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Warren Buffett – Not your average billionaire

This blog will be the first in a series of posts profiling some of today’s most successful business leaders. Each leader is recognised as a trailblazer in their own right; entrepreneurs and visionaries who have dared to challenge the status quo and write their own rules.

This series will explore their different leadership styles and approaches and look at how this has shaped their success.

I decided to kick off with a name you might recognise as being one of the wealthiest and most business savvy people on the planet.

Warren Buffett

Warren Buffett is the creator and CEO of Berkshire Hathaway, a holding company with interests in the likes of Apple, Costco and Coca Cola. [1]

Buffett has been a regular on the Forbes 400 Richest People in America list since 1982, and in 2008 was officially crowned the richest person in the world with a fortune of $62 billion.

Warren Buffett is the stuff of legends and has a cult-like following of investors that hang on his every word. But for me, it is not so much his financial prowess that I’m interested in, but rather how his distinctive leadership style has contributed to his celebrated status in the world of business.

Laissez Faire Management Style

Numerous books and articles written about Warren Buffett refer to his laissez-faire approach to management. A French term, laissez-faire loosely translates to “let them do” -basically let people do as they choose. This label seems fair given what I have come to learn about Buffett’s hands-off approach.

When Buffett buys a business, he leaves the managers alone to run the company the way they would have had he not bought them. Unlike other CEO’s, he doesn’t seek to exert control through traditional corporate plans or strategic meetings, and generally only communicates through his annual letter to the board. [2]

So how has Warren Buffett managed to successfully build an empire with assets worth $621 billion [3] whilst all the time remaining at arms length?

Adapting the Situation to Suit the Leader

Perhaps the secret lies in the corporate culture and operating environment he has carefully cultivated over the last four decades.

Engaging Top Talent
Warren Buffett has been quoted as telling his children “If you want to soar like an eagle in life, you can’t be flocking with the turkeys”. His personal philosophy is to surround yourself with good people whose behaviour is better than yours so that they inspire and challenge you. When hiring managers, Buffett looks for integrity, intelligence, and energy. [4]

Autonomy and Accountability
It stands to reason then that by choosing highly motivated and capable leadership, Buffett has been able to entrust his businesses to the stewardship of others. Handing over full autonomy is fundamental to the way Buffett operates. [2] (For more on the benefits and challenges of autonomy see A Sensible Discussion about Autonomy)

Meaningful Communication
Though Buffett’s communication with his people may be infrequent, his words have impact. He showers praise on the people who work for him in his annual letters but is also generous with advice. He breaks down complex financial concepts in a way that anybody can understand him.

Values-Driven Culture
In Part II of my blog Aligning People I discussed how a group united by values will achieve far more than one that’s driven by other agendas. Interestingly, Buffett only acquires well-led, profitable companies that share his values. He believes that a values-driven culture translates to strong business performance and credits a strong culture with the ability to attract and retain outstanding employees. [5]

If you want to soar like an eagle in life, you can’t be flocking with the turkeys

Authentic Leadership – Living the Values, Walking the Talk.

An ‘aha’ moment for me in my research into Warren Buffett was when I realised that the values he pursues in business he practises in all aspects of his life.

Thriftiness

Berkshire Hathaway only acquires firms with low debt and strict cost control. This reflects Buffett himself who is renowned for his frugal nature. He still lives in the same house he purchased in 1958 for $32,500 and drives himself to work everyday. [6]

Hard Work and Discipline

Lawrence A Cunningham in his book Berkshire Beyond Buffett wrote that,
“Buffett’s own success has been built through hard work, discipline, a no-nonsense acquisition strategy and unwavering adherence to core values”. [2]

Buffett demands the same level of discipline and commitment from his leaders. He asks only that they stay true to their core business and values. In other words, he expects them to keep doing what they know how to do and to do it well. No more, no less. [2]

Integrity and Humility

Cognology has found extensive evidence to suggest that integrity is a key attribute of exceptional leaders. Buffett is passionate about maintaining a reputation for doing the right thing and instructs his leaders to “zealously guard Berkshire’s reputation.” [7]

Buffett is admired for the humble manner in which he openly admits his failures and his willingness to share the lessons he has learnt. In turn he encourages his business leaders to “face up immediately to bad news” and not let problems fester. [7]

But Warren Buffett is not as warm and cuddly as he might seem. He has shown that he is also a man prepared to deal with any leader that has breached what he holds sacred. A Buffett biographer once noted that “when a leader violates corporate values or generates reputational damage, the axe falls swiftly.” [2]

Letting Go

At 87, Warren Buffett has no plans to retire. People will remember Buffett for his extraordinary ability to pick good investments. But in truth, a lot of his success has been due to his ability to identify talent and retain top performers for the long term.

His leadership style has been shaped by his own personality: his honesty, his integrity, his humility, and his other deeply ingrained values. He has succeeded in demonstrating that you don’t have to maintain tight control over your people to do well in business. Success can in fact come from letting go – so long as you have laid the right groundwork to begin with.

References

  1. CNBC, [Online]. Available: http://www.cnbc.com/berkshire-hathaway-portfolio/.
  2. L. A. Cunningham, Berkshire Beyond Buffett : The Enduring Value of Values, Columbia University Press, 2014.
  3. Market Watch, “marketwatch.com,” [Online]. Available: http://www.marketwatch.com/investing/stock/brk.a/financials. [Accessed 09 03 2017].
  4. Vintage Value Investing, [Online]. Available: http://vintagevalueinvesting.com/wp-content/uploads/2017/01/Warren-Buffett-University-of-Florida-Lecture-Vintage-Value-Investing.pdf.
  5. L. A. Cunningham, “The Philosophy of Warren E. Buffett,” The New York Times, 05 02 2015.
  6. A. Mohr, “www.investopedia.com,” 22 07 2016. [Online]. Available: http://www.investopedia.com/financial-edge/0412/the-everyday-lives-of-frugal-billionaires.aspx.
  7. W. Buffett, “berkshirehathaway.com,” 31 12 2014. [Online]. Available: http://www.berkshirehathaway.com/letters/2014ltr.pdf.

Disrupting Human Resources

Warmest thoughts and best wishes for a wonderful holiday and a very happy new year.

Happy holidays from CognologyKaren, Brad, Jon and Louise of Cognology

Disrupting Human Resources

This isn’t a new topic. Everyone from world famous entrepreneurs to the guy on the street has an opinion on Human Resources – and they’re rarely flattering.

We’ve all read articles arguing that the industry needs to change and, with 2017 dawning, I think now is the time to put words into action. As a HR professional – and the CEO of a HR Technology company that itself needs HR management – I thought I’d share my somewhat unique perspective on the subject.

Disrupting HR

Why does HR need to change?

Before we get down and dirty with what needs to change, let’s take a moment to consider why we need change.

Less than a year ago, The Australian reported that the average time it took to fill a vacant position had topped a record-breaking 68 days, and they estimated that those vacancies were costing AU$558 million per ASX100 company¹. The authors championed a shake up, citing a problem with recruitment as a clear indication that HR needs to change.

I agree that these numbers indicate a problem worth fixing but, to my mind, they hint at a bigger issue; HR is still widely viewed as a compliance and admin department.

Yes, Human Resources didn’t walk into the workplace fully grown – it started life as the Personnel Department, an administrative team that managed everything concerning the workforce at a human level – but it’s grown beyond that.

We know good Human Resource management practices address skills gaps, increase engagement, reduce churn, and improve job satisfaction². This fact was acknowledged by Ram Charan (the bestselling author and advisor) back in 2014, when he argued that we needed a complete overhaul and a new structure. That particular article may have caused quite a stir, but the message wasn’t a new one. Industry leaders including John Boudreau, Mark Herbert, and Carol Anderson have been calling for a change for years.

And the reason we need a shake up, the problem that’s plaguing our industry? HR departments often lack skilled team members and the wider respect of the organisation (Edward Lawler once shared an anecdote about a manager who not-so-fondly referred to his colleagues in HR as the ‘Business Prevention Unit’). So, unless we disrupt Human Resources and turn it on its head, we’re going to struggle to effect real change and improve organisational efficiency.

Strategic Human Resource Management

That’s not to say that we haven’t made strides in the right direction. The last few years have seen Strategic Human Resource Management (SHRM) take a step closer to the top table, aligning HR practices with organisational strategy and growth initiatives.

But the fact that only 5% of HR professionals feel their department is seen as a strategic partner within their organisation⁴ proves that there’s more than a few problems with SHRM. Which is where I come in.

Disrupting Human Resources

I have a plan to disrupt Human Resources, and it involves a two-pronged attack:

  1. Move administration and legal responsibilities away from HR.
  2. Replace HR with a Business Performance Group.

I’m not the first to argue for removing the administrative, compliance, or legal aspects of HR to other organisational groups. In 2015, Edward Lawler suggested splitting the department in two: administrators on one side, highly skilled analysts with a keen strategic understanding of the business on the other. I would go even further though, and say surely it’s more efficient to remove administrative responsibilities altogether?


Disrupting HR infographic

Lean Methodology

Because efficiency is key and, when it comes to streamlining HR and repurposing it to drive organisational growth, there’s a lot to be learned from the manufacturing world.

Many of you will be familiar with Toyota’s ‘Lean Methodology’³, a process that focuses on optimising the customer experience while minimising waste. ‘Lean’ organisations work at peak efficiency, creating more value with fewer resources. They understand what the customer values and continually innovate and refine their processes to enhance customer experience. The end goal? To deliver maximum value with no waste.

This is the function HR should perform within an organisation. We should be data driven and strategically focused, responsible for identifying the most efficient processes to deliver on organisational goals.

The Business Performance Group (BPG)

The real disruption in my idea stems from the Business Performance Group (BPG). This completely new organisational unit will replace the HR department in much the same way that Human Resources replaced Personnel.

The idea for this group came from thinking about the HR function and what I want from it as a business owner. Those of you who caught my blog post on work and happiness won’t be surprised to discover that, for me and my business, performance and happiness are at the top of my list.

I want a business that performs because I’m committed to creating the best talent management technology for my customers. I need performance to achieve that.

I also want the people who work with me to be happy. As I see it, we nailed survival a long time ago (for most of the world at least). Today, working is more a group effort to progress, innovate, and improve each other’s lives. So work should really make us happy.

The Aim of BPG

So, with an objective to optimise efficiency and deliver on organisational goals, the BPG has three key responsibilities:

  1. Identify ways to improve performance and happiness.
  2. Implement improvements and manage change.
  3. Advise the organisation on people management.

The BPG will not be a department of ill-equipped administrators. It will be a highly productive, results driven team made up of experts from specialist fields.

The first specialty is leadership, which is critical to performance and something most organisations are failing miserably at. In fact, 70% of leaders say they carry out regular performance conversations, but only 56% of their employees agree⁴.

BPG leadership experts will address this disconnect, spearheading individual development, coaching, and mentoring programs. An apprenticeship approach to management training will provide a strong leadership succession strategy, something only 14% of businesses feel they currently have⁴.

Analysts and productivity experts will also feature highly in the BPG. Supported by data scientists, they will be responsible for assessing current processes, uncovering improvements, and managing change. This team will enhance efficiency and identify future trends – a critical performance metric we undervalue as a nation. Don’t believe me? Employers in Italy, Japan, and China all cite a ‘global mindset’ as one of the most important skills a new hire can possess, while Australian employers view the same trait as the least important to long-term business success⁴. Who do you think is right?

Learning and Development specialists will form the third pillar of the BPG, and their work will support the initiatives of the rest of the team. Data driven, these guys will provide learning opportunities to the workforce, efficiently addressing skills gaps before they hinder organisational growth, and ensuring all learning is relevant to the workplace. That may sound extraneous to a highly efficient, lean organisation but, by 2020, one third of the skills we see as core today will have changed⁴. Businesses that intend to keep pace will need to prioritise education.

R&D

Of course, the BPG isn’t going to walk in and solve every problem overnight. This is a team of analysts, and they’ll require data to assess value.

I propose borrowing a stalwart of the Silicon Valley design process (after all, their performance management techniques were worth stealing); split testing. It’s the same approach the folks in marketing call A/B testing, and it simply involves testing two competing strategies alongside each other to see which performs best.

Companies like Google have gained real value from split testing at a product level, and I firmly believe the approach could work well at an organisational level as well. The BPG could split test everything from training methods to customer enquiry responses, creating in the process a business that performs at optimum efficiency and a HR alternative that delivers quantifiable results and adds real value to your organisation.

To Sum Up…

Until we as business owners and managers recognise that the value of Human Resources goes far beyond recruitment and administration, we’ll never unlock the full potential of our employees, our businesses, and our markets. HR doesn’t need a revamp, it needs disruption.

References

¹Haywood, 2016. Companies wasting millions on hiring. The Australian (Business Review).

²Kehoe and Wright, 2010. The impact of high performance human resource practices on employees’ attitudes and behaviors. Journal of Management. 39 (2). pp. 366-391.

³Teich et al., 2013. Lean management – the journey from Toyota to healthcare. Rambam Maimonides Medical Journal. 4 (2).

⁴Mercer, 2016. Futureproofing HR: Bridging the gap between employees and employers. Mercer.

⁵WorkplaceInfo, 2016. Got a bad reputation? It’s going to cost you. WorkplaceInfo.

Management Mistakes 101: Training Tomorrow’s Leaders

Picture this; you’re a fresh-faced leader just getting to grips with your new role. Your main bugbear? One team member who is underperforming. It doesn’t matter how many SMART goals you set and performance conversations you have, over the next few months this individual fails to pull their socks up. To an experienced leader, this is a manageable problem with an obvious solution but, to a new manager, it’s terrifying.

You have no more tricks left up your sleeve, and it feels like the only option available is to terminate. Now, it might be that termination is a valid approach – even rigorous coaching has its limits – but having the confidence to know you’ve done everything you can and are justified in pulling the trigger is far beyond the experience of most new leaders. So, how do we as experienced managers ensure that those still finding their feet have the tools they need to succeed?

Training new Leaders

The head in the sand solution

We all have a tendency to opt for the easy option, and that means avoiding confrontation or tricky situations. With an underperformer and an inexperienced manager, this approach typically leads to the invention of a ‘special project’, something to keep the lacklustre colleague occupied and limit the damage they can do to team productivity. Of course, there is one other option; do nothing – and silently resent the underperformer’s presence while you do.

Neither option is conducive to the long-term success of the team, the organisation, or a developing manager. In fact, feeling powerless to improve the situation can turn new leaders into cynical, passive-aggressive, or sarcastic managers. It should come as no surprise that all these traits have a significant impact on employee morale, engagement, and productivity¹.

The unprofessional approach

Sarcasm, cynicism, and passive-aggression are all avoidance behaviours, and they’re the go-to reaction for many of us when we become overwhelmed. Needless to say, they have no place in a manager-employee relationship. Not only are they detrimental to organisational productivity¹, but they’ve also been shown to negatively impact employee engagement and job satisfaction, and increase burnout². Hardly surprising – it’s harder to trust sarcastic, cynical, or passive-aggressive leaders, many of whom will avoid giving direct critiques of work and actionable feedback³. Put simply; employees don’t know where they stand with these types of managers.

Of course, instilling the need to avoid such behaviours in a new manager is only part of the problem. Your developing leader might be able to rise above the annoyance caused by an underachiever, but what about the rest of their team? Passive-aggression is just as detrimental in a team as a leader. At an organisational level, it can slow decision making and stall execution, at a team level it hinders communication and productivity. For individuals, it causes unnecessary stress⁴.

New managers are responsible for the entire team, and they need to have the confidence to address issues like this and the skill to foster productive conflict before their first day on the job.

From theory to practice

“There is nothing so easy to learn as experience and nothing so hard to apply.”

-Josh Billings, American Humorist

Learning management theory is easy, it’s translating all those strategies into the real world that can be tricky. Those of you who caught my article on promoting high performers will know that I’m firmly of the opinion learning to become a manager takes time and practice. I’m all for an apprenticeship approach.

Letting individuals grow into management roles and develop their skills by managing freelancers or overseeing important projects means we create fewer frustrated or overwhelmed new leaders. Without an approach like the one I’m advocating, potentially good managers can be undone by the challenges of practicing leadership.

Making a manager

An apprenticeship approach requires a serious commitment to coaching and training. Budding managers need to understand just how important their role is to the long-term success of the organisation. It’s up to them to align, motivate, and inspire their teams, and they’ll need a whole new set of skills to achieve that:

  • Communication. Gone are the days of off hand comments to colleagues. New managers need to be mindful of what they are saying and the impact their opinions can have on a team. Good communication is critical to many productivity initiatives, especially delivering employee feedback, and new leaders need to learn how to win the trust and respect of their team.
  • Delegation. One of the biggest challenges for a new manager is recognising the difference between delivering results at a team level as opposed to as an individual. New leaders no longer have complete control over an outcome, and if they don’t have the support and experience to delegate, the urge to micro-manage may become too hard to fight.
  • Critical Thinking: Not a widely used skill in junior roles, many new managers need time to learn how to think strategically and identify the most productive workflows for their team. All the theory in the world won’t help them with this one; it’s a skill only experience can teach.

To sum up…

Managers – the good ones at least – are not made overnight. As senior leaders, it’s up to us to mentor promising individuals. This means creating opportunities for potential managers to lead long before they take on an official management role, and continuing to mentor and support new managers to ensure they have the support they need to excel as leaders.

What was your experience of junior management? Did you ever wish you’d had more training and support?

References

¹Kessler et al., 2013. Leadership, interpersonal conflict and counterproductive work behaviour: An examination of stressor-strain process. [Abstract]. International Association for Conflict Management. 6 (3). pp. 180-190.
²Leary et al., 2013. The relationship among dysfunctional leadership dispositions, employee engagement, job satisfaction and burnout. [Abstract]. The Psychologist-Manager Journal. 16 (2). pp 112-130.
³Jones, 2012. 5 signs of passive-aggressive management: why it kills employee motivation and how to deal. Brazen.
⁴Davey, 2016. Reduce passive aggressive behaviour on your team. Harvard Business Review.

Is Holacracy a real management trend?

Part 4 of our data driven investigation into 2014’s real talent trends

Recap: We’re continuing our data driven look into the real talent trends of 2014

Today we have the last part of our data driven look into the real talent trends of 2014.

To recap, we’re investigating these trends using the public data that Indeed makes available about millions of job postings. Using the Indeed data, we can look at how frequently certain terms are occurring in millions of job ads, all the way back to 2005. It’s a powerful way to look at whether HR trends are really changing the way that companies are hiring.

Today, we’re using this data to look at Holacracy.

We heard a lot about Holacracy in 2014. But is it a real trend…or just a good news story?

There was a lot written about Holacracy in the business press over 2014. Many of these articles were focused on Zappos getting rid of all managers and moving to a Holacratic org structure.

Some of the high profile news pieces you might have seen included:

But is this a real trend? Because if you’re signing up to a Holacratic workplace without managers, you’d expect that the job advertisement should mention the fact.

Holacracy

The data is pretty clear here. To seven decimal places, we’re seeing zero job advertisements that feature any mention of Holacracy.

My advice: don’t throw out your org chart just yet! Management isn’t going anywhere for a long time.

As the chart below shows, traditional “management” continues to come up in a consistent 30% of all job posts. This has been relatively stable over the past ten years. What it means to be a manager will certainly change around the edges (through concepts like Agile Performance Management), but traditional management isn’t going anywhere fast.

Management

Interested in the real talent management trends of 2014? Don’t miss the other parts of this series….

If you loved these talent trend insights, there’s plenty more in this series:

  1. Millennials are changing the way we work (part 1)
  2. HR is about to be taken over by data/finance (part 2)
  3. Technology is reshaping the way we work (part 3)
  4. Holacracy is set to make managers obsolete (part 4)

And of course, I’d always love to continue the conversation and discuss this article on Twitter. Tweet @cognology with your take on this research and any other key trends you’d like us to look at.