- Chief operating officer
A Chief Operating Officer (or Chief Operations Officer; COO) or Director of Operations (or Operations Director) can be one of the highest-ranking executives in an organization and comprises part of the "C-Suite". The COO is responsible for the daily operation of the company, and routinely reports to the highest ranking executive, usually the Chief Executive Officer (CEO). The COO may also carry the title of President which makes him or her the clear number-two in command at the firm, especially if the highest ranking executive is the Chairman and CEO. In some cases, the duties of COO may be carried out by a sub-C-Suite executive such as a Director of Operations, Operations Director, Vice-President of Operations, or Executive Director.
Unlike other C-suite positions, which tend to be defined according to commonly designated responsibilities across most companies, the COO job tends to be defined in relation to the specific CEO with whom he/she works, given the close working relationship of these two individuals. In many ways, the selection of a COO is similar to the selection of a Vice President of the United States: the role (including the power and responsibilities therein) can vary dramatically, depending on the style and needs of the President of the United States. Thus, the COO role is highly contingent and situational, as the role changes from company to company and even from CEO to successor CEO within the same company. In a similar vein to the COO, the title of corporate President as a separate position (as opposed to President and CEO, or President and COO) is also loosely defined. For instance Richard D. Parsons during his tenure as President of Time Warner from 1995 to 2001 was number two in the company hierarchy but had no authority over the operating divisions, and instead took on assignments at the bequest of the CEO. Michael Capellas was appointed President of Hewlett-Packard in order to ease its acquisition and integration of Compaq, where Capellas was Chairman and CEO, but ending up served just six months as HP president before departing. His former role of president was not filled as the executives who reported to him then reported directly to the CEO.
Many modern companies operate without a COO. For example, in 2006 more than 60 percent of Fortune 500 companies did not have a COO, and in 2007 almost 58 percent of Fortune 500 companies did not have a COO. In these instances the CEO either takes on more roles and responsibilities, or the roles traditionally assigned to the COO are carried out by sub C-suite executives (as discussed above). Although the number of COOs has been in decline for the past 10 years, there are reasons to anticipate an increased utilization of the position in the future, including:
- Companies are becoming larger and more complex, making it more difficult for one person alone to have total oversight over the whole organization
- Companies are finding a strong relationship between firm performance and the presence of a COO
- Companies are becoming more deliberate about CEO succession planning and will use the role to on-board and train successors
- The increase in talent mobility means that the role will likely be used more often as a retention mechanism for key executives that are at risk for moving to a competitor
Roles and functions
The role of the COO differs from industry to industry and from organization to organization. Some organizations function without a COO. Others may have two COOs, each assigned to oversee several business lines or divisions, such as Lehman Brothers from 2002-04 when Bradley Jack and Joseph M. Gregory were the co-COOs. A COO could also be brought in from other organizations as a "fixer," such as Daniel J. O'Neill who in 1999 joined Molson in that capacity.
In the manufacturing sector, the primary role of the COO is routinely one of operations management, meaning that the CEO is responsible for the development, design, operation, and improvement of the systems that create and deliver the firm's products. The COO is responsible for ensuring that business operations are efficient and effective and that the proper management of resources, distribution of goods and services to customers, and analysis of queue systems is conducted.
Despite the functional diversity associated with the role of COO, there are some common functions the COOs usually perform:
- At the direction of the CEO and Board of Directors, marshaling limited resources to the most productive uses with the aim of creating maximum value for the company's stakeholders
- Developing and cascading the organization’s strategy/mission statement to the lower-ranking staff, and implementing appropriate rewards/recognition and coaching/corrective practices to align personnel with company goals
- Planning by prioritizing customer, employee and organizational requirements
- Maintaining and monitoring staffing, levels, Knowledge-Skills-Attributes (KSA), expectations and motivation to fulfill organizational requirements
- Driving performance measures for the operation (including a consideration of efficiency versus effectiveness), often in the form of dashboards convenient for review of high level key indicators
COO as successor
Routinely in large organizations the COO will be the heir apparent to the CEO. They may have worked their way internally up the company ladder before being named COO, or they may have been recruited from an outside company. Either way, the position is used as a training and testing ground for the next CEO. For instance, at CIBC and Bank of Montreal, the position of Chief Operating Officer (COO) was created specifically for Gerald T. McCaughey and Bill Downe, respectively. Creating this role was to facilitate these executives’ transitions and to groom them before the sitting CEOs retired. In both cases, the newly appointed COO took over the day-to-day responsibilities and strategic planning activities, while the outgoing CEO was relegated to advisory duties. Once the new CEO was formally installed, the COO position was not replaced. A 2003 Crist Associates study revealed that only 17% of companies that promote a COO to a CEO replace the COO within the next year.
An Accenture study found that approximately one in nine COO’s moved into the CEO’s shoes within a year of their departure and that half of COO’s see themselves as the “heir apparent.” COO’s transitioning into the CEO role often face similar challenges including:
- Not being automatically granted the luxury of a “diagnostic period.” Given that they know the company, COO’s turned CEO’s are often expected to hit the ground running when in actuality they too need to enter diagnostic mode to fully understand their new role and to see the Company from a new perspective.
- Finding time to manage a new key stakeholder: The Board. Many COO’s turned CEO’s are often surprised how time-intensive managing the Board of Directors can be and must learn to incorporate this important responsibility into an already packed schedule.
- Being in the spotlight. COO’s are used to having the luxury of working “behind the scenes.” As CEO, many are surprised to find they have become a “public” figure both inside and outside the organization and must learn how to manage this additional obligation.
- Recalibrating their image. Often COO’s struggle not with the strategy portion of the job itself, but overcoming the perception of other stakeholders that they are an “execution” executive versus a “strategy” executive.
According to researchers Miles and Bennett, just knowing these common pitfalls can help a COO “heir” better prepare for the transition, thereby avoiding them in totality and/or ensuring that at least they do not evolve into full derailers once they are in the CEO seat.
- The Executor
- Leads the implementation of strategies developed by the CEO and top management team. A COO in this role typically is responsible for the day-to-day and quarter-to-quarter results of the business. This type is most often seen in logistically or operationally complex businesses.
- The Change Agent
- Leads the efforts towards the accomplishment of a specific strategic objective.
- The Mentor
- Guides and advises a young CEO.
- The Other Half
- Complements the CEO’s experience, knowledge, personality and/or skills.
- The Partner
- Partners with the CEO in a “two-in-the-box” arrangement.
- The Heir Apparent
- COO role is designed to groom and test the next CEO.
- The MVP
- The title is used as an incentive to retain an important executive in order to avoid losing the executive to a competitor.
Relationship with CEO
Because the COO is often responsible for serving as an information conduit to the CEO, it is essential that the relationship between COO and CEO be a positive one. Trust is the most important ingredient necessary for a CEO-COO relationship to thrive. The CEO must have full confidence that the COO is not making direct passes for their job, can get the work done, and shares their vision (rather than using their trusted spot and access to information to undermine the CEO’s strategy or implement his own vision). When a relationship built upon trust is created between the CEO and COO, firm performance is improved and shareholder results are strengthened. Seven strategies that are key to building trust in the CEO-COO relationship include:
- Communication—The CEO has to be comfortable sharing information with the COO and regularly communicating the strategy and any changes to it. Similarly, the COO has to be comfortable regularly providing status updates to the CEO. When communication breaks down, mistrust and/or misunderstanding is likely to crop up.
- Clear Decision Rights—The COO role appears to work the best when the roles and responsibilities of the COO have been clearly delineated ahead of time and the COO is allowed to make the final decision within pre-agreed upon scope.
- Lock on the Backdoor—The CEO must not undermine the COO’s credibility by continually reversing decisions. When employees learn that they can get a different answer by going directly to the CEO as opposed to the COO, the COO role quickly becomes impotent.
- Sharing the Spotlight—In effective CEO-COO relationships, both parties are comfortable with how much “credit” they receive for their work internally, externally, from the Board of Directors, and from each other.
- Fit between CEO & COO—The two individuals must respect each other and effectively partner together. This is not a partnership that can be forced.
- Fit Between the COO & the Position—The selected COO must have the right credentials to carry out the purpose for which the COO role was created (which can include everything from operations expertise to change expertise to having a complementary skill set to the CEO).
- Transparency of Succession Expectations and Timeline—Both parties must understand whether the COO desires the CEO job, whether the COO is in consideration for the top job, and what the timing might be for such a transition.
Relationship with board of directors
In addition to having a strong and trusting relationship with the CEO, the COO should also have an effective relationship with the Board. A good relationship between COO and the Board allows the Board of Directors to better understand and independently judge a potential successor. A strong relationship between the Board and the COO also offers the Board an additional expert opinion on the health of the company, and status of key initiatives. It benefits the CEO to allow such a relationship to form because it reflects confidence and fosters transparency. It also reinforces that the CEO is capable of developing talent, and helps the CEO to retain the COO by further empowering the individual. A strong relationship benefits the COO in that he or she is able to expand their experience as well as their professional network. Additionally, if they are looking to be the next CEO, it allows them to develop credibility with the Board. Researchers advise the COO to go beyond simply presenting at board meetings, to ensure they are developing strong one-on-one relationships with each board director. Researchers also urge the COO to develop his or her own voice, independent of the CEO.
Failure in the COO role
While the role of the COO is crucial to firm success, it can often be a tricky one to master. Any breakdown in trust between the CEO and COO can lead to failure. Additionally, the COO typically has to be a very high level leader who is comfortable not being fully in charge. Many executives with the leadership skills necessary to be a top level COO would prefer to be running their own show as opposed to taking orders from a CEO. For COOs who are expecting to serve their time and be promoted to the top spot, their timelines for such a move can often be out of sync with the CEO’s, causing a breakdown in the relationship. COOs can also find themselves trapped into being labeled an "operations" person or a "Number 2" as opposed to being seen as strategic and top-level leader by the Board of Directors, which causes some executives to steer clear of the position. Harry Levinson, Ph.D., effectively summarized the challenges of the COO position: "The relationship between the chief executive officer and the chief operating officer in any organization is fraught with many psychological complexities. Perhaps it is the most difficult of all organizational working relationships because more than others, it is a balancing act on the threshold of power."
Experts and research
Nathan Bennett and Stephen A. Miles have published extensively on the subject of the COO. In addition to writing a book dedicated to analyzing this hard-to-understand position, their research has been published in the Harvard Business Review, MIT Management Review and Chief Executive.net. Their work focuses on identifying different types of COOs, when the role works to deliver additional value, and when the role fails to produce the desired results. Their research includes interviews with more than a hundred CEOs and COOs on the topic.
List of notable COOs
The following is subdivided into current and former COO's as of August 2010. This list is incomplete and subjective as towards the notoriety of the individual.
- Sheryl Sandberg, Facebook since 2008
- Don Thompson, McDonald's since 2010
- Brian Kevin Turner, Microsoft Corp. since 2010
- Christopher E. Kubasik, Lockheed Martin Corporation since 2010; previously served as Executive Vice President, Chief Financial Officer, and Vice President and Controller
- John Leahy, Airbus since 2005; also serving as Chief Commercial Officer since 1994
- Russell Freeman, Perot Systems ; also serving as Chief Financial Officer since 1994
- Hari N. Nair, Tenneco Inc. ; serving as Chief Operating Officer since 2010\
- Timothy D. Cook, Apple Inc. (2007-2011) until promoted to CEO when Steve Jobs resigned; also served as Acting-CEO during Steve Jobs' medical leaves in 2004, 2009 and 2011
- Janice Fields, McDonald's USA Executive Vice-President and COO (2006–2010) then President (2010–Present)
- Roger Goodell, NFL Executive Vice-President and COO (2001–2006) then Commissioner (2006–Present)
- Jeffrey Skilling, Enron President and COO (1997–2001) then CEO (2001) until his resignation in 2001
- Robert W. Pittman, AOL (1996–2001) and AOL Time Warner (2001–2002)
- Bob Herbold, Microsoft Executive Vice President and COO (1994–2001) then Executive Vice President assisting in the government, industry, and customer areas (2001–2003)
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- ^ Gerut, Amanda (August 9, 2010), "COOs: A Vanishing Breed", Agenda, http://www.cristassociates.com/press/AgendaWeek_08092010.pdf, retrieved 2011-02-08
- ^ Marcel, Jeremy J. (2009), "Why top management team characteristics matter when employing a chief operating officer: a strategic contingency perspective", Strategic Management Journal 30 (6): 647–658, doi:10.1002/smj.763, http://onlinelibrary.wiley.com/doi/10.1002/smj.763/abstract, retrieved 2011-02-08
- ^ Ward, Vicky (April, 2010), "Lehman’s Desperate Housewives", Vanity Fair, http://www.vanityfair.com/business/features/2010/04/lehman-wives-201004, retrieved 2011-02-08
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- ^ Martin, Justin (August/September, 2003), "Rise of the New Breed: The age of the imperial CEO is waning. In its place, a crop of new CEOs – humble, team building, highly communicative – are rising", Chief Executive, http://www.cristassociates.com/press/CEO_riseofnewbreed_0803.pdf, retrieved 2011-02-08
- ^ a b c Miles, Stephen A.; Bennett, Nathan (June, 2010), "Mastering the move from COO to CEO", Outlook, http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2010-coo-to-ceo-old.aspx, retrieved 2011-02-08
- ^ MacKay, Karen (2008), "Hooocoo to Hire Your Next Administrator", Law Practice Magazine 34 (3), http://www.americanbar.org/publications/law_practice_home/law_practice_archive/lpm_magazine_articles_v34_is3_pg30.html, retrieved 2011-02-08
- ^ Bennett, Nathan; Nunes, Paul F. (2008), "Chief Operating Officers: Off to a fast start", Outlook (3), http://www.accenture.com/SiteCollectionDocuments/PDF/OutlookPDF_COO_03.pdf, retrieved 2011-02-08
- ^ a b Bennett, Nathan; Miles, Stephen A. (June 13, 2006), "The COO: Friend or Foe?", ChiefExecutive.net, http://www.chiefexecutive.net/ME2/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=AE18E51872A048FD971322CA78CF2945, retrieved 2011-02-08
- ^ a b c Bennett, Nathan; Miles, Stephen A. (November 30, 2007), "Making the Most of COOs", MIT Sloan Management Review, http://sloanreview.mit.edu/executive-adviser/articles/2007/6/4969/making-the-most-of-coos/, retrieved 2011-02-08
- ^ Miles, Stephen A.; Nathan Bennett (2006). Riding shotgun: the role of the COO. Stanford, Calif: Stanford Business Books. ISBN 0-8047-5166-8.
- ^ Biography of Don Thompson
- ^ Biography of Janice Fields
- Bennett, Nathan; Stephen A. Miles (2006). Riding Shotgun: The Role of the COO. Stanford, California: Stanford University Press. ISBN 0804751668.
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