Warren Buffet management tactics, applied to PEI business.
As published in the Guardian Newspaper February 27th, 2010 - written by Blake Doyle
Warren Buffet is best recognized as a disciplined value investor and disciple of Benjamin Graham’s philosophies on investing. Despite consistently being one of the wealthiest persons in America, I am not writing about his investment strategies, wealth creation or philanthropic commitments. I wanted to share a few of his approaches to management.
When the “Oracle of Omaha” invests in a business he needs to be assured he has the right management in place. This approach is transferable and relevant to all businesses; from Wall Street to Queen Street. “Warren Buffets Management Secrets” is a book that reviews principals and anecdotes from his sixty years of successful investing and management.
Buffet always tried to hire management from within a company. He likes to groom talent by identifying potential successors to current management. In fact, he has all his key management write letters on who would succeed them if they were to die tomorrow; these letters are updated annually. This ensures business continuity and orderly succession.
Changing a management team is often difficult, but also often necessary to change a company’s direction. Buffet himself comments, “Management changes, like marital changes, are painful, time consuming, and chancy”. But he acknowledges agents of change can be necessary when all else fails.
A management characteristic considered essential to company success is passion. Buffet always looks for people with a commitment and belief in their product. “Obsession is the price of perfection”, he would say. It is not about how smart an individual is but how obsessed they are about their product.
Buffet also considers the impact of missing out on great opportunities, something he openly admits he has done. He describes missed opportunities as either ones missed because they weren’t on the corporate horizon and ones recognized but failed to be acted upon.
He depends on managers who are intimately involved with the company and aware of all the circumstances for important decisions. No one knows the business or business environment better than the management. Learning from missed opportunities ensures that they are not missed the next time an opportunity is presented.
Warren Buffet likes to quote his late mentor Benjamin Graham “You can get into way more trouble with a good idea than a bad idea”. He surmises that bad ideas are often dismissed immediately, while good ideas turned bad can inflict much more damage. He cites the example of sub-prime mortgages that started as a good idea but escalated into a bad policy with catastrophic results.
Other management philosophies include delegating responsibility to managers and empowering them to make decisions. Always focus on profit by minimizing expenses and maximizing sales; and focusing on the long-term horizon, while not being overly distracted by quarterly pressures.
Finally, Buffet always praises his management. Every opportunity he gets from letters to shareholders, annual meetings and interviews with the press. He acknowledges the hard work and commitment his mangers have to running their respective businesses. Buffet is an investor. He invests in businesses and people. When he selects the right people, he lets them run their business and has confidence in their decision making.
As Island businesses grow, diversify or expand owners must consider Buffets approaches to management and have confidence in their senior teams to continue the momentum of the founders.
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