Miles To Go
Volume 4 | Issue 1 | Winter 2017
The Role of the COO in 2017
It has been 10 years since Stephen Miles and Nathan Bennett released their pivotal book on the role of the COO (“Riding Shotgun”). With the 10-year anniversary release in January, we asked Stephen to reflect on the COO role 10 years later.
Many things have changed over the past decade that impact the global business environment – and the COO role at the center has been forced to adapt to these changing conditions. The overall pace of change has been continuously accelerating and what started as cost out and change management programs in response to the global financial crisis has become what people call the ‘new normal’, with each successive year getting more and more challenging. It has become particularly challenging to balance the management of employees who like constant change (because it’s all they’ve known) and those who would prefer to revert to a pre-2008 pace. The COO must be able to assess people against a new reality of effectively handling stress and ability to lead in a ‘war time’ situation rather than ‘peace time’ – and very often these are very different people. COOs need to be superb ‘war time’ leaders themselves who are able to handle very high levels of stress and effectively provide a path forward for people to follow at all levels.
Not only has the ‘new normal’ been redefined, but there are also 9 distinct new challenges that have formed over the last decade that COOs need to pay special attention to:
- The Rise of the Activist Investor: Since 2006, the activist investor has come into full bloom and there is no company or industry that is safe from their playbook. These investors typically take a position in the company (between 3% and 7%) and then operate as if they have control, asking for their directors to be placed on the board, who then assume leadership positions on the board and at times, effectively change out the management team with their own executives. As COO, you are often heads-down focused on the ‘running the company’ and when an activist comes in their assumption is that they see opportunities to create more value for shareholders (albeit on a very short time horizon). It is important to quickly prove why they should bet on you and why you can accelerate the change when you had not done it previously. This can be a complex situation because many of the COOs we coach and advise actually do want to accelerate change but they are with a CEO who could be at the end of their tenure and is much less interested in making big bets and disrupting the current trajectory.
- The Evolving Emerging Markets: Over the past decade, emerging markets have become the submerging markets! In 2006, many COOs saw the elixir of the emerging market opportunities and led their companies deeply into these new territories in search of high growth opportunities. Today, the BRIC countries (Brazil, Russia, India and China) look very different and consequently, their opportunities for growth also look very different. For COOs, this has often meant figuring out these complex environments in much greater detail and installing a business system that underlies their leadership where there are much higher levels of transparency and risk management. It has meant immersing themselves in the geopolitical environment to truly understand the outside-in perspective country by country to assess the further risks or potential future opportunities. These markets remain important and will likely bear fruit again in the future, but the approach and savviness around where you play and how you win has been a hard lesson for many leaders.
- The Downside of the Focus on Costs: Since the downturn of 2008, there has been a relentless focus each successive year on improving the bottom line and many companies have improved their balance sheets and organizational health because of this. Interestingly, this has also had a human capital cost because there are now a large number of executives in leadership positions who have only focused on the playbook to improve the bottom-line, resulting in an elusive search for ‘growth’ by many companies. A lot of this comes down to talent and skillsets which are fewer as it relates to ‘how to grow’ especially in an environment that is low growth and lacking a tailwind. In this reality, you must figure out how to take share from competitors, innovate, and create growth opportunities. The COO needs to be able to both run hard on the bottom line while nurturing and prioritizing around growth opportunities.
- Dealing with M&A: During the last few years, the number of mega deals has continued to increase – in part due to the low growth environment and the belief that introducing a leaner operation will result in ‘synergies’. We have seen Berkshire Hathaway team up with the Brazilian private equity firm 3G and go on a massive buying streak in the food industry. We have seen AB InBev roll up the entire drinks industry. As COO, you must be adept at M&A in all aspects ranging from being the acquirer or defending yourself as a target. You need to understand the process from end to end and have the outside-in perspective where you can take advantage of opportunities and be proactive about threats. This requires a level of financial sophistication coupled with a deep knowledge of how to integrate another company which is fraught with risks.
- Making Company Culture a Priority: There is a much higher degree of transparency around company cultures and leaders are taking this more seriously as they work to attract, develop and retain the best people. The ‘old school’ model of an operations leader being directive and top-down is largely going away and the modern COO must have significant range to their style and engage with the organization using leadership and empathy rather than simply through the hierarchy. This phenomenon is growing in strength and importance and will test COOs now and in the future.
- Dealing with Board Ambiguity and Succession Processes: The board has always been an opaque and hard to understand body from the COO vantage point, and this has only gotten more complex since 2006. Boards have been under tremendous scrutiny from shareholders and activists to step up their game and take on the role of representing shareholders in a much more robust manner. The COO needs to be able to effectively operate in this highly ambiguous environment where you received mixed signals from different constituencies and often there is limited signaling around the succession process. Boards are moving to running inside and outside processes in the selection of their next CEO, which means you have to compete in a new and different way for the role (often being compared to external candidates who can look much ‘shinier’ because they are new). You need to be able to comport yourself in a mature and thoughtful manner moving through this ambiguity without stepping on toes or offending a director. Many COOs underestimate this and simply think that doing a great job will land them the CEO role and nothing could be further from the truth. Doing a good job today is table stakes and thinking that your body of work speaks for itself so you should not have to be put through a process will often lead to a bad outcome for the COO. It is critical that you take nothing for granted and invest deeply in all the board processes around succession.
- Showing Resilience Through Crisis Leadership: Since 2006, the number of unforeseen crises has accelerated both at the macro and company level (e.g., automotive recalls, catastrophic drop in oil prices, the disintegration of Russia, food borne illnesses at restaurant chains, etc.). As COO, you will be stress-tested; what we have found is that most executives have a binary response to a stress event – they are either good at it or they are not. A successful COO is able to absorb the stress rather than amplifying it, turn outward and leverage their team and the company’s resources rather than turning inward and trying to micromanage the situation, communicate relentlessly and is able to make decisions using the available data.
- Dealing with the Reality of Digitization: Digitization of the world is truly coming to fruition and the old saying that “every company is a technology company” is finally coming true. The Internet of Things will accelerate this to a pace none of us have ever experienced and there will be no sector, industry or company that is not affected in a deep and meaningful way. As COO, you don’t have to be the CIO or CTO, but you need to have technological sophistication in order to hire the best people and ask the right questions. The digital and IT group need to become part of the DNA of the company and as COO you must lead the way.
- Understanding the Competitive Landscape: Historically, the COO focused inside and the CEO focused outside, but that is changing. You cannot be an effective COO if you are not an outside-in leader who is thinking about and immersed in the external world and competitive landscape – things are too integrated and move too quickly. If you one day aspire to be CEO, this is a necessary toolkit to develop; otherwise, the succession committee will see you through the lens of ‘good operators’ but not as the future leader of the company.
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