September 2008
What does the recent walkout by Aerolineas Argentinas pilots have in common with the 11-point slump in the share price of Penn National Gaming? In both cases, the events were preceded by the resignation of the company’s chief operating officer.
Although it is difficult to quantify precisely the impact COOs have on company performance, such anecdotal evidence strongly suggests that today’s chief operating officers are responsible for much more than day-to-day operations. Indeed, in large, global corporations, COOs are central to a company’s ability to execute its strategy.
The COO is a critical complement to the CEO and must use the role to make the chief executive more effective. The COO must also establish and reinforce business practices that lead to high performance. (The Aerolineas Argentinas pilots, for their part, struck out of fear that airline safety would be compromised once the operations chief left the company.)
In fact, all the respondents to an Accenture survey of top operating executives indicated that the desire to help their organization become a high performer was essential to their success in the role (see sidebar below ).
In this environment, any changing of the guard must be done with Buckingham Palace-like precision. Companies don’t have the luxury of giving a new COO a year to become comfortable in the role. The period of on-boarding—the three months before and especially after the person starts in the role—must be carefully planned and executed.
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However, in our survey of top operating executives, we learned that a significant percentage of companies have ad hoc on-boarding processes that leave newcomers to the role frustrated. Two key mistakes stand out. First, companies often make unwarranted assumptions about how well new COOs understand expectations about the role. Second, they frequently fail to give the necessary attention to developing the important relationships the new COO needs to do an effective job.
Fortunately, these problems are not insoluble. A process built on investments of executive time, the development of relationships (especially with the board) and the reinforcement of key on-boarding practices through the use of metrics to assess performance can help new chief operating officers make an impact on company performance during the first 90 days on the job.
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Unmet expectations
Everyone wants a new COO to get off to a fast start: The CEO seeks to unburden himself or herself of certain responsibilities; board members are curious to see what the new executive brings to the table; and many others in the company anticipate important changes.
Many COOs ascend to the role from another position in the company. When this happens, one might assume an automatically smooth transition.
In our survey, nearly 80 percent of these promotions were indeed internal, and the executives had been with the company for an average of 10 years. Of the 20 percent who were external hires, three out of four had worked in the industry, and many had been COOs at their former employer.
So as would be expected, these executives are highly experienced and highly qualified. But a cautionary tale from someone we interviewed reveals why that’s not enough:
"I was excited about the opportunity to serve as COO. When I took the position, there was a CEO, a president and me. As I started my role, it pretty quickly became apparent there would be trouble. We hadn’t done enough work to clarify boundaries among our positions, and we ended up with three executives trying to do two jobs. It was pretty crowded at the top of our org chart. I suppose I share responsibility for it—I should have demanded more clarification of my role versus the president’s role. But because the three of us had worked together for so long, it was just assumed we would ‘work it out.’ Within six months, it was clearly not going to work, and I left after two years for another company.”
While striking, this story reveals a common problem. In our survey, more than one-third of respondents said that the responsibilities of the new role did not meet their expectations of those responsibilities. Disappointments with the on-boarding process were also expressed in other areas: 27 percent indicated that their opportunity to initiate an effective relationship with the CEO did not meet expectations, and almost one in five reported that the support they needed to do the job was inadequate.
These results point to two broader problems with the process.
Weak relationships. As a pivotal member of the C-suite, the COO must have solid working relationships at the top of the company. In terms of on-boarding, virtually all respondents said that the CEO should be part of the process; 87 percent said the same of the CFO; and 60 percent wanted the involvement of board members. But in each case, new COOs reported gaps when it came to being able to spend “a meaningful amount of time” with those executives and directors.
In the case of board members, in particular, only 23 percent of operating executives reported that they had spent a meaningful amount of time establishing those important relationships during the on-boarding process (see chart). This is troubling, since more than three-fourths also said that interaction with the board was important to their success in the role. In fact, nearly half reported that the board was either deeply involved in or leading the decisions related to defining the COO’s goals and performance measures.
The value of board-COO interaction is threefold. The COO gets access to the wisdom and experience of board members; the CEO obtains a lieutenant to help manage the board; and the directors hear another voice on matters of company performance. Clearly, this is one area in which companies need to actively intervene to ensure that these relationships are on a solid footing from the beginning.
The COO also has to quickly build relationships with others inside the company and with customers. As one top operating executive told us, “Getting really involved with key constituencies very early in your tenure is critical. You have to quickly learn what your customers think of you; you have to demonstrate to your team that you are engaged; you have to show quickly that you get it, or you will lose them.” So even if the relationships with the board and the CEO need the most attention, they are not enough to ensure that the new COO gets off to a smooth start.
False assumptions. In the beginning, when relationships are wobbly, it’s perhaps understandable that assumptions about performance and expectations would be misplaced. “In the first few weeks on the job, I faced a great deal of uncertainty,” recalled one COO. “I wasn’t sure if the CEO and I were going to jell, I wasn’t sure how much I could disagree publicly, I wasn’t sure when it was safe to challenge and when it was not. I spent a lot of energy resolving these questions, and that was energy that I couldn’t invest in other parts of my job.”
With internal hires, companies may mistakenly believe that the COO understands how the industry, the company and its people look from the new vantage point. They may also assume that the new COO will immediately be seen as credible or that the executive will instantly have productive relationships with those he or she is now being asked to lead. Both assumptions will result in underinvestment in the on-boarding process.
When a new COO is brought in from the outside, companies shouldn’t assume that the newcomer will appreciate the nuances of company history or culture. Time with key constituents is necessary to fill in the gaps in understanding. One respondent told us that “when you come in from outside, it takes time to find out who you can count on and who you need to call when something has to get done.” Amplifying the point, another explained that “it’s hard to make good decisions in the first few months because you are not yet entirely comfortable with knowing who is sandbagging you, who is crying wolf.”
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Finally, even when the incoming executive has served as a COO elsewhere, companies shouldn’t assume that he or she will automatically understand the role, in all its intricacies, at the new company. One executive in that situation told us that he had to “reinvent who I was” to effectively work with his new colleagues.
Toward best practices
Two cardinal sins of ill-considered and poorly executed on-boarding processes: assuming that COOs will easily adapt to their new roles, and failing to ensure the quick development of fundamental relationships. Creating a better approach isn’t free, but leaving all the responsibility on the shoulders of the incoming executive is penny-wise, pound-foolish.
Our research suggests three key steps in the development of a rigorous, successful on-boarding process.
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1. Invest time at the top.
The most important thing a company can do ensure that the new COO quickly gets down to the business of improving company performance is to invest in the most precious workplace commodity: time.
Most critical is the COO–CEO relationship. Before the pair can become effective, the top operating officer needs to develop a deep understanding of the chief executive’s vision for the company, his or her view of pressing matters that are critical to performance and how the two should be aligned. This investment on the CEO’s part need not be onerous. In our survey, COOs reported spending, on average, just over seven hours per week with the CEO during their on-boarding period, compared with slightly less than five hours a week afterward. Bottom line for CEOs: They will need to find more time in their already tight schedules to ensure that the COO starts off on the right foot.
2. Develop connections with the board.
Ideally, given the critical nature of these relationships, prospective operating chiefs would begin connecting with board members in the months before their first day on the job.
New COOs should meet with as many board members as possible, both formally and informally. Again, this step need not require a burdensome time investment for any of the parties. The payoff, however, can be substantial, as the incoming executive establishes credibility as a capable leader and also gains valuable perspective from board members on the challenges and opportunities that lie ahead for the company.
3. Reinforce behaviors with the right metrics.
We wouldn’t want to imply that this process is a one-way street. COOs also bear responsibility to make on-boarding work. Companies can use the levers of performance metrics to turn responsibility into action.
According to our research, performance metrics for the COO role are frequently determined before the executive’s first quarter has passed. For 45 percent of our survey respondents, the metrics were actually decided upon during the first quarter.
A financial metric is the single most important performance factor for most new COOs (71 percent of those who took our survey)—and properly so. But companies do have an opportunity to reinforce an effective on-boarding process by measuring COO performance to some degree on the executive’s ability to follow best practices. COOs can be measured, for example, on the progress they have made in developing relationships with board members, as well as on the effort they have made to learn about the industry, the company and its employees.
The best opportunity to lay a solid foundation for effectiveness occurs during the critical first 90 days of a new COO’s tenure. Getting the COO off to a fast start, and ensuring that he or she stays on track, requires that board members and C-level colleagues avoid damaging assumptions that limit the new executive’s ability to get the necessary on-boarding support.
Although the COO is often a familiar face, the demands of the new role require that important aspects of many relationships be reset for those on both sides. By investing in creating and building critical relationships, a company can protect its investment in the COO and quicken the pace at which a return on that investment can be realized.
About the authors
Nathan Bennett is the Catherine W. and Edwin A. Wahlen Professor of Management at Georgia Tech. His research focuses on the effectiveness of top management teams, challenges in strategy execution and leadership development. His work has been published in Harvard Business Review and featured in the Wall Street Journal, the Toronto Globe and Mail, the Guardian, the Financial Times and Age. He is coauthor of Riding Shotgun: The Role of the COO (Stanford University Press, 2006).
Paul F. Nunes is an executive research fellow at Accenture’s Institute for High Performance in Boston, where he directs studies of business and marketing strategy. His work has appeared regularly in Harvard Business Review, including “The Tourism Time Bomb” (April 2008) and an upcoming article on counterfeiting (October 2008), and in numerous other publications. He is also the coauthor of Mass Affluence: Seven New Rules of Marketing to Today’s Consumers (Harvard Business School Press, 2004). In addition, Mr. Nunes is the senior contributing editor for Outlook.
Sidebar:
About the research
Accenture has undertaken a large-scale project exploring the role of the chief operating officer. In addition to regular meetings of a select group of COOs, the project includes an ongoing research program. The work began with focus groups held with chief operating officers in New York City and Chicago that drew out current issues and challenges faced by those who occupy the role, especially COO perceptions on success factors, critical issues and their performance management process. Participants represented a diverse set of industries, including communications, financial services, consumer products, transportation, health and life sciences, and utilities.
To follow up on themes that came to the surface at those events, Accenture developed and administered a phone and Web-based survey of a national sample of 52 COOs and equivalent operations executives in companies with revenues of more than $500 million. This study yielded qualitative information regarding relationship dynamics and organizational performance factors important to top operating executives. The findings of both efforts inform this report. In addition, this article draws on research undertaken by Nathan Bennett for his book, Riding Shotgun: The Role of the COO, written with Stephen A. Miles (Stanford Business Books, 2006).
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