Time for clarity on what we expect CTO to do

Wednesday, 19 September 2018

It is impossible to assess Derek Handley's suitability for a role that is not defined

OPINION: There has been speculative confusion regarding the role of a chief technology officer (CTO) in the government amongst a haze of ambiguity between the government and tech communities.

Some in the tech community believe that the CTO should be an engineer or developer themselves, whilst others believe that the role pertains to being an overpaid industry figurehead who champions enthusiasm for said industry.

The Office of the Minister for Government Digital Services has gone as far as to establish that the role would be that of a 'one-person Ministerial advisory group… [which] would allow the CTO to stimulate public discussion, challenge government and other stakeholders, and act with government and others as an instigator of change', yet has failed to stipulated neither mandates nor deliverables.

The decision to appoint Derek Handley to the position was certainly polarising, however this should not have come as a surprise to Clare Curran.

* Chief technology officer fiasco a spectacular own goal

Clare Curran should not have been surprised by the reaction to Derek Handley's appointment.

* Derek Handley receives $107k in compensation after being dumped as chief technology officer**

It is impossible to assess Handley's suitability for a role that is not defined; if the role is to champion the start-ups of New Zealand, he is likely a decent fit for such a role. If he is expected to deliver strategic policies for execution by the tech sector, perhaps he is not so suitable. Curran's downfall was not the actual appointment of Handley (although how she went about it certainly sent heads rolling), but more so that she was unable to define the role for which she deemed Handley to be the best fit.

So what should the role of New Zealand's CTO look like? To construct a framework to determine this, I am going to look at New Zealand through the lens of a corporation- New Zealand, Inc. Admittedly, I am breaking rule 101 of economics; a country cannot be run like a company but bear with me.

New Zealand has a GDP - a common measure of its economic performance - of $185 billion. In terms of American corporations, Microsoft has reported revenues of US$110 billion ($167.3b). There is a fiduciary responsibility in making sure that the GDP, or revenues, of New Zealand, Inc and Microsoft respectively, are deployed to ensure the most efficient company growth for all shareholders.

A CTO at the tech company Microsoft is one of the most powerful positions in one of the most powerful companies in the world.

The first and primary role of the CTO is to work alongside the executive team to build and deliver the best possible outcomes for customers and for the company.

The chief executive officer will decide exactly what the 'best possible' outcome is - cheaper products? More features? The CTO will then use this as a guiding principle to determine how the technology of a company can deliver these results by identifying the future power of new technologies, leveraging technology across the platform, creating new technology opportunities and building a community of technologists who can execute on the shared vision.

Sinead O'Sullivan, aerospace engineer, Harvard Business School.

Typically, a CTO should have five traits; the genius to create technology; administrative expertise to guide the organisation's technologies; directorship to manage corporate research and investments; executive leadership to strategically identify technical trends in the future; and the ability to advocate for and leverage technology to create a competitive advantage.

Looking at New Zealand, Inc as an economist, one could predict that its GDP - currently growing at 3.9 per cent - will slow. Its largest industry, agriculture, is not only reaching full capacity but also enshrined in environmental woes that will regress the economy significantly and dangerously if not addressed immediately.

Its second-largest industry, tourism, is reaching full capacity. New Zealand's main export partners, China and the United States, are engaging in a trade war, with both economies predicted to enter a recession. With the United States increasing interest rates, and New Zealand running a constant account deficit, there is a dire need to bolster the digital and technology industries to protect the economy from the effects of what some economists have predicted to be a new global recession.

The need for New Zealand to prioritise the digital economy is augmented not only by a potential slowing of the economy but by a need to create a new competitive advantage - agricultural exports are no longer sufficient. Having a CTO is just one of the ways that the government can prioritise technology development and ensure the integration of this sector in its economy.

My research of the New Zealand tech industry over the last year indicates that New Zealand, Inc's CTO should prioritise the following three strategies that will deliver the best outcome to CEO Jacinda Ardern's goal of growing the national economy sustainably.

Firstly - the creation of an internal market for investing in early stage technology.

There is a $300 million financing gap in the venture capital industry in New Zealand, largely due to internal market failures. With this market failure, however, comes a unique opportunity for investors to generate above average returns by deploying this capital in New Zealand - instead of US or European - technology.

In fact, my research with a Stanford colleague, to be published later this year, shows that investing in a large New Zealand venture capital fund could create a completely new asset class of emerging economy returns without the economy development risks - the holy grail of low risk, high reward.

By creating a stable and professional venture capital industry on home ground - and yes, there are several challenges to be able to do so - a reduction in the export of technical talent should prevail. Having the ability to finance later stage technology will, in 8 to 10 years' time, start to open new and much larger opportunities in domestic private equity and eventually the open markets.

Secondly - better performance as a 'globalised centre'.

I have broken down technological growth capabilities of nations into three categories, the most relevant often being 'integrated centres', which have large internal markets and use a large, local customer base to drive growth - think the US and China.

New Zealand, however, is a 'globalised centre', it is able to test its small, local market but relies both on large, foreign customers and connectivity to integrated centres, such as the US to grow. Of the globalised centres, New Zealand is one of the least connected to integrated centres.

Organisations such as Kiwi Landing Pad do a good job of connecting entrepreneurs to the US, but this is currently insufficient to grow New Zealand tech firms. There needs to be a major implementation of 'boots on the ground' in the US and Europe.

Lastly - continued leadership in technical literacy. Primary and secondary schools need to adopt computer science as part of the curriculum sooner rather than later, and universities need to keep reinforce applied programming and data science as part of an undergraduate degree.

As it turns out, New Zealand graduates are highly sought after, as is evident with overseas employment numbers.

However, many of the early stage tech companies I have spent time with have an issue with retaining this talent in New Zealand and the limit on technical graduates is an obvious barrier for national growth. In addition, deep expertise in technical fields are not as prevalent in New Zealand as elsewhere; PhDs are not as well supported in industry in New Zealand as its counterparts in Europe or the US.

A CTO who is to execute and deliver successfully across any, never mind all, of these strategies must bear the traits of an executive in a multinational corporation and are held by few; be a deep technical expert, administrative in nature, have directorship and executive leadership and be highly strategic. Despite the public outcry, I believe that this is an important and difficult tenure that is deserving of the remuneration being offered by the government.

My criticism is not of those who have already criticised the appointment of Handley, nor of Handley himself. Instead it is of the process of quasi-appointing a role of such high importance to the New Zealand economy without having created metrics against which to judge that person.

Buzzwords in this industry stale fortnightly; 'blockchain' is today what 'double-sided marketplaces' were yesterday. To create a technological competitive advantage, New Zealand cannot tie itself to these buzzwords that there were created elsewhere or to egos such as Richard Branson who do not look after this country's primary interests. This makes New Zealand not a digital leader, as the government would have hoped, but instead a lackluster follower.

Sinéad O'Sullivan is an Aerospace Engineer, an Entrepreneurship Fellow and a Sainsbury Management Fellow at Harvard Business School. She currently researches the role of technology in the unit of Business, Government and the International Economy.