Management skills the Buffett way

2010

Warren Buffett's once-obscure business, Berkshire Hathaway, is a strong candidate for the prize of World's Best Company. That means Buffett is a front-runner for World's Best Manager. That title can be added to his undisputed ranking as Best Financier, Investor or Allocator of Capital - whatever title you prefer for the activity which raised Buffett to his great eminence.

The management skills demonstrated by Buffett's example and words are eminently teachable and imitable - which poses another powerful and valuable question: if the winning methods are so effective, why does Buffett have so few imitators?

This is especially surprising, given the range of Buffett's successes. They cover such weighty subjects as: how to pick winning investments (shares, etc.); how to find and purchase takeover targets; how to manage diversified investments; and how to optimise long-term success.

Don't be misled by the evident simplicity. Not only is Buffett a phenomenally intelligent man; he has unrivalled experience in every aspect of his craft, both in day-to-day experience and in intellectual foundations.

Berkshire has been far from static. In fact, its decisions have had deep effects on the scale and profits of the enterprise. Long term or short, the cash is derived from good managerial practice on all grounds.

There are only three 'musts', but can you pass these tests?

  • Is management rational all the time?
  • Are your managers candid with all investors?
  • Does management play Follow the Leader?

The last game is quite irrational. The average company will imitate the practices and policies of its rivals in the same business without even studying the sense or suitability. This should never happen in Buffett's own empire, partly because it isn't an empire (units are wholly independent) and partly because his entire business management is founded on contrarian ideas.

As Buffett says, "the big thing" is always the rationality. Just follow the rational course and you'll discover that you have "the ability absolutely to do anything [he does] and much beyond".

IQ and talent are like the horsepower of the car. The output is "the efficiency with which that motor works"; that can only rest on rationality. You can't argue with simple Buffett arguments such as "a lot of people start out with 400 HP motors but only get 100 HP of output. It's way better to have a 200 HP motor and get it all into output".

But ask yourself why, being smart - as you are - you fail by several HP to equal a Buffett level of performance? What's the cause of all that waste?

People pick up bad habits over time, and "the chains of habit are too light to be felt until they are too heavy to be broken". Buffett plumps for Nurture over Nature - we are what we make of ourselves and have the power to change.

But there's another paradox. Your own good rules will lead you to test your own actions and their consequences, which will invariably stimulate change. Your unchanging mode is to change when necessary - because your reason says so.

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About The Author

Robert Heller
Robert Heller

Robert Heller, who died aged 80 in August 2012, was Britain's most renowned and best-selling author on business management. Author of more than 50 books, he was the founding editor of Management Today and the Global Future Forum. About his latest title, The Fusion Manager, Sir John Harvey-Jones wrote: "The future lies with the thinking manager, and the thinking manager must read this book".