Chief Digital Officers as testimonials of innovation

By Dirk Schiereck *

(exechange) — May 1, 2021 — The importance of digital technology in business operations and strategy has resulted in an increasing number of companies appointing Chief Digital Officers (CDOs).

CDOs are often implemented as a visible testimonial for developing and implementing an overarching digital strategy for a forward-looking business model.

However, because the first CDOs already began a decade ago, the question arises regarding how long it can be a signal of innovativeness to appoint a CDO.

We examine stock market reactions to announcements of 93 newly created CDO positions between 2012 and 2020 in an international data set (1).

The findings support the notion that the earlier a company implements a CDO position, the more positive the capital market reactions are.

This result implies that investors today hardly perceive potential late adopters as convincing digital innovators.

Only companies that identified early on the potential to radically transform the nature of competition with digital technologies were rewarded, reflected in higher positive stock returns prior to 2018.

(1) Bariz, Historei / Schiereck, Dirk / Schütz, Maximilian, Can it be late to appoint a Chief Digital Officer (CDO)? Working Paper, TU Darmstadt.

* The writer is a professor of Corporate Finance at the Technische Universität Darmstadt.

Editor’s note: This is a guest post.