Business Strategy

The might of a COO is on the wane !

The might of a COO is on the wane !
The Decline of the COO

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COO stands for Chief Operating Officer whose post is right below the Chief Executive Officer (CEO). His duty is to manage company’s everyday operations and reporting them to the CEO. In the present market, planning and operating is very important. So it is really exciting to be a COO. The Chief Operating Officer is considered to succeed the CEO apparently. But it was observed that the percentage of companies among Fortune 500 and S&P 500 has decreased from 48% in 2000 to 36% in 2014!

Also Read: Why CEOs Need a Talent Acquisition Strategy

It was also observed that 44% of the present CEOs were COOs before ascending. But the number of COOs is steadily declining in today’s business world. Some of the observations were – many popular companies removed that post from the organizational chart when the COOs resigned or retired. McDonald’s and Twitter had done that. In some other cases – even after getting a promotion, the CEOs prefer keeping the duty to themselves rather than giving it to someone.

Why is this removal of post taking place in many major companies? Why are CEOs continuing with the role of COOs even after they are elevated? And is it required to add the post of COO? The three important reasons for the decrease in the number of COOs are:

1) CEOs are effective and have better management capabilities.

2) Trend towards flatter organizations

3) Change in the nature of succession planning

Even when these factors are increasingly effective, we should not ignore or count out the post of COO because there is a situation where having a COO is very important.

Effective CEOs: Present CEOs have better management skills compared to the past CEOs and the board is recommending them to have a closer observation at the business than they used to have. CEOs were able to double the number of reports over the past two decades because of the increase in their own leadership responsibility. Development in the field of communication like social media, email, video calling, etc helped CEOs get a closer look at the business and approach the employees easily.

It has been observed that the number of CEOs who are also named as Chairman has decreased from 52% in 2000 to 11% in 2014. This is making CEOs more into managing business and less into the board. So as there is a decrease in the duty of a CEO with increasing number of people for the posts of chairman and CEO, the COOs are being removed to compensate the duty of a CEO. After the financial crisis, the board does not readily go with the decision of a CEO. So they are making CEOs stay closer to business and are demanding them to be on the top of the company’s operations. So the duty of a COO is now transferred to CEO.

Trend of flatter companies: As companies are concentrating more on the core operations, there is very less requirement for a COO. As a business becomes more relative, the role of a COO vanishes. As mentioned earlier, CEOs are moving closer to their business instead of sitting and issuing orders. This is allowing a CEO to mange a business more effectively and horizontally which in turn leads to the removal of the post of COO.

Nature of succession: For the companies which are looking to rely on an executive talent, presence of COOs is a distraction. Nowadays, the bridge system – where a person serves as a bridge between the boss and the employees is vanishing. This reflects the position of COO between the staff and CEO.

Executives are developing. They are getting closer to the employees. A company which gives more priority to horizontal executive development produces better executives because of the bigger responsibility. Companies which cover the globe with their sales and services need a talented executive rather than a COO. It can be generalized that role of a COO is irrelevant when the organization plans to have a better executive role.

When is a COO required?

There are some situations when a COO is very important. Some of them are:

1) When a company wants to be very clear about their succession plans. Presence of a COO shows that a company has a proper succession planning.

2) Sometimes CEO should come up with a strategy instead of operating day to day business. Then the company will be in need of a CEO as well of a COO to construct the agenda and operate respectively.

3) When a CEO lacks operational skills, a COO can operate well.

Also Read: CEOs Ought To Be Lazy

In the above situations, the board wishes to have a CEO as well as a COO to create a better business with proper duties assigned to each and every person. When they both work, it leads to the development of the business with a better strategy and operation!

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