Chairman’s Corner: May 2006

The COO – An Enigma to Many

by Mario Morino, Co-founder of VPP

The concept of Chief Operating Officer (COO) can be difficult to understand and appreciate. “Second in Command, The Misunderstood Role of the Chief Operating Officer,” (Harvard Business Review, May 2006) offers a basis for why.

To me, a Chief Operating Officer is a metaphor for “solid, effective organizational operations and execution” rather than a specific position or responsibility. The HBR article tends to support this view—acknowledging that the function of the COO may be vested in a role with some other title—and illustrates the wide range for how the COO role can be viewed by suggesting seven different archetypes.

While the article is heavily skewed in the semantics and examples of private sector business, much applies or, at least, may give guidance for the COO role in nonprofit organizations. At the end of the article, the author poses a hanging question—Is the role of COO on the rise or decline? Ironically this is the primary conundrum for determining the role. Because there is no one set of responsibilities, commonly accepted definition, or “constants”, management and board must arrive at their own conclusions for what best fits their organization’s COO needs.

Having dealt with the issue of COO roles at various stages of my commercial career, especially in the late 1980s and 1990s, and having direct and indirect experience in helping establish the COO function in a score of nonprofits since 1992, I am strongly convinced that there is a compelling need for the COO function in a certain type and class of nonprofits—but certainly not all. The core of the issue for many nonprofit organizations is even more fundamental than the lack of a single definition—and that is having the experience in the board and executive director to understand what a COO role does and how it can help management and increase operational effectiveness.

This understandable lack of relevant experience on the part of some nonprofit leaders is clearly illustrated by what a Head of School once said when I suggested that a COO-like talent could help their organization: “I’m an educator and don’t have a clue about many of the things I’m now faced with every day—budgets, systems, personnel evaluations, and the like. And I don’t know what you mean when you say COO—what is that, what do they do, how does it change what I do?”

This individual typifies so many remarkable, compelling people who have put their hearts, souls, and sweat equity into building nonprofits that help make a meaningful difference in people’s lives. But, as their organizations grow and add programs and funders, increase the number served, and/or expand to more than one location, they wake up one day managing an organization that looks very different from the one they started, with very different managerial needs. Yes, their leadership, the passion for those served, their conviction to mission are as important as ever—even more so. But, as I long ago learned (the hard way), leadership in the absence of strong operational management rallies those you care for most around an inevitable oncoming implosion.

When contemplating the COO role, it’s important to focus on substance over form. Specifically, the title of COO (the form) is much less important than an organization coming to grips with its need for effective operational management—that is, the management capacity (people, systems, and know-how) that allows an organization to ensure that its “trains run on time” (the substance). And, the colloquialism of the “trains running on time” means that things run effectively and efficiently, within budget, and with the information to know in a timely manner when they are (or aren’t) doing so.

But, an important caveat for good operational management comes from a favorite Druckerism: “It is more important to do the right thing, than to do things right.” I’d prefer a nonprofit producing meaningful, lasting outcomes for children and families that is an operational disaster to one that is “well-managed”, but having only incremental benefit in helping those they serve.

Effective operations must yield improved results. In business, this is measured in profits, market share, low employee turnover, and satisfied clients. Similarly a nonprofit with effective operations must also yield improved results—measured in outcomes that are making a real difference in the lives of the children and families served, but also in “market perception,” staff turnover and retention, secured funding, and how much the community it serves appreciates what it does.

So what defines operational effectiveness? Well-written job descriptions, elaborate policies and procedures, human resource management guidelines and handbooks, expensive software systems, and a score of other things, in all honesty, have little to do with it. These are merely symbols, not the essence of good operations. If you have a clear vision of your work that is commonly shared, if people know what to do, if they care deeply and are well-trained and equipped for their work, if they feel respected and heard, if there is good internal communication, if programs are of high quality, if leaders demonstrate a continual need for the organization and those in it to improve, and if you establish a rigor and integrity in how all of this is managed by using timely, factual information and managerial common sense—then you can have “good operations.”

In our work with Venture Philanthropy Partners, we focus on what we call breakthrough organizations—organizations that have grown, or are growing, in complexity and size, and have reached the point where how they are run day-to-day is of critical importance—and we place a premium on the concept of the COO. But, we don’t (and experience bears this out) always see this manifest itself in establishing a formal position with the title of COO. What is important is that the executive director and board have the objectivity to see how their organization has changed, understand the strengths and limits of the executive director, the management needs, and then bring all of this together to define the need to strengthen operational management to support the executive director and the organization. To date, the VPP investment partners, in aggregate, have made substantial, even remarkable progress in their knowledge, experience, and practical understanding of what it takes to establish the COO function—with or without the title—and how to do it successfully, despite a number of painful and hard lessons, some still ongoing.

The sheer notion of a COO function runs counter to many of the traditional views—and limits—that we impose on great nonprofit leaders and their organizations:

• As nonprofits grow in complexity and/or size, the need for greater operational management is acute, but too often unrecognized and/or unaddressed by management and by boards that shirk their fiduciary roles.
• There is often confusion or misunderstanding of management roles in general, even beyond the COO role, as organizations change—and only time and experience can cure this. And, related to this may be the challenge of how a founder-led organization evolves to institutionalize the organization.
• Donors sometimes have an unrelenting and myopic focus on low overheads and “lean management” which is often counterproductive to achieving the very results everyone wants.

Highly relevant to nonprofits is a point the author notes: “Fundamentally, the role of COO is situational—depends on the nature of the CEO, the business and what it does, needs of the organization, etc., unlike a role of CFO that has much clearer and more common functional description.” And, I believe this is precisely the case for nonprofits and supports why we can’t over-generalize the role or presume to create an effective school or curriculum to train COOs. The article then provides seven reasons for having a COO or COO-like function, which I’ve paraphrased:

• The Executor. One role of the COO is to lead the execution of strategies developed by top management. It is simply a concession to the complexity and scope of the CEO’s job today, with its numerous external constituents. The COO takes responsibility for delivering results on a day-to-day basis, while the CEO is focused on the strategic, long-term challenges and major opportunities.
• The Change Agent. Sometimes the COO is used to lead a specific strategic initiative, such as a turnaround, a major organizational change, or a planned rapid expansion. This requires the COO to have a degree of unquestioned authority similar to that of an executor COO.
• The Mentor. Some organizations use a COO 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.
• The Other Half. A role that complements the CEO’s experience, style, knowledge base, or penchants. For instance, providing a “calm, self-effacing manner.”
• The Partner. Sometimes a CEO simply works better with a partner, a form of co-leadership management.
• The Heir Apparent. Sometimes the role of a COO is to groom—or test—a company’s CEO-elect, and gives the person a chance to learn the whole company, its business, environment, and people. Being identified as a likely heir to the role of CEO is not a guarantee.
• The MVP. Some companies offer the job of COO as a promotion to an executive considered too valuable to lose.

Putting the title aside, establishing a strong and effective COO function is the most important step nonprofits at a certain growth stage can take next to ensuring that their organization has a compelling leader as its executive director and a strong board. For a breakthrough nonprofit, doing so may prove to be the most liberating action it can take, one that enables its Executive Director to be much more effective for greater impact, helps build a more engaged and effective board, and changes the inner workings of an organization to make it a better place for the staff to work and grow.