What Is a Chief Operating Officer (COO)?
The chief operating officer (COO) is a senior executive tasked with overseeing the day-to-day administrative and operational functions of a business. The COO typically reports directly to the chief executive officer (CEO) and is considered to be second in the chain of command.
In some corporations, the COO is known by other terms, such as "executive vice president of operations," "chief operations officer," or "operations director."
Key Takeaways
- The chief operating officer (COO) is a senior executive tasked with overseeing the day-to-day administrative and operational functions of a business.
- The COO typically reports directly to the chief executive officer (CEO) and is considered to be second in the chain of command.
- Depending on the CEO's preference, the COO often handles a company's internal affairs, while the CEO functions as the public face of the company, and thereby handles all outward-facing communication.
- Skills required to be a COO include strong analytical, managerial, communication, and leadership skills.
- There are generally seven different types of COOs that are best suited for different situations and different companies.
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The Role of a Chief Operating Officer (COO)
The COO mainly focuses on executing the company’s business plan, according to the established business model, while the CEO is more concerned with long-term goals and the broader company outlook. In other words, the CEO devises plans, while the COO implements them.
For instance, when a company experiences a drop in market share, the CEO might call for increased quality control, in order to fortify its reputation among customers. In this case, the COO might carry out the CEO's mandate by instructing the human resources department to hire more quality control personnel. The COO may also initiate the rollout of new product lines, and may likewise be responsible for production, research and development, and marketing.
Responsibilities of a COO
A chief operating officer is responsible for the day-to-day operations of a company. Their responsibilities can include:
- Recruitment and hiring
- Financial operations
- Budget development
- Production oversight
- Executing business strategy
Keep in mind that the role of a COO may vary from company to company according to each firm's needs.
Depending on the CEO's preference, the COO often handles a company's internal affairs, while the CEO functions as the public face of the company, and thereby handles all outward-facing communication.
Skill Set
Instead of having one or two skill sets, most successful COOs have multifaceted talents, enabling them to adapt to different tasks and solve a range of issues.
In many cases, a COO is specifically chosen to complement the skill sets of the sitting CEO. In an entrepreneurial situation, the COO often has more practical experience than the founding CEO, who may have come up with an excellent concept, but lacks the start-up know-how to launch a company and manage its early stages of development.
Consequently, COOs often design operations strategies, communicate policies to employees, and help human resources (HR) build out core teams.
Types of COOs
Every company is different and in a different stage of growth. A new company will have very different needs than a company that has been around for 100 years and has a large market share in its industry. Depending on the company, its needs, its cycle stage, and its unique characteristics, the specific type of COO required to help it realize its goals will vary.
There are generally seven types of COOs:
- The executor, who oversees the implementation of company strategies created by senior management and who has the responsibility of delivering results on a day-to-day basis
- The change agent, who spearheads new initiatives and may be in charge of leading specific company turnarounds
- The mentor, who is hired to counsel younger or newer company team members, such as a young CEO
- The most valuable player (MVP), who is promoted internally to ensure they don't defect to a rival company
- The "other half," who is brought in to complement the CEO and who typically has the opposite characteristics and abilities of the CEO
- The partner, who is brought in to co-lead as another version of the CEO
- The heir apparent, who becomes COO to learn from the CEO in order to ultimately assume the CEO position
Qualifications and Skills of a COO
A COO typically has extensiveexperience in the field within which a given company operates. COOs often work for at least 15 years climbing the corporate ladder. This slow build helps prepare COOs for their roles, by letting them cultivate extensive experience in the practices, policies, and procedures of their chosen field.
Also, because they're traditionally responsible for directing multiple departments, COOs must be resourceful problem solvers and must possess strong leadership skills. Educationally, COOs typically hold bachelor's degrees at a minimum, while often also holding Master's in Business Administration (MBA) degrees and other certifications.
How to Become a COO
The path to becoming a COO can be a long one, just like for any C-suite role. It can take many years of learning on the job as well as in school. Others become COO much more quickly, such as by joining a startup or starting a business.
To develop your skills with the aim of becoming a chief operating officer, you'll likely focus on the following steps:
- Get your degree: A bachelor's degree or master's degree in business will provide a foundation for business strategy and operations management.
- Gain varied work experience: Companies that value employee growth and cross-departmental experience are good employers for future COOs.
- Develop leadership experience: Developing your skills as a manager is good preparation for leading an organization.
- Build your network: Your first (or next) COO role could be the result of productive, respectful relationships built inside and outside of your employer.
COO vs. CEO
There are some basic similarities between these two roles. Both CEO and COO are inside directors of a company. They both are tasked with participating in daily management activities to keep the company running smoothly.
The difference between a COO and a CEO starts with the organizational chart: the CEO is at the top of the chain of command, with the COO second in command, reporting to the CEO.
Where the CEO is typically outward-facing, the COO is typically inward-facing, in charge of internal operations and communications. And while the CEO devises business strategy, it is the COO who oversees its implementation.
| CEO | COO |
|---|---|
| Long-term planning | Daily operations |
| Sets strategy and vision | Implements strategy and vision |
| Focused externally | Focused internally |
| Reports to board of directors | Reports to CEO |
Examples of COOs
Ray Lane (Oracle)
Oracle is a technology firm that began in 1977. It sells database software, cloud technology, management systems, and a variety of other products. Oracle had been performing well as a company but then hit a growth cap and couldn't increase annual revenue past $1 billion for a period of time.
In 1992, Larry Ellison, then CEO and now executive chair and chief technology officer (CTO), brought in Ray Lane to turn the company's fortunes around. Lane joined as Senior Vice President and President of Oracle USA. He became COO in 1996.
When Lane came on board, he integrated packaged software and high-margin professional service. In this aspect, he was selling two products in one cycle, increasing revenues from one sale. And according to him, because the people providing the professional service were experts on the product, the company could charge a high price for it, resulting in a high margin.
In 1992, Oracle had sales of $1.8 billion and profits of $61.5 million. In 1997, it had $5.7 billion in sales and profits of $821.5 million.
In 1999, Lane received a salary of $1 million and a $2.25 million bonus. He was also given 1.125 million in stock options, at the time valued between $11.8 million and $30 million.
Mort Topfer (Dell)
The history of Dell Computers is quite famous, with Michael Dell having started the company in his dorm room in 1984. It was the first company to sell personal computers directly to consumers. The company had been performing well until about 1993 when business started to flounder.
The company's stock fell from $49 to $16 and the CFO had resigned. The problems of the company were due to rapid growth that it could just not keep up with. It had a planned launch of notebook computers that was eventually stopped because of poor production planning. At the time, the company didn't know what product lines its profits and losses were coming from. In essence, its operations were a mess.
With the company falling apart, Dell decided to bring on people with experience. He chose people older than him who had the managerial chops to turn things around. The key hire was Mort Topfer. Though he did not have the title of COO (he was vice chair), he did the job of COO and was Dell's mentor and right-hand man.
As of 2023, Dell was the third-largest computer company in the world, with a market share of 16.18%.
When Topfer came onboard he implemented multi-year planning, opened more affordable factories overseas, restructured management, and encouraged Dell to focus on strategy while Topfer would deal with day-to-day operations. The company turned around, becoming a powerhouse.
Topfer joined Dell in 1994 and previously worked at Motorola, heading its land mobile products division. In 2000, his salary at Dell was $700,000 with a bonus of $1.2 million. He also received 290,910 stock options.
What Is the Difference Between a CEO and COO?
A CEO is the top-most ranking person at a firm, responsible for the long-term health and direction of the firm, while a COO is the second-highest individual in the firm, reporting to the CEO and responsible for the day-to-day operations of the firm.
What Does It Take To Be a COO?
COOs have a strong educational background combined with extensive work experience. A strong COO will have worked in a variety of positions, particularly in a specific organization, to understand all of the different parts of a business and how they work together. This allows them to pinpoint specific issues and gaps within the organization. Having experience managing people and teams is also imperative to be a COO. In addition, COOs should be great communicators, strong leaders, and flexible managers.
How Much Money Does a COO Make?
The salary of a COO will vary greatly depending on a variety of factors, including the company they work for, their experience, and their contract. According to PayScale, as of 2023, the average COO salary is $139,156. The base salary ranges from $69,000to $249,000. On top of that, COOs are paid bonuses and profit-sharing plans.
The Bottom Line
A COO is the CEO's right-hand person and the second-highest in command at a firm. The COO is responsible for the day-to-day operations of a firm and for assisting the CEO in a variety of tasks. Not all firms require a COO; however, those that do often benefit from the specific skill set that a COO brings to a company, such as strong analytical, organizational, and communication skills.
