Do You Need A COO?

Among North American manufacturers, the answer is not clear cut. It literally depends upon each company's situation. But what's with the folks who believe their COO couldn't operate a flashlight, let alone the company?

Thursday, March 01, 2007
By  John S. McClenahen

Mark Hurd. If there's a poster boy for chief operating officers (COOs), Mark Hurd just might be the one. Sure, he's now chairman, president and CEO of Hewlett-Packard Co. in Palo Alto, Calif. But he proved himself to be a very capable COO at Dayton, Ohio-based NCR Corp., and some people believe that Hurd, an experienced COO-type CEO, is just what HP needs to regain its position as a world-class IT market player. Among the believers is Karen Myers.

"He comes straight out of a COO background. That was his title. It's also clear that is his style," emphasizes Myers, COO and CFO of Insight Inc., a Manassas, Va.-based firm providing supply chain solutions and consulting services. "I think he is doing a very good job."

Yet, does every North American manufacturing company, regardless of its size or location, regardless of its industry, regardless of whether it's publicly or privately held, need a COO? Coca-Cola Co. clearly thinks so. To fill the vacancy created when COO Steve Heyer left the company, the Atlanta-based beverage producer on Dec. 6, 2006, announced it was promoting Muhtar Kent, the head of international operations, to president and COO.

Hewlett-Packard's Mark Hurd

But more generally among manufacturers, according to a number of people who make their living dealing with such matters, the answer to the question of whether a company needs a COO is not a clear cut "yes" or "no." The answer: It depends.

Whether or not a manufacturing company needs a COO, states Scott Kingdom, depends on the skills of the CEO; the skills of the group, or division or business-unit executives; and how the executive roles have been defined. "There is nothing so inherently specific or unique about the manufacturing business that kind of automatically leads you to a 'yes' or 'no' answer," emphasizes Kingdom, global managing director of Korn/Ferry International's industrial practice. Kingdom helps manufacturing companies find, among other people, CEOs, presidents and COOs.

Insight's Karen Myers

"A COO is somebody whom a CEO can turn more and more of the day-to-day operations over to. And as a COO I have taken over everything from IT to human resources," says Joel Sutherland, managing director of Lehigh University's Center for Value Chain Research. In previous incarnations, Sutherland has been vice president of operations of a $300 million division of an auto parts company and COO of a $50 million logistics services company. "In an operation with many SKUs [stock keeping units], a lot of direct labor and [diverse businesses] requiring complicated systems and multiple operations, a hands-on COO is a necessity," he asserts.

In Timothy R. Hassenger's view, change -- more so than the size of a company or the industry it's in -- determines whether there's a need for a COO. And the COO's job is defined by "the degree of change that's asked or required of the business," says Hassenger, managing director of BBK, a business advisory firm specializing in manufacturing.

Korn/Ferry's Scott Kingdom

All those things being said, sometimes there's another compelling reason for a manufacturing company to have a COO: The CEO wants it that way.

At Green Office Systems, for example, CEO Brian Eberle decided to put a COO in place so he could focus on growing the business. The $6 million, 85-employee, family-owned re-manufacturer of office furniture wants to double sales. And having a COO who grew up in the business -- his son Douglas -- frees Eberle to get out of the office to bring in more business.

"When you're in the business every day and you're running it, [that] kind of limits your ability to bring in new business and create new relationships," Eberle explains.

Lehigh University's Joel Sutherland

Basic Questions

In assessing their need for a COO, most manufacturing companies would be well advised to first ask a few basic questions about roles and strategy, operations and competitive advantage. For example, a recent survey of 300 C-level executives done by Waltham, Mass.-based PRTM Management Consultants suggests three basic questions manufacturing companies should be asking themselves are:

1. Who should be responsible for "game changing" operational strategy?
2. Who should be the architect of operational changes aimed at gaining competitive strategic advantage?
3. Who should be accountable for implementing the company's operating model?

PRTM's Mark Deck

After asking and answering those questions, the question of whether or not the company needs a COO becomes more relevant, contends Mark Deck, director of the operational strategy group at PRTM. "Although the CEO should be the principal driver of operational strategy formulation, he or she is not necessarily the best one to drive operational strategy implementation," Deck states.

For example, a manufacturer seeking to change the basis of competition within its industry "might want a CEO who's managing the external dimension of that change and a COO who is managing the quite formidable internal dimension of that operational transformation," he suggests. Similarly, a U.S.-based manufacturer that's a major global player "quite often will need someone who's playing a COO role to knit together what can be an increasingly complex set of operational relationships" that includes foreign partners, states Deck.

See Also School For COOs?

But what about manufacturers that are after operational excellence, not game-changing stuff but impressive across-the-board continuous improvement? A "good, solid COO" might make a difference in that situation as well, says Deck. "The reason is your functional execs are good at driving excellence within their functions, but it's a bit harder to drive excellence across those functions. I might have R&D excellence, and I might have manufacturing excellence, and I might have engineering excellence, and I might have customer excellence. But what am I doing to knit those things together in an end-to-end way so that I have a very fluid value stream?" he asks.

The choice is either an "operationally adept" CEO or a COO in charge of "driving" a level of excellence across functions, indicates Deck.

"Hard-Pressed To See Hierarchy"

Lehigh Technologies LLC, a supplier of engineered rubber powder to the tire, plastics, rubber and specialty chemicals industries, is a small startup with large aspirations. There are only three executives at its headquarters office: CEO Dennis J. Gormley, COO Anthony M. Cialone and CFO Patrick R. George.

Lehigh Technologies' Dennis Gormley

"If you were sitting in our conference room, you would be hard-pressed to see any hierarchy," observes Gormley, a former chairman, CEO and COO of Federal-Mogul Corp. and a former director of Cooper Tire. "Nine times out of 10 all three of us will ultimately agree on the same direction, the same outcome," he says. However, if there are differences among them, Gormley, as CEO, makes the deciding call.

So what then does Cialone do as COO? With several day-to-day operating responsibilities, he's a bit more Mr. Inside than is CEO Gormley, who has somewhat more of a Mr. Outside role with such people as investors and customers. This arrangement provides Cialone with some creative wiggle room.

Lehigh Technologies' Anthony Cialone

"What it allows me to do is not be as conservative as I maybe would be if I didn't have a strong CEO," relates Cialone. "I get the opportunity to think outside the box and be rewarded for coming up with ideas that may be pushing the limits," relates Cialone. "Dennis allows me to overreact."

At the same time "there is a lot of overlap," Cialone stresses. "We've got to know what each other is saying, doing and representing. We have to be able to work hand-in-hand," he states. "It takes people who have good chemistry with one another to be able to function in this type of organization." Adds Gormley: "I have two guys who are absolutely great, and I almost look at myself as the guy with the experience that wants to be sure that while these guys are testing the boundaries that we don't make the big mistakes."

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