The COO Decade: Why Operations Leaders Own AI's Future

I'm Kevin O'Mara and this is zero one hundred, the unboring supply chain podcast. No matter where you look, CEOs are making grand promises about AI to their boards and investors. And 83% of COOs are sitting in the room thinking, "Yeah, that's not happening on your timeline." But don't mistake them for cynics. COOs do actually believe in AI. They just know what it'll actually take to execute, which is precisely why the COO is about to become the most important person in the C-suite. We just wrapped a major research study serving 100 COOs and SVPs of operations from billion dollar companies. And what we found might surprise both the AI evangelists and the skeptics. AI stocks are driving markets to all time highs. PE multiples are approaching dot com bubble levels. But who's actually going to deliver the results? I'm joined by my co-author, Lauren Acoba, VP of Research and Advisory Services to break down why COOs own the next decade and how they're thinking about AI implementation and what this means for the future of operations. Lauren, I am very excited for this conversation. I'm also excited, Kevin. So Lauren, you and I have been debating the role of the COO for years, whether it's even a well-defined job, something we saw last summer, we started digging into this in some more tailed kind of ambiguous. But whether this matters even more in the age of digital transformation and this research has given us what I think it was some pretty definitive answers. Where do you want to start on this? I think exactly where you said, Kevin, let's start with the big claim that we're making that the COO we're saying is suddenly the most important person in the C suite for AI, not the CIO, not the Chief Digital Officer of the COO, and why? What did you see in the data that made you so confident about this being the decade of the COO? Two things. One was the AI realism. Additive to the COO is, yeah, this is definitely relevant. In fact, it's hot. It's a game changer. That's the number one answer, and we ask you, it's a game changer. It's worth looking into. 80% say it's a game changer. However, they are highly likely to say someone's overselling this. So they're realists. They're also focusing exclusively on a small number of workflows. We think that they may be probably between 25 and 50% of all workflows being changed. That's the normal expectation. They're not really looking at it's solving world. They're looking at it solving something. And yet, they are also, in addition to being realistic about AI as a potential transformative tech, more in control of the end to end operation than anyone else. Everybody else has either a silo job or if you're a cross company, like a CIO or CFO, you've got responsibilities that are less tied to the physical operations, less tied to the people, the machinery, the trucks, the product itself. So it's that end to end this plus that AI realism that makes me feel like I think they get it and really are the key to success. It resonates for me too and actually makes me think about something you said yesterday. We had a huddle with about 14 COOs from our community this week. And you mentioned at the top half of the call that in some ways, investors, boards, CEOs, almost make it feel like AI is this magic pill, if you will, is one attendee described. These COOs are absolutely realists and in so many ways they are connected both to the demand side of the loop, regenerating materials, data, insights, and renewing customers back to the brand. So of course, there's this massive opportunity with artificial intelligence in demand generation and growth. And at the same time, they squarely own the physical operations, the physical investments in the infrastructure, the supply side fulfillment that's required to meet and fulfill that demand side generation. So it's absolutely the era of the COO. One thing that didn't come up yesterday on the huddle with the COOs, but did come up in the last year more than once is that six technologies discussion that we had with Jim Rowan last summer. And that is about the creeping of technology into the product. You just talked about physicality of what a COO's role is about. It's not the brand, it's not the message, it's not the finance, it is actually the delivery. And as more and more product becomes either digital in the first place, the actual product itself, a home appliances, obviously consumer electronics vehicles, capital goods, but that and product that's associated with a service stream that is digital. You end up with the value of any technology, in particular AI, reaching not just how we manage the business, but what is in the business, what we actually offer for the product. So I think that those components really add up to a COO owning the physical side of what a business offers, being a critical sort of sanity check for whether AI is going to do us a good in these cases. I think there's a really unique structural problem here as well, Kevin, and we talked about this yesterday. Our data shows COOs on the supply side, squarely, 68% on logistics, 65% on sourcing, yet only 13% directly on customer renewal. So that right side, that demand side loop. So Kevin, if the future is subscription models, lifetime value, which we both believe it is, isn't that a fundamental mismatch? How do we reconcile the fact that the COO drives closed loop value creation when they don't own the customer relationship? Yeah, and this came up yesterday on the call, and I think it comes up a lot. We looked at pioneers of this emerging model when we did this body of research, now people like Amazon, Sheen, BYD, I would add Cummins. These organizations are using tech as an enabler of the business all the way through the closed loop. In other words, Amazon doesn't necessarily make a ton of money every time they ship a box to my door. Amazon makes money by having me hooked in for a long run, and the way that Amazon's digital performance in the face of the customer's shopping decision works, you've got to just locked in in a way where renewability of an Amazon prime customer is incredibly high. And that feeds value to the business that is outside of just operations. So operations has to deliver, but that customer cell customer using the product and customer renewing their relationship is as much a part of the enterprise value of Amazon as the original sale. In fact, really more so when you look at the way investors value stocks, if somebody like Cummins or a John Deere, BYD, similar examples, you don't just make your money selling the equipment. You make your money servicing the equipment. You make your money taking care of the equipment. So that long loop includes cell user new operations has to have a bigger role in that. And I think that structural point you make is relevant. There's a lot of dotted line responsibility for selling and for customer service rolling up into the COO. But that means negotiating with commercial teams or with the account management structures of these. And that makes it a little trickier to make full use of the tech. So that's a gap that needs to be closed. And we know these planners have built their operating models around this flow that you're speaking of all the way from the sale of the product to customer and used to renewing the customer back to the brand. So it's not just the functional discipline or capability of planning or fulfillment or customer service. That's the tightly coupled nature of these end to end processes that they've re-engineered their enterprise operating model around. So the AI or agenticae doesn't just optimize a step. It's ultimately reshaping how value is delivered to the customer, which digital manufacturers are still optimizing plants or nodes or pieces of the process. Yeah, exactly. I mean, I think this is the big shift that's happening at a macro business level, which is a challenge for the C-suite. And therefore, we talk about the COO owning more of this closed loop. This shift from a push supply chain, just make it cost effectively, make it in huge volumes, source from China, whatever it takes. And by the way, at the end of life, we just throw it away. That's kind of on its way how this renewable model, we skipped over, she and part of the reason she is successful is that renewable model flows so much more quickly than anybody else's time from a concept to item available for sale is days and the volume of variety is massive. That's a different way of thinking about value. What it says to me, among other things, is the COO sees this happening, bends all of their time focusing on, and we dug into some of the data, I'll let you expose some of those nugget, but spend their time executing against the business model, which still in a lot of organizations is the old push business model in effect. So they're working on execution and performance management, a whole lot of collaboration and orchestration trying to make deals across the leads and commercial teams and R&D teams who have often quite a bit of autonomy. And yet they could do so much more with the data that's beginning to infuse the management opportunities in these processes. So they're working hard on the execution performance management, but they could do more is what appears in this data. So let's talk about how COOs actually spend their time because this was one of my favorite findings. Right now, as you said, they're spending 27% of their time on execution and performance management, which makes sense. That's the job that's historically been primarily the role of the COO. But when we ask them how they'd like to spend their time in an ideal world, execution dropped to 18%. So nearly cut in half, an inspiration and vision, interestingly enough, jumped to 23%. And from your point of view, what does that tell you? Should CEOs be worried that their COO wants a bigger seat at the strategy table? COO should be relieved that COOs not only want that, but are prepared to come in with knowledge that you've got. You don't necessarily have as the CEO. Think about the CEO's job. It's pretty straightforward. You are the chief executive. You are in charge. You are the communication vehicle to investors, to credit customers, to the public at large, to governments, which increasingly matters. And your job is really setting direction and then communicating that direction at a very high level. Once you start to execute that strategy, you turn it into mechanisms. You turn that strategy into a series of bets. I'm betting on this type of manufacturing, this type of product development process, this type of go-to-market model. And those are operations. Now you're in the world of operations. And whether it's the COO or not, and we would argue you're better off putting this entire loop in the hands of a COO, you'll see whether your strategy is delivering what you hope by looking at how the machine actually works. And what the ops leaders are saying in this data is we're spending a ton of our time just making sure that what we promise we would do. And we're spending a lot less of our time than we would like bringing back to you strategic suggestions about how the machine might work slightly better. In other words, ops knows how to turn strategy into tactics and tactics into results. And if it's not working, what you've got to do is go back to the strategy and ask yourself, maybe I need to make a change. So looking for a larger role in strategy formulation and innovation and vision, which is what the COO say. They're prepared to do if we can free up their time from just day-to-day execution. That's going to let you turn the innovation crank faster at a strategic level for a business. And that's going to be essential for CEOs to do what their main job is just to increase shareholder value. So I think they should be thrilled, frankly. You know, related to that, when we talk about the time thing, that is another sign that the COOs, they're doing a wonderful job keeping the ship running the trains on time. But what they're missing is time to focus on the customer. They have, I think their second highest KPI after-cost containment is customer service levels. And yet, when we ask them how they spend their time, one of the choices we gave them was customer obsession, it came in last of everything they were doing. When we give them the in-and-ideal world question, which is how we saw their desire to get away from just executing and start contributing to strategy, we saw this big jump in customer obsession from bottom of the list of things they spend their time on, to fourth on the list, from, I think, 8% of their time allocation to over 10%. And I think the bottom line there is, you've got this operating role that's supposed to drive the value of the business through the strategy that's coming from the top. A key piece of that is, can you really engage with the customer and give them what you're promising? If you're not spending any time on customer sessions, the COO or not spending enough time, you're really missing the chance to connect the dots from strategy to execution. So that's another thing in the time allocation that we thought was interesting is, what are you missing with customer engagement? This comes down to decision rights to Kevin. The end of the day, if AI is freeing up time, but the COO still doesn't own to your point. Brnoel or customer outcomes, customer service, channel operations, nothing shifts. So how do we make the next two years about rewiring accountability so that customer experience isn't a single function's job, but embedded into the DNA of what it means to succeed in operations. And ultimately, that goes back to process reinvention. And we talked a lot about workflows and workflow redesign and not being a top of mind-focused area for COOs. Not every single workflow, as you said, as select few, 10 to 25% of workflows. But primarily, at least what I'm saying, and both of us are saying is, COOs leaning in on workflows that connect from the customer back, so new product introduction, trend to product, innovation, and agentex systems that Andrea Albright at Walmart led in her sourcing organization, a great example of that. Working back from how do I engage customers and convert them into long-term partners with the brand? Those workflows of product development, new product introduction, engage, and convert customers into long-term partners are where we see a lot of COOs leaning in on the process side in addition to the decision rights and operating model side. Let's talk about money, because I think this is where a COOs really surprised people. And I know this is one of your favorites. 83% told us their existing tech stack is a foundation to build on, not something to rip and replace. So Kevin, that's so different from the ERP era where everyone was spending billions on massive implementations. Why is AI different? What does building on the foundation, and from your point of view, actually mean? - You know, it's because AI sits above the systems. It's not instead of them. COOs are looking at this as the bottleneck in data quality, process maturity, and skills. Not really infrastructure. In fact, the infrastructure's broadly fine, frankly, there's changes, but that's not where it's at. The winning move is to layer some intelligence on top of what's already in place running the business. So to be a little bit more basic about this, AI is a lot about the user interface. It's a lot about the experience of working with an underlying system. And then AI is about automating human tasks that are really repetitive and not particularly value-ad, and that are gluing together existing systems. SNOP is a classic process. All sorts of work happens offline in spreadsheets. All sorts of qualitative work happens in meetings and conversations. And it all comes together in a planning meeting of some form, SNOP, SIOP, even IBP. A lot of that stuff can be done by AI, but without tearing out the underlying transaction system, let's say you're running an SAP, especially you're in a good situation with an up-to-date S4, HANA implementation, and you've got a reasonable master data foundation. You're in a good spot. And I think that applies to some of the planning tools and other systems. There's no reason not to use those tools, but AI can make it easier. It democratizes access, and it takes away a fair amount of the truly tedious work that's out there. I had a funny reflection today on that, Kevin, thinking back to my early days as a planner. And Oracle SAP in place, a lot of the work that you do as a planner is gathering information and then analyzing that information to make a decision. And now we have these agents, which you could describe as an intern with a very simple task to go do, that can go gather that information for you. That doesn't mean you need to replace SAP. Exactly to your point, it just means that agent layer is on top. Yeah, and actually, if I go back to Amazon where I was before starting 0100, I wasn't building any of this stuff, but I was watching it happen in Scott, which was our system. Agents were everywhere. We weren't really talking about it back then. It wasn't a hot topic. We had AI everywhere for forecasting, everywhere for logistics planning, all sorts of different agentic systems doing work between nodes of calculation. And what was going on is the foundational system, which was built in the early days, not on a classic ERP system, but on fantastic customer data. Always had good data. It had basically e-commerce native data. And on top of that data, we're built a series of increasingly sophisticated AI enabled tools, really pretty powerful. But to take away in both cases, Starbucks, Amazon, anybody on an SAP foundation is, you properly are layering AI on top and making your systems better, not ripping and replacing. So let me shift for a sec to the CEO's view of the thing. In the report we call it a Goldilocks problem. We don't want to be too hot or too cold, too hard, or too soft. They don't want to over commit. They don't want to say, yeah, we'll solve everything. We already saw that the CEOs think that they're over committing already a little bit. But at the same time, they don't want to run too cold. They don't want to sit around waiting for the dust to settle. And this whole AI thing to make sense. They have got to decide what kinds of moves to make. So the question we're asking is, what does good look like? And we think, CEO, what's that a good view? But what do you think, Warren? What do you think good looks like? I think we're doing a lot of this work with the CEOs in the zero and 100 community, in fact, in the sense that we're taking this ambition that they agree with the CEO that AI is a game changer and want to explore this. And turning that ambition or that belief in the transformation or the transformative results that can be delivered into a very strategic and precise sequence of the right bets. So the CEO is believing AI, but only 7% expect a majority of workflows to change going back to your point in two years. So good looks like very targeted wins, directing that energy or that excitement of the CEO and the board to the best and most precise investments that are much more likely to return our AI on a faster timeline and at scale, not just theater for investors or pilots that look really fabulous in an article, but ultimately don't change the underlying operating model of how the company works. And we recently spoke with several CEOs in the community and what struck me is many of the pioneers are leaning in on prioritizing a few workflows, generally three to eight workflows in their end to end operations, linked to new product construction, order to cash through some of the classic ones. And allowing innovation at the groundswell of their organization around productivity for agents, but focusing the organization on very few bets that will drive the biggest transformation over the next two to three years. So we lay out three reasons. since Kevin and report why COOs will own the next decade. One that they can deliver AI ROI, very big topic, and most of our conversations with COOs right now, that they can lead closed loop value creation and they bring the right mindset to the table. If you had to pick one, which do you believe is most critical and honestly, which one do you believe is most at risk of not actually happening? - I think the answer to that question is the same in both, it's mindset. It is the unlock, it's also the biggest risk. COOs are really trained to balance optimism with constraint, but they're still measured mostly on cost control, nearly 30% of their KPIs. So the system rewards defense when we're really looking for in the world of business today strategically as offense. I feel like that's the biggest gap is unlock that mindset, drive for growth as a CO, step into that strategic driver role that you say you wanna play and show what you can do with these tools and model. So I think that's a key one, it's a great question though, and let me ask you one final question while we're at it. I want you to push back on our thesis here. We're saying COOs own the next decade, but only 60% of them think that more than a quarter of workflows will be built in the next two years or rebuilt in the next two years. That's pretty modest, right? So are we talking about a decade long transformation? Are we overstating how fast this is really gonna happen? What do you think? - This is a decade long shift, not a two or three year reset, and that's exactly why COOs matter, and frankly, the narrative that is reaching the COO and the boards is much more of a two year investment cycle. And COOs are thinking long term, they are thinking against all six technologies that will be required to reinvent the future. And in this compounding advantage of getting the data right, the software to compute the energy, the right workflows for AI, not in these hype cycles. And so AI is not gonna flip the enterprise overnight. We are seeing significant value delivery against the right bets in less than two years, but it absolutely will take a decade. And I believe that in 10 years when we're having this conversation, supply chain operations will look very different than what it did today. And those who are investing in the right bets today are gonna be the winners in the future. - You know, Lauren, I appreciate that decade look at this thing. I think that's correct. This is hot and it's moving fast. And unfortunately, if you watch CNBC all day long, you feel like you better do it all tomorrow. Tomorrow is when you better stand up and start saying, okay, let's keep my eyes open, begin to figure out where to pivot. What this will look like in a year, and then three years, and then 10 years, and then 20 years, could be so dramatically different that it's well worth stepping back and figuring out where you can make smart moves and trying to learn from those moves where to go next. AI, if you pull back from this conversation about operations and supply chain in our world, is changing everything. It's changing the way people communicate. It's changing the way education work. It's clearly gonna do things for healthcare that we're not even touching upon here. To expect more than a few fairly targeted workflows that deliver some real value, to be revolutionized in a year or two, just because AI's hot on the star market, that's silly. But to have a sober mindset, to have a realistic view of what AI can do and target it at something can have an effect, I think you put yourself on a track to learn effect. I think that's the Goldilocks path. Get going immediately, but don't over commit, don't try to boil the ocean here. Kevin, this has been a great conversation. I think the big takeaway for me is that COs are ready for the moment. They need CEOs and boards to empower them to lead. Zero and 100 members, if you want to read the full report, you can find it at zero100.com. There's a lot more detail in the research and data to share. And if you're a COO listening to this, we'd love to hear from you. Are these findings resonating? What are we missing? Reach out and let's continue the conversation. - As always, special thanks to Alicia Lean and Sasha O'Leary for production. For more insights from zero and 100 find us on LinkedIn, at zero100.com or our members app. And if you enjoyed the episode, leave us a rating or review wherever you get your podcasts. I'm Kevin O'Mara. - I'm Lauren Acova. - And this is zero100. (upbeat music)