What does a modern COO do? It depends. But the New COO looks a lot more like an innovative founder than the grizzled cost-cutter of yesteryear.
The Chief Operating Officer (COO) role is probably the highest executive role for which there is no widely-agreed, textbook definition. Companies widely agree on the need for a CEO, but only the largest recognize the need for a COO, and even those have very divergent descriptions for this mysterious office. That’s a mistake that small and mid-sized businesses should correct. A good COO can both support and free up the CEO to do their best work, while injecting much-needed fresh blood and innovation into organizations that may otherwise paint themselves into a corner.
Traditionally, the COO has been an “Op Ex guy,” squeezing operational costs and maximizing efficiency of the production unit. In the 1950s through 1980s, CEOs and COOs functioned as a leadership dyad, with all operational staff reporting to the COO, and the COO reporting to the CEO. Examples of companies still employing this model include Eli Lilly (Tobias/Taurel), Corning, Inc. (Houghton/Ackerman), and PepsiCo (Kendall/Pearson).
Leadership Org Models
A popular variation that emerged from this was to have the corporate staff divided into Strategic and Operational responsibilities, and having Strategic corporate staff (CFO, general council, corporate policy, etc.) reporting directly to the CEO, while Operational corporate staff (HR, IT, facilities, line management) focus on current-year priorities, and report to the COO. Experimentation by leading companies has led to the advent of the “staff to the box” models, where corporate staff report to a leadership dyad called “The Executive Office,” containing both the CEO and COO.
In smaller companies, the CEO/COO/CFO triumvirate emerged as a common corporate leadership structure, which makes operational expenses, cash-flow, and asset management a top-of-mind priority for the leadership team.
As the economy moved towards professional services, the perceived need for COOs was eclipsed by the more visible roles of Chief Information Officer (CIO), Chief Technology Officer (CTO), and increased scope for the Chief Financial Officer (CFO). Chief Marketing Officer, Chief Strategy Officer, and other “chiefs” are sometimes present in the executive office, but rarely wield the same power or scope over company operations as a COO, or even CFO.
When do you need a COO?
In consulting with Fortune 500 companies and small to medium-sized businesses all over the world, I’ve seen another shift in the last 5 years, back toward a definitive need for a COO role. As so many startup companies have become profitable quickly, they often seek outside leadership counseling, either in the form of executive coaches, experienced interim CEOs who mentor founders to take over the role, or a forward-thinking COO. Mark Zuckerberg, CEO and Founder of Facebook, hired Sheryl Sandberg as COO in 2008 not so much for operational penny-pinching, but for innovative ideas to grow top-line revenues, as well as bottom-line profits.
In most Fortune 50 companies, COOs are selected carefully based on the type of leadership structure and division of duties that the CEO and Board feels will best help the company thrive. COOs are often groomed for leadership positions, poised to either take over the CEO role at their current company, (Tim Cook at Apple, Sam Palmisano at IBM, Jim Alling at T-Mobile) or at another company.
Carol Bartz, the CEO of Autodesk, said “[Situations where the] CEO just can’t give up the control or doesn’t really want a number two are disastrous for all involved. Sometimes, the CEO realizes intellectually that they want a COO but they can’t operationally have one- they can’t develop enough trust.”
In such cases, it may make sense to enlist a consulting COO, either in a full-time but temporary position, or in an advisory role. The consulting COO brings expertise in a specific industry, sales, or generalized organizational management, but also, most importantly- a fresh pair of eyes. I had one client who hired me for a short operational improvement engagement, then asked me to come on board for a “turn around” COO role, to position the company for acquisition. The CFO and I focused on tightening costs, but also repositioning the company’s brand for higher margins, and productizing our internal expertise, implementing go-to-market strategies that made the company more attractive to buyers. The result? Three term sheets (offers) in 6 months.
The modern, New COO, especially in an adjunct capacity, should bring innovative, strategic ideas from outside the company, perhaps even outside the industry. Having a strategic-minded COO advisor allows the CEO to play to his or her strengths: either strategy or operations. It also helps the CEO to “sample” the usefulness of the COO role without going all-in. If desired, the CEO can then begin to groom a COO candidate from within, carving out a place in the hierarchy, as Lou Gerstner did at IBM, or to search for an outside candidate.
The Strategic COO
Ironically, many companies are bringing back the COO to help develop cohesive strategies for organizations whose CEOs have gotten lost in the “weeds” of company day-to-day activities. This is especially true for tech companies, where the founders may still code or supervise development teams.
Ideally, strategy should be the purview of the CEO, while delivering on the strategy should be the job of COO. But that’s an ideal world. Some CEOs, despite their savvy and enthusiasm, are simply not strategic thinkers. They see the value of the product or company they created, but have their noses pressed so tightly against the window that they cannot see the world around them. This is where an experienced, well-rounded COO can help.
The New COO: Chief Innovation Strategist
A recent Accenture study of 220 COOs around the globe highlighted the fact that:
“[C]ompanies in North America seem to have discovered how to get maximum value from their COOs. They view the role as providing another “brain” to help work through the strategic issues on the CEO’s agenda.”
By contrast, EMEA and Latin American countries still view the role as largely a day-to-day operations “enforcer,” not strategic in the least. This makes perfect sense in the case of emerging markets, where the majority of companies large enough to merit a COO role are focused on manufacturing and industrial age product delivery- what North American companies thrived at 50 years ago.
There is no doubt that an effective COO needs operational skills and an “enforcer” mentality at times. I’m not suggesting that the “operations” in COO be discounted.
But to deliver maximum value, the modern COO needs to wear an innovation and strategy hat, as well, helping evangelistic founders, CEOs, and executive teams see the possibilities for growth, and the threats to their organization’s health. Note that this is NOT traditional “strategic planning!”
Most so-called strategic planning is not strategic at all; it’s tactical, that is, operations-focused. Sit in on any Fortune 500 strategic planning session and you’re likely to hear hours (or days) of reports on how to cut costs over the long-term, minimize tax liabilities, and maximize resource utilization. Completely absent are innovation and true, visionary strategy and leadership (much of which requires prudent risk-taking).
No successful company has ever cut is way to growth. Growth requires innovation. Executing on innovation is the very definition of strategy. And strategic innovation is a role for the New COO.