Does My Business Need a Chief Operating Officer (COO)?

business_owners_ceo_and_cooAccording to The Wall Street Journal, USA Today and other news organizations, corporate America is losing its taste for Chief Operating Officers (COOs). In fact, the trend toward eliminating the position is so dramatic that the Journal declared that we need to "Add COOs to the Endangered Species List". What does this shift mean for your business?

Citing research on the Fortune 500 and the S&P 500 (if you combine the lists, you're talking about a total of 668 companies as of 2013), both outlets noted that the percentage of these firms who maintain a COO position has steadily declined since 2000, going from a high of just around fifty percent down to 35% in 2013.

An Accelerating Trend

Indeed, many high-profile American companies are doing away with the COO position -- not just failing to create one, but actually going through the effort of actively cutting the position. Among them:

> Apple - When Tim Cook was promoted to CEO, his prior role as COO was cut.
> Kodak - COO position eliminated during a restructuring.
> McDonald's - COO is retiring, position being eliminated.
> Twitter - COO left the company, position not filled.
> Tiffany & Company - COO is retiring, position being eliminated.
> Windstream - COO is moving to another company, position being eliminated.
> Yahoo - COO left the company, position not filled.

Why the trend toward eliminating the COO position? Business school professors and industry analysts point to a number of reasons. One is that big companies are less diversified than they were in the past, and are more focused on execution in one or two major sectors. Another is that more and more CEOs come into the job with operations and/or financial experience. And a third is that research proves that in large corporations, COO positions can often invite conflict with the CEO role and sometimes reduce business performance.

So, what does this mean for your business? If you run a smaller, privately held company - whether it's under $5M or beyond $50M in annual revenues - does this trend offer any insights of value to you?

How Do You Drive Growth?

First, let's keep in mind that public companies and large enterprises are primarily focused on growing through mergers, acquisitions and other transactional strategies. If they do plan to grow organically, it is probably going to be made possible through extensive financing that smaller firms don't have access to. So in that sense, the private company CEO's world and the corporate CEO's world are very different.

What all CEOs have in common, however, is the need to drive growth. The question then becomes: Who will take charge of the growth effort?

In today's environment, companies of all sizes almost universally agree that the business needs a dedicated Chief Financial Officer (CFO), or a controller or financial manager with similar responsibilities.

The Two Core Roles of the CEO

With the financial leadership role clearly defined and positioned to support the CEO, there are two remaining core responsibilities left to address:

- Managing the current operations of the business
- Driving the future growth of the business

The question of whether to create or maintain a COO position really comes down to which of these two roles you are ready to pursue. What we do know is that, in smaller companies, most CEOs gravitate toward operations. In a typical architectural firm, for example, the founding partner would often prefer working on an architectural rendering to implementing a new customer relationship management (CRM) system. A midsized machine shop probably has an owner who is happiest in front of a lathe making parts, and least happy in front of a computer analyzing trends.

If you are this kind of CEO, then you don't need to add a COO - you are the COO. And your highest and best use as a resource to your own business is to focus on operating the business as effectively as possible. This is still a challenge, of course -- doing your own work well is very different from building a team and a business that can do the work well under your overall direction. But the focus is, squarely, on operations.

The Chief Growth Officer

That having been said, as the CEO you cannot just step aside from growth responsibilities. But what you can do is partner with a dedicated employee or outside expert or advisor to help you build the business. If this were a C-level position, global multinationals would call it the Chief Revenue Officer position, but for smaller businesses the better way to think about it would be as a Chief Growth Officer position.

The role of the Chief Growth Officer includes focusing on the business strategy, market positioning, competitive differentiators, product or service strategy, target markets, organic growth options, expansion plans/options, developing company and team leadership to support growth, and driving the marketing and sales efforts.

If your primary passion is 'doing the work' of your business, then recognize that one position you cannot effectively outsource is the COO role. In addition, smaller companies often find that a COO position creates a dual-channel communication loop in the company where employees choose which person (CEO or COO) to approach with questions or issues. Since the CEO in a smaller firm will still be present regularly in the business, and if that person is a business owner they will undoubtedly try to resolve any issues brought to their attention, the COO position often fails to add value and creates confusion within the company's culture. 

The other challenge is that most smaller-company CEOs think of hiring a COO only when the grind of running the business has them exhausted and frustrated. This is the worst time to hire a COO, because (a) You are asking a total stranger to come in and make your pain go away, (b) Chances are you have not properly structured, streamlined and documented your business processes, and (c) Even after you hire a COO, you won't be able to 'check out' of running your business. After all, it's still your business.

In addition, the only way to effectively establish a COO role is to invest in a pricey, high-risk full-time hire. In contrast, part-time CFOs are certainly feasible, and outsourced or fractional CGOs are as well.

Insourcing, Outsourcing and Building a Team

Therefore, chances are your best option is to focus your leadership on the COO responsibilities and the optimization of your company's ability to grow (its systems, processes, people and overall execution capabilities), and to partner with outside experts or hire dedicated in-house executives to focus on (a) financial leadership in the Chief Financial Officer role, and (b) business expansion strategy in the Chief Growth Officer role.

Corporate leaders are recognizing that even in large enterprises, CEOs need to be experts across three areas of the business -- operations, finance and growth. Once that is established, choosing one of those responsibilities as the CEO's primary core competency can enable you to more effectively build your business, and attain satisfaction and success in leading your company forward into the future.

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Image Credit: USACEHQ (Flickr @ Creative Commons)

Topics: Focus Area: Leadership, executive communication, business execution, business growth strategy, CEO Answers Series, COO, Chief Financial Officer, CFO, Chief Operating Officer

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