What is effective management? One thing is certain: It is more than just a set of tools and techniques, necessary and useful though both of these things may be. Looking back at past management successes and management problems, we see that the crucial ingredient is a sprinkling of essential principles. And those who understand and use these principles to guide their behavior will perform better and achieve more1:
1. Management is all about human beings. The task of managers is to enable people to achieve something by working together. In the process, available resources (especially knowledge) are converted into benefits for customers. One of the main aims here is to ensure that the way human beings are involved in the process makes full use of their strengths, while their weaknesses become irrelevant.
2. Every organization needs a commitment to shared values and objectives. An organization’s business mission must convey a clear picture of what it stands for. The objectives set for the fulfillment of its business mission must be clear, simple, and binding. The job of the management will then entail not only carefully formulating and setting values and objectives, but also leading by example in applying them.
3. Wherever effective management is practiced around the world, managers do pretty much the same things. More specifically, what they do is the same, but how they do it can differ tremendously. Accordingly, the task of management, if human beings are to be effectively integrated into the organization that brings them together, entails making the specific culture of the country in question work for the organization. That said, it would be a mistake to try and reinvent management in every country.
4. The management must enable the organization as a whole and every individual employee to learn and continue to develop. Learning and further development must take place constantly and at every level, for they constitute an ongoing, never-ending process.
5. The knowledge and abilities of the human beings working for an organization are just as diverse and different as the activities they carry out. As a result, communication and personal responsibility are cornerstones of the dependable functioning of any organization. Employees ought to think hard about their personal contributions and objectives. At the same time, they should make sure their colleagues are both familiar with these objectives and know what they must do to help attain them. Similarly, employees should ask themselves what contribution they need to make to help colleagues attain their objectives.
6. The management has to look much further than just the organization’s balance sheet, considering truly essential factors like its market standing, its capability for innovation, its productivity, the quality of its employees, and of course its financial figures, whereby financial variables should tend to be considered last, not first. Many of these factors cannot be measured or expressed in absolute figures, but it is vital that people learn to weigh them accurately.
7. Last, and most important, the overriding objective is—and must always be—a satisfied customer. Worded deliberately provocatively, results could be said to exist only outside an organization, while costs only exist inside it.
One man who has emphatically shown the world how fully he understands what management is all about is Warren Buffett. Buffett was born in 1930 and went on to become one of the most successful investors of our age. The quality of the management of the companies in which he has invested has always been an important factor in his investment decisions. For instance, he was particularly favorably impressed by the management team when he bought a rather large stake in McDonald’s, acquired GEICO (one of the biggest car insurers in the United States), and purchased interests in Coca-Cola, American Express, Gillette, and NetJets. He publicly and repeatedly praises the quality of his managers and actively encourages them to think and act as if they owned the company. In the 2008 annual report of his company Berkshire Hathaway, he wrote that he and his partner Charlie Munger “subcontract all of the heavy lifting” and “delegate almost to the point of abdication.” So while Berkshire employed around 246,000 staff at the time, just 19 of these employees were at the company’s headquarters.2 It comes as no surprise, then, to learn that Buffett views his own task and that of his partners as covering two main areas: first capital allocation; and second, looking after key managers and engaging in intensive communications with them.
The most striking example of Warren Buffett’s unwavering focus on the quality of managers came in spring 2006 when he announced that he would gradually be donating most of his fortune, a staggering $30 billion, no less, to the Bill & Melinda Gates Foundation. When asked in an interview with Fortune magazine why the second richest man in the world (at the time) was giving away so many billions to the man who was richest of all, Buffett said: “When you put it that way, it sounds pretty funny. But in truth, I’m giving it through him—and, importantly, Melinda as well—not to him.”3
By entrusting his fortune to one of the most successful people of our time, Buffett’s aim was to achieve an optimally effective result. Thus a superficially surprising decision by Buffett was actually another example of characteristic behavior on his part: selecting a great manager and focusing on effective management.
What can you do tomorrow to achieve better results with respect to one of the seven principles presented above?
Which specific steps taken in your organization would make the quality of management a higher priority?
Use your position to improve the management know-how and management skills of those people for whom you are responsible.