By Jerry Dilettuso
According to CristKolder Associates, a search firm specializing in C-suite searches, the number of Chief Operating Officers is in decline and has been since the year 2000. In that year 47.5 percent of all companies on the Fortune 500 and S&P 500 lists had a COO. By contrast, in July, 2011, the number of companies on these two lists with a COO had declined to 38.3 percent. These numbers reflect my own perspective.
I once joined a struggling company with two operating divisions as its president. Not more than three weeks after my arrival, the head of our most profitable division, who was universally revered by his colleagues, decided to leave for another opportunity. I knew absolutely no one at the company – never mind their strengths and weaknesses; I didn’t even know many of their names. What’s more, we had zero time to conduct a lengthy replacement search, and by “lengthy” I mean more than a couple of weeks.
After some reflection, I consulted with our Chief Financial Officer, who had been with our company for a couple of years and was familiar with all of the company’s executives. I had an idea, but I certainly wanted to discuss it with someone. Simply stated, the proposition was to request the department heads within the division to select their leader. After considerable discussion, my CFO and I agreed that I would meet with the department heads; explain I needed their help, and ask them for a recommendation.
When we met, I said they need not provide an answer during the meeting, but in all of our best interests, they had to move expeditiously. Much to my surprise, one of the department heads asked if they could meet separately and immediately. They returned in a couple of hours. Not only had they chosen a leader, but also they suggested a restructuring that separated the division into two units, named the head of the new division, and suggested the new division head report to me. We implemented their plan exactly as presented and the individual who succeeded the resigning division head is still in that position today.
The point of this story is not the process of choosing a division head; it was my reliance on our CFO for wise counsel, as well as the CFO expanding his purview beyond his traditional role. Here’s another example. We had an invoice that was considered by everyone, including our customers, virtually unintelligible. It, along with other factors, caused a perception that we were not easy to do business with.
Our CFO and I got together and decided he would conduct a series of focus groups with some of our customers to simplify the invoice. Once everyone agreed on its structure, our CFO had to work with our IT department to construct the desired end product. Sure, there were plenty of compromises made during the process, but we ended up with an invoice the customers liked and improved payment time.
Again, the point is not about the invoice; it’s about the CFO taking on responsibilities beyond finance. I want to provide one more example before drawing some conclusions. Many companies compete on “time.” For our company competing on “time” meant reducing cycle time. We defined cycle time as the number of days from the moment a salesperson received an order until the order was placed, in perfect condition, in the hands of the customer.
Consequently, reducing cycle time required that we flowchart the process and take “time” out wherever possible, not just speed the order through the plant. The “front end” of the order consisted of the sales person entering it and finance determining the credit worthiness of the customer. We reduced our guaranteed delivery time from eight weeks to five weeks with a considerable number of days coming from the credit portion of the “front end.”
Our CFO understood that cycle time reduction, a key element in our competitive strategy, required every element involved in the flow to provide a contribution in terms of days. Finance was not sacrosanct; it was merely a piece of the puzzle.
Now, let’s count up the number of functions in which our CFO became involved. The first example involves the most important task of the CEO: who to hire. It is, however, essentially, a human resources task. The second example involves marketing and sales with a corollary benefit to finance. The third example involves strategy and IT. Even more important, the third example involves a realization that finance is an integral part of a value chain that helps determine a company’s unique capabilities, competencies, and competitive advantages. There are additional functions in which our CFO became involved, including manufacturing, merchandising, communications, and legal.
There is a two-fold point to be made here, which is almost circular in nature. The first is: because finance is inexorably intertwined with every aspect of a company, the CEO must, by necessity, rely upon the CFO for perspective on every major decision made . . . and some minor ones as well. The second is: because the CFO must be consulted on a wide variety of issues relating to every division and function in the organization, the CFO must be able to think broadly. After all, what I am describing here is the principal confidant or counselor to the CEO.
The CFO cannot just report numbers, rather, the CFO must be able to interpret the numbers. The CFO must possess that unique ability to get “behind the numbers,” and get out of the office, walk the corridors and shop floor, forge relationships with divisional and departmental people, and understand their issues – not only to provide wise counsel to the CEO but also to assist the divisions and functions in the resolution of their issues.
I have never liked the term “number two,” as it suggests there must be a number one, which, in turn, leads to some sort of pecking order. I’ve always fostered a team approach where everyone is important and no one worries about who is more important than anyone else. If, however, we use influence as a measure of importance, I would suggest that, by default, a CEO’s CFO must have primary influence so long as that CFO is equipped to do so. I would also suggest that smaller companies cannot afford the additional highly paid position of COO. Finally, I believe there is too much redundancy in the COO/CFO positions to merit the additional COO head-count.
Mr. Dilettuso is a CEO adept at reversing distressed situations. He is a member of the faculty of the Business Leadership Center at the Cox School of Business at Southern Methodist University where he teaches a seminar entitled “The Five Roles of the Chief Executive Officer.” He may be reached in Dallas at firstname.lastname@example.org and 972-569-7848.
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