartphone.

So what should you do about this? If you’re leading the show, it’s high time to make a clear-eyed gap analysis and course-correct accordingly. If you’re in middle management, start lobbying for leadership to match the challenges your company will face. Here are some pointers from what we’ve learned:

■■ Recruit at least one digital director to your board. You have to start somewhere. We cannot imagine how a company could fail to benefit from such experience, perspective, and guidance.

■■ Not all digital experience is created equal. Make sure your prospective C-level or director candidate is aligned with the types of digital opportunities and challenges your company faces.

■■ Within your executive team or your board, identify the functions where the impact will be greatest; then make sure you have a candidate who has the capabilities to align with those functions.

■■ No board director or senior executive will have impact, no matter the expertise, without cultural fit. This is an eternal verity, but it applies here.

Finally, ask yourself the obvious question: do you want to be a leader or a follower? Our research shows that the winners are those who’ve tackled these key issues early and decisively.

Over the next couple of years, we predict enormous changes in C-suite and board composition based on digital chops. The question is clear: Do you have the digital leaders you need?

Authors

Jeffrey F. Rayport is an Operating Partner at Castanea Partners, a private equity firm focused on retail, information, and marketing services.

Tuck Rickards is Managing Director, Technology and Digital Transformation, at Russell Reynolds Associates.


“Highly Digital” Defined

“ Highly Digital” companies satisfy … and are in short supply. four criteria …

Dig•i•tal [dij-i-tl] the translation of analog information (numbers, words, sounds, shapes, images and more) into electronic data that easily can be stored and shared across networks and devices.

Got Digital?

Source: Russell Reynolds Associates Analysis

Digital Matters

Market Disruption. The digitization of information is upending traditional business models, changing the way people interact:

■■ Publishing: ebooks replacing paper

■■ Retail: online purchasing lowering brick-and-mortar sales

■■ Music: artists selling directly through iTunes

Universal Impact. All organizations across every industry are impacted in some way:

■■ Marketing: “mass customization” of advertising

■■ Operations: supply chain optimization

■■ Customer service: self-service

Growing Expectations of Corporate Leaders. Shareholders, employees and customers increasingly demand that their leaders understand and leverage digital technologies effectively across the business.

Highly Digital F500 Companies

2%

Highly Digital F100 Companies

7%

Highly Digital F100 Boards

13%

Digital Channels

High % of Digital Revenue

Company Recognized as Transition

Leader

Sitting CEO/Board Leadership Experience

Highly Digital Company Examples: Amazon, Apple, Cisco, Dell, eBay, Google, Microsoft, Oracle and Yahoo!, seven of which are in the F100.

Highly Digital Board Examples: Technology: Apple, Cisco, Dell, Google, HP, Intel, Microsoft, OracleRetail: Amazon, Wal-MartFinancial Services: Berkshire HathawayConsumer Goods: Procter & GambleBusiness Services: FedEx


Key Findings

Disruption and Digital Status Linked. For example, Technology and Retail well-represented on the list.

Non-digital Companies Boosting Digital Board Status. For example, Berkshire Hathaway, FedEx and Procter & Gamble.

Digital Boards Have Three Common Themes:

■■ Commitment: Four to six digital board members, not one or two.

■■ Digital experience: Experience with companies like Amazon, Apple, Cisco, eBay, Facebook, Google, Intuit and Microsoft highly sought after

■■ CEO experience: CEO experience for most digital board members

Five to Ten Companies Boosting Digital Board Status:

■■ Disney, Ingram Micro, and Sprint Nextel to American Express, Coca-Cola, Ford, Morgan Stanley, PepsiCo and Sysco

■■ One to two digital directors

■■ Several CEOs who now are board members in highly digital companies: Bill Ford (eBay), Bob Iger (Apple)

Trends and Implications for Recruiting Digital Leadership

The Tide is Turning. Some of the largest and most successful companies are working to narrow the digital capabilities gap.

Some Sectors Moving Faster than Others:

■■ Forerunners: consumer-facing businesses like technology, media and communications, retail, and financial services

■■ Gradual growers: automotive (connected vehicles) to B2B markets and services

Limited Supply Driving Younger Talent from Unique Sources:

■■ Non-CEOs: Marissa Mayer (Google) to Wal-Mart and Katie Mitic (Facebook) to eBay

■■ Venture capital/private equity-backed companies, not just F500 digital companies

■■ Related businesses that have been through digital transformations

More Selective Screening:

■■ Functional experience, social media marketing, cloud, mobile)

■■ Transformation experience (pure play vs. established company transformation)

■■ Cultural fit (mandatory)

■■ Shared vision of making a meaningful impact


COMPANY INDUSTRY BOARD MEMBERS DIGITAL CREDENTIALS

Apple Technology Tim Cook IBM, Compaq Arthur Levinson Google Bill Campbell GO Corp, Intuit Robert Iger Walt Disney

Cisco Technology John Chambers Cisco Carol Bartz Yahoo!, Sun Microsystems, Intel, NetApp Michael Capellas HP, Compaq, First Data John Hennessy Google, Atheros Communications Arun Sarin Vodafone, Infospace, AirTouch Jerry Yang Yahoo! Steven West nCUBE, Entera, Hitachi Data Systems, EDS Brian Halla LSI Logic, Intel, National Semiconductor

Dell Technology Michael Dell Dell James Breyer Apple, Facebook, RealNetworks, HP Shantanu Narayen Adobe, Pictra, Silicon Graphics, Apple

Google Technology Larry Page Google Sergey Brin Google Eric Schmidt Google, Novell, Siebel, Apple John Doerr Amazon, Move.com, Sun Microsystems Diane Greene VMware, EMC Corp., Sybase, Intuit Ann Mather GluMobile, Netflix Ram Shirarm Amazon.com, Junglee, Netscape John Hennessy Cisco, Atheros Communications Paul Otellini Intel

Hewlett- Packard Technology Meg Whitman eBay, Walt Disney, Zipcar Marc Andressen Netscape, Ning, America Online, eBay Raymond Lane Oracle, EDS, Quest Software Lawrence Babbio Verizon, Bell Atlantic

Intel Technology Paul Otellini Intel, Google Susan Decker Yahoo!, Pixar, LegalZoom.com John Donahoe eBay David Pottruck Schwab

Microsoft Technology Bill Gates Microsoft, Corbis Steve Balmer Microsoft Reed Hastings Neflix, Facebook John Thompson IBM, Virtual Instruments, Symantec

Oracle Technology Larry Ellison Oracle George Conrades IBM, BBN, Akamai Bruce Chizen Adobe Naomi Seligman Akamai, D&B

Amazon.com Retail Tom Alberg Advanced Digital Information William Gordon EA, Zynga, Callaway Digital Arts Blake Krikorian Sling Media,Telescript, Clicker Media Jonathan Rubinstein HP, Palm, Apple, FirePower Systems Patricia Stonesifer Microsoft, Viacom

Wal- Mart Retail James Breyer Dell, Apple, Facebook Michele Burns Cisco James Cash Microsoft Marissa Mayer Google Gregory Penner Baidu.com, 99Bill Corporation

Highly Digital Boards in the F100


COMPANY INDUSTRY BOARD MEMBERS DIGITAL CREDENTIALS

Berkshire Financial Services Stephen Burke Comcast, NBCUniversal, Walt DisneyHathaway Susan Decker Yahoo!, Pixar, LegalZoom Bill Gates Microsoft, Corbis Charlotte Guyman Microsoft Donald Keough IAC/InterActiveCorp., Convera Thomas Murphy DoubleClick, Walt Disney Walter Scott Level 3 Communications

Procter & Consumer Goods Scott Cook Intuit, eBayGamble Jonathan Rodgers TV One, Discovery Networks, Comcast Meg Whitman eBay, Walt Disney, HP, Zipcar

FedEx Business Services James Barksdale Netscape John Edwardson CDW Shirley Ann Jackson IBM, NYSE Euronext Gary Loveman Caesars Entertainment

Ingram Micro Technology John Ingram Ingram Content Group, Ingram Digital Scott McGregor Xerox, Microsoft, Digital Equipment Corp. Alain Monie Amazon.com Linda Levinson Connexus, American Express, DemandTec

Sprint Nextel Media and Daniel Hesse Sprint, AT&T Communications Robert Bennentt Discovery, Demand Media, Liberty Media Frank Ianna Aala, AT&T, Tellabs William Nuti NCR, Cisco

Walt Disney Media and Robert Iger Apple Communictions Judith Estrin Cisco, FedEx Sheryl Sandberg Facebook, Google, eHealth, Starbucks

American Financial Services Peter Chernin News Corporation, E*TRADE, Sky GlobalExpress Ted Leonsis Mobile Posse, America Online, LaunchBox Charlene Barshefsky Intel

Morgan Stanley Financial Services Roy Boystock Yahoo!, B/Com3 Erskine Bowles Facebook, Belk Donald Nicolaisen Verizon

Prudential Financial Services Gordon Bethune Sprint NextelFinancial Gilbert Casellas Dell, Q- Linx William Gray III Dell

Coca- Cola Consumer Goods Robert Kotick Activision Blizzard Barry Diller IAC, Expedia, TripAdvisor, Live Nation

PepsiCo Consumer Goods Shona Brown Google Dina Dublon Microsoft

Sysco Business Services Manuel Fernandez Gartner, Harris Corp., DataQuest Jackie Ward Digg, Computer Generation, Sanmina SCI

Ford Motor Automotive William Clay Ford, Jr. eBay William Helman Zipcar Ellen Marram Fedex, The New York Times

Highly Digital Boards in the F100

F100 Boards Addressing the Digital Gap


Digital Leadership:The Rise of the Chief Digital Officer

The challenges and opportunities for businesses in this digital age are enormous. Companies need to be fleet-footed to keep pace with changing technology and consumer behavior. Business strategies now must be seamlessly interwoven with ever-expanding digital strategies that address not only the web but also mobile, social, local and whatever innovation there may be around the corner. To help meet these challenges, companies are increasingly looking for a chief digital officer (CDO) who can oversee the full range of digital strategies and drive change across the organization. In this issue, members of the Consumer and Technology teams at Russell Reynolds Associates look at the rise of chief digital officers and their potential for CEO succession.

What is a CDO, and why does the role matter?

Customers are demanding fresh information and the ability to buy wherever, whenever and however they want. The numbers are hard to debate. More than 200 million iPhone and Android smartphones now are in consumers’ hands, and demand shows no sign of abating. Some 41 million apps are downloaded every day, and social networking is expanding on a geometric scale. Consumers are leveraging their digital resources to download information, compare prices, find the best products and search for deals.


It’s no surprise then that the seniority and caliber of digital talent that companies are seeking to recruit are on the increase. Traditionally, digital was positioned as part of the marketing function within the business, responsible for driving the organization’s online presence. The last two years have seen the rise of the chief digital officer, a senior executive who sits at the right hand of the CEO and is seen as instrumental to the future of the organization. For many companies, especially those in the retail and leisure sectors, digital is the fastest-growing revenue stream, and a chief digital officer (or, sometimes, SVP Online) is extremely important in driving that growth. In some sectors, such as traditional media, the CDO often will have been hired to help transform the company as its products evolve digitally.

In both cases, the CDO needs to be someone who not only has digital acumen but also is a seasoned general manager who can operate within a large-scale business and influence effectively across the organization. This is a relatively new type of leader and one who is hard to find, attract and retain. The increasing importance of the role eventually will put CDOs in the queue for CEO succession. CDOs will be the executives with the operating experience, management skills, strategic mindset and vision to lead businesses in an increasingly technological future.

The spike in demand for chief digital officers has been felt globally. In Europe, the number of search requests for this role has risen by almost a third in the last 24 months. The United States has seen the same growth in half that time. The increase in Asia is less pronounced, where the position remains relatively junior, though things there are evolving. The challenge in Asia is more about attracting talented executives to join established companies who otherwise might set up their own digital enterprise.

The sharp rise in demand for CDOs has been matched by an equally spiraling increase in the level of compensation offered. Today’s high-quality CDOs command double the remuneration levels of their predecessors, reflecting the scarcity of talent and increasing seniority of the role. Pay and benefits put the chief digital officer on par or above other executives at board or sub-board levels. In Asia, this trend has been less pronounced. It will take time for companies there to escalate the digital function to a more senior level—but the continued rise in consumer Internet and mobile use inevitably will drive similar demand.

What’s driving the evolution of the CDO?

Social media and the enabling technologies are fundamentally reshaping how consumers behave. Smarter, quicker and more advanced mobile telephony brings with it a wide range of possibilities for business such as media companies, retailers and information providers. Services that combine social and local elements are becoming the norm. All of this is forcing organizations to rethink their market and customer strategies. Some staggering statistics:

■■ In 2010, global revenue for the virtual goods industry was over $7 billion, according to Ted Sorom, CEO of Risty, a virtual currency platform.

■■ In March 2011, Apple announced it had sold its 100 millionth iPhone. As of July 2011, Google’s Android Operating System was on 130 million devices.

■■ In April 2011, it was announced that more than 200 million people had signed up on Twitter, while, in September 2011, it was revealed that there were 100 million active monthly users.

■■ In July 2011, it was reported that the Apple Retail Store was handling 24 million app downloads per day, and the Android Market was handling 17 million app downloads a day.

■■ As of September 2011, there were more than 800 million users on Facebook. On average, Facebook users install over 20 million apps every day. There are more than 350 million active users currently accessing Facebook through mobile devices.

“We are at the beginning of a new era for social Internet innovators who are re-imagining and re-inventing a web of people and places, looking beyond documents and web sites.”

John DoerrPartner; Kleiner Perkins Caufield & Byers


What does it take to become a CDO?

Given the complexities of their role, successful CDOs require a broad blend of experiences and competencies.

Experience

Digital experience, of course, is critical, but different combinations of skills are emerging among chief digital officers. For example:

■■ E-commerce and transactional expertise. The focus here is on driving traffic, conversion and revenue. Often referred to as SVP Online, these CDOs are sought after by companies involved in e-commerce, such as e-tailers and manufacturers that move to direct sales. These CDOs require change management capabilities and the ability to manage channel conflicts.

■■ Online marketing and social media expertise. Here the emphasis is on driving brand awareness, brand activation and consumer engagement. These CDOs are sought after by consumer-branded goods and services companies and require skills relating to new personalized/localized communications as opposed to mass communications.

■■ Transformative product and technology capabilities (i.e., analog to digital). These CDOs are sought after by traditional media companies and require change management capabilities that can impact the whole company.

More generally, CDO candidates should be familiar with web, mobile and social media—and possibly local as well. They should be able to plan and execute long-term strategy around driving customer awareness, engagement, experience and monetization. When it comes to innovation, candidates should have experience developing new channels and business models, as well as innovative products and services. The CDO also must be tech savvy; though knowing how to code may or may not be required, the ability to manage developers and ask the right questions is a minimum requirement.

Importantly, the CDO is not only a digital guru but also a seasoned general manager. He or she should have experience running a P&L. The role frequently is transformational so change management experience is important, either in turnaround or fast-growth situations. In addition, as many companies increasingly have global customers and employees, international experience is key. Therefore, CDOs will need to appreciate that adoption of technologies across a business’ jurisdictions will vary. In other words, one size does not fit all.

Competencies

As with any senior leadership position, a range of competencies is required:

■■ Setting strategy. With the digital landscape evolving so quickly, CDOs need to have excellent strategic skills, with the ability to chart the right course and make agile alterations when needed.

■■ Executing for results. Strategic insight must be coupled with a strong execution orientation and an ability to deliver results despite the complex and fluid environment.

■■ Building relationships and using influence. In today’s climate, the culture and practices within a business can change as quickly as those in the external market. Chief digital officers, therefore, must be able to build relationships across all levels and functions of the organization—from the board down to the front line—and effectively manage conflict.

■■ Exhibiting Leadership. CDOs, in turn, must be able to recruit top talent and to lead large and (sometimes) globally distributed teams.

■■ Demonstrating cultural sensitivity. This particularly is important, as those skilled in new digital tools may view the world differently from others in more traditional parts of the business.


Where can effective CDOs be found?

There is a wide range of challenges for those recruiting chief digital officers. One of the most significant issues is that demand is far greater than supply in all areas of the world. This creates retention issues among the best staff, fueling an increasingly competitive war for talent.

After two decades of the Internet, there is a reasonable cadre of mid-level digital managers from product, technology or marketing backgrounds. However, there are relatively few senior general managers or people who have worked across functions or have had extensive board experience. Many candidates have acquired their skills in small, nimble start-up type environments, making them culturally unsuitable for large, structured, matrixed corporates. Indeed, many of those who work in digital want to remain in pure-play arenas. To attract these candidates, companies must rethink how they structure responsibilities.

Perhaps not surprisingly, the greatest supply of candidates is in the United States. However, demand in this region is equally intense, such that finding the right talent in the United States remains challenging. Another issue, as many European and Asian companies note, is that technology executives from the United States often grow up in a particular silo, such as sales or marketing. As a result, while these executives bring tremendous functional expertise, they often lack the broader leadership and influencing skills that are needed for these more senior general management positions.

For some companies, particularly those with more traditional structures and career paths, it can be a challenge to integrate digital talent who will push the boundaries but may lack the maturity needed to function effectively at board or sub-board levels. For CEOs, such appointments require an element of risk taking and may include implementing and explaining strategies that go far beyond the traditional business model. In many cases, CEOs will need to adapt to having a key member of the inner circle who is far younger and has a significantly different business background from the rest of the group.

On the candidate side, those looking to move into chief digital officer positions may be reluctant to join established organizations, viewing them as old fashioned. Many candidates come from cutting-edge, entrepreneurial organizations where executives can have a clear and immediate impact, and candidates often desire those same attributes in their next employer. They also want compensation packages (particularly equity) highly geared to success, which may test the compensation bands of traditional companies.

Not only must organizations have an open mind to hiring candidates who might not fit the cultural norm of the business, companies also will have to move very quickly when they find and meet talent with potential. The current state of supply and demand almost guarantees that other opportunities will be available to talented candidates.

What does the future hold for the CDO?

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. 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.

Authors

Rhys Grossman co-leads the firm’s Internet and Media Practice. Based in London, he advises clients on search and assessment across the digital media, e-commerce, broadcasting and publishing sectors.

Jana Rich co-leads the firm’s Internet and Media practice. Based in San Francisco, she specializes in recruiting senior-level executives for clients in the Internet, e-commerce, media and entertainment industries.

“ 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.”


Think of it as E-commerce 3.0

If the first stage of e-commerce was most memorably signaled when Amazon.com opened for business just 16 years ago and the second stage was the subsequent proliferation of all manner of web stores, today another fundamental shift is under way that is transforming the business landscape. In this paper, Margot McShane and the e-commerce team at Russell Reynolds Associates examine the converging trends that are creating a strong demand for experienced e-commerce retailers and outline seven critical questions that CEOs, boards and human capital leaders need to address as they begin their search for an e-commerce head. Many of the areas for discussion here also are relevant for organizations in other sectors that need to re-examine or develop their digital content and distribution channels. Future discussions will evaluate specific issues around e-commerce leadership in financial services, technology, healthcare, government and nonprofit.

A major shift, indeed, is under way in the world of e-commerce. Perhaps the biggest indicator is that large brand name multi-channel retailers with relatively small e-commerce businesses (and, in many cases, consumer products organizations that are selling direct for the first time) are re-engineering their original strategies and are starting to place a much bigger emphasis on their dot-coms. Until now, many retailers simply de-emphasized their e-commerce channels—which

The Search Is On: Seven Questions to Ask When Recruiting E-commerce Leaders


is no surprise in an industry where the brick-and-mortar store experience historically has been the single most important facet of the business. These companies now are looking to benefit from the web’s relatively higher growth rate in sales, its potential for greater margins and the realization that multi-channel customers—those who visit the store and shop online—are more valuable than single-channel buyers. In fact, many successful multi-channel retailers are using their web sites to drive an enormous volume of store sales.

There is yet another subset of retailers that avoided e-commerce altogether, many of whom are rethinking their strategy and are considering launching e-commerce platforms. Many of these companies had web sites, some of them excellent, but they often were brand enhancing or informational—not transactional. The New York Times recently picked up on this trend, noting that the luxury fashion business—including brands such as Jimmy Choo and Hugo Boss—is embracing direct e-commerce for the first time.

As business shifts into E-commerce 3.0, corporate leaders and hiring executives at consumer retailers, as well as organizations in financial services, technology, healthcare, government and even nonprofit, are seeking guidance on the kind of talent they need to lead their e-commerce businesses. Regardless of the size of the business, the essential questions retail leaders need to ask themselves before undertaking a search are strikingly similar.

No. 1: Should the head of e-commerce report directly to the C-suite?

There is no one correct answer, but before beginning the search, it is important to consider how reporting lines will impact the qualified candidates’ perception of both the role and the organization’s commitment to the e-commerce initiative. Two likely expectations of candidates will be that profit and loss (P&L) responsibility for e-commerce will come with the job and that the position will report directly to the CEO or president. Without these two conditions in place, it’s possible that some high-caliber candidates may opt out of the process. This isn’t about ego on their part; having the e-commerce leader report directly into the same level of command as the head of retail and merchandising sends a clear message that the development of e-commerce is a company priority and that the candidate will be the business owner. This type of reporting ensures that the e-commerce leader will be directly involved in executive conversations and planning sessions that drive the direction of the company. It also indicates that e-commerce is a priority for the CEO and the board and broadcasts a message throughout the organization that the leadership team is embracing the channel. This is not to say this model is right for all organizations, but companies should give serious consideration to organizational structure in order to attract the right level of experienced leader. Another way to reassure candidates about the company’s commitment is to establish an on-call board member who can provide reassurance and answer questions about the e-commerce strategy during the final recruitment stages.

No. 2: What are the company’s e-commerce goals?

In order to identify and recruit the right talent, clients should be ready to articulate their key goals around e-commerce and determine how they align with the larger business strategies. For example, how big is the e-commerce business expected to get? What are the multi-channel strategies (e.g., order online, return in stores; develop comprehensive CRM strategies to maximize customer loyalty and value)? What is the time frame for getting there? How much of an investment will it take to reach these goals? These strategy points are vital because the candidate who can build a business from scratch typically is very different from one able to triple an existing $50 million enterprise. An alternative candidate would be required to scale a $300 million business into a $1 billion enterprise. Building from scratch vs. optimizing an existing business, or building large-scale, competitive capabilities, requires very distinct skills and demands different talent.

“ Two likely expectations of candidates will be that P&L responsibility for e-commerce will come with the job and that the position will report directly to the CEO or president.”


Identifying these long-term objectives and strategies is one of the most important challenges for a company embarking on a talent search. For example, it’s becoming increasingly common for a company to consciously hire someone who is “too big” for its existing business with the knowledge that the organization is hiring a leader capable of handling its future size.

No. 3: Does the business’ compensation model support or undermine the company’s goals?

In an ideal world, a compensation model should be developed before an e-commerce search begins. From a basic planning standpoint, that is obvious. However, there is another, more critical reason. Compensation models that focus almost exclusively on increasing online sales can cause internal strife at the company. Since an online sale may come at the expense of a store sale, retail-side leaders may feel threatened by e-commerce initiatives in a battle over the customer. According to the 2009 State of Retailing Online report from Shop.org, companies have adjusted their management and incentive structures to better align the online division with the rest of the company and vice versa. One important area to address will be assigning credit for in-store revenue generated online. Successful compensation models also may emphasize shared credit for revenue performance and multi-channel sales, as well as companywide strategies around buyer loyalty and customer satisfaction. Not only will a successful compensation model avoid debilitating, money-losing rivalries, but it will incentivize cooperation across business lines. When recruiting e-commerce talent, the candidate will inquire about how his or her bonus will be measured.

No. 4: Will the e-commerce leader command a dedicated team?

Establishing who is officially on the e-commerce team (with a solid line to the general manager) vs. who will be part of a shared-services team supporting e-commerce will impact the type of talent companies recruit. If the expectation is that the e-commerce leader will own responsibility for the P&L—but will need to rely on other key functional business heads or other shared resources to do so—it may adversely impact a candidate’s perceived ability to meet the established goals.

One of the most important issues to address early on is the risk related to information technology (IT) resources and accountability. Everyone involved must understand the structure and reporting model of the IT function before the search for an e-commerce leader begins. Particularly in situations where the IT unit reports into multiple heads and the e-commerce leader will not have direct or dedicated IT support, some candidates may be concerned that IT will be unable to completely focus on and execute the e-commerce strategy.

In addition, a clear understanding of the structure—be it shared services, a standalone unit or a hybrid—will help focus the search for the right type of leader, placing emphasis either on exceptional relationship-building skills that will be required with a shared model or on strong strategic and operational skills that will be required with a dedicated team (more on this in No. 6). It has proved helpful for an organization to discuss its team model in advance of implementing a search, as this enables a company to clearly identify the required competencies and experience and to set expectations with top candidates.

No. 5: Where will the e-commerce team work—headquarters or dot-com talent centers?

For many CEOs, the answer to this question may seem obvious. Most organizations believe it is imperative that the e-commerce organization reside at headquarters in order to build rapport and partnerships with cross-functional colleagues. This will help support an integrated business culture that will legitimize e-commerce within the rest of the organization and ensure that the team stays close to the center of the business.

“ It is important for the e-commerce organization to be fully integrated within a multi-channel retailer—from a business, cultural and interpersonal standpoint.”

“ The most successful people in this realm possess both personal confidence and a willingness to listen to other ideas.”


However, some retailers, including one well-known big-box brand, have built e-commerce teams in locations away from the company headquarters, reasoning that attracting top talent to an alternate city would be easier. For example, the San Francisco area, because of its wealth of relevant talent, has become a popular spot for locating these separate e-commerce units. One catalyst for locating the team away from headquarters might be when a medium-sized e-commerce organization is growing to the next level and will require more sophisticated e-commerce expertise and leadership—leadership that may not be easily attracted to the headquarters location. Some retailers have concluded that for an e-commerce organization to thrive, it needs to sit elsewhere to get out of the shadow of the stores—truly making the group a separate division—and that, again, means locating it near e-commerce talent centers.

Locating the e-commerce team off-site does pose risks unless the retailer and candidate understand what is required to make everything work. Given the need for the e-commerce function to be fully integrated within a multi-channel retailer—from a business, cultural and interpersonal standpoint—strong communication and a structured schedule with in-person meetings are critical to success, especially at the beginning.

No. 6: What are the most essential skills and competencies to look for in candidates?

Web experience and a proven track record of scaling an e-commerce business, of course, constitute the foundation of any viable candidate. However, outstanding e-commerce general managers will possess several specific competencies and leadership traits:

They must be strategic in mindset. An ideal e-commerce candidate envisions long-term market potential and business opportunities; generates strategies for addressing future market scenarios; and positions the business to capitalize on these opportunities using innovative and analytical thinking. Strategic executives will be adept at employing research and customer data and at drawing upon best practices to drive the business. The strategic leader also seeks out opportunities that are game-changing for the business.

They must have operational expertise. Strategic thinking is indispensable, but an e-commerce leader also must have an excellent track record of driving results. The ideal candidate cannot only project the vision and mission of the organization but needs to know how to turn those goals into viable plans. Personality traits that serve this role well are pragmatism and adaptability, and the candidate will possess the ability to focus and execute in a competitive and fast-paced environment. In addition, successful leaders in this field will make useful and sensible recommendations outside their area of expertise to their colleagues. The ideal candidate is one who accepts responsibility for results and expects the rest of the e-commerce team to follow suit. Successful operational leaders can balance the drive for business urgency with the ability to motivate, attract and retain strong talent that will form the backbone of a successful team.

They must be skilled at influencing colleagues and building relationships. This trait is critical for success in e-commerce, a unit that often requires strong partnerships with merchandising, marketing, technology and retail operations. Without effective and strong coalitions, e-commerce will not thrive. We’ve found that the most successful people in this realm possess both personal confidence and a willingness to listen to other ideas. They are tenacious but also have high emotional intelligence, traits that allow them to push the business forward while building consensus along the way.

“ Right-sizing the candidate for the opportunity is critically important.”


So while many organizations believe that success almost always originates from strong strategic thinking and operating skills, it often is true that the difference between a moderately successful and a very successful e-commerce organization is the high degree of integration of the online team—a feat driven by a persuasive e-commerce leader who particularly is skilled at influencing and building relationships.

No. 7: What are the most common pitfalls when recruiting e-commerce leaders?

The new hire isn’t a good cultural fit. One of the most important competencies in an e-commerce leader is the ability to be a change agent but also mesh culturally within the organization. What will make a successful e-commerce leader is the ability to deftly navigate the existing culture while simultaneously executing the e-commerce strategy.

Under- or over-hiring: If an organization is going to go through the considerable effort of conducting a comprehensive search, it stands to reason that retaining the successful hire would be extremely desirable. This is why right-sizing the candidate for the opportunity is critically important. As laid out in No. 2, it’s important for organizations to thoroughly evaluate their needs so that they pick the right candidate.

No two e-commerce businesses are the same—success at one dot-com doesn’t necessarily translate to another. Generally speaking, evidence of past success does predict future success, but it’s important to know more than the broad strokes of a candidate’s experience. In order to make sure a candidate’s past will translate well to a new business, context is essential. For example, how big was the e-commerce business at the previous company upon arrival? Inquire about revenue and order volume because large revenue dollars can mask operational inefficiencies. This will help determine if the candidate has the required experience for a complex logistical environment.

Other questions to ask include: What were the market trends at the time? And what were the goals of that business? The overall object is to determine how analogous the candidate’s past role was in relation to what the future position requires, and the answers to these questions will help make sure the candidate is a good business fit. It is easy to fall in love with a candidate based on title or the brand name of his or her employer, but drilling deeper benefits everyone in the end.

In summary

Every business situation is unique, but these issues tend to remain constant as companies undertake a thorough search for new e-commerce leadership and talent. It’s important for CEOs and key hiring managers to address these issues before embarking on a search. The answers to these questions will streamline the search process and help define the type of leader required for the role, ensuring that the organization ends up with a robust pool of top-flight candidates.

Author

Margot McShane is a consultant in the Consumer Sector at Russell Reynolds Associates. She specializes in conducting senior-level searches for Internet, retail and consumer products clients across a range of categories. Margot leverages her extensive retail experience to provide innovative leadership solutions and strategies for her clients.

“ It is easy to fall in love with a candidate based on title or the brand name of his or her employer.”


The Future of Automotive Leadership: From Car Guy to Mobility LeaderIt’s not easy these days being an automotive executive. More than ever, leaders must apply multi-phase thinking and take courageous action to adapt a strategy for success in a changing environment—and that’s just the beginning of what is expected of them.

A small typology by Walter Friederichs, Ph.D.


The car market is changing stealthily yet dramatically—transforming itself from the distinct automotive industry to a more fragmented mobility industry. The winners in this process will be the manufacturers, suppliers and traders whose leaders are involved in shaping this change across industries. As a result, the competencies these top managers will need to possess when it comes to expertise, performance and personality have become more complex than ever. The industry no longer can rely solely on the specifically focused car guy of yore. Traditional automotive and technical experts will continue to be essential, but, increasingly, the expertise and knowledge of a true mobility leader must emerge to meet the leadership needs of this evolving industry.

The future of mobility leadership

Love of the automobile and gasoline coursing their veins always will be part of their DNA, but executives and top-tier managers also will need to gather specific skills and experience from other industries such as energy, information and communications, chemicals, logistics and transportation, tourism and finance. True mobility service provider executives will need skills pertaining to goods with a “use by” date—for example, strong knowledge of logistics, travel services or equipment rental will be essential; and having the right financial skills may mean mastering complex booking systems like those created for the aviation industry.

Sagacity, not dogma

New analytical skills and a different approach will be needed to determine which facts are important and which are not. Too often, managers judge data and numbers by their source—the higher the source’s status, the better the information must be. As the auto industry undergoes substantial change, executives need to avoid being guided by past accomplishments and, instead, evaluate data without prejudice when making decisions. Sagacity is what is called for, not dogma. As an example, Google is a company that regularly examines its own performance without bias and develops new business by asking how customers can better achieve their objectives. The automotive industry improves its cars in a similar way, but this competency must be expanded and utilized more extensively to identify and develop emerging business areas.

It’s not easy being strategic

Executives must be strategists, which sounds easy but isn’t. Strategists are given to autonomous thought, and they express their ideas with passion and conviction—especially when their opinion diverges from popular or mainstream views. A strategist has to be controversial, staying focused on the business issue and never getting personal. A strategist also must be able to build consensus for change and then walk the talk to ensure execution. As an example: If a carmaker wants to copy Zipcar’s metropolitan car-sharing model, internal objections against moving from the automotive business to the mobility business must be overcome. This means—and this is quite possibly the hardest part—being able to realize and appreciate that Generation Y consumers probably are more interested in choosing the right mode of transport at any given time than having the car of their dreams parked in the garage.

Without equal footing, there can be no partnership

There can be no doubt that sound relationship management is more than the ability to accommodate diverging views. Capable networkers exert influence, develop sustainable relationships, and can persuade and convince others to pursue common objectives. These leaders must be able to communicate the need to expand their company beyond its traditional reach and build trust in their vision and judgment in order to execute the strategy.

This becomes dramatically more important when alliances and partnerships gain weight. Today, executives must be able to initiate steps and be willing to show their hand to other companies. To this end, the executive has to have what it takes to correctly judge other companies and


individuals. A partnership’s leaders must jointly develop the trust required for each party to open up. Executives will need to operate on an equal footing with external partners. Perhaps one of the most successful recent examples is aviation’s Star Alliance. This association is not aimed at taking over other companies but, instead, brings providers together in a mutually beneficial partnership.

Want to be radical? Show some courage!

If you want to be successful in a sea-change environment, then radical thinking is an indispensable trait. Executives who are willing to question even solidly performing enterprises and then experiment with new approaches will be more successful in unsteady periods.

The capacity to deal with complexity will become increasingly important. Executives will have to pursue numerous tasks simultaneously; they must be able to focus on what is important while still being able to efficiently switch priorities in midstream. Multi-phase thinking will be the new catch phrase. Executives will have to think far ahead of the curve when it comes to anticipating events, and those making the big points here will be the ones who are sufficiently self-assured and are able to encourage and promote product diversity. BMW could be on the right course with its novel battery-powered two-wheeler, the Mini Scooter E Concept. Targeted for young adults, this scooter is seen as both an alternative to the electric car and a shot in the arm for the ailing motorcycle industry.

When the business world experiences rapid and drastic change, people have to be ready and willing to accept fresh concepts. Likewise, a leader’s identity needs to be so solidly established that he or she can communicate confidently and candidly across generations and cultures. Executives also must be able to adapt to social and cultural differences. The most successful executives will be those who demonstrate empathy and cultural sensitivity and do so with the right motivation—to drive successful execution of the strategy; executives responding to others’ preferences and expectations simply to gain popularity may not prove tough enough to be an effective leader. At its most elemental, what leaders need to accomplish is listening and responding to others’ personal needs in the interest of the company and then gaining their support for company goals.

Failure can be as valuable as innovation

One quality that often is underrated in the auto industry is risk taking. Risk taking must go hand in hand with the willingness to delegate—not just duties and accountability but also power and decision-making authority. Executives will be more successful when they promote the creativity of others and stop regarding lateral thinkers as troublemakers. These new leaders must encourage their teams to test out novel behaviors and innovative approaches. When risks are agreed upon and discussed in advance, there’s no place for penalizing failure. The very impressive yardstick in this respect is Tata Motors: Every year, a prize is awarded by the company for an innovation that seriously was pursued but, alas, failed.

Author

Walter Friederichs, Ph.D., leads the firm’s global Automotive Practice and recruits candidates for top management and board positions in a range of industries at Russell Reynolds Associates.

22 | Quarterly Reoprt

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Leadership, Succession and Search | Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for CEOs, boards of directors and key roles within the C-suite. With more than 300 consultants in 41 offices around the globe, our dynamic teams and action-oriented approach help our clients develop goals, define appropriate roles and fill leadership gaps. We work closely with both public and private organizations across all industries and regions to build boards and executive teams that can meet the challenges and opportunities presented by the digital, economic, environmental and political trends reshaping the business landscape. www.russellreynolds.com

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