Survival of the Fittest: How C-suite Roles Are Evolving - The COO
Part Four | The COO
The internal mechanics of the COO role are profoundly evolving. Tentacular supply chains, intensifying digitization and the quest for sustainability are all driving forces. The COO must not only understand them but embrace the opportunities they bring. The stakes have never been higher - and risk has moved center stage.
Key Questions
- How has the COO role evolved over the past 10 years?
- What are the defining qualities of the fittest COOs For What’s Next?
- How are supply chain complexity, digitization and sustainability affecting the operations domain?
- What are the evolutionary perspectives for the COO?
Key Messages
The COO role is a paradox. Although its purpose is to engineer control and clarity, the COO function is one of the least well defined in the C-suite. Hiring organizations face key questions: whether facets of the job can be embedded elsewhere, or whether a COO is even needed. And blending the COO with the CFO or CEO role may not be the solution.
The COO role risks extremes: too broad or narrow a scope. The balance lies in the operational name: assuring the nuts and bolts of the day-to-day to produce and deliver the product or service.
The CEO/COO symbiosis should be reflected in role design. Questions concern the ways in which the COO’s operational mind- and skillsets complement those of the CEO. An elegant symbiosis of these two pivotal players can only enhance business performance.
Risk and end-to-end digitization are rewriting the supply chain agenda. Supply chains are vulnerable. Protectionism and inshoring are on the rise. And as ‘industry 4.0’ and the IoT become the norm, COOs must strengthen links between production, systems and procurement to the furthest point: the suppliers’ suppliers. A digital mindset is essential, working with the CIO.
The COO is pivotal in the sustainability drive. ESG activities must link to measurable KPIs across multiple divisions, geographies and tentacular supply chains. A materiality analysis helps set priorities aligned with major global frameworks such as the UN Global Compact.
Technical mastery is no longer enough: COOs will need to be wise and purposeful. Planet or profit? Shareholder or stakeholder value? To resolve dilemmas, COOs need to be guided by three kinds of purpose: business, environmental/social and personal.
The provenance of COOs is unlikely to undergo a revolution. COOs will continue to need a technical background and an upward progression through operational channels.
The COO will remain a key contender for the CEO, but faces new competition. A growing emphasis on culture, values, and sustainability is set to widen the scope of candidates to other CXO domains.
Under pressure to secure What’s Now, COOs must prepare for What’s Next. COOs are battling economic and geopolitical turbulence (protecting what exists). Innovation and transformation (exploring future perspectives) may need fostering. Formal learning, peer exchanges and board support will be essential.
Scope
The COO role is a paradox. Even though its purpose is to engineer control and clarity, it is arguably one of the least-well defined in the C-suite. One Amrop Managing Partner warns of a catch-all: “If something is not included in other roles, you give it to the COO. So my advice is to define it very carefully.”
He even invites hiring organizations to question whether they need a COO. “If you have a Chief Information or Chief Financial Officer, do you really need a COO, and for what?” Indeed, a recent study1 explored a development in the US to combine the CFO and COO roles. Whilst it suggested that the formula is proving its worth, the practice is still uncommon, says this Amrop Board Member. Especially in industrial, energy or mining companies “It’s rare that you’d see a finance person going into a COO type role. You’d have people who have grown up in operations.”
Another challenge lurks: extremes, the Amrop Managing Partner warns. The COO’s mandate may be too broad: “I’m not a big fan of those multi-facetted COO roles.” Or it may be too narrow: “the rest gets neglected. Or is not competently managed.”
Today, a high-performing COO has never been a more important lynchpin. Between too broad and too narrow a palette of responsibilities, where is the Goldilocks zone? For this Amrop Board Member, it’s all in the name: “The COO is truly focused on running the operations. So, it’s a role that is a little more technical — the nuts and bolts of the day-to-day to make your product or service and deliver it to your customers.”
The UK Institute of Directors states that the main purpose of the COO role: “is to direct and control all organizational operations in accordance with the strategy and business plans agreed by the Chief Executive and Board to ensure that organizational goals and objectives are met.” It unpacks nine tasks which we detail in the full article.
COO or CEO?
The CEO/COO duo has great potential to enhance business performance and shareholder returns. This, if the symbiosis combines the CEO’s helicopter awareness of the terrain with the COO’s insight into the organization’s internal workings. “What is clearly necessary in this next COO is that strong operations mindset and how you complement the skills of the CEO and gaps in experience,” says the Amrop Board Member. Unsurprisingly, the COO remains a top candidate for CEO succession. Could the CEO/COO roles be interchangeable? Not so, he says: “The biggest difference between a COO and a CEO is between running an operation versus the whole business: things like M&A activity. Often, we don’t see a COO involved in that, other than in a due diligence capacity.”
John Knotts, a Councils Member of Forbes, also warns against the CEO getting ‘sucked into’ into the COO domain.2
There is another difference between the CEO and COO role: orientation. When it comes to public visibility, the COO is primarily inward-facing. Yet the CEO faces inward and outward. In our 2024 article, ‘Survival of the Fittest: the CEO’, Amrop Partners explore the growing imperative for CEOs to cultivate a public persona.
A strategic role? It all depends
Other C-suite roles are increasingly ‘strategic’ in scope. What of the COO? An Amrop Board Member is reserved: “We see the COO have a little bit of involvement in strategy, but again, they’re usually the ones who are operationalizing things — implementing the strategy, as opposed to being involved in creating it.”
The COO’s involvement in strategy creation ultimately lies with the organization’s governance, C-suite design, and decision-making structure. This in turn is influenced by size, ownership, and sector. To benefit from the COO’s insights without further overloading this already-pressured executive, the board should question to what extent the COO should sit at the strategy table and at what point/s in the strategy-making process.
Evolution
Overall, has the COO mandate fundamentally evolved over ten years? “I don’t think it has changed that much,” says the Amrop Board Member. One constant factor is resilience. “I think the COO, of all roles, is the one where you definitely need more grit from the point of view of operational background, mindset, technical competencies. More so than a CEO.” How so? “Because you’re the one who’s really making things happen every day… having the right processes and people in place.”
COO churn rates illustrate just how tough the role can be. BoardEx is a global data company specializing in executive relationship mapping and intelligence. Examining the annual average turnover in the main C-suite functions in the US from 2018 to 2022 it found COO turnover to be the highest of all C-suite roles, at 27%, (followed by CMOs at 22%).3
If the overall COO mandate has not fundamentally evolved, its internal workings have, due to a set of intertwined forces Every COO, irrespective of sector, must not only anticipate and address these intertwined forces, but embrace them.
A - Supply Chain
“Supply chain is a large component of the COO role: being able to manage it, understand the key levers, what needs to be done differently, and learning through the experiences of something like Covid. Supply chain is also a large contributor to the success of the role. And every organization is focused on supply chain,” says the Amrop Board Member.
In 2022 Ernst and Young surveyed the supply chain leaders of large corporations across the Americas in a range of industries.4 “End-to-end visibility” emerged as an overriding need. The authors call for COOs to set five priorities5, (see the full Amrop article). Underpinning these is the talent question. COOs must address how technology, for example, is re-shaping talent and staffing.
But even the most sophisticated technology cannot eliminate supply chain vulnerabilities. Against a disruptive backdrop, from the recent tsunami of Covid to current geopolitical instability, COOs are having to lock their organization’s processes in. “Every operational risk impacts on this role,” says an Amrop Partner. “Can I get people to run my factories, can I get goods, given all the congestions in supply chains? What’s the cost of delivering, what’s the contingency planning? What happens if I can’t get microchips, can’t get any supplies in at all? What’s the cost of power to all my factories if prices multiply fifteen times? And that’s why supply chain has become such an essential role in so many ways.”
He expects that supply chain management will increasingly become a distinct specialism and offshoring will decrease. “I think supply chain may get divided up from operations. We see tremendous change in supply chains with a lot of aspects moving closer, because control and certainty are becoming so important.” Ernst & Young recently found that 53% of supply chain leaders near- or re-shored some of their operations in the last 24 months, with 44% planning new or additional near-shoring activities in the coming 24 months. 6
B – Digitization
The full-scale integration of digital technologies has become the new normal for the COO. What does the future hold? “The smart factory is no big deal” says this Amrop Managing Partner. But interconnectivity, whilst essential, is not obvious: “COOs have to run smart manufacturing, systems, procurement.” It’s a matter of end-to-end digitization in the supply and value chain: “all the way to the furthest sorting point — your suppliers’ supplier your customer’s customer.”
AI is already transforming business operations in a range of sectors. Amrop has highlighted five key areas, explored in the full article7 But a deep-learning system may have difficulty explaining how its results were derived, turning the algorithm into a black box. Many AI will face regulatory scrutiny. This means considering financial, legal, ethical and other perspectives. COOs cannot only be smart or reasonable; they must be wise, purposeful and responsible, as we explore in the next section.
C – ESG
The drive for sustainability is infiltrating all aspects of the COOs role. The landscape is extensive and packed with strategic tensions. COOs may become disoriented and distracted. Sustainability priorities must be linked to targets, incorporating measures in day-to-day operations, assigning responsibilities and accountability. Clarity and transparency create momentum. But this is particularly difficult for COOs in organizations with multiple divisions spanning different geographies and running tentacular supply chains.
One answer is to conduct a materiality analysis, as Victor Treviño, the Director of Energy and Sustainability at FEMSA, a beverage and retail global, recently explained to Amrop. 8
“How do we reduce the carbon footprint of our organization and the product or the services that we’re producing?” asks an Amrop Partner. “And that in itself is a huge task of the COO.” Decarbonization may spark the emergence of new role species in the operations domain: “Head of Decarbonization, Head of Footprint, all these new areas may evolve, depending on the industry.” As Amrop recently reported, the Chief Sustainability Officer is becoming pivotal for many organizations.9
In a recent client case study, Amrop describes how a large pharmaceuticals player established a working plan with each of its many suppliers. “By 2025, all have to meet their sustainability criteria or leave the mechanism.” 10
Does the wingspan of sustainability call for additional C-suite roles in the Operations domain? In general, Amrop Partners interviewed for this series warn against such role proliferation. Any new specialisms should be evaluated for strategic relevance and if deemed necessary, report into the core functions: in this case, the COO. ESG is no exception. This Amrop Partner confirms that many new species, no matter how important now, will self-destruct over time: “Let’s hope that everyone reaches their goals and moves to net zero by 2050. Then these roles will naturally cease to exist.”
D - Wisdom and Purpose
Shareholder or stakeholder value? Investment in the energy transition, or in short-term returns? What permutations of Planet, Profit and People are most relevant? Such dilemmas land directly on the desk of the COO. To resolve them, COOs need wisdom and purpose – holistically addressing business dilemmas by taking a broader socio-ethical and environmental perspective. Wise leaders do not just create vital economic value, they also build more sustainable and legitimate organizations. They do not just make smart or reasonable choices; they make responsible ones. But a global Amrop study11 found that executives were struggling. Only a third would systematically stop or adapt a decision in the face of counter-evidence, for example.
Sources & Development
Is the evolution in the role changing the provenance of COOs? Not really, says this Amrop Board Member. “Not much has changed. Operations people have always been responsible for making or doing or creating the service, where you’ve needed the more technical background… It wasn’t as if the role was seeded by people from other disciplines.”
Despite the findings of the US research regarding the benefits of a CFO/COO merger12, the Amrop Board Member is skeptical, particularly when it comes to industrial, energy or mining companies: “It’s rare that you’d see a finance person going into a COO type role. You’d have people who have grown up in operations.” An Amrop Managing Partner adds: “I think the COO has gone to the most state-of-the-art point — technology.”
Amrop global assignment data (mostly large mid-cap firms) shows that General Management, Finance and Regulatory positions each consistently occupy just over a third of the CXO mandates. Operations and IT/Digital C-suite roles each occupy around 9%. Given its central (and increasing) importance in securing organizational performance, the COO domain will likely grow.
But many COOs are battling economic and geopolitical turbulence, (protecting what exists). It may be necessary to revitalize (or install) their capacity to be forward looking (exploring future perspectives). This takes a wide understanding of the landscape beyond organizational borders and being more ‘functionally multilingual’ about other C-suite domains.
The road to CEO
The COO is a key contender for the CEO role. As this Amrop Board Member puts it: “It is interesting to see what the feeder system for the CEO has been. In years gone by, it was often someone with a sales orientation, and migrated to people who were really good at operations.” The COO role will likely retain its status in CEO succession plans, given the stakes and the value a robust operations leader can bring to the top seat (especially given the risk environment). The Amrop Board Member describes today’s CEO role as “far more strategic, broader, an appreciation of supply chain, operations.” But to remain a top candidate, the COO may also need formal learning programs and peer exchanges. As this Amrop Partner warns: “The CEO role has become much more multi-faceted. But that means that there are people who would have become CEO who suddenly won’t.”
1,12 Buchheit, Steve & Reitenga, Austin & Ruch, George & Street, Daniel. (2019). ‘Are CFOs Effective Operators? An Empirical Analysis of CFO/COO Duality.’ Journal of Management Accounting Research. 31. 37-58. 10.2308/jmar-52168.
2 Knotts, John, ‘What Is A Chief Operating Officer?’ Forbes, Mar 12, 2021.
3 Imberg, Maya, (2023), ‘2023 Spotlight – C-Suite Turnover in the US’. Altrata, BoardEx.
4 ‘Building supply chain sustainability that can drive revenues and reduce operational risks’, (2022), Ernst and Young.
5 ‘How COOs can lead the way on supply chain digital transformation’, (2023), Ernst & Young.
6 ‘Building supply chain sustainability that can drive revenues and reduce operational risks’, (2022), Ernst and Young.
7‘Wise Leadership and AI: Making Friends with the Machines’, (2019), Amrop.
8 ‘Living Sustainability: An Amrop Interview with Victor Treviño, Director of Energy and Sustainability, FEMSA,’ (2023). Amrop.
9 ‘The C-suite Sustainability Struggle, An Amrop Report, Part 1’, (2023), Amrop.
10 ‘A Case of Sustainability in Leadership: How Amrop secured a sustainability change leader for an ambitious pharmaceutical company,’ (2023), Amrop.
11 ‘Wise Decision-Making: Stepping Up to Sustainable Business Performance’, (2018), Amrop.
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Survival of the Fittest IV: The COO
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