RSM Resources

With the number of CROs, CAOs and CCOs on the rise, a list of top executive jobs at many corporations can read a lot like alphabet soup. But behind the confusing acronyms, these positions — chief risk officer, chief audit officer and chief customer officer, respectively — reflect the emergence of new executive positions in key specialty areas that firms see as critical to their success.

New C-level managers with the ear of chief executive officers or presidents are particularly common at large, publicly traded firms. Between 1986 and 2000, the number of direct reports to CEOs at such firms increased from 4.4 to 7.2 on average, according to researchers at the University of Chicago and the University of Pennsylvania.

For midsized companies, the decision to hire a senior leader with deep, niche expertise must be evaluated in light of critical organizational needs. For example, does your firm need a chief customer "champion" to bridge the gap between marketing and sales? With new stricter government regulations on financial management now in place, is your business exposed without a chief audit or risk officer? Before you add a new position, experts suggest you think through what’s affordable, what makes sense for your industry, and whether you can adequately define and support this new role on your company’s organizational chart.

Specialized oversight

The elevation of certain key "silos" within an organization isn’t a new phenomenon. Over the past few decades, firms have brought on senior executives to oversee quality, privacy, brand management, information technology and other specific business units. While some of those roles, such as the chief information officer, remain viable today, others have faded away like yesterday’s news — in certain cases due to their own success. For instance, a number of firms in the 1980s and 1990s hired chief quality officers when initiatives like Total Quality Management, Six Sigma and others were just gaining favor. After driving internal changes to raise the issue to a strategic level, many people hired for those roles moved into other jobs, since quality had gained a strategic foothold that could be embraced by the larger management team.

The rise in new C-level specialties can be attributed partly to the decline of a traditional chief operating officer (COO)position. More important, many firms dealing with complex issues in a number of areas — tougher regulatory requirements, selling to customers on a global basis, adapting to alternative sales channels like the Internet — see the value in establishing enterprise wide leaders who know the entire organization and have support from and access to the CEO.

Whether or not the newest C-level subspecialties make sense for your business can partly depend on the unique demands of your industry, experts say. The position of chief channel officer, for example, has been adopted primarily by technology companies that generate as much as 50 percent of their revenue from indirect channels and resellers. The importance of executive leadership for these channels, or alliances, was underscored in a Gartner Dataquest survey, which found that "executive support and sponsorship" was the top driver of a successful partnership.

For businesses that don’t rely heavily on partnerships, it may make sense to consider other forms of specialized, C-level oversight. Chief customer officers, for example, are common with retailers,direct sellers and other companies with multiple customer touch points in sales, customer service, marketing and public relations. In this role, the CCOis the executive charged with ensuring a smooth, consistent customer experience.

The popularity of the chief risk and chief audit officer positions, on the other hand, stems largely from government regulations— such as the Sarbanes-Oxley Act of 2002 — that have placed more stringent requirements on companies to document, test and defend financial controls. CROs and CAOs are found primarily in industries such as utilities, banking and financial services, where risks in areas like data privacy and information security are relatively well-defined.

To ensure effective oversight, for example, many financial institutions are bringing a number of functions — such as regulatory compliance, internal audit and credit-risk assessment — under the CRO umbrella. On the other hand, since manufacturers and distributors face a broader array of risks, such as supply chain disruption and product-liability issues, they’re more likely to address risk via committee or management-level staff working as "micro-CROs." But for midsized firms with fewer layers of management,experts agree it can be beneficial to have one point person responsible for addressing risk issues throughout the organization.

Should your company add specialized executive expertise? Before moving ahead, consider:

• Is it the right time? Do you anticipate that your risk-management needs will increase in the next few years? Are you preparing to acquire a new set of customers, alliances and partners? A new senior-level position can make particular sense for rapidly expanding firms that want a central point of contact in key areas like risk or customer care, which cut across multiple departments and divisions.
• Is the job well-defined? To avoid potentially disruptive turf wars, lay the groundwork for a new position by clearly setting out areas of responsibility within the existing framework of the company. For example, if you plan to create a chief customer officer role, determine where the CCO takes over from the head of marketing in managing customer-retention issues. Most important, make sure the new executive has the full support of the CEO.
• Do you have the right person in-house already? For an established company, experts say it makes sense to look at internal candidates first when creating a C-level position. A proven performer with credibility in the organization can be more effective in carving out space for the new position and building support among other executives and department heads.

Keeping these factors in mind can help you findthe right organizational structure to meet your changing business needs.