Designing CEO COO Roles Insight

Delta Organization & Leadership

Designing CEO and COO Roles Options for Structuring a Critical Relationship

Heading goes here

Text 9.5/14 goes here.

Text subhead goes here Text 9.5/14 goes here.



Oliver Wyman – Delta Organization & Leadership

Over the past 25 years there has been a shift in the strategic distribution of leadership roles at the top of corporate organizations. Part of this shift has entailed the movement toward design and deployment of the executive team. With the increasing emphasis on the executive team’s responsibility for governance, a need has emerged to more clearly define and structure the role of the team leader. The leadership responsibilities typically reserved for the chief executive officer have changed, and different leadership forms have evolved. In many organizations, the position of chief operating officer has been created to directly manage internal operations. In others, the executive team functions as the COO. Increasingly, however, companies employ both an executive team and a COO. Neither governing role precludes the importance of the other; instead, designation of a COO opens the door to dual management of the team. Where both CEO and COO roles are employed, an effective working relationship between the two executives is increasingly critical to successful governance. This paper describes design options for structuring this CEO-COO working relationship. We begin with a taxonomy of corporate leadership roles and related behaviors that together define the collective executive team leadership responsibilities of the CEO and COO. We then present some alternative models based on the strategic role distribution for structuring the CEO-COO relationship, along with a comparative analysis of each model’s relative advantages and drawbacks. The paper concludes with a discussion of two critical concerns that need to be addressed regardless of structure: management and governance processes, and partnership issues.

Designing CEO and COO Roles



We present the design options in the context of the following four key assumptions concerning the relative roles of the CEO and COO, whose working relationship is aptly described as a balancing act on the threshold of power: n Although structural schematics are useful

tools for discussing CEO-COO roles, the crux of the issue lies in determining who does what. Titles, lines, and boxes should promote, not replace, discussions of leadership roles and responsibilities. n The balance of unique versus shared responsi-

bilities at the top of the organization will change over time in accordance with the performance and comfort level of key executives. n Severe hazards are inherent in the CEO-COO

relationship and can easily be exacerbated by rivalry and corresponding defensiveness. Focusing on the assignment of specific

responsibilities provides an opportunity for a constructive role discussion. n The working relationship between the CEO and

COO is crucial to the success of any structural arrangement. Clear reporting relationships and role differentiation will be of little help if the individuals involved are unable to confront and resolve their relationship issues.

Corporate Leadership Roles and Responsibilities We have identified a set of roles and behaviors that are essential to governing a large complex organization. For example, someone, either alone or in partnership with other senior executives, must set strategic vision and direction. Someone must establish organizational structures that ensure the achievement of those strategic objectives. Someone must serve as the external representative of the organization. These roles— strategist, architect, ambassador—and others can

Figure 1: Corporate Leadership Roles Role

activites

Strategist

Shapes corporate strategic direction

Architect

Establishes organizational structure and operating systems to ensure achievement of strategic direction

Ambassador

Serves as principal external representative of the company

Keeper of Corporate Image

Sets tone and direction for relations with key external constituencies

Policy Management

Translates corporate vision and strategy into organizational policies, directives, and procedures

Performance Management

Sets and reviews corporate management performance targets

Operations Management

Manages operations of company in ways consistent with strategic goals and performance targets

Functional Management

Manages functional staff, such as human resources, legal, public relations, and finance

Process Management

Ensures that core business processes are in place and working effectively

People Management

Develops and leads senior management

Information Management

Serves as internal spokesperson for corporate messages



Oliver Wyman – Delta Organization & Leadership

be thought of as key categories in the job description of corporate leadership. In Figure 1 we define 11 specific roles that together constitute both the strategic and operational responsibilities of corporate leadership.

Design Options Our design options for corporate leadership roles reflect two basic models for structuring leadership at the top of an organization: first, the traditional hierarchical pattern and, second, a partnership structure (embodied in the notion of a Corporate Office). Multiple variations on these models are possible, based on the relationship of corporate staffs to the CEO and COO, and we describe seven of them. Readers will recognize of course that organizations are rarely structured in the pure, strict fashion described in this paper; these diagrams for purposes of illustration only hint at the complexity of the reporting relationships often found in today’s corporate environments. Similarly, the real-world manifestations of these models are dynamic; roles and structures evolve over time, shaped by such factors as succession, external pressures, internal reorganizations, and mergers and acquisitions.

Traditional Designs Options A1 and A 2 in Figure 2 represent traditional views of the relationship between the CEO and COO. They reflect a clear hierarchy and division of labor, with the CEO responsible for strategic issues, external relations, and overall corporate governance, and the COO primarily responsible for running internal company operations. Each of the executives reporting to the COO manages his or her own piece of the organization in ways consistent with strategies and policies from the top. In Option A1 the entire corporate staff reports directly to the CEO. In Option A 2 staff functions are divided into two groups—strategic and operational—that report to the CEO and the COO, respectively. Strategic staff manage processes such as corporate policy and resource allocation and often include the distinct roles of corporate strategy officer, general counsel, chief financial officer (CFO), and so on. In contrast, the responsibilities of operational staff often have shorter time horizons, focusing on current-year priorities, performance management, and integrated operations of business units. For example, human resources and information technology are often (but not always) part of the operational staff.

Figure 2: Traditional Models Option a¹: traditional (single staff)

Option a²: traditional (Dual staff)

ceO

ceO

cOO

cOO staff

Operations

Designing CEO and COO Roles

staff

Operations

Operations staff



Although specific roles and responsibilities vary from company to company, this two-person structure has been the dominant leadership model since it emerged in the 1960s. Corporations employing the traditional CEO-COO leadership dyad in recent years have included Eli Lilly & Co. (Tobias/Taurel), Corning Inc. (Houghton/ Ackerman), and PepsiCo (Kendall/Pearson). The traditional model offers distinct advantages. The well-delineated, clearly understood chain of command is typically associated with equally clear role differentiation. There is little ambiguity about who sets the organization’s strategic direction and, by extension, who is ultimately accountable for the organization’s success or failure.

a large power differential between CEO and COO jeopardizes succession planning. Without stretch leadership responsibilities for the number two executive, it is difficult to assess his potential as a future chief executive.

Corporate Office Designs As demands for speed, simplicity, customer focus, and cost reduction make governance processes more and more complex, the concept of the Corporate Office (also executive office, office of the chief executive, and so forth) has received increasing attention. In effect this is a structure with permeable boundaries that speeds the flow of strategic and operational information among executive decision makers.

The clarity of a single voice and vision at the top of the organization comes at a price, however. The leader-manager distinction characterizing the traditional model frames the exercise of power and influence as a zero-sum game. Within this context, relatively mild personality differences between CEO and COO, exacerbated by insecurity, may develop into intense rivalry and full-blown power struggles. Historical examples include the Brophy-Vanderslice disputes at GTE and the O’Neill-Fetterolf conflicts at ALCOA. In addition,

The primary difference between variants of this model and the traditional leader-manager model lies in the increased emphasis on shared responsibility, or partnership, at the top. Roles are less distinct than in a zero-sum perspective and are blended, in the sense that more responsibility is jointly owned by the CEO and COO. (There is one exception: the operations staff still report directly to the COO.) This partnership can provide greater flexibility, with leaders less constrained by rigid and static job descriptions (resulting in such perspectives as “that’s your job, not mine”).

Figure 3: Simple Corporate Model

The next set of design options identifies the two top executives as members of a Corporate Office that oversees the entire organization. Within the Corporate Office the COO participates in many of the strategic leadership activities traditionally reserved for the CEO, and the CEO may have more involvement in key operational decisions than the traditional model.

Option B¹: corporate Office (staff-to-the-Box) corporate Office ceO

cOO staff

Increased partnership and sharing of leadership responsibilities at the top offer several important advantages: n It sends a message of trust in the COO

Operations



n It provides “stretch” assignments for the COO

Oliver Wyman – Delta Organization & Leadership

Figure 4: Dual and Designated Staff Models Option B²: corporate Office (Dual staff)

Option B³: corporate Office (Designated staff)

corporate Office

corporate Office

ceO

ceO

cOO

cOO

staff

staff

Operations

n When developed through a thoughtful allocation

of roles and responsibilities, it allows each individual to maximize personal preferences and strengths n It serves to reify the corporate team—the

Corporate Office creates a strong sense of team identity and unified leadership at the top At the same time this design has several points of vulnerability: n Partnership requires intensive and continuous

work on “chemistry” and “personal style” issues n True partnership requires a high degree of trust

between the individuals n Without a high degree of formal structure, the

design has potential for ambiguity in reporting relationships The Corporate Office design variations offer alternative reporting relationships for staff functions. In the simplest Corporate Office design (B1 shown in Figure 3), staff functions report to the Corporate

Designing CEO and COO Roles

1

1

1

2

2

staff

Operations

Primary contact 1 = ceO 2 = cOO

Office as an entity rather than to any specific individual. The staff can therefore be thought of as reporting into the box. No formal distinction is made between strategic or operations staff. In the dual staff model (B2 shown in Figure 4) there are two sets of corporate staff. Some staff members report to the Corporate Office, while others report directly to the CEO. The CEO’s role as the primary driver of long-term corporate strategy is so fundamental that even within these partnership models, the strategic staff continue to report directly to the CEO. Those staffs reporting to the Corporate Office, on the other hand, are not clearly aligned with either the CEO or COO, both of whom share the responsibility for managing those staff functions. The designated staff model (B3 shown in Figure 4) offers clearer reporting relationships between the staff and the Corporate Office than are found in the staff-to-the-box model (B1). In the designated staff model, individual staff functions are aligned with a primary contact, either the CEO or the COO. This is essentially a traditional staff structure with solid-line (primary) and dotted-line (secondary)



reporting relationships. At any given time actual reporting relationships are determined by the current business context. This avoids the ambiguity inherent in pure in-the-box reporting relationships.

At the same time, designating one individual as the spokesperson or advocate of the staff functions for the purpose of executive team meetings may result in over-representation of certain interests in decision making, depending upon the interest and focus of the CSO.

Aggregated Staff Designs Another set of Corporate Office designs entails the aggregation of key staff functions under the direction of a chief staff officer (CSO), who brings staff representation to the leadership table. In Option C1 (Figure 5) the CSO, CFO, and COO form an executive team, residing in the Corporate Office with the CEO as team leader. In Option C2 (Figure 5) the CFO and CSO operate outside of the Corporate Office. The aggregation of staff offers some unique advantages: n More efficient decision making—all corporate

staff can be represented with two individuals (CFO and CSO)

It should be noted that it is possible to aggregate staff through a CSO function in the more traditional models (A1 and A 2; Figure 2) without the existence of a Corporate Office. However, in these situations the CSO reports to either the CEO or the COO, thereby simply adding another layer to the structure. In contrast, adding the CSO function to a Corporate Office expands the executive team, enabling corporate decisions to include, by representation, the voice of all corporate staff. The C1 design, mentioned, basically creates an executive team, and these are the general advantages associated with this team-at-the-top design: n Benefits derived from team synergies, such as

n Lower overhead, more manageable meetings,

better-informed decision making

less chance of process loss n Development of other executives and future n Potential for the CSO to foster development of

other leadership talent

leaders through their participation in executive activities and decisions

Figure 5: Aggregated Staff Option c¹: aggregation of staff (in corporate)

cFO

Option c²: aggregation of staff (Outside corporate)

corporate Office

corporate Office

ceO

ceO

cFO

cOO

csO

cOO

csO

staff staff Operations



Operations

Oliver Wyman – Delta Organization & Leadership

n Increased coordination across functions

However, the following points of vulnerability must also be considered with the team model: n Intensified political behavior n Potential loss of individual accountability n Potential for team dysfunction, such as process

loss, group mentality, diffusion of responsibility, and the like n Special requirements for the CEO as team leader

Comparative Analysis of Design Options Although no design option is inherently correct or incorrect, the selection of a particular option should be guided by how well the model fits the current business context and the capabilities, styles, and needs of the individuals involved. Toward that end we have evaluated the seven options just presented on the basis of the following high-impact criteria: n Clarity of CEO and COO roles n Support of succession plans through validation

of COO role n Provision of stretch assignments for COO n Effective governance in terms of coordination of

various staff and operational functions

aggregated staff designs have greater benefit. Clearly, the final choice of option will be influenced by a number of contextual factors, such as players’ personalities and styles, the CEO’s assessment of the COO’s competency, the organization’s historical roles for the CEO and COO, and so on. However, all things being equal, partnershiporiented approaches to governance are preferable. In addition to the structure and role issues raised when evaluating alternative CEO-COO design options, relationship and management process issues demand attention.

Management Processes Whatever the organizational structure selected, to ensure organizational performance, corporate leadership must design and manage three sets of processes: 1. Core business processes. Developed to manage the core work of the organization, such as product development and delivery, innovation, order fulfillment, and customer support. 2. Management processes. Developed to help guide the enterprise, allocate resources, and ensure performance, such as strategy development, operating plan development, portfolio management, and performance management. 3. Support processes. Designed to support the other management and core business processes and develop and manage infrastructure, such as information management and human resource management.

n Efficient governance procedures in terms of

numbers of meetings, streamlined decision-making processes, and so forth n Use of governance process as a way to model

and drive the desired operating environment from the top After applying these criteria to the options available (Figure 6), it becomes apparent that the

Designing CEO and COO Roles

In a large and complex corporation the core business processes are managed by the operating units and at times may be championed by a senior executive. However, the core management processes and selected support processes are the exclusive responsibility of the executive leadership. The leadership of these processes happens in various forums (committees, teams or groups, and regular meetings) at the executive level.



Typically, the executive level has two primary forums for the management of processes: one devoted to the strategic management of the enterprise and usually a second devoted to the nearterm (current year and next year) operations of the company. Critical issues include determining the appropriate forums for managing processes, who has responsibility for the leadership of each forum (the CEO, the COO, or another executive), and how these forums will function.

Relationship Issues A genuine partnership between the CEO and COO can be hard to achieve. Rivalry, defensiveness, and issues of control often exacerbate an inherently intense alliance between two powerful individuals responsible for running an organization. Consequently, attention and effort must be dedicated to building a bond of mutual respect and trust. It is imperative that both parties feel not just comfortable enough but absolutely compelled to raise difficult issues with one another in

a timely and constructive manner. Their sharing of information must go beyond “due diligence” to a rapport that is characterized by a strong sense of interdependence and joint responsibility. There are two very important strategies for building this type of unique relationship. First, as early as possible in the development of the partnership, the parties must discuss in explicit terms the distribution of roles and responsibilities. One of the greatest sources of stress between the CEO and the COO is ambiguity about who is in charge of what. Second, the CEO and the COO must candidly express their individual wishes and aspirations concerning both the roles under discussion and their long-term career goals. In addition they must address their feelings and concerns regarding the partnership. This open, honest discussion is essential if the parties are to confront and deal with any potentially destructive interpersonal dynamics that might, over time,

Figure 6: Evaluation of Design Options Against Criteria Design Options

TRADITIONAL

CORPORATE OFFICE

AGGREGATE STAFF

C¹ C² Inside Outside Corporate Corporate Staff Staff

A¹ Single Staff

A² Single Staff

B¹ Staff to the Box

B² Dual Staff

B³ Designated Staff

Clarity of role

High

High

Low

Moderate

Moderate

Low

Moderate

COO role validation

Low

Low

Moderate

High

High

Moderate

High

COO development

Low

Low

Moderate

Moderate

Moderate

High

High

Effective coordination Moderate

Low

Moderate

Low

High

High

High

Efficient governance processes

Moderate

Low

Moderate

Moderate

High

High

High

Low

Moderate

Moderate

Moderate

Moderate

High

High

Criteria

Driver of desired operating environment

Note: Cell entries denote the degree to which each design option enables achievement of a given criterion.

10

Oliver Wyman – Delta Organization & Leadership

undermine the relationship. Due to the sensitive and often awkward nature of such discussions, outside facilitation might be necessary. The CEO and COO share the responsibility for successfully resolving most partnership issues. However, two areas of responsibility are solely incumbent upon the CEO: empowerment of the COO and the positioning and development of the COO as CEO successor. To carry out these responsibilities, the CEO must: n Give guidance to the COO by sharing the insights

and wisdom gained through experience as CEO n Work with the COO to develop a shared

approach to shaping the future direction of the organization n Work diligently to validate and support the

COO’s role through high-impact assignments and symbolic activities n Provide timely and thorough performance

COO, possibly with third-party support. To aid discussion, a worksheet that details the collective responsibilities of the CEO and COO is provided in an appendix to this paper. The worksheet is intended to facilitate determination of which responsibilities are shared, which are unique and primary, and which are secondary. We also suggest that much of this work be done off-site in order to devote enough uninterrupted time to discuss these important issues. These discussions should have the goal of producing clear documentation of the agreements reached and an explicit communication plan for start-up and implementation of the desired model. We believe that in many organizations the partnership-at-the-top model is not only workable but potentially highly productive. But its success will depend on both the CEO’s and COO’s commitment to the alliance. True partnership involves more than lines and boxes on a piece of paper; in the end it will be the attitudes and behavior of the individuals involved that will determine the arrangement’s ultimate success.

feedback to the COO

Summary Just as the CEO has some unique responsibilities for strengthening the alliance, the COO also has several corresponding responsibilities. He or she must: n Provide upward feedback n Push back on the CEO by testing assumptions,

questioning decisions, and disagreeing when necessary

This paper has investigated the advantages and drawbacks of seven options for designing a CEO-COO working relationship that can meet the modern organization’s governance needs. These models are based on a taxonomy of corporate leadership roles and related behaviors that together define CEO and COO responsibilities. We also addressed the management process and relationship issues that members of an executive team must deal with openly to form an effective partnership.

n Seek high-impact stretch assignments n Actively support the CEO in all forums and

situations where anyone other than the two of them is involved Clarifying structural, process, and relationship or role issues demands significant time and focused attention on the part of the CEO and

Designing CEO and COO Roles

Although a number of considerations will affect a CEO’s design choice—including his or her views of comparative personalities and management styles, of a COO’s competency, and of the way CEO and COO roles have been patterned in the organization’s past—we conclude that typically the partnership models of governance are preferable to the traditional model.

11

Appendix: Roles and Responsibilities for CEO and COO Worksheet Instructions: For each responsibility, determine whether it is unique or shared. If it is shared, then determine if it is a primary or secondary responsibility for the CEO or COO. strategic responsibilities

CEO

COO

Strategist Sets corporate strategic direction (vision and strategy) Shapes the company’s long-term aspirations Makes decisions on key strategic issues facing company (e.g., market entry, acquisitions) Communicates and builds commitment to corporate strategic direction among external constituents (analysts, customers, etc.) Communicates and builds commitment to corporate strategic direction among internal constituents (management, associates, etc.) Periodically reviews the company’s overall strategy to ensure the organization anticipates and responds to changing business conditions Architect Establishes organizational structure and operating systems to ensure the achievement of strategic objectives Defines desired corporate philosophy, values, and operating environment Defines core business processes Ambassador Serves as principal external representative of the company Develops successful alliances and joint ventures Keeper of the Corporate Image Protects and builds brand integrity Sets strategic marketing direction Sets tone and direction for relations with key external constituents (clients, shareholders, analysts, etc.) Sets tone and direction for relations with key internal constituents (Board, senior team, management, employees, etc.)

12

Oliver Wyman – Delta Organization & Leadership

policy-related responsibilities

CEO

COO

CEO

COO

Translates corporate vision and strategy into organizational policies, directives, and procedures Develops guidelines for use of corporate assets (people, brand, information) Communicates and builds commitment to organizational policies, directives, and procedures among key external constituents (shareholders, etc.) Communicates and builds commitment to corporate strategic direction among key internal constituents (management, associates, etc.) Integrates organizational policies, directives, and procedures into coherent framework Ensures implementation of policies, directives, and procedures Monitors effectiveness of policies, directives, and procedures

operational responsibilities Performance Management Sets corporate performance targets (balanced scorecard) Translates corporate vision, strategy, and performance targets into business unit plans and performance targets Deploys corporate vision, strategy, and performance targets into business unit plans and performance targets Reviews and approves business unit strategies Reviews business unit process performance against world-class criteria (for example, Baldrige National Quality Award) Operations Management Manages operations of the company in ways consistent with strategic goals and performance targets Monitors operational progress against performance targets and organizes counter-measures when required Manages infrastructure required to support operating units Manages resources (including people and capital) across lines of business Resolves critical shared-resources issues Manages corporate staff resources Resolves issues of conflict between business units and staff functions

Designing CEO and COO Roles

13

operational responsibilities

CEO

COO

Functional Management Manages financial information and compliance activities Manages the attraction, retention, and development of a high-performance workforce Manages public relations Process Management Ensures that core business processes (for example, time to market, integrated supply chain, and customer service) are in place and working effectively Integrates company-wide business processes Ensures effective management processes (for example decision making and conflict resolution) are in place at all levels Ensures that quality tools and methods are used in managing the business People Management Ensures the right leadership team is in place, with complementary skills represented Leads senior team Develops and monitors succession-planning process for top leadership positions Ensures all critical executive positions are adequately staffed Develops top leadership through selection, coaching, and reinforcement Ensures replacement personnel are suitably trained and developed Information Management Transmits top-level decisions throughout organization Serves as internal spokesperson for corporate messages

14

Oliver Wyman – Delta Organization & Leadership

Designing CEO and COO Roles

15

About Oliver Wyman – Delta Organization & Leadership Oliver Wyman is building the leading global management consultancy, combining deep industry knowledge with specialized expertise in strategy, operations, risk management, organizational transformation, and leadership development. Delta Organization & Leadership works collaboratively with CEOs and senior executives to meet the challenges of building talent, accelerating organizational performance, and driving business success. Our Executive Learning Center provides top-tier executive education around the world, designing and implementing customized programs that develop the leaders you need to compete and grow.

To obtain further information about Oliver Wyman – Delta Organization & Leadership, please contact us at [email protected] or the telephone numbers below.

Visit us online at www.oliverwyman.com

North America Toll-free: 1.866.909.8239 Atlanta

Philadelphia

Boston

Portland

Chicago

San Francisco

Montreal

Toronto

New York

We bring deep expertise and a track record of high-impact solutions that minimize business risk by:

United Kingdom London: 44.20.7343.9500

n Maximizing CEO and senior team effectiveness n Making your strategy work

France Paris: 33.1.70.75.01.30

n Building an effective board n Managing the business of change n Redesigning your organization

Germany 49.69.710.447.600 Frankfurt

Munich

Hamburg n Developing a pipeline of the right leaders for your business n Securing commitment through communication and engagement n Bringing meaningful data to decision-making

© 1998 Delta Organization & Leadership LLC, a member of Oliver Wyman. All rights reserved.