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January 20, 2015

The COO: A dying breed?

I have recently heard several thought leaders say Chief Operating Officers are passé. As with most organizational matters, I think the real answer is: it depends.


Historically, the COO position -- whereby all other functional departments report to such a position and he/she reports to the CEO -- has resulted from a number of dynamics inside a company, including the following:

 

  • The CEO wishes to offload certain less strategic duties to leverage his/her time.
  • The COO title is granted as a sign of ceremonial rank -- a portents to a succession planning process.
  • An organization values and demands the institution of an operational leadership role, typical in a manufacturing setting.

No COO: Administration and revenue


I have seen a trend in large enterprises eliminating the COO role. Instead, organizations are splitting up duties. Some companies have a Chief Administrative Officer who oversees shared services and functions, such as accounting/finance, HR, legal, and IT, and a Chief Revenue Officer who oversees income-focused operations.

 

The division of roles makes sense for some companies, especially understanding that it is difficult to truly find an executive who possesses both right brain and left brain skills.

 

One of our clients with more than $1 billion in annual revenue employs a CAO as an extension of the traditional Chief Financial Officer role. In fact, such an executive is becoming more common as new age CFOs are evolving their skills to take on broader responsibilities. We also frequently see CROs at companies with specialized revenue models.

 

Having a COO: Family tradition


Conversely, we still see COOs having success in small- to middle-market companies that are generally privately-held, family-owned businesses. In these cases, the ownership group reserves top-level titles (e.g., Chairman, CEO, and President) for the owners, and they do not wish to share these titles with a non-owner or non-family member. Therefore, the COO is more President/CEO-like, but will never carry the title for obvious reasons. All functional departments, however, report to this individual.

 

Is a COO right for your organization?


As you can see, the real answer is still: it depends. I suggest reflecting upon the importance of all functions and departments in your organization. The most important areas should report to the CEO; others can be leveraged. Do not get trapped in adding a layer of overhead for convenience or ceremonial purposes, unless it is a result of your ownership structure or governance.




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