Routes to the Top - Operations

In a recent discussion with one of our earliest proteges about his career evolution and his ambition to become a Chief Operating Officer (COO), we were delighted when he asked that we share a paper he’d read with others in a similar situation. He’d found it particularly useful to frame the skills required for his desired executive position, and to compare his current experience and abilities against to identify where he should concentrate on improving – active career management in action!

As he was also preparing for an upcoming appraisal at the time, we reminded him of our post “Ace your Performance Appraisal”, and guided him on questions to ask his managers in his development discussions in order to indicate his eagerness to excel, as well as showcase the progress he has been making.

This post summarises elements from the paper he recommended, as well as a related one also by EY, the consulting firm “building a better working world”. Both papers were guides to aspiring COOs and their organisations, and they provide helpful direction on the skills needed to perform such a broad executive role, and how to develop them. The second paper gave more industry-specific insights, and illustrated the career paths of several COOs. EY’s research was based on detailed analysis of the career paths of nearly 100 COOs, across five sectors: consumer products, financial services, life sciences, oil and gas, and power and utilities. For these reasons, we’re including this post within our Routes to the Top series.

Chief Operating Officers can come from different professional backgrounds, and breadth of experience is particularly important as the role varies widely in practice. Given this, roles in other functions (for example, marketing, distribution, IT, programme management etc) can help diversify experience so that it is not purely operations-focused. Often a COO is the right hand to the Chief Executive Officer (CEO) and many say that it is a stepping stone into a CEO role – to a greater extent than other C-suite roles like the Chief Financial Officer (CFO) in certain industries. The COO is often seen as the go-to person for issues of every description, making individuals who thrive on solving problems a good fit. And, EY argue that “the reason many companies appoint a COO in the first place is to help provide the right balance between the CEO’s overall vision and the practical operating solution that underpins this”.

Read more for information on the role of a COO, to uncover the core capabilities and skills required by the role, to gain insight on additional factors which could help you stand out among potential candidates, and to see the links to EY’s full papers.

The role of a COO
Operational excellence is important factor that contributes to organisational success, feeding into nearly every aspect of a company’s competitiveness: costs, product/service quality, ability to meet demand, the extent of innovation, its customer service and more.

The scope of responsibility of a COO is often open-ended (more than most other executive positions), varying widely between industries and even companies. EY explain that “COOs can expect to help deliver a strategic rethink of the business at one level, while dealing with the minutiae of operational processes and production targets at another”. They add that the scope is “often specifically defined in tandem with a range of other factors: the specific pressures faced within the business, the key industry trends, the relationship with the CEO and the company’s overall organisational structure”.

This also means that as these factors change over time, the role itself undergoes change – in addition to being responsible for implementing changes in the specific business itself… Alignment with, and delivery of, the company’s strategy is also crucial for the role. Indeed, the diversity of the role, its constant change, and the ability to influence wider corporate strategy are among the factors that appeal to aspiring COOs.

Delving into more detail, EY explain that: “Nearly all COOs will, at some point, have to take the lead on [execution, enablement and development]: from the basics of ensuring robust operations, to creating a new operational framework, through to the change management aspects of implementation. 

More detail on these three elements:

• Execution: (i) ensuring suitable operations management, and (ii) optimising operational processes
• Enablement: (i) designing a framework to implement strategy into operations, and (ii) managing the strategic assets of the company
• Development: (i) driving key change and transformation initiatives, and (ii) shaping the future of the business

Building on this framework for the responsibilities of a COO, EY set out to explore which core skills matter most, and what career development choices support a prospective candidate to build them and stand out from rivals. As the ideal candidate for a specific COO role is likely determined by the company’s strategic needs and business model at that point in time, these aspects heavily influence which competencies and capabilities are most required.

Core capabilities and skills required
EY identified seven core capabilities which are common to nearly all COO positions, which we list here:
1) Transformation: Mastery of change management
2) Strategy: Engaging in strategic board-level discussions
3) Compliance: Setting and enforcing robust operational controls
4) Structure: Designing and implementing the organisation’s operational model
5) Efficiency [called “Performance” by EY]: Skill in identifying and extracting efficiencies
6) Expert Insight: Deep industry and market knowledge
7) Diversity [called “Global” by EY]: Finding a multi-cultural management approach

The relative weighting of each is influenced by the industry and competitive position of the company within the industry, and EY provide a view of the top three by industry – see the full industry insert. Below we discuss the seven in more detail, including suggestions on how to develop expertise in each area.

1) Transformation: Mastery of Change Management
Overseeing and steering an ongoing change process is one of the most significant elements of a COO’s role. The intention is (as conditions shift) to develop strategic plans, design a desired operating model to underpin the strategy / CEO’s vision, and then transform the business and operating culture to match this new approach. This includes acting as a change agent and breaking down silos between divisions of the business to ensure collaboration and collective effort towards the same goals. Often more fundamental cross-division transformation initiatives are led by the COO, even if workstreams or even focused finance or IT programmes are led by the CFO or Chief Technology Officer (CTO).

Ways to develop change management and business transformation skills:

• Hands-on experience in leading change or transformation projects (including operational and strategic aspects), increasing in scale and complexity as experience is gained
• Involvement in supporting a merger and managing a post-merger integration programme
• Specialist courses, recognising both the task-related and people-related elements of successful change
• Face-to-face meetings with internal and external stakeholders to explain the strategy of your area and build rapport
• Practice with communication, including listening, and leadership skills, including realigning how divisions and employees work
• Understanding of how underlying technologies and processes can be optimised

EY warn that: “Without strong examples of successful change and transformation programs, a candidate is unlikely to be in the running for the job.”

2) Strategy: Engaging in strategic board-level discussions
The need to engage at a strategic level is the clearest difference between a COO and an operations manager, including outlining, assessing and debating strategic options at board level. A key part of the COO’s role is to shape the strategy while understanding the relative financial impacts and assessing its feasibility from an operational perspective.

How to prepare for this requirement:

• Ask to attend and listen in to board-level discussions if opportunities arise
• Understand how to formulate strategy by setting objectives and mapping out initiatives, resources and milestones against them – working in the company’s strategic planning function or spending time at a strategic consultancy can help to build these skills
• Build strong financial analysis skills (and the ability to communicate and discuss financial consequences at senior level), including measuring results and monitoring key performance indicators
• Gain a practical understanding of the company’s value chain, including suppliers and key markets – this will help the strategy to be based on deep insights of where to compete, informed by market trends
• An MBA can help to build knowledge of strategic theories and approaches across industries, including through case studies

3) Compliance: Setting and enforcing robust operational controls
The responsibility for setting up and enforcing operational controls often lies with the COO and strong controls can help mitigate risk, avoid compliance failures, and enhance the business (through smooth processes aligned to the operating model). Getting compliance right is difficult: it demands a thorough understanding of underlying processes, clarity on where accountability should sit, deep familiarity with regulatory trends, and the ability to improve business performance through controls.

Techniques to build your expertise:

• Understand the methods and frameworks used for operational oversight important to your industry/sector
• Be familiar with the regulatory requirements applicable to your organisation
• Meet with your own compliance, legal and risk teams, sector experts and external advisors to gain understanding of how controls should be set up and monitored, what industry best practices are, and how expectations might evolve in future (including legislative trends)
• Learn about forecasting, simulation, modelling and scenario planning as tools to analyse risks and assess the impacts of potential controls
• Firsthand exposure to the company’s processes, tools and IT systems will be helpful too, including the daily operational procedures to gain awareness of different performance and risk indicators 
• Experience in a specialist risk consulting firm (or working at the regulator) is additionally helpful for those in sectors where controls are especially important e.g. financial services, pharmaceuticals, mining, oil & gas

4) Structure: Designing and implementing the organisation’s operational model
All operational models have people, process and technology elements, but the key to success is in how these are configured in the specific circumstances, how the model aligns to the overall strategy, and how its ongoing performance is measured (with feedback loops where relevant).  A COO must be able to map out different operating model options, assess their impact and evidence them concretely. And, he/she should be willing to disrupt the status quo.

Methods to strengthen your abilities to determine the right mix of people, process and technology:

• Develop commercial skills (in addition to operational and engineering skills), including knowledge of price strategies
• Practical experience of different approaches and their advantages and disadvantages in different circumstances
• As a shortcut, consider spending time at a startup, where there might be more opportunity to experiment with different approaches to find a suitable model – this may not translate to a conglomerate setting though
• Understand the market, competitors, suppliers and customers, and how they interact
• Analyse customer usage data to pick out trends – experience from customer-centric industries can help here
• Network with external partners, and reflect on how you might collaborate or adopt an open innovation mindset within your operational model (while protecting your intellectual property)

​5) Efficiency: Skill in identifying and extracting efficiencies
Part of the COO’s remit is to manage costs and/or find efficiency or productivity gains, especially given the role’s exposure and input across so many areas of the business (and its wider value chain). This includes optimising headcount, improving working capital and finding new sources of efficiency e.g. automation. 

Learning this skill set can include:

• Building a thorough understanding of the company’s processes across multiple divisions – this helps to identify improvement opportunities
• Gaining knowledge of how other functions operate, and how they rely on each other, especially how the back-office operations support the commercial front-office – this informs the bigger picture of how everything fits together
• Moving between departments to build relationships and trust with each, and improve your detailed knowledge so that you can make improvements
• Managing suppliers and other input costs, including contracting and negotiations, output planning and distribution management
• Spending time mapping your overall value chain to grasp how contractors, suppliers and other stakeholders participate, and identify potential risks or opportunities, including partnerships, divestment, or outsourcing
• Bolstering your understanding of the company’s financial function, to understand the pressures faced and learn methods of assessing costs and projects
• Staying abreast of emerging innovations or research & development discoveries as a means of identifying ideas that can lead to further efficiencies

6) Expert Insight: Deep industry and market knowledge
Compared to other functional peers, COOs usually must have a detailed comprehension of their sector’s approach to operations, making it very challenging for a new COO to step in without deep knowledge of the industry and its operational norms. They also need a strong familiarity with their organisation’s business realities and solid understanding of the industry’s macro trends.

By its nature, this skill is dependent on spending extensive periods of time in an industry in order to gain a gut feel for its dynamics. A strong internal and external network can help too – developing your networking skills can help you to keep informed. Interacting with regulators (perhaps providing feedback on draft regulations) can also help in many sectors, including time spent in legal or compliance functions. 

Ultimately, expert insight needs to be built up through experience across different functions, from understanding customer service trends, through to sales and supply chain approaches. EY add: “Communicating with internal stakeholders, external experts and, crucially, customers, is a major part”. 

7) Diversity: Finding a multi-cultural management approach
“To operate at the highest levels of business, COOs need to bring a clear appreciation of how to manage in a globalised marketplace,” say EY. “Whether selling into multiple markets, setting up worldwide supply chains and operations, or employing a highly mobile international workforce, a global approach is a must.” This underscores the need for respect for, and the ability to make the most of, diversity, including cultural diversity.

To understand different cultures, how customers and employees behave and the nuances of local regulation, spend time:

• Working in other cultures e.g. help launch a product in a new market, manage a regional shared service centre based in a rapid-growth market, or set up operations in a foreign country
• Assessing cultural variations between markets to understand similarities and differences
• Building your collaborative skills, especially working with people who don’t think like you do e.g. on a training course for international managers
• Learning different management styles or appreciating different approaches to supply chain management
• Taking opportunities to move around and spend meaningful time in different environments

Six extra factors to stand out
Aspiring COOs should be able to demonstrate the seven core capabilities outlined above to be considered for the role. While necessary, they are not sufficient to fasttrack you into the C-suite however. There is a further set of six less tangible characteristics that EY argue “help today’s operations experts stand out from their peers as genuine COO candidates for tomorrow”. Some relate to the seven required capabilities and the suggestions offered for developing them.

• Interdepartmental knowledge: bringing both depth and breadth by developing close exposure to different parts of the business, including the commercial, financial and operational areas – rotation programmes can make moving jobs, changing bosses or changing discipline easier
• International experience: identifying and introducing best practices from markets around the world can give you a lot of credibility, particularly as it adds richness both technically and culturally, especially in companies seeking to be leading multinationals – moving abroad to gain long-term experience in different markets can signal your ambitions
• Leadership skills: being an effective influencer and motivator is critical to manage and enthuse people in order to realise the strategic vision and transform the business – they encompass empowerment, delegation, collaboration, building trust, offering guidance and support, listening, changing perceptions, driving others to believe in better, and leading teams across locations, timezones and cultures
• Flexibility: succeeding in an everchanging reality, enthused by adapting to dynamic circumstances or operational surprises – this includes a high degree of tolerance for unpredictability and ambiguity, an agile approach to learning, and a willingness to move into a completely new area and thrive on the challenge of figuring things out
• Courage: stepping up to challenges, sticking your hand up for new responsibilities or stretch opportunities, and admitting mistakes or failures as learning experiences
• Sociability: mastering the networks and politics, building influence and relationships with peers across the business and beyond, and understanding the organisation’s power balance and how to manage the personalities and priorities of others when implementing change – interpersonal skills, approachability and learning from feedback are key here

The role of the organisation and manager 
EY’s full reports also contain suggestions for organisations, including the importance of defining the scope, competencies and focus required of a COO in their business. Senior teams should work to ensure they have multiple potential candidates who could step up into the role, as well as development plans for internal candidates. EY suggest that “potential leaders [be] located in product or geographic areas that are linked to where the firm’s future growth is likely to come from, or to reflect the wider changes in corporate strategy”. 

The reports also emphasise the organisation’s role in offering opportunities to gain broad cross-functional exposure, including positions in other countries/cultures. 

A perfect candidate?
EY posit that there is no single perfect fit of candidate: “With the right mix of drive, ambition and skills, managers from any part of the business could set their sights on becoming tomorrow’s COO”. Often the ideal candidate in a given situation is determined by the company’s strategic needs and business model, which defines which core capabilities are most important. The overall aim should be to “find someone who can deal with the ambiguities between where [the organisation is] today, and where to be in the future” and who can make the vision a workable reality. 

There’s no single route to the role of chief operating officer (COO). Rather, it is a position that attracts the most talented and diverse individuals from all corners of the business, all of who share a passion for making an organisation work better.
​...The routes to the top are as diverse as the demands of the role itself.”
EY, Aiming for the top: a guide for aspiring COOs and their organisations 

The full reports by EY can be found at:

• Main Guide: "Aiming for the top: a guide for aspiring COOs and their organisations"  
• Industry Insert: "Routes to the top: how to develop industry-specific skills"