Author Archives: Michael Holtzer

Second in Command: The Misunderstood Role of the Chief Operating Officer

When Larry Ellison, founder and CEO of Oracle, and his chief operating officer, Ray Lane, parted ways in 2000, the event inspired the kind of breathless reporting usually reserved for celebrity divorces. Forbes.com reporter David Einstein wondered in print, “Did Lane quit or was he fired?” and wished he had “a clue as to why Ellison’s second banana for the past eight years suddenly was cleaning out his office.” Soon afterwards, CNET News.com weighed in with this: “The story of Lane’s plight at one of the most powerful companies in technology is one of hubris, greed, betrayal and personal epiphany…” Readers were left with two puzzles to sort out. First: why Lane was leaving his position, given what seemed to be an unbroken string of admirable achievements. And second: why the event was wrapped in such drama. Executives change posts all the time, yet the story, with its hints of palace intrigue and titanic clashes, was inherently captivating.

 

For us, it was another example suggesting that the role of the COO is, well, different. Our research since then has put a finer point on the difference. Through in-depth conversations with dozens of executives who have held the position and with CEOs who have worked with COOs, we’ve gained insight into a subject that has been largely neglected by organizational scholars. Our discoveries shed light not only on the dramatic executive breakups that intermittently make headlines but also on the successful experiences of many unsung COOs. In this article, we share the success and failure factors we’ve identified, as well as our analysis of such related questions as: Are there circumstances in which a number two role is particularly useful? Are there situations when it will inevitably produce tension and discord?

Understanding what makes for a successful chief operating officer is vital because the effectiveness of COOs (or ranking operations executives by whatever name they are called) is critical to the fortunes of many companies—and could be to many more. As we will suggest, the second-in-command executive is a role that by rights should become increasingly prevalent. It is prevented from doing so, perhaps, because it is so misunderstood.

A Unique Point of Reference

When you start to examine COOs as a class, one thing immediately becomes clear: There are almost no constants. People with very different backgrounds ascend to the role and succeed in it. This variability makes the job difficult to study; it’s hard to know whether you are making proper inferences when comparing one COO with another.

Salespeople or marketers who have developed the tools of their trade in one company can usually apply them to good advantage in another, even in a dramatically different industry. Financial and human resource executives likewise are schooled and practiced in standard ways of doing things. But it’s hard to discern whether a COO who has succeeded in one company has what it takes to be COO in another; the skill set is neither generic nor very portable. Even within a single company, the right qualifications for the COO role can shift. Maynard Webb, COO at eBay, described for us the difference between his own technology background and that of his predecessor: “The first COO, Brian Swette, had a job that was nothing like my job….Brian was a sales and marketing guy. He had the business units reporting directly to him and spent no time on any of my role.”

It’s difficult to pinpoint the kinds of environments in which COOs thrive. While there is a general sense that COOs are most prevalent in operations-intensive businesses, they appear in every kind of company, and every sector also features firms without them. Moreover, the same organization may sometimes operate with a COO and sometimes without one. A 2003 study by Crist Associates, for example, showed that only 17% of the corporations that promoted a COO to CEO in the previous year had replaced the COO.

Finally, there is no single agreed-upon description of what the job entails or even what it’s called. Often, companies turn responsibility for all areas of operations over to the COO—this typically includes production, marketing and sales, and research and development. In some firms, the job is to be Mr. Inside to the CEO’s Mr. Outside. In others, the mission is focused on a specific business need. For example, last summer Microsoft filled the long-vacant position of COO with Kevin Turner from Wal-Mart. In announcing his appointment, the company stated that Turner was expected to use his retail experience to lead Microsoft’s effort to grow the consumer products business. The most cursory survey of COO job designs shows real disparity in spans of control, decision rights, reporting structures, and the like.

How can a title accommodate such diversity and still be meaningful? Answering that question requires a shift in perspective. The key is in the orientation of the role. While other jobs are primarily defined in relation to the work to be done and the structure of the organization, the COO’s role is defined in relation to the CEO as an individual.

How can a title accommodate such diversity and still be meaningful? Answering that question requires a shift in perspective.

As we will explore in the following section, that relationship can take various forms. In many cases, the COO is there to help make the CEO’s vision a reality. Sometimes, the COO is expected to make the CEO more effective or more complete. Often, the plan is for the COO ultimately to fill the CEO’s shoes. But in all of these constructions, the CEO is the magnetic force with which the COO must align. This makes asking the question “What makes a great COO?” akin to asking, “What makes a great candidate for U.S. vice president?” A Southern Baptist? A foreign-policy wonk? A charismatic campaigner? A centrist? It all depends on the other half of the equation, the first name on the ticket. This, then, is why COOs remain mysterious as a class: The role is structurally, strategically, socially, and politically unique—and extraordinarily situational.

Seven Kinds of COO

If the COO role is defined primarily in relation to the CEO, and no two CEOs are exactly alike, does that mean the job simply defies definition? Not quite. What became clear in the course of our research is that the differences among COO roles arise from the different motives behind creating the position in the first place. It turns out there are seven basic reasons why companies decide to hire a COO, and these yield seven roles that COOs can play vis-à-vis their CEOs. Readers will recognize that the seven reasons are not mutually exclusive, though in this initial presentation we treat them as such.

“Asking what makes a great COO?” is akin to asking, “What makes a great candidate for U.S. vice president?”

The executor.

One role of a COO is to lead the execution of strategies developed by the top management team. It’s simply a concession to the complexity and scope of the CEO’s job today, with its numerous external commitments. Managing large, often global, enterprises sometimes requires two sets of hands; in such cases, the COO typically takes responsibility for delivering results on a day-to-day, quarter-to-quarter basis.

This is why the COO position is nearly ubiquitous in businesses that are operationally intensive, like the airline and automotive industries, as well as in organizations that operate in hypercompetitive and dynamic marketplaces like high-tech firms. At Seagate Technology, for example, CEO Bill Watkins relies on COO David Wickersham to keep the business performing at its peak. It’s not that Watkins lacks an execution mind-set himself; in fact, he ascended to his post after excelling as COO to the previous CEO, Stephen Luczo. But the demands of managing an $8 billion vertically integrated disk drive business are substantial. By bringing in a COO to lead and oversee the day-to-day operations, Seagate allows Watkins to focus on the strategic, longer-term challenges the company will face. CEO Watkins is clearly oriented with his “head up” to understand success in the future, whereas COO Wickersham has his “head down,” focused on the operational details necessary for success today.

The change agent.

Just as Microsoft did when it hired Kevin Turner, some companies name a COO to lead a specific strategic imperative, such as a turnaround, a major organizational change, or a planned rapid expansion. While the mandate is not as broad as the general execution of strategy, the magnitude of the challenge demands that the change-agent COO have a degree of unquestioned authority similar to that of an executor COO. This was, in fact, what led to Ray Lane’s arrival at Oracle. Larry Ellison hired Lane from consultancy Booz Allen Hamilton and tasked him with turning around the deeply troubled sales and marketing organizations. His efforts ultimately contributed to a tenfold increase in sales, from $1 billion to more than $10 billion, and a threefold increase in net profits. Similarly, AirTran CEO Joe Leonard recruited COO Robert Fornaro to lead a dramatic turnaround. The company, in Leonard’s words, was “running on fumes” and needed dramatic efforts to stave off bankruptcy.

The mentor.

Some companies bring a COO on board to mentor a young or inexperienced CEO (often a founder). A rapidly growing entrepreneurial venture might seek an industry veteran with seasoning, wisdom, and a rich network who can develop both the CEO and the emerging business. One could logically hypothesize that as the CEO develops, this COO role might either disappear or be heavily restructured.

By many accounts, this was what prompted the young Michael Dell to hire Mort Topfer in 1994. Dell was growing at a pace that threatened to get ahead of its founder’s managerial experience. Michael Dell was self-aware enough to acknowledge that he needed some seasoned executives around, both to capitalize on the market opportunity and to accelerate his own development as a leader. Topfer was in his mid-fifties at the time and was completing a successful career at Motorola. He clearly had no aspirations of becoming the chief executive officer at Dell—he was there to help the 29-year-old Michael. We’ve seen very similar arrangements at Netscape, where James Barksdale has served as mentor to cofounder Marc Andreessen, and at Google, where Eric Schmidt was recruited to support the cofounders, Larry Page and Sergey Brin.

The other half.

A company may bring in a COO not as a mentor, but as a foil, to complement the CEO’s experience, style, knowledge base, or penchants. Observers have viewed the relationships between Bill Gates and two of his previous COOs, Jon Shirley and Michael Hallman, in this light. Jon Shirley, according to one observer, provided a “calm, self-effacing balance” to Gates’s brilliant and often intimidating affect. In such cases, the COO role is usually not meant to lead to a higher position—but sometimes it is. When Ken Freeman, now a managing director of Kohlberg Kravis Roberts, was CEO at Corning spin-off Quest Diagnostics, he deliberately sought an heir with a different collection of skills than his. He ultimately hired Surya Mohapatra just when Quest was closing a deal to acquire another large testing business. “I thought, in a company that was going from $1.5 billion in revenues to $3.2 billion,” he explained to us, “it would be helpful to have somebody around that had strong health care experience—especially given that I had grown up in the glass business!”

The partner.

Sometimes, the CEO is simply the kind of person who works best with a partner. This can lead to what’s been called a “two in a box” model and is similar to what authors David Heenan and Warren Bennis have termed “co-leadership.” Indeed, Heenan and Bennis contend that more companies should create and cultivate co-leadership arrangements. But it’s probably true that, just as there are doubles specialists in tennis, only some executives are more effective when paired. In any case, Michael Dell and Kevin Rollins, whom Dell introduced as COO in 1996, seem to operate in this mode. Dell, as chairman, and Rollins, now as CEO, are committed to leading the firm together, even choosing to “co-office” in adjoining work spaces separated by only a glass partition.

The heir apparent.

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. 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.”

Certainly, being identified as a likely heir does not represent anything approaching a guarantee. On the one hand, an otherwise valuable senior executive may leave if the top job ultimately goes to someone else—or isn’t offered soon enough. On the other hand, the COO’s performance can indicate that the heir title was inappropriately or prematurely bestowed. In the past few years, we’ve seen several prominent COOs who seemed to be on the glide path to the CEO’s office instead leave their companies; they include John Brock (Cadbury Schweppes), Mike Zafirovski (Motorola), John Walter (AT&T), and Robert Willumstad (Citigroup). Regardless of whether each left because he was passed over for the CEO position, because the timing was not as advertised, or because he found greener pastures, the succession plan unraveled.

The MVP.

Finally, some companies offer the job of COO as a promotion to an executive considered too valuable to lose, particularly to a competitor. This appears to have been the case at News Corporation’s Fox Entertainment Group subsidiary. It recently announced that its president and COO, Peter Chernin, had signed a new employment agreement preventing a rumored move to rival Disney. Similarly, when McDonald’s restructured the roles of its U.S. and Europe presidents during the summer of 2004, that was interpreted by analysts as an effort to ward off poachers. With this strategy, an organization may try to hedge its bets by stopping short of identifying a specific heir or setting a time-table for leadership succession, in an effort to keep its high-potential executives intrigued about what the future might hold for them, should they stay on board.

Elusive Lessons

In truth, as we’ve said, the seven roles are not mutually exclusive. Though it’s hard to imagine a single person wearing several of these hats all at once, it’s quite possible that a COO could wear two of them simultaneously. Understanding the roles distinctly, however, and considering their differences reveals a few things clearly.

First, the typology we’ve outlined makes it easy to see why COOs have been hard to investigate in any scientific sense. Even where studies have been done, it’s often impossible to draw useful lessons from them. For example, one of the few empirical examinations of the role was conducted by Donald Hambrick of Penn State and Albert Cannella, Jr., when he was at Texas A&M. As they reported in the October 2004 issue of Strategic Management Journal, a review of ten years of data on 400 companies showed that firms with a CEO-COO structure had underperformed relative to their industry peers. It’s a provocative finding, but its implications are far from apparent. Is the structure itself to blame? Or was a COO hired to compensate for a weak CEO? Put another way, is the COO part of the problem or part of the solution? Hambrick and Cannella offered both explanations, and other theories could be constructed. Our work suggests that divining answers from such broad surveys is inherently difficult because the nature of the COO job is so deeply contextual.

Second, knowing the variety of roles that COOs play sheds light on the phenomenon of the “vanishing COO.” Some observers, counting the instances of companies declining to fill vacated COO spots, have concluded that the position is headed for extinction. After a COO departs, it often appears that his or her duties have been divided up among top managers without much disruption. When Steve Heyer left Coca-Cola, his responsibilities were dispersed in this fashion, and the position was not filled. When COO Gary Daichendt left Nortel Networks (after just three months), his tasks were assumed by the then CEO, Bill Owens. But the job is oftentimes reinstated or created in a company that didn’t use it before. At Microsoft, for example, rumors of the COO job’s death turned out to have been exaggerated. Although it sat idle for several years after Rick Belluzzo’s departure, it was revived when Kevin Turner was hired.

Finally, the tremendous variation in COO roles and responsibilities manifestly implies that there is no standard set of “great COO” attributes. This makes finding suitable candidates difficult for executive recruiters (as one of the authors can attest). More important, it stymies the CEOs and boards who must select among the candidates. The existence of seven different roles suggests at least seven different sets of attributes on top of the basic—and infinitely variable—requirement that there exist a personal chemistry between the COO and the current CEO.

The Underpinnings of Success

Even though the role is so contingent, we have identified some success factors that came up consistently in our interviews with executives in widely varying situations. 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.” The trust has to be absolute, he said, “because there are those in the organization who are always seeking to drive wedges if they can.” Other executives specifically used the metaphor of having one another’s back. Hearing their comments, we were reminded of Harry Levinson’s insightful 1993 article, “Between CEO and COO,” in the Academy of Management Executive. In it, he wrote, “The relationship…is fraught with many psychological complexities. Perhaps it is the most difficult of all organizational working relationships because more than others, it is a balancing act on the threshold of power.” Levinson went on to explore the dysfunctions that can arise in such situations: unhealthy rivalries, defensiveness, overcontrol, rigidity, misconceptions, and doubt.

How can a pair of executives get past such perils and develop an extraordinary level of trust? Again, consistent themes in our interviews suggest the answer. The CEO must feel certain that the COO shares the vision, is not gunning for the top spot, and can get the job done. Conversely, the COO must be sure that the CEO will provide whatever is needed to do the job, will not put any obstacles in the way, and will not thwart future career advancement. Let’s explore this question more fully, framing it in terms of what each party owes the other.

What the COO Owes the CEO

True respect.

Because a chief executive relies so heavily on the second in command to accomplish mission-critical goals, it’s essential that the COO wholeheartedly believe in the CEO’s strategic leadership. Chief operating officers, by virtue of their inherent talents and their organizational position, are highly visible and powerful. If the COO is not aligned with the CEO’s vision, or not convinced that the CEO can find the best path forward, then that lieutenant is capable of real mischief. Dan Rosensweig, COO at Yahoo, described for us the hours he spent talking with CEO Terry Semel before joining the company. Rosensweig invested the time because, in his words, “you have to get in sync with the CEO. If you have an agenda that is different than his or hers, you will absolutely fail the company.”

An ego in check.

In the interviews we conducted—particularly those with COOs—we heard repeatedly how critical it is for seconds in command to check their egos at the door. It’s a tricky balance to achieve, given that COOs must obviously be self-confident leaders. “You have to lead while serving,” stressed eBay COO Maynard Webb, immediately adding, “It has been the hardest job that I have ever done.” Interestingly, he then followed up with another reason why the job is hard: “It is not as immediate with gratification as any of the line jobs that I had. When you are solving technology issues, such as is the site up or not, it is pretty black-and-white, and you see some of the results pretty quickly. But you are working on things through a lot more layers as COO, and the results come much slower.” These sound like two very different reasons for a job to be hard, but we suspect they may be intertwined. Often, the results do come more slowly—and often they come in a way that makes their proper attribution more difficult to discern. Regardless, the COO is not necessarily in line to receive the kudos for a job well done.

An eye on execution.

Back in the 1990s, people in organizations jokingly picked up on a phrase from the television series Star Trek: The Next Generation. In it, starship captain Jean-Luc Picard, having settled on a course of action, would simply instruct his crew to “make it so.” CEOs in general can’t quite get away with that, but to the extent that they are focused on strategy, they rely on COOs to oversee much of the implementation. They must be able to trust that they can afford to address longer-term and bigger picture issues because their second in command will maintain a focus on the here and now. Even COOs who are not primarily playing the executor role should have an execution mind-set and a bias toward action.

Coaching and coordination skills.

A COO must be able to direct and coach others throughout the business. Steven Reinemund, now chairman and CEO at PepsiCo, gave us his thoughts on the challenge. He was promoted to COO after having led a business unit and, he told us, “I had to think long and hard about whether I really wanted to move out of running the day-to-day business into a role where I coach and coordinate.” Being a division president, he explained, “is a hands-on job. You get to mold the strategy; you get to direct the efforts every day. You have the functional people that you work with, and that team performs against a mission, and it is an exciting experience.” The COO job, by contrast, requires an individual who “can step out of doing day-to-day, hands-on directing and leading of a business, and direct and teach and coach others.” Again, regardless of which of the seven roles a COO plays, the CEO must be able to trust that these skills are in place.

What the CEO Owes the COO

Communication.

The COOs we spoke with understood that the onus was on them to embrace the CEO’s strategy and work to make it real. But no one can execute against a plan that’s not being communicated clearly and directly. CEOs constantly have fresh thoughts with operational implications; they must be in the habit of discussing those with their COOs without delay. Ken Freeman told us how he and Surya Mohapatra kept the lines of communication active at Quest Diagnostics. “Sunday at 4:00 pm became the time for us to have lengthy discussions….We would see each other at the office, too, of course, but there we would be scurrying around working on the integration of the [merged] companies, driving the company’s performance, and making things go. We had each other’s undivided attention via telephone starting at 4:00, virtually every single Sunday for five years.” Another CEO we interviewed admitted an early mistake: locating his new COO’s office in a separate building, thereby failing to capitalize on the rich communication afforded by physical proximity.

CEOs constantly have fresh thoughts with operational implications; they must be in the habit of discussing those with their COOs without delay.

Clear decision rights.

To a person, the executives we interviewed stressed the need for explicit and reasonable lines of demarcation between CEO and COO responsibilities. While there was no consensus on what exactly should be part of each job, everyone agreed that the matter had to be sorted out at the start of the relationship. It’s far easier to delineate boundaries when the two individuals clearly have complementary competencies and each naturally gravitates to different areas of expertise. The greater the overlap in competencies, the greater the likelihood that the COO might feel (perhaps accurately) that the CEO is micromanaging and second-guessing decisions. Such behavior on the part of the CEO communicates to the COO a lack of trust that is likely to engender friction in the relationship. When we raised this point with Bob Herbold, another former COO at Microsoft, he responded: “To me, this is a key issue. The way it gets worked out is the individuals—through trial and error, as well as through discussions—figure out who is going to be doing what and who needs to check with who on key decisions….How the pair will make that happen needs to be agreed to very early in the relationship.”

A lock on the back door.

Obviously, the creation of the COO role adds a layer of management; executives who previously had direct access to the CEO now have an intermediary to address. One of the COO’s first challenges is to develop relationships with direct reports that discourage them from seeking backdoor access to the CEO. At the same time, the COO must depend on the CEO to block efforts by those who might want to circumvent the position. This is not to say that restricting access to the CEO is the goal. Ed Zander, now CEO of Motorola, previously served as COO of Sun Microsystems under Scott McNealy. Zander says the two made it clear that any of the COO’s direct reports was entitled to go to McNealy to talk about things. But the lines of responsibility were still respected. “One thing that Scott did very well was to never undermine me,” Zander told us. “He always backed all my decisions. He would hear people out but then send them to me.”

A number of the people we interviewed noted how much personal discipline is required on the CEO’s part to maintain this kind of line. “I have been working on nailing that back door shut for a while,” eBay COO Webb told us. “I think it is a tough, tough thing to do, especially when you have a CEO that actually loves to get involved in problem solving and wants to help. I think what you have to do in that case is to enable, not control, communication and be transparent.”

A shared spotlight.

Without exception, the COOs we interviewed accepted the fact that their job was to make the CEO successful—and that in doing so they in many ways rendered their own contributions less visible. But, especially for COOs who aspire to the top job, that creates a dilemma. Jim Donald, president and CEO of Starbucks, noted that what gets executives to the role of president and COO “won’t necessarily earn them a CEO role. Once you are in the COO role, you have to…broaden the network of things you do. You need to work with the board, work with the CEO, and work to lead others to be successful.”

It falls upon the CEO’s shoulders to make sure that this development takes place and to share the spotlight whenever appropriate. If the CEO is not deliberate about this, then the board will have no reason to be impressed by the number two, who may then prove ultimately unpromotable. Kevin Sharer, who was COO at Amgen before he became CEO, lays heavy emphasis on this point. He told us that the success of the CEO-COO relationship is “75% dependent on a few things that the CEO does.” He framed those things for us as a series of important questions:

Does the CEO give the number two real authority, real operating responsibility, power that is real, power that is seen by the rest of the company as real? Second, does the number one actually encourage and let the number two person have his or her own voice in board meetings and operating reviews? Third, does the CEO give coaching, counseling, and really see the success of the number two as part of the company’s success?

A Role on the Rise?

Ask anyone who has worked as or alongside a COO—the job is demanding. Now we know it’s unique, as well. Perhaps that’s why COO is the only C-suite title to which there is no magazine devoted. It’s a trivial observation but perhaps a telling one; the common set of issues and interests that would imply simply does not exist.

Is it a role in decline? Some observers, as we have said, certainly think so. The Hambrick and Cannella study, for example, found a 22% decline over ten years in the number of firms with executives holding that title. Yet in the last few years, companies in a wide range of industries have announced new COOs, including Microsoft, RadioShack, Airbus, Allstate, KPMG’s U.S. subsidiary, Alcatel, Chiron, Nissan, BellSouth, Comcast, Eli Lilly, Apple, and Medtronic.

We can easily argue that there is a growing need for the role. First, consider the widening scope of the CEO’s job. Today, we have bigger companies, with expanding global operations, aggressively pursuing acquisitions. CEOs are asked to be public figures, communicating with many constituencies at the same time that increasingly democratic and knowledge-based organizations require them to spend a great deal of time campaigning internally for any change they hope to make. Second, companies are becoming more deliberate about succession planning. Boards are anxious to identify and groom heirs and often see the COO title as a useful step in the process. Finally, the easy mobility of top talent means companies must find ways to hold on to their most valuable non-CEO executives. The COO title can be effective in staving off wanderlust.

In light of these trends, it’s surprising that COOs are not more common. Our suspicion is that they would be if there were less variability and confusion surrounding the role. Board members aren’t sure when the position will add value. Recruiters don’t have an obvious pool to tap. CEOs don’t know whom to trust. Potential COOs don’t know whether the job is right for them. This is why it’s vital to build on the work we’ve outlined here. As we continue to demystify the role of the COO, more companies will benefit from more effective leadership.

A version of this article appeared in the May 2006 issue of Harvard Business Review.



Nate Bennett is a professor with the Robinson College of Business at Georgia State University. He is the author of Your Career Game and Riding Shotgun: The Role of the COO.


Stephen A. Miles (smiles@heidrick.com) is an Atlanta-based managing partner in the Leadership Consulting Practice of the executive search firm Heidrick & Struggles and a coauthor of “Second in Command: The Misunderstood Role of the Chief Operating Officer” (HBR May 2006).

Who should be on your Board?

I come across many retailers and wholesalers that either lack a proper board or have the wrong type of people on their boards. In my opinion, sme’s in these industries need to have retailers and wholesalers on their boards.

I know I will take some flak for this, but boards have become too much governance and not enough guidance. It is all well and good to have your lawyer or accountant on the board, but do they have the knowledge and experience to guide the direction and strategy for the business.

If you are looking to expand overseas, restructure, put in new systems, go into retail / wholesale from the other side, put in e-commerce, expand the product line, re-position, become more streamlined, outsource, cross dock, etc. you need people who have done this before and can guide you through it from the board level.

The board needs to have experience in the industry and understand the issues. It needs to challenge and guide the team and see through the fast talking executives – to call bullshit when it needs to be called. A board also needs some independence – outside the small circle of the chairman or owner.

Why Simple BI Dashboards Provide the Most Insight

Written by  Angel Willis at Phocas

With business intelligence dashboards, simplicity is key. We’ve all experienced carnival-like websites with side bars cluttered with irrelevant links, advertisements and other garbage that is just plain annoying. When we are searching the web, we are seeking data and information. Clutter makes it harder for us to extract the information that we need. The same is true with dashboards.


When users view their custom dashboards, they don’t want to see data that is irrelevant to their positions. They also don’t want to see all of the data that is relevant to their positions. Steve Krug wrote a book titled “Don’t Make Me Think: A Common Sense Approach to Web Usability” that addresses the importance of simplicity when designing websites. I believe that the same concept of “Don’t make the user think” can be applied to the creation of an effective dashboard design.

When your business analysts, managers, and VPs log in to view their dashboards, provide them a few broad categories that display current data that they might want to glance at to start their day. If you are like me, the first thing you do when you sit down at your desk is check your email. For dashboard users, the second action is probably to glance at their BI dashboards.

The beauty of the BI dashboard design is that the users have the ability to drill-down and view details about summarized data, so there is no need to display complex aggregated data on the home page of the dashboard.

Lastly, I have to point out that you can’t guess what the users want to see on their dashboards. Don’t get overly enthused and skip the requirements gathering phase. Meet with your users before designing their dashboards to get a feel for what they would like to see. After they have had access to their dashboards for several months, follow-up with them; Are they using the data that is provided? What types of reports would they like to see? Make changes as needed to keep the dashboards up-to-date and relevant.

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Fusion Factory Case Study – MotoParts

 

www.fusionfactory.com

MotoParts.net.au

MotoParts Solves the Complexities of Listing on eBay with CommerceConnect

Driving a Whole New Section of Growth for the Business

ABOUT MOTOPARTS

MotoParts is one of the leading distributors of automotive parts and car accessories in Australia—with a long history in the B2B commerce space supplying wholesale auto parts throughout NSW and Australia. MotoParts decided to launch into a completely new sales channel to leverage their existing business model—driving a whole new section of growth for the business. “As one of the largest online marketplaces, eBay was the obvious choice for MotoParts to start our online presence,” said Shillinglaw.

Business Drivers

“We required a solution to manage product data feeds, with the added functionality of enriching and enhancing product data ready for listing on eBay. We needed to integrate with our ERP system, specifically product, pricing and inventory data along with both eBay and MotoParts’s new consumer eCommerce website. This also included receiving orders from eBay and our eCommerce website and sending shipment updates,” said Shillinglaw.

For sellers of automotive parts, the complexity and volume of parts data is an added challenge. The massive increase of vehicle models and variants over the past few decades is further complicating the automotive parts industry.

“At MotoParts we needed the data to be in a coherent format to allow us to list products on eBay that easily identifies a part, the vehicle it fits and in a format that people feel enticed to purchase,” continued Shillinglaw. “Buyers that would be shopping in the automotive aftermarket can be enthusiasts or do-it-yourself people and if the product data isn’t presented in a compelling way—you’re not going to make the sales.”

Fusion Factory Speeds Time to Market for MotoParts

“With their experience, the team at Fusion Factory were able to integrate and automate MotoParts’s solution in the fastest and easiest way possible with minimal hassles,” said Shillinglaw.

“We were referred to Fusion Factory by PARts who provide us with automotive parts content,” explained Shillinglaw. “Fusion Factory was one of the few, if not the only company having the essential experience with large-scale integrations in the automotive parts industry. I didn’t want to waste valuable time working with an organisation where I would need to explain the basics. Fusion Factory and the team have a solid reputation and the price was right—this made the decision easy for us. We would not have been able to get where we are today and where we are heading in the future without the work delivered by Fusion Factory.”

“The team has been fantastic in their flexibility and receptiveness to any of our business needs—nothing is ever a problem,” added Shillinglaw.

Parts to the Solution

With Fusion Factory and the CommerceConnect application, MotoParts are managing their product data in a centralised solution. The product data is received from PARts and collated with inventory and price data from MotoParts’s ERP system the data is frequently synchronised in an intelligent way in order to list products on eBay.

“Orders that are placed on eBay are extracted and standardised into one format—ready to be processed by our ERP system,” said Shillinglaw.

“It was vital for our eBay sales success to have a solution that could handle two-way integration with our backend systems—paving the way for seamlessly adding more online sales channels, said Shillinglaw. “The CommerceConnect solution and the team at Fusion Factory manage all the intricacies of these integrated processes extremely well.”

“CommerceConnect sits in the middle between our online sales channels and our backend systems and collates the orders from all channels,” said Shillinglaw. “Orders are pushed through to our inventory management system which pushes data through to our warehouse management system then the products are ‘picked and packed’ with the online shipment process fully automated. Inventory feeds are currently pushed through daily, enabling us to always have the correct maximum level of stock online at any one time.”

Business Value Delivered

Building a New Online Sales Business from the Ground-up

  • MotoParts was up and running and selling on eBay within just a few months—a fast time to market.
  • CommerceConnect is a robust commerce solution that doesn’t hit a wall at hundreds of thousands of listings—a solution that will keep up with Parts’s fast growing online business.
  • Fusion Factory’s knowledge and experience in the automotive parts space saved MotoParts significant resource time and IT spend.
  • Listing on eBay with CommerceConnect established a solid foundation, allowing MotoParts to add many additional online sales channels, as they desire— with minimal work.

Achieving a Rapid ROI

Listing on eBay increased total MotoParts revenue by up to 5% within a few months. “We are happy with the results—It’s a great start to moving into new channels,” said Shillinglaw.

The Road Ahead

“Now that we have built a solid foundation with Fusion Factory, we have a fantastic opportunity to go after as many online channels as possible to rapidly increase our sales,” said Shillinglaw.

“We are working with Fusion Factory closely in planning our future online sales strategies and destinations. We are looking to expand into many different online sales channels including our own consumer eCommerce website,” added Shillinglaw.

“Fusion Factory has extensive knowledge and experience building eCommerce solutions for clients in the automotive parts industry. They understand the business processes and data requirements associated with the constant changes in the complex world of automotive parts. A significant deciding factor in choosing Fusion Factory is they can deliver a solution that will scale as our business grows—the sky is the limit. We are looking at hundreds of thousands of SKUs and this is possible with CommerceConnect. We have comfort in knowing that Fusion Factory can support MotoParts business.”

Scott Shillinglaw

Online Director for MotoParts

 

ABOUT FUSION FACTORY

Fusion Factory delivers dynamic data integration solutions ensuring your people, partners and systems all work together – sharing data to achieve business success. Fusion Factory is a proven performer with over 150 clients across Australia. Our client portfolio includes organisations of all sizes – from SMEs through to blue-chip enterprises spanning many industries. To learn more visit www.fusionfactory.com, email info@fusionfactory.com or call +61 2 8026 6800.

Fusion Factory Media Relations Contact:

Jennifer Svanstrom

Jennifer.svanstrom@fusionfactory.com

Phone: +61 2 8026 6814

Mobile: +61 414 699 604

 

HEAD IN THE CLOUDS THE WORLD IN YOUR POCKET

Written by Michael Hazilias at HRMWEB

Cloud computing has been around since the 1950s (when “time-sharing” – which is considered the underlying concept of cloud computing – was used in academia and large corporations) and people have been using it regularly for years, probably without even realising it. Although you wouldn’t think so given the amount of attention it’s been receiving the past year or so.

Michael Hazilias, CEO of HRMWEB and the creator of workforce management cloud solution easyEMPLOYER explains, “All those free services you’ve been using for years to communicate with, save information on, share media with i.e. MySpace, Hotmail, Facebook, YouTube, Dropbox, Flickr, they all utilise the cloud. However, only in recent times have these services had the ‘cloud’ label slapped on them hence the perception that cloud computing is something new”.

Regardless of having been around for years cloud hype has helped make it more understood and created fascination amongst the average consumer. The cloud hype has also brought a touch of sex appeal to a technology that essentially involves computing platforms owned by someone else and available for rent on an as needed basis.

In our two part series we will leave all of the hype behind and look at what cloud computing (also referred to as the cloud) is and the opportunities it brings with it. This week we will start by explaining what cloud computing is.

WHAT IS CLOUD COMPUTING?

In order to understand what the cloud is it’s best to look at the opportunities it offers rather than the way it works, however it’s also good to have an understanding of the basic premise.

In its simplest form cloud computing is the delivery of an IT solution as a service to an end user. The user, whether it be an individual or a business, can store all of their data in the solution and access it via the Internet by using a web browser and their choice of device (like a computer, laptop, phone etc). Users are not required to understand the technology, own, operate or maintain any of the IT infrastructures.

The best examples of cloud computing are often the simplest. Like being able to share your holiday photos with friends by simply uploading them to Flickr or collaborating on documents with others through Google Docs. The cloud really comes into its own when it comes to businesses wanting IT solutions that are cost effective, flexible and fully redundant.

“We use cloud based tools to operate our business and seven years ago we were so confident of its future impact that we built our easyEMPLOYER staff management solution with the cloud in mind. Today our clients are using it to roster, clock and approve hours worked and pay their staff all done in real time, online, and in some cases from half a world away from their place of business.” Michael Hazilias.

So that’s the cloud in a nutshell. Stay tuned for the next article in our cloud computing series where we will talk about all the great opportunities using the cloud brings.

Australian customer service – Why do we get it so wrong?!

We have all been there. Eagerly out on a shopping spree buying our favourite brands, or maybe finally ordering that special piece of furniture that we have been saving up for, or even heading out to try the new cafe that EVERYBODY in the office has been talking about. And with much anticipation you arrive….. But you find yourself instantly deflated by the complete and utter lack of ANY kind of quality of service. It’s a struggle to even get any acknowledgment from staff! So you find yourself standing alone, waiting, wondering why, oh WHY is it so hard to give you people my money!!!

Service levels in Australia are mediocre at best and it is one of the most important challenges we face today. Getting it right is one of the most important keys to success in any consumer facing business.

Why is it so important?

Obviously, poor customer service can destroy a business very quickly, but mediocre service can be just as costly. Providing exceptional customer service can create one of the most valuable marketing tools we have at our disposal – Word of mouth. Bad word of mouth can send a business to the point of failure in the blink of an eye and tarnish it forever in the eyes of the customers. Good word of mouth can propel a business into the dizzying heights of success without breaking a sweat. The problem is that as consumers we are geared to talking about our bad experiences. There is a saying in hospitality and retail – “every customer that has a bad experience tells 20 people while a customer that has a good experience might tell 5”. I believe this rings true in all industries, especially in today’s world of online review sites and forums. Now, more than ever we need to work for that good word of mouth. Your business NEEDS those 5 people to hear about how great you are, so you need to work for it.

The thing that really annoys me is that the people who are running businesses are consumers themselves! They share these same experiences and same frustrations. So, why can’t we get this right?!

How do we get it right?

  1. Hire the right people – It’s that simple. Hire the right people. Hiring people who are naturally geared towards providing exceptional service will get you half way there. You can teach anyone to serve well, but under stress people always revert back to their natural preferences. What you need are employees that revert back to providing excellent service when they are under stress. These people are invaluable to your business- get them on board!!!!
  2. Mix it up – Even the most customer focussed employee will get bored performing the same monotonous tasks day in and day out. So, mix up the shifts. Having staff that are trained in multiple areas not only makes them more valuable to you, it allows you to rotate them through different duties during their shifts, keeping them fresh, focussed and poised for excellence.
  3. Motivate! – This is crucial- you need to find a way to motivate your staff to consistently go above and beyond. This is part of the reason we see such high service levels in other parts of the world. For example the legendary service standards in the US are primarily driven by a tipping culture. Waitresses rely on tips to survive and if they don’t provide exceptional service, they don’t get paid very much at all. While this is an extreme example, it illustrates that with the right incentive, we are all capable of more. If you can find a way to incentivise your staff to go above and beyond, you will undoubtedly see better performance.
  4. Budget for it – Excellent customer service is essential to growing your business in today’s market but it doesn’t come for free. I have seen so many operators get this wrong. They try to run on a skeleton crew even during peak trading periods in the hope of controlling their labour percentages. In fact they would be much better off concentrating on driving top line sales in peak periods and growing their business. I believe labour costs need to be seen less as a cost to your business and more as an investment in the growth of your business. It is an investment that will always pay off and needs to be budgeted for. Create that good word of mouth and the sales will follow!

But more than anything else, I think we need to re-evaluate what it is that we are trying to achieve. Essentially we are trying to find a way to have our customers leave feeling something positive. Exceptional customer service is integral to the success of your business but it’s only a small part of something bigger – your consumer experience. An exceptional consumer experience incorporates exceptional customer service but doesn’t stop there. It starts there and goes way beyond it into the sensory experience of your customers. Getting the lighting and music right can be just as important to your consumers experience as your customer service levels. So, you need to revisit your consumer experience through their eyes. You need to forget what you think you know about your service levels and see it from your consumers’ point of view. You need to see what they see, you need to hear what they hear and you need to feel what they feel when they shop with you.

Herein lies the dichotomy – how can you possibly see the business through their eyes when you work so closely with it? Answer this question and you will discover the key to tackling this issue.

Mike-107

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Integration Case Study – Trebuchet

Trebuchet Innovative Logistic Network Model Delivers Global Wine Company Competitive Advantage with Fusion Factory’s EDI Implementation


The EDI Business Challenge

To launch in Australia, Trebuchet Nordics supported the local team by providing their IP, infrastructure and systems. “In relation to the existing integration, Trebuchet Nordics utilise Microsoft BizTalk, which was one of the options we considered locally for our requirements,” said Anthony Mancini, Technical Business Solution Delivery Manager for Trebuchet. “The way the integration was built in the Nordics with BizTalk— the rules were specific to their market, much of it was done within the integration layer with a large amount of custom-code. On evaluation—to implement the Nordics integration approach would prove too costly to re-engineer and did not provide a standard that our clients could adopt, as well as meet our time to market deadline,” explained Mancini.

For Trebuchet Australia, the answer was to start fresh. “We made the strategic business decision to design an EDI solution more suited for the local market,” said Mancini. We had a very complex integration requirement with many endpoints and process areas. We lacked in-house integration expertise at a technical level and our immediate priority was to source an integration vendor that understood our complex integration needs. The solution had to be cost effective, easy to use and fast to implement. It was a requirement to be able to communicate using standard methods, for example XML and CSV, along with the different connectivity methods such as FTP and AS2. We also wanted to avoid massive infrastructure investments and support requirements that we would then need to manage,” adds Mancini.

Locally, Trebuchet was introduced to the Fusion Factory team through Avanade. “Avanade recommended Fusion Factory to demonstrate their integration expertise and the Flow Integration software—and that’s where our partnership was made,” says Mancini. “We had been working with Avanade for some time as our global MS Dynamics AX partner and we trusted their recommendation and knowledge,” Mancini explains. “Other compelling decision factors for Trebuchet were Fusion Factory’s costs and their ability to demonstrate taking clients to market—fast. Fusion Factory with Flow ticked all the boxes for what we were after. Time was of the essence and we had no time to waste,” added Mancini.

Seamless EDI Solution

“Much of the challenge for Trebuchet was actually around the significant number of message files that needed to be processed and the complexity of the business processes—more than the technical solution itself. There is a lot of logic to deal with particular situations coming in and out of Trebuchet,” said Craig Bennett, CTO for Fusion Factory.

 Trebuchet defined the business processes and Fusion Factory implemented the corresponding message flows that allowed files to seamlessly pass between their clients, and numerous trading partners.

Trebuchet’s ERP system is MS Dynamics AX and is the key interaction point for integration. Fusion Factory configured the logic to translate various XML and flat file formats to the OAGIS format (Open Applications Group Integration Specification), the standard format that Trebuchet has agreed to use and is working with all its trading partners. “The Fusion Factory solution created a seamless integration between Trebuchet’s MS Dynamics AX instance and other parties’ systems, such as 3PL WMS systems, client ERP and partner software including a TMS (Transport Management System from Descartes) and BSM (BuySellMove – a global export & import control tower solution),” added Bennett.

 “The solution, configuration and functionality met all our expectations,” said Mancini. “Our expectation was obviously to have a functioning solution, but also one that met all business requirements in message latency (time it takes for a message to be sent from one party to another), 24×7 stability, audit functionality, search functionality and especially the ability to trace logical groupings of messages—all the functionality within the Flow Integration software.”

Business Benefits for Trebuchet

“Fusion Factory’s superior integration expertise became increasingly evident in the implementation, especially where fast changes were vital to facilitate business processes that weren’t in our initial scope. The Fusion Factory team was always available and ensured any required changes were made in a timely and robust manner,” said Mancini.

One of the most significant benefits to Trebuchet is the ability to track, trace and audit the messages in the business process. “At the integration level we can view the data flows in real-time which allows corrections if required in a very short turnaround time,” Mancini explained.

“An unexpected benefit discovered through the implementation was the monitoring component within Flow, which we use to run checks and balances within our systems to make sure they’re continually up and running without any issues. Previously, we waited for an error to alert us—and then action. Now we actively use the monitoring tool, which highlights to us immediately if there is an issue,” explained Mancini. “An additional benefit with Flow is that we can perform searches, view code and make minor updates without having to engage a Fusion Factory developer, which is a huge benefit to us and saves considerable time and valuable IT spend in development,” said Mancini.

The Total Trebuchet Logistics Network Service Provider Model Delivers a Competitive Advantage

The Trebuchet client benefits are simple yet effective. The message standards that clients use don’t have to be changed when 3PLs switch over. “Our seamless network model allows our clients to take less ownership of significant aspects of their business. Companies do not need to be concerned about changes to any of the systems that Trebuchet connects,” explained Mancini.

Results Achieved Working with Fusion Factory

  • Reduction of Trebuchet in-house resource time and costs by 30% associated with gathering of integration requirements.

 

  • Reduction in manual labour for Trebuchet clients by 30% due to the combination of Fusion Factory and the Trebuchet Solution.

 

  • Reduction across in-house development of configuration rules within MS Dynamics AX and partner systems by 80%. Flow handles the logic when integrating data from one system to another.

 

  • Configuration changes to the integration process are built twice as fast within the Flow Integration software using Fusion Factory expertise compared with a competitor custom-built integration solution.

 

  • Improved automated workflow for Trebuchet business processes working with Flow Integration software by up to 20%, reducing the amount of manual work required to manage the same processes.

 

Mancini also adds, “Whenever we have a scenario where we look at the challenge and how to solve it—our first action is to contact Fusion Factory to make the change—which can generally be completed within a couple of hours. Alternatively, if we had to go back through our clients, partners or vendors to make a change it would be up to a three-day build.”

Ready for the Future

“Any new client, application or trading partner that comes on board, we will deploy the Flow Integration software working with the team at Fusion Factory—it’s our only way to go. Our plan to expand with Fusion Factory will allow us to be less reliant on our clients and partners to provide us with information for testing. As a practical example, right now where we need to test a message going to our warehouse and transport partners we need our clients to key in a dummy order for us. There is functionality within Flow that can produce a message to mimic what our clients would need to send us. This significantly reduces the lead time and a lot of costs for us, as we need to request and a charged for their time,” concludes Mancini.

http://www.dreamstime.com/stock-image-premium-word-green-stamped-grunge-style-wooden-stamp-lying-around-white-background-image29811091

Adapt or Die – Premiumisation

Adapt or Die – Consumers, Premiumisation and why deal-of-the-day coupons will never save your business!

For many years, there has been a common theme to success in all consumer facing sectors- “Premiumisation”. Premiumisation is the one of the most important trends in the last 5 years and has been nothing short of revolutionary. It is a concept that has created successful start-ups, catalysed the reinvention of established brands and is undoubtedly the key to success in today’s market.

What is Premiumisation?

It is essentially the bridge between the desirable luxury world and the function and necessity of the mass market. Premiumisation offers your business an opportunity to connect with aspirational consumers that are looking for every day affordable luxuries. These aspirational consumers are looking for these experiences as a reward to themselves for their hard work and success and are a demographic that is growing at a rapid rate.

Why will it work for your business?

Simple. It generates better revenue and does it in a way that improves your customer’s experience and in doing so generates return business, good word of mouth and improved market share. Why focus on cutting costs to maximise margin percentages (bastardising your brand and devaluing it in the process)? Why not put focus back on generating top line sales first and control you costs second. Improve the quality of the offering and charge more for it. Make your customers feel like they are getting something more and charge them for the privilege. This fundamental shift in the thinking of successful entrepreneurs not only makes sound business sense, it has also had an effect on consumers. Today’s modern consumers no longer want cheap – they want good value. Even if it means they pay a premium and they can afford it less often, today’s consumer wants to feel like they are getting something special. In short, Premiumisation works because it fundamentally changes the value proposition and allows you to create a point of difference other than price.

So, where do the deal-of-the-day websites fit into this revolution?

They don’t. They don’t for two very simple reasons:

  1. As soon as your offering ends up on deal-of-the-day, the value proposition changes. Once you enter the quagmire that is the online budget market, it’s a very ugly place to play. You are now stepping away from communicating with aspirational consumers and are communicating with price driven consumers. To compete in this market you need to be one thing – cheap. Not good value, just cheap. Your point of difference is now irrelevant. So now you need to sell your premium product at a very tight margin in the hope that rate of sales will save the day. But once you factor in the commission on the sale you are left with virtually no dollar margin at all. Inevitably, you are left with a choice – run your deal-of-the day as a loss-leader in the hope that your fickle, price-driven customer will miraculously stop shopping on deal-of-the-day sites and become your best and most loyal customer OR sacrifice the quality of your offering and actually turn a profit from the sale. Poor quality NEVER wins a second sale. So either your offering remains good and unprofitable, or profitable and poor quality.
  2. It doesn’t fix the problem. All too often businesses will turn to deal-of-the-day sites to try and turn the tide on their failing business. It doesn’t matter if you’re trying to increase market share, improve cash-flow, increase rate of sale or entice new customers. These issues are all signs that your business is in trouble. The reason these symptoms exist in the first place is that there is something fundamentally wrong in your business. It may be your offering is missing the mark, it may be your marketing isn’t reaching your target demographic, it may be that you have a cultural problem in the business, maybe your shop is on the wrong street, maybe your pricing structure is wrong, maybe your operations are inefficient. It doesn’t matter what the symptoms are, a deal-of-the-day website will not fix the cause. It is a Band-Aid on a bullet wound solution and more often than not will only make the problem worse in the long run.

If you think you need to use a deal-of-the-day website to save your business – you don’t. You need to ask yourself some difficult questions. You need to work out why your business is failing before it’s too late. If you can’t work out why, you need to find someone who can.