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Is the role of COO obsolete?

Though not quite headed for endangered species status, the title of "chief operating officer" is becoming more difficult to find on organizational charts. Readers scanning the list of the" Business Leadership Team" at Microsoft, for example, will see 30 names and titles--beginning with Chairman and Chief Software Architect Bill Gates--but nary a COO among them.

Rick Belluzzo, chairman and CEO of data protection company Quantum in San Jose, Calif., explains why. Belluzzo is the man who once held Redmond's now-vanished COO title. Shortly into his job, Belluzzo found that he and CEO Steve Ballmer were spending an inordinate amount of time defining--and then redefining--roles. "When you have to put that much effort into it, it's not natural," he says. In the end, Belluzzo wrote himself out of a job, devising a new organizational structure to give more control to the heads of the company's seven main business units.

The no-COO route is also being taken by a number of other companies, if an unpublished study examining corporate hierarchies at large firms (average employee population of 47,500) is any indication. Of 51 companies studied, about 55 percent had COOS in 1986; by 1999 that figure dropped to about 45 percent.

It's not surprising, according to Julie Wulf, assistant professor at the University of Pennsylvania's Wharton School, who co-authored the study with Raghuram Rajan, professor at the University of Chicago Graduate School of Business. As executives seek to cut out management layers and create flattened firms, it stands to reason that they would scrutinize the post that "has historically served as an intermediary between the CEO and the rest of the organization," the authors write. With companies like Lucent, Reuters and 3M jumping on the bandwagon in recent months, eliminating the COO job is practically becoming a small fad. Mary Ward, spokeswoman for Lucent Technologies, summarizes the attitude of many executives when she explains why CEO Patricia Russo welcomed the abolition of the COO post at the telecommunications equipment giant. "Pat wanted to be able to manage the operations more directly," she says.

On the other hand--and it is a rather large one--some CEOs still consider their COOS indispensable. They want to be able to devote ample time and focus to vital, but nonoperational, duties, such as strategizing and plotting the future direction of the company, and they believe it is the COO who makes this possible. Reliable operations chiefs keep the inner workings of businesses well-oiled and customers satisfied, even delighted. They shoot trouble on the factory floor and in managerial offices, detect the earliest signs of marketplace changes and nurture talent to ensure the operation can run smoothly in the quarters ahead.

And in many cases the COO is the executive being groomed to take the top spot one day, providing succession-conscious CEOs with an obvious heir. The COO is so important to some chief executives that they reach for metaphors to describe what their second-in-command means to the company. "He's got the engine in his hands; I'm trying to steer the car," says CEO Gene Banucci of his COO at Danbury, Conn.-based ATMI, a supplier to the semiconductor industry.

But even for those CEOs who wouldn't dream of operating without an operations chief, the position of COO continues to morph with the times, changing from a bureaucratic buffer layer to a genuine partner in all aspects of the business. (To wit: Sandy Weill named Chuck Prince as successor to the Citigroup throne, but Prince and Weill are both adamant that the top spot will actually be shared by Prince, as CEO, and COO Robert Willumstad.)

In most cases, the COO is the only other executive who will know as much about the inner workings of the company as the CEO, and in many cases, he or she will know more about the nitty-gritty details. As Jay W. Lorsch, professor of human relations at Harvard Business School, puts it, the COO is the CEO's "window" into what's going on deep inside the company, and he or she should be ready to answer quickly on any number of business issues. The following represents a short list of questions to ask.

How do we divvy up the work?

Because of the sheer comprehensiveness of both jobs, there's plenty of room for overlap between the duties of a CEO and COO. That can lead to confusion or friction, so many executives work out formal job descriptions. At ATMI, a one-and-a-half page document lists 27 "key roles" of the COO, everything from executing corporate strategy to attending important conferences.

At COO-less Quantum, the heads of two major businesses take charge of the daily operations of their units and report directly to CEO Belluzzo. He spends about half of his time assisting them in such matters as handling customers and partnerships. He devotes the other half to attending to matters that are his purview, such as dealing with the investment community and pursuing new business areas.

What's working under the hood and what isn't?

Some measures of operational well-being are particular to a company. At ATMI, Banucci insists on keeping abreast of safety issues at the company's manufacturing facilities. "Not having people get hurt on my shift is really important to me," he says. Another top priority is quality control, because semiconductor makers--ATMI's core customers--have zero tolerance for flawed products, Banucci says.

One indicator of operational health common to any organization is whether customers are happy enough with products and services to keep on buying. Ronald Sargent, CEO of Staples, the giant office supplies retailer, says he puts questions about customer satisfaction near the top of his list. "The key job of a COO is to continue to improve how we serve customers," he says.

When is the division manager's son pitching in the Little League playoffs?

COOs, charged with understanding the people who work for the company, shirk a major job requirement if they lose their human touch. "If you know what's going on with your people, you can appreciate why things are occurring, not just what is occurring," says James Lillie, COO of' Jarden, a consumer products company based in Rye, N.Y Lillie makes it his business to remember details about his employees' personal lives, such as the date when a manager's child is going to begin kindergarten. If there's a death in the family, a subordinate can expect to receive a sympathy card from the boss.

COOs need to connect with their managers in other ways, too. Sargent often inquires about employee morale. For one thing, he believes that people who enjoy their jobs spill their enthusiasm into their performance. For another, he considers high morale a good indicator that Staples, which has operations in 11 different countries, is successfully bridging cultural gaps.

Finally COOs should make a point of spotting talent among subordinates and cultivating it. Banucci, whose company has about 350 patents, says technology businesses thrive on the intellectual property created by first-rate employees. So he wants to be informed regularly about new hires and who is moving up in the organization.

Are those Frequent Flier miles piling up?

Companies with far-flung operations and customers benefit from a COO with wanderlust. COOs can expect to spend up to 60 percent of their working time traveling, says Bob Damon, a managing director at executive recruiter Spencer Stuart, up from 40 to 50 percent a few years ago. In these post-Enron times, be says, companies are redoubling efforts to oversee and improve operations, which means checking out field operations regularly.

Lillie considers travel from headquarters to see a company's other plants or offices a must. "You need to see it, feel it, touch it, taste it before you make a good decision," says Lillie.

Can you fill my shoes?

The executive who hopes to cede the throne to the COO one day should make sure the heir apparent will be up to the job, says Andrea Redmond, co-head of the CFO/board services practice at executive recruiter Russell Reynolds Associates. Chief executives need to give the next-in-line exposure to aspects of the business ordinarily outside the operations realm, such as corporate finance. The COO also has to learn to be a strong communicator, capable of talking effectively to those outside of operations, such as industry analysts and the press, as well as to the troops. In short, they need to learn what it takes to go from being the Number 2 to the Number 1.
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Title Annotation:C-Suite Confidential; chief operating officer
Author:Mendels, Pamela
Publication:Chief Executive (U.S.)
Geographic Code:1USA
Date:Oct 1, 2003
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