Two Leaders, their Management Advantages and Disadvantages as Example Warren Buffet and Bill Gates - Literature review Example

Running Header: Two Leaders of Different Organizations and Their Management Advantages/Disadvantages Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Abstract This paper explores advantages and disadvantages of Warren Buffet and Bill Gates leadership and management style in their respective organizations. Warren buffet management style has been analyzed in perspective of Berkshire Hathaway businesses. The impact of his philosophy of letting go has also been analyzed to establish its advantages and disadvantages. His philosophy translated to offer managers a huge autonomy in order to stand in relation to them as his shareholders managing his firms as theirs (James 2004, p.7). Bill Gates goal oriented leadership and management style has been scrutinized to establish pros and cons of his style. He is being analyzed as the CEO of Microsoft organization from the time of its inception to the time it started making exponential returns. Table of Contents Running Header: Two Leaders of Different Organizations and Their Management Advantages/Disadvantages 1 Abstract 2 Table of Contents 3 Two Leaders of Different Organizations and Their Management Advantages/Disadvantages 4 1.0 Introduction 4 2.0 Warren Buffet and Berkshire Hathaway 5 2.1 Advantages of Warren Buffett Management 6 2.2 Disadvantages of Warren Buffett Management 9 3.0 Bill Gates and Microsoft 10 3.1 Bill Gates Management Advantages 11 3.2 Bill Gates Management Disadvantages 13 4.0 Conclusion 14 Reference 14 Dearlove, D 2010,The Unauthorized Guide To Doing Business the Bill Gates Way, Capstone 15 Publishing Ltd, West Sussex, UK. 15 Edward, B & Robert, H 2006, ‘Management styles & leadership styles of Warren Buffet & Bill 15 Gates’, Thinking Managers, viewed 10 August 2010, 15 James, O 2004, The Real Warren Buffett: Managing Capital, Leading People, Nicholas Brealey 15 Publishing, Yarmouth, USA. 15 Owen, H 2000, In Search of Leaders, Wiley, New York, NY. 15 Two Leaders of Different Organizations and Their Management Advantages/Disadvantages 1.0 Introduction Leadership has negative or positive impact in every aspect of performance of organization. An evaluation of literature on leadership shows a progression of schools of thoughts from theories of great man and trait to leadership of transformation. All of these theories direct focus on behaviors and characteristics of leader who is successful in management of an organization. Leadership theories of behaviorist focus on what leader do instead of their qualities. Various behavior patterns are scrutinized and classified as leadership styles. This field has attracted attention to most of practicing leaders and managers. According to Victor and Malcolm (2005, p. 108), studies and research carried out have shown that there is no single recommendation for efficient performance. The relationship between leader approach (style of leadership) and the perspective in which they operate is viewed to be vital. There has been an increasing spotlight on the efficiency of various behaviors of leadership in varying contexts of alteration. The varying sorts of behaviors are grouped into 3 wide categories which include; goal-oriented, involving and engaging behaviors. There is evidence of correlation between change context and leadership behaviors in transformational theory. The role of leadership and change in implementing and envisioning the organizational transformation performance is the central concept in transformational theory. Varying behaviors of leader in differing contexts of change have 3 different styles of leadership; engaging, involving and goal leaderships (Victor & Malcolm 2005, p. 114). Warren Buffet as a chief executive and chairman of Berkshire Hathaway has led the organization for 37 year and the market value has grown with compounding rate of more than 25% per year. He has achieved this through leading and managing people and capital. His style of leadership has sustained the performance of Berkshire Hathaway as an operating company. Bill Gates has been leading Microsoft since its inception and his style has been goal orient. Warren Buffet and Bill gates exhibit different leadership styles in their respective organizations. 2.0 Warren Buffet and Berkshire Hathaway Leadership style exhibited by Warren Buffet is engaging one where he allows his manager to act like owners of his business. He has not produced this magnificent performance by being a stock picker but he has done it by being a CEO who manages capital and leads people (James 2004, p.2). He has learnt the leadership skills he exhibits after years of mistakes. Between periods of 1970 to 1980 Buffett underwent cognition explosion in which his style of capital management and leadership emerged. This model has maintained performance of Berkshire Hathaway as an operating organization, in contrary to the vehicle of investment it once was. This style has raised Buffet above every other CEO. He has learnt the importance of doing job with persons who have mindset that is right. 2.1 Advantages of Warren Buffett Management He has established a way of how to foster everlasting loyalty among those who work in his business, eliciting their compliance with the goals he establishes for Berkshire Hathaway, and of creating ever lasting commitments from his managers and employees to the principles he supports as a leader. Buffet has established mechanism of leadership of personality of his own: in his altitude towards people who hand over their capital to him, in his system of belief, in his honesty, his fairness and his high grounded ideals. These are what create an expression of cooperate ideas of Berkshire Hathaway. According to James (2004, p. 3)Buffet has learnt that through engagement, people management transcends into motivation of a person especially in the behavior rules where persons are supposed to follow are established from within, instead set from above. Diligence and compliance are elevated when these rules are placed in sympathy with that little voice that is within all of us, which informs us how to act. Buffet has discovered that control of management emanates from the philosophy of letting go and has stuck with the same in management of capital. This style has high level of empowerment that characterizes the style of engaging leadership. Buffet likes to lower subjectivity in decisions of capital management to a minimum. Equally, he likes to heighten the objectivity that he puts to bear. To make sure that each decision he make in Berkshire, capital management is brought from a position of greatest psychological security, he lay in the groundwork in advance of time. Buffet as a process person at the core management has an excellent ability to attain teams that are compact and coordinate effectively. He knew that those employees were persons his recruited and surround him and only those who were full of desire and passion can make things done (Owen 2000). He has been very careful to pick a person to work with and sought those managers who enjoy the thrill of impeccable performance by searching every aspect of their business absorbing. By letting hand free, Buffet set and chooses managers free which means creating less rules of behavior in order to attain motivation that emanates from within. This leadership principle is bases on his confidence in that unchallengeable belief of behavior of a person tells him that trust will be rewarded with effort and compliance. He continues to say that he discovered that in operating businesses, the excellent outcomes emanates from letting people in high grade work unencumbered. This is type of leadership that knows that if it is not inside the manager nature to return trust, no quantity of an individual management will produce the required behavior. To minds of buffet, the shareholders of the organization, as it owners are required to produce a return on their assets. The type of leadership does not suffer from myopia (Alimo-Metcalfe 2008, p. 3). Under the philosophy of Buffet, it meant that he couldn’t portray himself as majority CEOs do, as a producer of candies, textiles, insurance policies among others. He engagement approach would be capital allocator. Therefore he had a job to make sure that his managers who joined him in subsidiary companies of Berkshire Hathaway would adopt this philosophy. He allowed his managers a huge autonomy in order to stand in relation to them as his shareholders managing their firms on his behalf. This is easy because majority of his chief executives essentially had their own businesses before being acquired by Buffet and therefore this would come automatically to them. The benefits emanating from leadership style of engagement like the one adopted by Buffet are as result of team working, connectedness, collaboration and elimination of communication barriers, whether among individuals at various levels, or external partners and stakeholders (Fiedler 1987). Buffett has consistently echoed the desire to view the globe through the eyes of others and taken up perspectives on issues. His style is that manager should perform first class work in operating their businesses with their own styles. Although it was kept that way, there is engagement where managers can share what is happening in businesses. This humane, idealistic method is not possible to many leaders. The success to capability of Buffet to stay up to his own philosophy is confidence in other people (Edward & Robert 2006). He actually means it when he applauds his executives on their superb performance. The advantage of this management system emanates from freedom and confidence environment that is able to produce better performance than one of control and suspicion. Buffet leadership style can be describe as transformational type where the leader empowers workers to attain vision of the company, resulting to elevated employee morale, productivity and job satisfaction as well as greater professional and personal development. Alimo-Metcalfe (2008’ p. 13) suggests that empowering will give staff autonomy and give confidence to handle personally the confronting demanding duties. It will also persuade them to tackle problems, produce innovative proposals and ideas and widen their vision. It also nurtures the critical faculty and a wider viewpoint, and encourages challenging of present policies, assumptions and practices. Transformational Leadership has a higher positive relationship with a variety of measures such as low level of stress and enhanced commitment. Hence there is requirement of improving leadership roles in the company since this is a major element of business success. 2.2 Disadvantages of Warren Buffett Management Since Buffett business has many entities and is obviously oriented to a common goal, it is not simple to operate such entities which his has let off his hand to his managers who are prone to human errors. Distressingly, he widens his empire by acquisition when acquisitions don’t succeed. It should be impossible for him to attain these at prices giving an appropriate profit on his investment and he should be unable to guide the interests of his new employees with the goals of their new parent. To implement the buffet philosophy is not easy because he treats even smallest shareholders of Berkshire Hathaway as an equal partner in the business, so that he can manage the firm on their behalf as much as his. Nevertheless, mainly it is hard because, ever since the revolution of Industrialization when the ownership separation of enterprises by its desperate shareholders from its control of management turned out to be common, one question was left with no answer: how can one make managers to behave like owners? It is fatal to believe that issues of aligning the objectives of two parties would ever get solution given the human nature deficiencies. Managers would handle to their own interest more efficiently and diligently than those of the owners on whose behalf they operate. This type of leadership has wanting management of resource. In case of Buffet, it is clear that he has allowed his managers to manage resource in their own style which can sometime result to errors because there is no common guideline set. He has tendency of reinvesting 100% of cash of company in the enterprise which is an act full of risks. In environment that has stiff competition, management is faced with huge challenge to add value above and over that which their shareholders could reap somewhere else. Leaving managers hands free can be lethal because they habitually attend to their own selfish interests instead of trying to attain objectives put by the owner who employs them. 3.0 Bill Gates and Microsoft William Henry Gates was born in 1955 in Seattle, Washington (Dearlove 2010, p. 4). He was born an intellectual kid such that he read family encyclopedia from the start to the end at the age of 8. He was also very much talented in mathematics world. Still at young age of 12, Gates was already enthusiastic about computers. He shared his love for computers with his long time partner in business and pal, Paul Allen. Together they later formed Microsoft. A sharp student, unlike majority of gifted students, Gates could excel in anything he embarked on. Harvard University education wasn’t on the card as it turned out. In 1975, still in university education, Gates joined again with his long time friend Paul Allen to start developing a BASIC version, an old computer language. Warmed up with the current world at his fingertips, in 1977 Bill opted to drop out of Harvard to commit himself to a small company of computer software he had started with his pal 2 years earlier. The name of the company was Microsoft. The growth and rise of Microsoft was both relentless and fast. Gates quickly proved that he had superb entrepreneurial instincts with well established understanding. When ill shape pushed Allen out of Microsoft in the early 1980s, Bill resumed fully as a leader. According to Dearlove (2010, p. 20), Microsoft became the icon in Wall Street in mid 1980s with share appreciating from $2 in 1986 to $102 by the year 1996 turning fortunes of billions to Gates. He is one of a few founding CEOs from side of technical of pc industry who have thrived and survived on the side of business. 3.1 Bill Gates Management Advantages Bill gate leadership is goal oriented which possess a set of behaviors to give directions and act in a manner in which he takes a vital role to direct others to attain the major goals needed to achieve performance needed. This is because Bill remained in the company at all time operating single handedly and grew to employ approximately 60,000 people and creating sales wealth of more than $60 billion per year. The company attributes its success to 5 factors: result/goal orient, a long term approach, individual and teamwork drive, continuous feedback of customers, and product and customer passion. His leadership and management style made sure that he employed creative, very bright and retained them through various mix of constant challenge, excitement and fabulous working condition. Collegiate, relaxed style and hate of symbols of status was compensated by challenging attitude towards meeting deadlines and performance (Dearlove 2010, p. 34). The research had indicated that employees left Microsoft since there were no challenges. But it was disapproved by another study which confirmed that culture of Microsoft was such that many of initial employees stayed for a long time, and in fact continued to stay. The reason is because many of employees took advantage of stock options of the company and became millionaires. His leadership style of being goal oriented led to his success in doing business. The first thing was that an employee was supposed to be in the right place at the required time. It is can be easily concluded that success of Microsoft was as a result of one magic of good luck. This it time when Microsoft had secured the contract to supply IBM with first pc operating systems. However, there more than what meets that eye since Bill knew the importance of deal with IBM. Being driven by his goals, Gates recognized that it could hugely impact the personal computing history, and worked vigorously for over 6 months to capitalize on his probability of becoming lucky. The other strength to his management and leadership is that Gates was technologically knowledgeable. This is the most vital aspect to company success because he could take control over the major decision in this field. On many times he saw the technology future direction more vividly than his rivals. As a goal oriented leader he was ready to lead the way to his employees. The other aspect was that Gates nurtured culture of fierce competition among his employees and that everything company embarked was bound to win. He led the pack by being an extremely strong negotiator and he did not hesitate to crush down competitors. By assuming the position of a visionary leader, Bill developed a new model of business leader (Dearlove 2010, p. 37). For many years, he continuously showed that he was the nearest thing that industry of computer had to a seer. His great knowledge of technology and distinctive approach of manipulating data gave him exceptional capability to spot trends in future and steer the strategy of the company in the right direction. Gates was also oriented to hiring brilliantly smart employees and the term was people of high IQ. In some areas it was criticized as being elitist but it had various positive effects. First is that it was able to hire majority of excellent students direct from college who were fascinated by the prospect of performing with finest in the field. 3.2 Bill Gates Management Disadvantages The problem with goal oriented leadership and management style is that it does not empower employees which can result to negative impacts such as low motivation and lack of effective communication. The czar of software has held his finger in each pie and has controlled the activities of his delegates by fierce and constant interrogations and in most case he revert their decisions (Edward & Robert 2006). This obviously leads to low motivation which in turn results to deteriorating productivity. Control is fundamental aspect to nature of Gates and his style of management. He has a passion with checking up and with details to an extent that he used to sign spending for his second man, Mr. Ballmer. This obsession affected anti-trust trial such that very few people could believe his evidence. With huge decisions and minute funneled to the top, Gates and his second man resulted to being bottleneck. This type of management eroded the confidence of managers at lower ranks. Gates employed uncouth technique to challenge his programmers. Ruth (2008, p. 76) indicates that Gates would shout to them and told them that their program was brainless or that he could do a superior job in shorter time. Working at Microsoft was demanding and intense. Management style of Gates challenged his employees to go back from square one and develop better product that would match with his standards. Employees could argue with him but they were pushed to do better and it came to be anticipated. Gates’ confrontation and emotional management style was detrimental to the employees. In this type of management style, it is may be hard for the new manger to join the group and instantly articulate his idea of where the group should head. 4.0 Conclusion Warren Buffet and his organization, Berkshire Hathaway, have applied the philosophy of letting go his manager so that they can manage his businesses as their own. This type of management exhibits engaging leadership style. This type of people management transcends into motivation of a person and this is advantage to his businesses since they can perform even better. He allowed his managers a huge autonomy resulting to empowerment that characterizes style of engaging leadership. The major pitfall of his style is that managers can handle their own interest more efficiently and diligently than those of the owners on whose behalf they operate. The founder and CEO of Microsoft, Bill Gates, has thrived and survived on computer technology industry. His leadership style has been goal oriented resulting to hiring only very bright people and retained them through various mix of constant challenge, excitement and fabulous working condition. He had set of guidelines that oriented him in achieving his goals that were also backed by his high knowledge in technology such that he could predict the future trend and direct his business in the right way. Control is fundamental aspect to nature of Gates and his style of management which can lead to low motivation among employees. Working at Microsoft was demanding and intense. Reference Alimo-Metcalfe, B 2008, ‘Creating organisations that maximise the potential of their people’, Engaging Leadership, pp. 1-40. Dearlove, D 2010,The Unauthorized Guide To Doing Business the Bill Gates Way, Capstone Publishing Ltd, West Sussex, UK. Edward, B & Robert, H 2006, ‘Management styles & leadership styles of Warren Buffet & Bill Gates’, Thinking Managers, viewed 10 August 2010, Fiedler, F 1987, Theory of Leadership Effectiveness, McGraw-Hill, New York, NY. James, O 2004, The Real Warren Buffett: Managing Capital, Leading People, Nicholas Brealey Publishing, Yarmouth, USA. Owen, H 2000, In Search of Leaders, Wiley, New York, NY. Ruth, S 2008, Bill Gates, ABDO Publishing Company, Minnesota. Victor, D & Malcolm, H 2005, ‘Assessing leadership styles and organizational context’, Journal of Managerial Psychology, vol. 20, no. 2, pp. 105-123. Read More