Synopsis of the Book (Book Report)
ORGANIZATIONAL LEADERSHIP (OL670)
FINAL PROJECT
“The Real Warren Buffett – Managing Capital, Leading People”
James O’Loughlin
ISBN: 1 – 85788 – 332 – 2
2004
Pages: 260
Cevdet KIZIL
(Master of Science in Organizational Leadership Program)
Southern New Hampshire University
Organizational Leadership (OL670) – Dr. Eileen Wibbeke
December 8, 2006
SNHU Online
Table of ConteNTS
SynopsIs of the Book (Book Report) 2
Literature Review 13
Conclusion 20
REFERENCES 22
Synopsis of the Book (Book Report)
The book titled “The Real Warren Buffett – Managing Capital, Leading People” by James O’Loughlin starts with a famous quote from Warren Buffet, the second richest man in the U.S. He says “We’re only responsible for two functions… First, it’s our job to keep able people who are already rich motivated to keep working at things… they don’t need to do for financial reasons. It’s that simple. Secondly, we have to allocate capital”.1As you can easily see here, Warren Buffett emphasizes the importance of motivation here and implies that money may not let us to solve all the problems in every situation.
Then, it’s stated in the book that Buffett has not achieved his successes and has not delivered his performance by simply being a stock picker. He is a very good CEO who knows how to lead people and manage the capital, that’s they key of his victory.
After that, the book says Warren Buffett learned from his mistakes as years passed, he discovered the errors in his decision making and he understood how to change behavior of the people, although it was very challenging. According to Warren Buffett, fostering enduring loyalty among those who do work for him is also very important.
Next, it’s underlined in the book that leadership is not forcing, dragging, kicking and pushing; it’s to know how to efficiently lead people. By the way, attracting the right employees to the organization is also crucial according to Warren Buffett. Additionally, he informs the managers that mistakes need not be tombstones, instead they can be stepping stones to better decision making.
1 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.1
In the following section, the book also discusses the leadership of Jack Welch, who retired in 2001 after 17 iconoclastically successful years at the helm of General Electric (GE), one of America’s most admired companies. According to the book, the success of Jack Welch comes from his remarkable ability to get the teams he assembled under him to pull together and perform. From Jack Welch’s viewpoint, passion and desire are also critical for organizational achievement. Moreover, instead of being reactive to change, Welch anticipated it and then engaged on a personal crusade to adapt the company to his vision.
However, there are also some differences between the philosophies of Jack Welch and Warren Buffett. For example, Jack Welch likes reinventing the organization at every turn and strives to deliver a consistent and above-average return which is a risky strategy for Buffett that he rejects. Also, Buffett is extraordinary careful in choosing with whom to associate, seeking out those managers who “relish the thrill of outstanding performance”. Furthermore, concerning motivation, Buffett chooses the hands-off route and sets managers free. According to him, this refers to designing minimum rules of behavior, which tap into a form of motivation that comes from within. The mentioned leadership principle if founded on his confidence in that immutable tanet of human behavior which informs him that trust will be reciprocated with compliance and effort. The following quote by Warren Buffet clearly explains this philosophy: “I found in running businesses that the best results come from letting high-grade people work unencumbered”. It’s also a form of leadership that recognizes that, if it’s not within the nature of a manager to reciprocate trust, no amount of management of the person will engender the desired behavior. On the other hand, Jack Welch’s leadership style is different compared to that of Warren Buffett. The reason is that, Welch has the command-and-control style.2
2 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.17
The book mentions the leadership style of Jack Welsh with the following words: “By alternately hugging and kicking… setting stretch goals and relentlessly following up on people to make sure things get done”, which speaks of a distrust of that part of human nature which is selfish and will attend to its own interests if left unattended. Because of this reason, the author criticizes the leadership style of Jack Welch but he also adds that neither solution is free from error. According to the author, the positive inattention of Warren Buffet’s leadership style to people management is sometimes costly, although it’s a favorable and appreciated one. Similarly, Jack Welch’s leadership style of control and command is also costly and ha caused some serious losses to Welch until this time.3 At last, the author finalizes this section by expressing that Buffett’s leadership style is the more robust.
Plus, according to Warren Buffett, all CEOs should make their employees believe in themselves and they don’t need independent directors, oversight committees or auditors absolutely free of conflicts of interest. In other words, from Warren Buffett’s point of view, conflict is a natural thing.
Following that, the book also mentions Berkshire Hathaway, where Warren Buffett had worked as a chairman and chief executive and had grown the market value of this company at a compound growth rate of over 25% per year. In this firm, Buffett had learned that managers had to be motivated so well that they should be committed to the organization like the owners.
The author of the book provides his comments then and says that managing is the integration of several components.
3 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.18
I believe that the following words of the author will help you to better understand his insights: “Managing an enterprise requires the capacity to produce, direct and act in a streaming video – and one whose storyline is populated by other, human actors playing animated roles in scenes of strategic decision making, facing the behavioral challenges that these presented”.
Then, the book says that good managers should never act with biases and emotions when making decisions. Also, the importance of motivation in terms of leadership is explained by the following words: “As a manager, you can’t just tell people what to do and expect them to do it. You have to find some other way, some other form of leadership. They have to be motivated personally to do it”. It’s indicated that Warren Buffet’s success can never be only attributed to his being a good investor; he is at the same time a perfect leader and motivator.
Lao Tzu, Chinese Taoist Philosopher is also mentioned in the book with his following quote: “Intelligent control appears as uncontrol or freedom. And for that reason it is genuinely intelligent control. Unintelligent control appears as external domination. And for that reason it is really unintelligent control.”4 The author of the book provides this quote to the readers, because Lao Tzu’s words are strictly related with leadership and control.
According to the book, the relationship between strategic plan and leadership is very important too. For example, the author talks about Stephen Schneider of CPS Company who points out that strategic plans and leadership are inextricably linked. Mr. Schneider defines a strategy a “process of positioning an organization for future advantage,” which requires a deep understanding of the internal and external factors that influence a company. “Leadership”, Stephen Schneider continues, “is the weapon that provides strategic impact,” demanding “the articulation of an argument so compelling that other people see its merits and are prepared to act on it.”5
4 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.51
5 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.52
The author of the book also presents similar thoughts parallel to Mr. Schneider and says that professing not to have a strategic plan is an extraordinary statement for the CEO of any company to make. He adds by stating that, according to Schneider’s definition of the term, it amounts to an abdication of leadership. Because of this reason, a CEO who has no plan has no basis on which to lead. Similarly, the author tells that leaders having no strategic plans have no road map of the future. Definitely, this is enough to strike fear into the heart of anyone whose task is to navigate an uncertain terrain and get others to follow him.
Separately, the author emphasizes that strategic plans deliver visibility and afterwards continues to go deeper about this subject. He explains that, by planting guideposts in an uncertain future, strategic plans fulfill this role for the managements of companies and their workers. They set the direction for the firm. Internally, they inform individuals of their roles, let them know where they are going and how they will get there. Externally, they try to affect proceedings, shaping the marketplaces in which firms operate, molding them to management’s desires by prescient manipulation of supply and demand. Because of this reason, Schneider is correct in author’s point of view. As a result, the author concludes this section by stating that strategic plans are indeed the instruments of leadership.
Controls and Leadership Relationship is also analyzed in the book”. For example, some famous words of Dr. Robert Cialdini is provided concerning this issue: “One problem with controls… is that when people perceive of themselves performing the desirable monitored behavior, they tend to attribute the behavior not to their own natural preference for it but to coercive presence of the controls. As a consequence, they come to view themselves as less interested in the desirable conduct for its own sake… and they are more likely to engage in the undesirable action whenever controls cannot detect the conduct.”6
6 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.63
Later, the book focuses on the fact that leadership should not involve forcing ad fearing the employees. At this point, Jonathan Freedman’s experiment is mentioned. It’s said that, Jonathan Freedman had conducted an experiment in which he first instructed a group of boys, on pain of punishment, not to play with a toy robot out of a selection of toys made available for them. As a result, the boys didn’t play with the toy robot while he was present. On the other hand, six weeks later, back in the same room but this time when Freedman was absent, the majority of the boys did play with the robot. As you can clearly see from this example, externally imposed rules did not work as well as forcing and fearing.
In fact, the book says that good leaders always know how to communicate well and explain the details. For instance, Freedman had done a second experiment and this time he had gathered another group who were warned against playing with the robot. However, this time Freedman had added a reason: “It is wrong to play with the robot”. Again, the majority obeyed the rule. However, the difference here is that, with this group, six weeks later most were still obeying the rule. But what is the reason? Definitely, it’s because the rule now came from the inside – the boys had decided that they would not play with the robot because they did not want to. In other words, they had taken inner responsibility for their actions and it was not required for Freedman or anyone else to be present to police their behavior with outside pressures. They could trust them since they had explained why they did not want the boys to play with the robot. Besides, the book links the importance of communication and explanation features of good managers to a quote of Charlie Munger, Vice President of Berkshire Hathaway: “Just as you think better if you array knowledge on a bunch of models that are basically answers to the question why, why, why, if you always tell people why, they will understand it better, they will consider it more important and they will be more likely to comply.”7
7 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.64
Additionally, the book states that, rather than telling people how to behave, Buffett influences the way in which they behave by allowing their wiring to do his management for him. In other words, the managers’ complicity with his goals is not forced. Their behavior is completely natural. Also, it taps to the most natural powerful motivational force which any human knows – one that comes not from complying with rules imposed by some external body, but from within.
Rewarding as a motivational tool is also very important for Warren Buffett. For example, he implements a compensation scheme which rewards correct behavior appropriately. According to Warren Buffett, employees should get paid in relation to the performance of the part of the organization that they can affect. The book even provides a quote of Buffett related with this issue: “Arrangements that pay off in capricious ways, unrelated to a manager’s personal accomplishments, may well be welcomed by certain managers… But such arrangements are wasteful to the company and cause the manager to lose focus”.8
Actually, Warren Buffet has deeper opinions on incentive compensation systems. As an example, I believe that the following sentences will help you to understand his philosophy on this subject: “We employ an incentive compensation system which rewards key managers for meeting targets in their own bailiwicks. If See’s does well, that does not produce incentive compensation at the News – nor vice versa… In setting compensation, we like to hold out the promise of large carrots, but make sure their delivery is tied directly to results in the area that a manager controls… We believe further, that such factors as seniority and age must not affect incentive compensation… a 20-year-old who can hit .300 is as valuable to us as 40-year-old performing as well.”9
8 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.69
9 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.69
Then, the book says that Warren Buffett is successful also because he prefers decentralized style of leadership and sets his managers free. This way, Warren Buffett actively encourages the very separation of control from ownership which is very troubling and disturbing to several employees. On the opposite side, command systems which crowd out intrinsic motivation set up a vicious circle in which control mechanisms escalate even as compliance decreases. According to Buffett, systems like these are unfavorable because they require huge policing efforts on the part of senior management.
It’s also implied that decentralized style of leadership brings several advantages. For example, the book talks about Berkshire Hathaway where Warren Buffet works as the CEO and remains as the largest shareholder. There, the only control Mr.Buffett has left when he abrogates the normal tools of management is the one which is based on trust, fairness and reciprocity. Plus, decentralized leadership creates loyalty in the organization among the employees and the workers show obedience to Warren Buffett’s wishes manifesting themselves in an overwhelming eagerness to please, instead of a sly keenness to cheat. Finally, the book emphasizes that this must not be surprising because trust, fairness and reciprocity always results in cooperation, exchange and progress.
After that, the book expresses the fact that leaders should highly value intellectual capital which should never be underestimated. A quote of Jack Welch related with this issue is even presented: “My gut told me that compared to the industrial operations I did know, this business (GE Capital) seemed an easy way to make money. You didn’t have to invest heavily in R&D, build factories, and bend metal day after day. You didn’t have to build scale to be competitive. The business was all about intellectual capital.”10
10 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.111
According to the book, like Jack Welch, Warren Buffett also highly values intellectual capital as a leader and his competitive advantage comes from appreciating this factor which sets him apart.
Furthermore, it’s very important for leaders to effectively manage the risk as stated by the book. For instance, concerning this issue, Warren Buffett says that managers should only accept risks that they are able to properly evaluate. Also, all relevant factors including remote loss scenarios should be evaluated for handling the risks. Additionally, Warren Buffett tells that managers should limit the business accepted in a manner which guarantees they will suffer no aggregation of losses from a single event or from related events which will threaten their solvency. Plus, Warren Buffet recommends all managers to avoid having businesses involving moral risk. Because, from his viewpoint, no matter what the rate, we can’t write good contracts with bad people. By the way, although most policymakers and clients are honorable and ethical, doing business with the few exceptions is often expensive according to Warren Buffett.
Moreover, the book underlines the fact that Warren Buffett as a manager does not favor lay-offs. In relation with this, a comment of him is provided: “We don’t engage in layoffs when we experience a cyclical slowdown at one of our generally profitable insurance operations. This no-layoff policy is in our self interest. Employees who fear that large layoffs will accompany sizeable reductions in premium volume will understandably produce scads of business through thick and think (mostly thin).”11
After that, the book argues that all leaders should have confidence for achievement, but overconfidence can be dangerous.
11 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.122
For instance, some words of Charlie Munger take place in the book related with this issue: “Smart, hard-working people aren’t exempt from professional disasters from overconfidence. Often they just go around in the more difficult voyages they choose, relying on their self-appraisals which they have superior talents and methods.”12 Thus, Charlie Munger thinks that the majority of people consider themselves to be above-average drivers, although this is not the case in aggregate. The lesson which we should learn from this point is that we must always trust ourselves, but being too optimistic can also be harmful.
Warren Buffett also has some opinions and suggestions on change. As an example, according to him, managers should react to change instead of anticipating it. In other words he says that managers should affect the change.
Then, Mr.Buffet makes clear that gathering feedback, eliminating stereotypes and identifying the truths are extremely significant. For this purpose, he has a “Circle of Competence” in place. For example, he establishes what he knows by determining truths, the dynamics which sit behind them, and their relationships to each other. Then, he makes sure that he knows by a process of inversion whereby he seeks to disprove his previous conclusions. This way, he tries to eliminate stereotypes. Plus, he checks that he knows by looking for feedback from the consequences of his decisions.
Following that, communication and asking for the opinions of others are also critically important according to Warren Buffett. For example, he says: “As you are acquiring knowledge about industries in general and companies specifically, there isn’t anything like first doing some reading about them and then getting out and talking to competitors and customers and suppliers and past employees and current employees and whatever it may be. Virtually everything we have done has been by reading public reports and then maybe asking questions and ascertaining trade positions and product strengths or something of that sort.”13
12 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.124
13 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.153
Another fundamental characteristic of a leader should be to learn from his mistakes. Again, I will provide a quote from the book to better explain this issue. These are the words from a speech of Warren Buffett directed to his shareholders: “I want to be able to explain my mistakes… If we are going to lose your money, we want to be able to get up there next year and explain how we did it.”14
Besides, a good manager should also implement empathy according to the book. For instance, Warren Buffett also emphasized this important point and said that: “Managers frequently have trouble putting themselves in the shoes of their shareholder-owners”.
Among all other things, Warren Buffet says that managers should always consider the long-run and must care for all stakeholders, including the investors. Regarding this subject, the book provides a quote of Warren Buffett: “If companies focus their thinking and communications on short-term results or short-term stock market consequences they will, in large part, attract shareholders who focus on the same factors. And if they are cynical in their treatment of investors, eventually that cynicism is highly likely to be returned by the investment community”.15
Finally, in Warren Buffett’s opinion, when an organization gains a success, it should be celebrated with the whole stuff including all employees. He states that victories must always be remembered, no matter how big or small they are. On the opposite side, according to Warren Buffett, failures of organizations and their competitors are much more important and several lessons can be learned from these failures. For example, he says: “I have often felt there might be more to be gained by studying business failures than business successes… my partner, Charles Munger, says all he wants to know is where he’s going to die – so he won’t ever go there.”16
14 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.158
15 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.196
16 J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”. pp.202
So, Synopsis of the Book (Book Report) section of my project is finalized here after very valuable information and quotes concerning leadership. Now, Literature Review as the next part follows.
Literature Review
I have conducted a detailed literature review for my project concerning leadership and in this regard, I would like to mention Leader-Member Exchange Theory which is related with communication. As you will remember, the book of James O’Loughlin: “The Real Warren Buffett – Managing Capital, Leading People” did also emphasize the importance of communication for leaders. For example, Fisher and Ellis (1990) say that effective leaders exhibit flexible communication skills.17 Also, one of the most common signs of a non-supportive leader is the lack of meaningful, two-way communication between the leader and subordinate. In reference to Fisher and Ellis (1990), effective leaders also adjust their communicative behaviors and interpersonal relationships according to the condition and the nature of their subordinates. Additionally, Fisher and Ellis (1990) mention many studies which indicate that when leaders are working with motivated, component employees, they are more likely to exhibit consideration and respect for them. Plus, when this situation exists, leaders also include the employees in more decision making and provide a less structured environment.
17 The University of Oklahoma (2006). ”Literature Review”. University of Oklahoma, Dep. Of Communication.
Then, I would like to focus on the comments of Harris and Sherblom (1990) on vision, credibility and communication competence since they were also presented as important features of leaders in the book I analyzed, “The Real Warren Buffett – Managing Capital, Leading People”. As an example, Harris and Sherblom (1990) underline the fact that leaders should inspire the group’s trust and confidence in their ability.18 Moreover, the mentioned leaders describe credibility as knowledge, expertise, honesty, and the ability to remain calm under stress. Plus, they say that leaders must be likeable and they must show interest in others. This is really important, because leaders who don’t have credibility are often perceived as manipulative or dishonest and will have a tough time gaining compliance from their subordinates.
After that, as you have read in my book report section, Warren Buffett did not prefer command and control style, instead he did favor motivation, letting employees free and influencing others. Actually, writers and researchers agree with this and state that core leadership has something to do with influencing others. As an example, Yukl (2002), an often cited writer in organizational studies says that: “Most definitions of leadership reflect the assumption that it involves a process whereby intentional influence is exerted by one person over other people to guide, structure, and facilitate activities and relationships in a group or organization”.19
Following that, as you can recall, in James O’Loughlin’s book, “The Real Warren Buffett: Managing Capital, Leading People”, it was emphasized that Warren Buffett supported inspiration and working effectively with people.
18 The University of Oklahoma (2006). ”Literature Review”. University of Oklahoma, Dep. Of Communication.
19 White, M.I. (2005). ”Leadership, Educational Leadership, Technologies of Leadership, and Feeling Valued –
A Review of the Literatures”. Lancaster University (UK), Center for Excellence in Leadership.
Parallel to this, in his book The New Meaning of Educational Change, Michael Fullan (1991) makes the distinction between leadership as relating to things like mission, direction and inspiration, and management as including designing and implementing plans, working effectively with employees and getting things done.
Next, trust and fairness were very significant issues for Warren Buffett and the existing literature also attracts attention on the importance of these features for leaders. As an example, Lamerz (2000) thought of the social consideration of fairness, seeing employer and employee relationships as the conduits for social comparison, social cues and social comparison that are sources of sense making for fairness (2000:19).20
Furthermore, if you can remember, Warren Buffett did concentrate on morality and moral risks. Similarly, Silins (1994) explains self actualization between leaders and followers as a total engagement, which means an emotional, intellectual and moral relationship.21
In regards to loyalty, Sharpe (1995) recommends that leaders should display integrity, authenticity, loyalty, honesty and trust. Just like this one, Therry (1993), Duignan and Bhindi (1995) says that leaders must act sincerely, genuinely and trustfully in action and in interaction with subordinates. In case you will consider Warren Buffett’s philosophy, it is easy to recognize that he has very similar opinions.
Concerning rewarding as a component of incentives, Likert did analyze the research by Cartwright & Zander (1960), Argyris (1957), March & Simon (1958) and Viteles (1953) and said that everyone needs appreciation, recognition and a feeling that people who are important to them believe in them and respect them.
20 White, M.I. (2005). ”Leadership, Educational Leadership, Technologies of Leadership, and Feeling Valued –
A Review of the Literatures”. Lancaster University (UK), Center for Excellence in Leadership.
21 Yeung, N.T.Y. (2000). ”The Role of Educational Leaders”. The Australian Association for Research in Education (AARE).
Also, Corey (1986) said that leaders must care for people and believe in the competence and professionalism of their followers, and this is similar to the meaning of respect in the counseling field. Thus, the literature is pretty parallel with the theories of Warren Buffett.22
Moreover, I want to re-mention the importance of empathy which is also highly valued by Warren Buffett, this time referring the relevant literature. For example, Alfred Adler believes that the striving for self-esteem and the evolution of a sense of human empathy work in harmony to bring out the potential for leadership. Besides, related with leadership, the interpretation of empathy by Yukl (1994) is that leaders can have an understanding and appreciation of the frame of reference of followers and can see and feel their world.23 In other words, being understood is critically important. Followers feel more at ease to explain them frankly and to maintain a free flow of communication with their supervisors when they think that they are very well understood. At last, West-Burnham (1997) also expressed that, in regards to leadership, empathizing is the ability to understand how things seem to another individual, and to appreciate the significance, value and relevance attached to that given situation.24
22 Yeung, N.T.Y. (2000). ”The Role of Educational Leaders”. The Australian Association for Research in Education (AARE).
23 Yeung, N.T.Y. (2000). ”The Role of Educational Leaders”. The Australian Association for Research in Education (AARE).
24 Yeung, N.T.Y. (2000). ”The Role of Educational Leaders”. The Australian Association for Research in Education (AARE).
Plus, the book of James O’Loughlin named “The Real Warren Buffett – Managing Capital, Leading People” had also underlined the fact that Mr.Buffett liked confident managers although he did point out the dangers of over-confidence. So, I did also want to discuss this subject with my literature review. For instance, Hoy and Miskel (2001) focused on four characteristics which are significant for managers: Integrity, self-confidence, stress-tolerance, and emotional maturity.25
In addition, remember that changing the behavior of employees was a very important but difficult task for Warren Buffet. Also recall Jack Welch like Warren Buffet, instead of being reactive to change, he was anticipating it and then engaging on a personal crusade to adapt the company to his vision. Overall, leaders should efficiently manage change in both Welch’s and Buffett’s opinion. The book named “Managing Human Resources Through Strategic Partnerships” by S.E. Jackson & R.S. Schuler (2006) also emphasize the significance of change management in regards to leadership. For example, the authors of the mentioned book state that in many companies, changes in the HRM systems are stimulated by the firm’s strategic objective of improving customer satisfaction. Also, S.E. Jackson & R.S. Schuler (2006) say that most changes run into some amount of resistance. The various forms which resistance can take include immediate criticism, malicious compliance, sabotage, insincere agreement, silence, deflection, and in-your-face defiance.26Definitely, the book and the authors also list the reasons of resistance which are fear, misunderstandings, and cynicism.
25 Palmer, B.G. (2001). ”The Pure Leadership of Jesus Christ”. Andrews University.
26 Jackson, S.E. & Schuler, R.S. (2006). ”Managing Human Resources Through Strategic Partnerships”. pp.160
A beautiful quote from Ken Troyan, Senior Vice President of SunTrust Bank is even provided about resistance to change: “My biggest challenge was to change management. Poor communication will cause are-org to fail. If people understand and accept the change and the ups and downs that come with it, they will make it work. If they don’t accept the change, it will disintegrate on you.” Of course, some methods to overcome change are also mentioned. As an example, S.E. Jackson & R.S. Schuler (2006) state that getting employees to discuss their problems openly is very important to avoid resistance to change.27 Also, according to the authors, a good manager should know how to involve employees in the decision to minimize resistance. In other words, workers should participate in the decision making process. For example, Georg Bauer, President of Mercedes-Benz Credit Corporation, knew that fear and resistance could be a serious problem so he decided to establish a no-fear element in the whole change process. He wished employees to help create a new, more efficient company b expressing their ideas about where to cut and how to do work differently. According to Georg Bauer, empowering the employees was another solution for decreasing the resistance to change. He did empower the workers to make decisions about how to change their work and offered an incentive for convincing employees that even cutting their own jobs wouldn’t harm them financially.
To continue with our literature review section, check your minds that gathering feedback was also a very important factor for successful leadership in Warren Buffett’s opinion. He would always seek feedback from the consequences of his decisions for better management. The book titled “Managing Human Resources Through Strategic Partnerships” by S.E. Jackson & R.S. Schuler (2006) also discusses the significance of feedback. For example, the authors say that performance measurement and feedback serve many purposes in companies.28
27 Jackson, S.E. & Schuler, R.S. (2006). ”Managing Human Resources Through Strategic Partnerships”. pp.160
28 Jackson, S.E. & Schuler, R.S. (2006). ”Managing Human Resources Through Strategic Partnerships”. pp.410
Together, feedback and effective measurement enhance employee motivation and productivity, facilitate strategic planning and change, and guarantee legal compliance and fair treatment. Thus, to be influential in achieving these results, feedback and performance measurement process must be aligned with the organization’s business strategy and organizational culture.
Finally, note that one of the reasons why Warren Buffett was so successful is that he preferred decentralized style of leadership and did set his managers free. This way, Warren Buffett could actively encourage the very separation of control from ownership which was very troubling and uncomfortable to many employees. Our course book titled “Business Leadership” by J.M. Kouzes also mentions decentralized style of leadership and goes on to explain its advantages. For example, it’s said that companies which do a better-than-average job of developing leaders emphasize on creating challenging opportunities for relatively young employees. Related with this, in several businesses, decentralization is the key. J.M. Kouzes (2003) continues to state that by definition, decentralization pushes responsibility lower in a company and in the process creates more challenging jobs at lower levels. For instance, very famous companies worldwide such as Johnson & Johnson, 3M, Hewlett-Packard and General Electric (GE) are shown as examples here taking advantage of decentralization. It’s even said by the author that some of these same firms also create as many small units as possible so there are a lot of challenging lower level general management jobs available. Fortunately, decentralization as organizational structure is also analyzed well by J.M. Kousez (2003) who provides a nice example from the General Motors (GM) Company.29
29 Kouzes, J.M. (2003). ”Business Leadership”. pp.93
The author refers to Alfred Sloan in this context, who used to be the legendary chairman and president of General Motors (GM) and says that Sloan had recognized GM needed a better structural form. The structure when Sloan was in service used to be central, functional organization. However, Sloan thought that such a system would not work for GM and he created one of the world’s first decentralized organizations instead of the existing one. His strategy was very effective but indeed so simple: centralize planning and resources allocation, and decentralize operating decisions.30 As a result, the decentralized style had brought tremendous benefits to General Motors (GM) and you can clearly see that Buffett’s and Sloan’s philosophies on leadership match.
Now, since the Literature Review section has also came to an end, the Conclusion part will follow in which I will provide my comments and opinions on the book I have read: “The Real Warren Buffett – Managing Capital, Leading People” by James O’Loughlin.
Conclusion
In my opinion, the book written by James O’Loughlin titled “The Real Warren Buffett – Managing Capital, Leading People is a must read one because it discusses several important issues concerning leadership, such as motivation, communication, empathy, learning from mistakes, strategic decision making, decentralized style, rewarding, valuing intellectual capital, effectively managing risk, confidence, change management, having feedback, considering all stakeholders and thinking for the long-term.
30 Kouzes, J.M. (2003). ”Business Leadership”. pp.93
Additionally, the author of the book always provides quotes related with the subjects he discusses and I strongly believe that this makes it much more fun to read. Definitely, the book is a lot more attractive and interesting with this quotes which do not only belong Mr. Buffet but to many other worldwide managers such as Jack Welch.
Most importantly, while you are reading, you feel that it’s not only a theory book. Instead, all the information provided is supported by real life facts and examples from the organizations. Thus, theory integrates with practice and this lets the reader to better understand the concepts.
As a result, I recommend the book for all readers who would like to be inspired by learning the strategies of leadership and discovering the career and achievements of a very well known CEO.
REFERENCES
Jackson, S.E. & Schuler, R.S. (2006). ”Managing Human Resources Through Strategic Partnerships”
J.O. Loughlin (2004). ”The Real Warren Buffett: Managing Capital, Leading People”.
Kouzes, J.M. (2003). ”Business Leadership”.
Palmer, B.G. (2001). ”The Pure Leadership of Jesus Christ”. Andrews University.
The University of Oklahoma (2006). ”Literature Review”. University of Oklahoma, Dep. Of Communication.
White, M.I. (2005). ”Leadership, Educational Leadership, Technologies of Leadership, and Feeling Valued –
A Review of the Literatures”. Lancaster University (UK), Center for Excellence in Leadership.
Yeung, N.T.Y. (2000). ”The Role of Educational Leaders”. The Australian Association for Research in Education (AARE).
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