Tag Archives: Retail

Don’t Ignore the Brutal Facts!

Never ignore the brutal facts surrounding your organisation

How do you usually react when one of your team tells you that they think there’s something wrong with your business? Are you the type of leader with a tendency to react badly to criticism? Or the type who wouldn’t think twice about brushing off your staff member? If you answered yes – then quite frankly, you’re a bloody idiot.

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Your employee could be right, and you should want to know about any issues that reflect badly on your company. After all, you aren’t always going to know everything. You need to face the brutal facts, instead of ignoring or brushing off the people who try and help improve your business.

The Harvard Business Review presents a good case study in which the COO of 1-800-GOT-JUNK? ignored the advice of his VP of Finance who was cautioning their growth, because the VP was a quiet man and seen as “meek”. As a result, the CEO and COO ignored his warnings, the company expanded too quickly and eventually ran out of cash.

In Good to Great, Jim Collins suggests that successful organisations are built on an open communication culture. I’ve shared the four key ways to confront the facts of your current reality and determine corrective action without being confrontational.

  1. Lead by asking questions

It is impossible to make great decisions and change when you only push your thoughts and ideas on to others. If you want to be respected as a leader, you must encourage open and effective communication by asking probing questions at the right time. Show your team that you care about their opinion and throw questions at them that require careful thought and focus. The aim is to get honest answers that may highlight any obstacles and problems with your company.

That said, nothing positive can come from someone who is unwilling to listen to answers they do not want to hear. Remember, most of your workers will be nervous about speaking up and sharing the brutal facts with you. Regardless of your opinion, you must work collaboratively as a team and concentrate on where you need to be rather than what got you to where you are now.

  1. Create an environment where honesty is valued

Being heard is very different from being confident enough to say what you think. Every person that works for you should be comfortable to share their honest thoughts – which is why you need to encourage healthy debates. I’m not talking about arguments and differences of opinions that will put your team in a bad mood.

Just because you’re a manager, it doesn’t give you licence to boss people around. Your job is to demonstrate control when confronted with the brutal facts and guide your workers in a productive environment where conclusions can be reached – and you can all move on. Nothing shows authority more than motivating your people to engage in debate and dialogue without coercion.

  1. Investigate problems without pointing the finger

When things go wrong, most managers like to assign blame to protect themselves from being seen as a failure. Pointing the finger and embarrassing others is why these people will never become great leaders. No one can expect to honestly learn from blunders and avoid repeating the same mistakes when they are in denial about how they came about in the first place.

In the words of Dale Carnegie – “Discouragement and failure are two of the surest stepping stones to success.” Whatever the situation, take responsibility for mistakes, analyse failures, and learn from them to ensure success further on down the road. One of the most effective ways to deal with a problem is to openly discuss with your team and decide, together, what needs to happen next.

  1. Create invaluable mechanisms

The greatest thing about creating an environment that allows colleagues to communicate problems without repercussions is finding out metrics and facts that can’t be ignored. Did you know that 54% of employees feel like they don’t regularly get respect from their employers? When you invite all the members of your organisation to raise a red flag when something is about to go wrong, it makes everyone feel valued and respected – and helps you identify potential stumbling blocks.

It’s crucial for every member of your group to feel like they are part of a team and can contribute to solutions – and never want to give up. When you know what you’re fighting, you can stand up to it and take action. Whatever the truth, you can still retain faith in your ability to succeed and have the edge over your competitors when you embrace a climate that energises people to communicate.

Do Australian retailers practice great leadership?

Written by Mike Holtzer for Inside Retail

Do Australian retailers practice great leadership? By ‘great leadership’, I’m referring to the concepts from one of my favourite books, Good To Great by US business consultant and lecturer, Jim Collins. Collins describes a level five leader as, “Self-effacing, quiet, reserved, even shy – these leaders are a paradoxical blend of personal humility and professional will”.

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This says a lot in a few words, but using this definition of a great leader, I don’t believe there are currently many great leaders in retail in Australia.

In addition to the various other stages of taking a good company and making it great, Collins defines what level five leadership is and why it is so important. He uses detailed in-depth analysis of companies that transformed from ‘good’ to ‘great’ over a 15-year period. The list of companies analysed is very impressive.

A level five leader never lets their ego get in the way of successfully transforming a business. They put the long-term success of the business ahead of their own achievement. A proper leader makes decisions that benefit the long-term transformation of the company, instead of short-term decisions that have a short-lived benefit and the glory that goes with it. This can be an issue with Australian retail leaders that is sometimes exacerbated by private equity firms and public companies.

The mirror/window notion is a key concept for level five leaders. They look in the mirror, at themselves, when something goes wrong and blame themselves. When things go right, they look out the window and credit other people for the success. They do not crave the attention and the celebrity status of success.

Often times, people outside the company or industry don’t even know their names. Think of the most successful companies and see if their leaders are front and centre, or if they put the company front and centre. Look at some of the troubled or failed retailers and see if there was finger pointing at who was at fault.

The willingness to set up a proper succession plan and understanding when the business would be better served by a successor is an important aspect of a great leader. The best ones don’t care that they get credit for the success; whereas lesser leaders actually take pride in the fact that the company would fall apart without them.

Level four leaders are effective leaders who push towards a clear and convincing vision, but they lack the humility needed to achieve true greatness. Their egos get in the way of transforming a business. They typically have short-term success and even some great transformation triumphs, but fail to transform companies in the long run. Think Al Dunlap (Scott Paper) and Lee Iacocca (Chrysler). Collins’ Good To Great outlines many examples of these types of leaders.

There are five levels of leader in all. A level five leader is a combination of all of the levels. With stoic resolve, they do whatever it takes to make a company great. As an apt description, a level five leader is referred to as a ‘plough horse’ and a level four leader a ‘show pony’.

It is no small irony that the determination and motivation that gets people into positions of authority often conflicts with the modesty that is required to be a great leader. Many business owners and boards mistakenly believe that they need a CEO who is larger than life.

You will find a potential level five leader where you find extraordinary results and no person is singled out taking all of the glory. As former US President, Harry S. Truman, put it, “You can accomplish anything in life, provided that you do not mind who gets the credit”.

A level five leader has a blend of personal humility and professional will, where they channel ambition into the organisation, not the self. They are not high flyers or larger than life. They look in the mirror when something goes wrong and look out the window when giving credit.

Now, based on this definition, do we have great leaders in retail in Australia?

 

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).

Are you doing enough to increase your e-commerce sales?

Do you know the drivers in your online numbers? Do you know the costs?

It has been early days, but we have been getting some good data. We will be analysing this in the April newsletter
(click here to sign up) but here is some early data.

60% of respondents get a conversion rate of less than 2% – Do you understand why you are not achieving better?

Average % of e-commerce to total sales7% – this survey is heavily weighted towards Australian retailers. When more international retailers respond, this will rise.

Average spend per picture$11 – If you spend more than this you will want to look at why

Average Bounce rate from a PC24% – Are you higher than this?

72% of businesses run a separate P&L for e-commerce – Do you?

Please help make this even better by taking the survey. Answer whatever you can. You don’t need to answer everything. The more data I get, the more meaningful the results.

Are there other questions you would like the answers to? Let me know.

Simplify Chaos


In the world of rapidly changing retail/wholesale landscape, critical projects can make or break a retail business. After working 25+ years internationally in the retail industry, I understand the pain that a botched project can cause. It can disrupt and restrain a business that is otherwise sound, as well as mask further issues within the business.

I have made a career of fixing issues within retail/wholesale businesses and have practical methods to ensure that projects get resolved, one way or another, allowing you to get back to focusing on your core business.  I typically work with retailers that have 20 to 300 stores and I possess the unique ability to cut through the turmoil of a project that has fallen off the rails and get it resolved quickly. I SIMPLIFY CHAOS. Whether it is a bungled software upgrade, a difficult transition to a new warehouse / office, a merchandise planning plan that has not achieved the desired result or an under-performing division that needs to be “dealt with”. After a proper assessment, I will sort it out by getting it back on track, starting over or putting it out of its misery.

What to do / How to do it

Consultants come in all shapes, sizes, expertise and prices. Most will tell you what you need to do; few will tell you how to do it.

From time to time businesses need the help or the perspective of someone from outside the organisation. On a specific project you may decide to use a consultant from a broader background who works with clients from different industries.

These people can offer you an outside perspective of your business and how it compares to other businesses in other industries. They bring in knowledge from a broad range of backgrounds, industries and perspectives. Bringing in knowledge and expertise from outside your industry can be useful in differentiating your business and creating competitive advantage.

However, if you want someone who can help drive real change and improvement then you need someone who has a substantial background in your industry with a thorough understanding of the relevant business processes.

  • These consultants might not wear blue suits, white shirts and red ties.
  • They probably won’t give you a big glossy report which you can show off to the board and other executives.
  • They will not give you template based, out-of-the box solutions. After all, every company in the real world is unique and as its own way of doing things.
  • They will, however, tell you the truth.

These guys have worked in and held senior positions in the industry you are in. They have decided to go out on their own to become a consultant. So typically they are independent or work in smaller specialist firms.

They are hands on doers, who get things done. They offer greater value for money.

Consultants from the large firms are typically from within the consulting industry, not your industry. They lack hands on real life experience.

These consultants have their place. They can give credibility to a project that you are pitching up the chain. You will get beautiful reports with graphs and pictures. You will get a large amount of junior consultants that they can throw at a project.

They can help you to a certain extent on what you need to do. They will not help you on how to do it.

To elaborate on the “What to do / How to do it” comment above let’s look at the retail industry.

Examples of What to do:

  • Reduce your inventory to help the balance sheet
  • Put a new POS / ERP system in
  • Expand internationally
  • Sell a division
  • Put in better controls

Examples of How to do it: (using example one above)

  • Create a proper product hierarchy that allows merchandise planners to control OTB and product mix
  • Implement xxx merchandise planning system
  • Open an outlet
  • Sell obsolete / slow moving stock to xxx
  • Reduce the price of slow moving stock earlier in the season
  • Ensure you are getting up to date relevant information as soon as possible
  • Reduce your skus
  • Evaluate your range

Each of these items needs to be specific to your business. Anybody can tell you “you need to reduce your inventory”, few will be able to give you specific areas of how to reduce your inventory.

The consultant you employ not only needs to be able to cater for the unique needs of your business they need to understand the risk factors associated with particular actions. A consultant with a general background will not have a sound appreciation of where things can and do go wrong, because they do not have the industry background and experience.

I want it here and I want it now!

I want it here and I want it now!


If customers can’t buy what they want from you because it’s out of stock they will go to a competitor who has it. That’s not just one sale lost but potentially many sales over the life time of that customer. And with so much online, you’re competitor may be just a single mouse click away.

Holding stock or inventory is a very expensive business, particularly where the goods are of high value. On the other hand not having enough stock available for customers means lost sales and revenue. The ability to keep inventory at a minimum where stock arrives just as its needed is a careful balancing act.

To prevent the costs associated with over-stocking or under-stocking, distributors and retailers are making greater use of BI (Business Intelligence) and analytic tools for forecasting and inventory management. With these tools they can analyse data and information from across the supply chain and internal operations. This insight into their data allows them to:

•    Conduct detailed, in-depth analysis of historical data and sales transactions to better calculate demand.

•    Accurately track inventory throughout the entire supply chain. Compare current stocking position with short and long-term trends.

•    To better monitor sales by product, geography and customer to better understand the factors that influence sales.

The more insight a company can gain into its business, its supply-chain and its customers the more unlikely they are to over or under-stock.

The costs associated with over or under stocking

If a business holds too much buffer stock (stock held in reserve) or overestimates the level of demand for its products, then it will overstock. Stock that isn’t moving will accumulate on shelves and occupy more and more warehouse space. The longer it sits there the more it will cost.

Aside from general storage costs for maintaining the space other costs can include:

•    Increased insurance and security required to ensure the stock is protected from theft and fire.

•    Stock may become faded, tattered and ‘shopworn’.

•    The risk that the stock will become obsolete as it sits there.

The cost of carrying inventory will vary from company to company. If a company has a large cash balance, has excess space for storage, and its products have a low probability for deterioration or obsolescence, the company’s holding or carrying costs are very low. A company with a large amount of debt, little space, and products subject to deterioration will have very high holding costs.

The costs associated with over stocking can have a dramatic impact on cash flow which may mean you can’t afford to restock with items and products that do sell. Restricted cash flow means the business can’t expand or respond to current trends in the market.

On the other hand, understocking can also be very costly.

Not having sufficient stock on hand means lost sales. Your customers may go to a competitor who has stock of what they want. Or to meet the demand may mean shipping things in at the last minute at extra costs and having staff work over time to process the orders.

How business Intelligence and data analytics improves inventory management

Your sales and inventory systems may contain a wealth of data. Collated into a central repository and analysed in the right way, it can reveal tremendous insight about your supply chain and sales performance. This insight can prevent an over-stocking or under-stocking situation from occurring.

Business intelligence allows you to improve the accuracy of operational forecasts. Bringing together stock and inventory data with sales information you can identify potential out-of-stock situations.

It will identify where stock needs to be increased to prevent lost sales. If you have a good idea of expected demand then you know how much you will need to order and how much buffer stock you need to have on hand.

Stock-outs can be reduced or eliminated. The ability to forecast future demand depends on having sound data and analysis on current and previous sales. If target and buffer stocks are too high relative to current sales trends, they can be reduced and the inventory repositioned in the supply chain.

A BI solution is crucial for optimising inventory management and accurate demand forecasting. . By extracting information from disparate systems into a centralised repository retailers and distributors can report on metrics related to their supply chain, sales, production and internal operations. In the long run make better, fact-based business decisions

Using BI for supply-chain optimisation reduces the need for buffer stock to avoid service interruptions, increased asset liquidity and easier access to available working capital. Retailers and distributors can reduce the need for buffer stock if they can identify bottlenecks in their delivery system and reduce lead times for movement to the sales floor.

Business intelligence can quickly identify products that should be discontinued or marked down and assess the most profitable way to sell through poor performing merchandise. The ability to react quickly to issues at an item level can avoid an over-supply of non-productive and unprofitable stock.

Why Phocas?

Phocas is a reporting and analytics solution that allows structured and unstructured data from a variety of sources to be extracted and centralised so accurate, timely yet comprehensive sales and inventory data is available in an easy to understand format.

It’s capability to extract data from any source easily, and present that data in a very user friendly manner, means you can:

•    Track and analyse costs associated with over or under-stocking.

•    Identify potential stock-outs

•    Analyse sales data to forecast demand

•    Match inventory and stock position against sales trends

The ability to drill-down and reveal the underlying issues behind the trends is another strong feature of Phocas. With this capability you can:

•    Identify and remove bottlenecks in the supply chain to ensure faster, more accurate and reliable deliveries.

•    Improve management of stock levels and resupply.

•    Increase manufacturing, distribution and supply chain efficiency

In essence Phocas gives you an accurate and holistic view of what’s happening with your business.

Your business is unique – just like all businesses

http://www.dreamstime.com/royalty-free-stock-images-diagram-knowledge-design-information-related-to-world-image30410529

Everybody thinks that their business is unique and needs different processes and reports than anyone else. I have worked for many businesses around the world, both internally and as a consultant, and each one claims to have a special need for a unique process, report or KPI. Retail is retail is retail!! Too many businesses try to get the fancy fluffy things done when the fundamentals are all wrong.

Get the basic done first. Almost every troubled business I have dealt with had fancy reports and KPI’s when I went in. The trouble was they didn’t understand where the data was coming from or it was simply wrong. If the fundamentals are wrong, it doesn’t matter what you build on top – it is still wrong. No graph, chart or excel spreadsheet will fix it.

Most processes that are built into technology have evolved through many years of research and trial and error. I would always recommend using the “vanilla” version of new technology before adding unique customisations that only your business uses. Because of this, make sure that you are choosing the technology that is most closely aligned with your business.

The horror stories that you hear about implementing new systems – whether it is cost overruns, delays or simply doesn’t work – almost always revolve around customisations, new development or resistance to changes in process. Not to mention that customisations cause added expense or unwillingness to upgrade; therefore, many clients don’t perform needed upgrades and lose out on improvements in the system.

Bottom line – retail is not that complex – people make it harder than it needs to be!

Use Technology as an accelerator, not a strategy.

Mike-107