When you're running a company, it can be challenging to know precisely when to add managerial roles.
A Chief Executive Officer, or CEO for short, is a function that needs to be added as soon as operations get off the ground.
However, when do you add other C-suite positions, such as a COO (Chief Operating Officer)? To help you make this difficult decision, It might be helpful to discuss the roles of CEO and COO and the differences.
What Is a CEO?
A CEO is the highest-ranking executive in an enterprise. They formulate business goals and make strategic decisions such as expanding into a new market or developing a new product.
The CEO title is the most powerful and sought-after role in the business universe and more influential than any other. A CEO at a publicly-traded enterprise typically answers to the board of directors and works to maximize shareholder investment.
Good CEOs have an exceptional ability to boldly set a direction for their company. That way, they have a plan in the face of uncertainty, inspiring confidence in shareholders, investors, and employees.
CEO role and responsibilities
The CEO sets the direction for the company
The CEO is the architect of a company's vision. They decide where the enterprise will be in the next five, ten, and 15 years by taking on this responsibility.
They do this by considering the board of directors, investors, and other stakeholders' expectations for them. Also factoring into these decisions is the company's mission, having a clear understanding of how the business generates value and opportunities and trends in the marketplace.
While most CEOs seek insight from consultants and other senior executives on challenging business problems, the CEO is typically the one who has the power to make the final decision.
The CEO represents the company publicly
A CEO is also the public face of a company. It's held responsible by the board of directors, employees, and other stakeholders for the business's ultimate success or failure. A CEO should have exceptional communication skills. That's because there's a lot of critical information to convey in the role. This includes connecting with direct reports in one-on-one sessions, discussing strategy with other members of the C-suite, talking with media representatives, and sharing company details with large groups of shareholders, employees, and customers.
Other responsibilities of the CEO
The CEO of smaller enterprises often directly manages operations. On the other hand, CEOs of bigger companies delegate tasks to department heads so they can focus on making big decisions and develop high-level corporate strategies.
However, the CEO's responsibilities vary widely according to company size, type of industry, and board of directors' preferences. Other duties of a CEO may include:
- Developing and setting strategic goals that are measurable and attainable
- Maintaining excellent relationships with the board of directors, investors, and other stakeholders
- Staying up-to-date with expansion opportunities, competitive threats, and technological advances in the industry
- Monitoring and assessing risks
- Participating in industry-related events to boost leadership skills, build the company's reputation and strengthen the company's brand
What kind of education does a CEO need to have?
CEOs typically have a business-related degree, often an MBA.
However, educational backgrounds for CEOs can vary by industry. For example, a CEO of a hospital may have an advanced degree in medicine or healthcare administration. Some technology CEOs have programming or engineering backgrounds.
How much does a CEO make?
As of October 2021, the average CEO salary in the US is $779,000.
However, the range typically falls between $588,700 and $1,003,800.
What's a COO?
A COO is the second in command in most organizations.
COOs oversees all corporate operations and ensure that every team member works towards achieving business goals in a cohesive and unified way.
One fundamental responsibility of a COO is taking the CEO's vision and operationalizing it into an executable business plan. While the COO follows the CEO's directives, they are given some latitude to make their own decisions on carrying out the strategy.
Other responsibilities of a COO might include:
- Coordinating budgeting and financial planning with department heads
- Partnering with the CFO to ensure the company's expenditures remain within budgetary constraints
- Developing corporate policies that promote a vibrant company culture
- Helping to ensure that productivity remains at high levels
- Assessing performance through data interpretation
- Developing business metrics to achieve the company's vision
- Actively participating in expansion activities such as investments, acquisitions, and business negotiations
Smaller enterprises typically don't have a COO.
In these kinds of companies, the CEO is often the company founder. As an enterprise becomes bigger, they might hire a COO to take over their now sprawling operations.
A 2018 study by Crist Kolder found that approximately 40% of CEOs had previously worked as a COO or company president. This makes sense because as the second in command, COOs are typically next in line for the CEO role.
Do I need a COO for my startup?
Startups usually don't need a COO.
That's because, in the early days of a company, a CEO will often be hyper-focused on the daily operations and strategy of an enterprise to ensure its success. This is the company's most critical period, and a founder CEO needs to be as hands-on as possible with the operational details of their organization.
What it comes down to is when a startup consists of two or three individuals working out of a garage, a COO isn't necessary. However, once it scales to 50 or 100 and operations become overwhelmingly complex, it might be time to add one.
What kind of education does a COO need?
A COO typically has a Bachelor of Arts (BA) or Bachelor of Science (BS) in Business Administration or Business Operations. Many of them also have an MBA degree, with a strong background in subjects like accounting, information systems, management, and economics.
How much does a COO make?
As of October 2021, the average COO salary in the United States is $454,500. However, the range typically falls between $353,500 and $589,100.
Who's higher up in the hierarchy––CEO or COO?
The CEO is higher because it's the top-ranking role in an organization. However, the COO typically falls just below the CEO in terms of organizational hierarchy.
What's the difference between the CEO and COO?
An excellent way to describe the difference between CEO and COO is that CEOs are in charge of where the enterprise is going, while COOs are responsible for how it gets there.
Here are some other differences:
- The CEO reports to the board of directors, while the COO reports to the CEO.
- The CEO's primary responsibility is setting a compelling vision for the entire organization. The COO operationalizes this vision into a nuts and bolts plan.
- A CEO is required in even small companies, while a COO is usually only found in big enterprises.
- The focus of a CEO is external, acting as a liaison between the company's employees and its investors, partners, or shareholders. The focus of a COO is internal, handling routine operations for a company. They work closely with department managers and other team members to ensure operational efficiency is maintained.
- The CEO leads the entire organization and has the final say over all corporate decisions. The COO serves as an advisor to the CEO and is typically second in command.
How are the roles of CEOs and COOs changing?
These days, CEOs of large conglomerates are no longer utilitarian workhorses who get down into the weeds to ensure their enterprises run like well-oiled machines.
Instead, many of them have become charismatic brand ambassadors with a flair for the dramatic.
They might travel the world to communicate their powerful corporate vision and how it will fundamentally alter the business landscape. CEOs do this at industry conferences, network news stations, and other venues and events.
In short, they often spend more time articulating what the company's brand stands for than attending to the nuts and bolts of organizational details. Now, more than ever, they lean on their COOs to take care of these details by being the operational backbones of their enterprises.
While this has always been in the COO's job description, they're more directly involved in running their companies than ever.
This expansion of the COO's role has fueled the meteoric rise of famous COOs like Joe Ianniello from CBS, who leveraged his enhanced role as COO to become CEO.
It can also be seen in other prominent COOs like Starbuck's Rosalind Brewer and Facebook's Sheryl Sandberg. They take a more active role in the running of their respective companies than is traditionally the case.
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