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Jan 8, 2019

Three Business Drivers that Compel a CEO to Hire a COO

Do you belong to a company that is experiencing accelerated growth? Has your organization recently been restructured? Alternatively, is your business dealing with changes in leadership and preoccupied with succession planning?

If your firm is involved in any of these structural changes, no doubt your CEO is considering hiring a Chief Operating Officer (COO).

Let’s take these one at a time and look at the business drivers that compel a CEO to hire a COO:

1. Accelerating and Managing Rapid Growth

Accelerated growth forces many companies to look at adding a COO to their executive team.

“As companies experience fast-paced growth, they quickly face questions around how to proportionally scale the leadership team to keep up with the demands of the business. Among the key early considerations: When is the best time to bring on a chief operating officer?” asked Stephen A. Miles and Nathan Bennett, in Entrepreneur.com.

Many startups that are growing fast are also raising money from venture funds, and with the infusion of cash, come new responsibilities, and, to be fair, the ability to make a new hire.

Entrepreneur.com noted, “Though there is no definitive time to make the decision to bring on a COO, as the robust startup pipeline continues to receive funding, more startups will evolve to the stage where a second set of executive hands is required. At this moment, founders will inevitably bring in COOs. We argue that this crucial decision is an important milestone in the evolution of a startup and that getting it right will lead to exceptional results.”

Often, the rapid growth of a business forces the CEO to realize that they needs a COO to manage the organization and staff while (s)he focuses on the broad business goals, such as its place in the market.

2. Organizational Restructuring

If you are part of a business that is undergoing a restructuring, whether downsizing or scaling up to meet market demand, you also may find that you need to hire a COO. Your staff may be reassigned new jobs and responsibilities, and your firm may be experiencing a natural resistance from some personnel. It will help to have an objective COO to guide the transitions, who does not share much history with the affected employees. Also, try to hire someone who has experience in the market in which you are entering.

Sterling Wilson, co-founder and president of Pop! Promos, an advertising and marketing firm, told Inc.com,

“In 2015, when we hit $3.5 million in sales, we started to sell more in a particular market: the promotional products industry. While my co-founder and I were both very spunky and hardworking, we didn't understand the industry well. That necessitated our bringing on a COO. Our COO has been in the business for 30 years."

Inc. com reported that in 2015 the company’s three-year growth was 2,608%.

When Steve Ritchie, the president and CEO of Papa John’s, the third-largest pizza company, decided to restructure his company in 2017 to emphasize innovation and growth, he hired a COO. The Louisville Courier-Journal reported that Ritchie tapped industry veteran Mike Nettles for the critical role. With 28 years of experience in the restaurant industry, Nettles has earned high praise from Papa John’s insiders for his success as senior vice president and digital officer, especially as it relates to Papa John’s mobile apps, which have contributed to an uptick in business. He also has forged partnerships with instant ordering on Facebook, the Amazon Alexa device and DoorDash food-delivery services.

Ritchie told the Louisville Courier-Journal, “Since joining last year, Mike has significantly elevated the consumer experience across our digital and mobile platforms,”

3. Leadership Changes and Succession Planning

In some companies, when a CEO is nearing retirement or intending to leave for another reason, the board may insist that the firm hire a COO who can serve as an heir apparent.

Harvard Business Review has noted examples of this:

“In many cases, the primary reason to establish a COO position is to groom—or test—a company’s CEO-elect. The broad purview of the job allows an heir apparent to learn the whole company: its business, environment, and people,” wrote HBR contributors Nathan Bennett and Stephen Miles.

“Recent examples of firms using the COO position to develop the successor to the CEO include Continental Airlines, where CEO Gordon Bethune (who himself originally joined the airline as COO) recently passed the torch to his COO, Larry Kellner. Similarly, in the time after Rex Tillerson was appointed to the number two position at Exxon, observers noted that he was increasingly exposed to the public—a deliberate effort to facilitate his succession to CEO Lee Raymond. And when Norfolk Southern appointed Charles Moorman as second in command, the transportation company touted him as the heir, continuing its avowed ‘practice of picking an executive young enough to lead the company for at least a decade.’”

The writers noted that being tapped COO in such a case offers no guarantee that the executive will ascend to the top job. However, there have been many cases where it did indeed lead to smooth succession planning. The HBR writers said, “The single element most critical to the success of a CEO-COO pairing, we quickly saw, is the level of trust between the two individuals. To speak of trust is almost a cliché, but the vehemence with which our research participants stressed it suggests they consider it more crucial here than in any other business relationship. Wendell Weeks, who rose from COO to CEO at Corning, referred to the need for a ‘true partnership, in every sense of the word.’”

In the best case, the knowledge that a COO has gleaned working side-by-side with his CEO can be the best on-the-job training to assume the top leadership role. It has worked in many well-known companies.

Apple’s Tim Cook graduated from COO to CEO in 2011. Also, reported The Conversation.com, “Adobe’s Shantanu Narayen graduated from COO to CEO in 2007, and more recently Pamela Nicholson of Enterprise (Rent-a-Car) Holdings in 2013. Indeed, of the 96 companies in the 2010 Fortune 1000 which replaced CEOs, nearly one-half promoted their COO. And by appointing directors to the role of COO, companies can lock-in valuable internal talent, which might otherwise be poached by competitors.”

Trust, respect and good communication are the hallmarks of a good CEO and COO relationship. Is your firm ready to make a move? You can learn from the best and manage your growth with confidence and success when you choose the right COO for your company.

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