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Berkshire Hathaway: Management and Leadership

Introduction

Management and leadership play an important role in the delivery of good services and the establishment of fair and trustful relationships between employees, their leaders, and customers. Despite the existing differences between leaders and managers, these two strategic concepts have to go hand in hand because good managers should take all possible steps to become good leaders, and leaders should never forget about the worth of their management skills to stay effective. The impact of the efficient and supportive management style of an organization determines conflict management ability (Shao et al., 2016).

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In addition, positive outcomes of negotiations also define the quality of leadership and management. The culture of an organization is absolutely dependent on the chosen management and leadership style as well as the conflicts and negotiation practices within the organization. Berkshire Hathaway Inc. is a company chosen for the analysis in this paper. This multinational holding organization is known worldwide due to its effective leadership and control demonstrated by Warren Buffett. This paper aims at analyzing and understanding the management practices of the chosen firm and the leadership styles of its managers through discussing its negotiation practices for mitigating organizational conflicts and evaluating the impact of the institutional culture of Berkshire Hathaway.

Impact of Management and Leadership Styles

Many factors determine the establishment and development of management and leadership styles in a company, including a personality of a leader, managers’ traits, power, political factors, and teamwork ability. In addition, a company structure may have an influence on its leadership style (Bock et al., 2012). Though organizational structure limits the power of the leadership positions within an organization, this controlling mechanism changes with the management structure and explains the urgency of improvements (Kruis et al., 2016, p.19-20). Organizational controls can be used to diagnose the problem within the firm and to fix them. Also, sometimes it was used to revive the business (Su et al., 2017). An understanding of organizational structure and culture is an important step in analyzing leadership and management.

The management style of an organization is defined by the flexibility offered by the organizational structures to the decision-makers of the firm. The strategic flexibility of an organization should come from its adaptability to industry change, organic structure that improves its performance when adapting to environmental changes, and its ability to allocate its resources along with the effective allocation of managerial focus (Bock et al., 2012). Innovative organizational culture can be derived from the avoidance of mechanistic structure, in other words, embracing the organic organizational structure.

The organic structure of an organization should facilitate strategic flexibility, which has a crucial impact on the organization’s culture (Bock et al., 2012). Azanza et al. (2013) found that organizational flexibility is positively related to employee job satisfaction, which leads to authentic leadership practices within the organization. The strategic flexibility of an organization is supposed to facilitate employee line empowerment, transformational leadership practices, and openness of leaders to new ideas, support for development, and responsiveness to have a positive impact on the organization’s culture. Flexible organizational structure initiates transformational or authentic leadership that has a positive impact on the organizational culture and overall performance. Mao et al. (2017) asserted that an organizational structure has an important impact on the development of its culture (p.45).

At the same time, leadership is a significant element of the organization’s success as it has a considerable impact on the organization’s culture. The peculiar feature of organizational culture is the presence of small and sometimes invisible patterns that may guide and motivate people even under the most challenging conditions. For example, the establishment of culture requires an understanding of the company’s core values and mission (Azanza et al., 2013). Without this knowledge, people can hardly understand what they should do and why. Therefore, much attention is paid to monitoring and assessment of employees and their skills (Gilbert et al., 2012). Every business entity should strive for establishing a structure that supports authentic leadership styles. Transformational leadership practices increase the affective commitment, normative commitment, and continuance commitment level of an employee (Acar, 2012). Once these commitment levels demonstrate increase, the performance of a firm will be improved drastically, and the firm will be able to achieve sustainable growth.

As the leadership style has an impact on the employee commitment level, it is quite logical that it would have a substantial impact on the organization’s culture. Leadership styles shape the team cultures, hierarchical cultures, market cultures, and adhocracy cultures (Acar, 2012). For example, team and adhocracy cultures may have a positive effect on organizations. The former is based on emotional attachment and the necessity to demonstrate strong leadership skills. The latter includes development and entrepreneurship as its main forces. One person can hardly achieve success even if demonstrating the best qualities of a good leader. It is necessary to know how to work in a team and how to use market cultures, including all external factors that may influence the work of the organization. Gilbert et al. (2012) argued that leaders of an organization should reduce the toxic influence within the firm and focus on developing a community-centered leadership style to create an innovative organizational culture. In brief, leadership style has a substantial impact on the employee commitments which make an important element that positively influences the culture of an organization.

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Analysis of Berkshire Hathaway Structure and Leadership Style

It is widely known that Berkshire Hathaway is one of the most successful organizations that represents superior performances along with sustainable growth. The objective of this paper is to analyze the leadership and management of this leading organization based on the theories mentioned above. The following section is presenting a detailed analysis of the organizational structure of Berkshire and some peculiarities of its organizational culture. The paper also explains the relationship between the organization’s structure and its cultural setting.

An analysis of the corporate governance policy is suggesting that the firm focuses on the organic structure. The board of directors has independent access to the managers of the firm. This fact indicates a flexible hierarchy within the organization. The CEO of Berkshire is not the chairman of the company, and he is supposed to follow task leadership as well as relational leadership. Chairman/CEO duality is somehow detrimental to a firm, and the benefits of an independent board leadership depend on situations (Larcker and Tayan, 2016, p.3). The use of task leadership to ensure the implementation of an informational role and the integration of relational leadership ensures the operational effectiveness of an organization (Hartnell et al., 2016, p.846). This structure seems to be more effective because relational style might send wrong signals to the employees which would be regulated by the task leadership. The formal structure of Berkshire is dependent on the functions of the organization which has facilitated its growth through innovation. Ribeiro et al. (2016) concluded that horizontal differentiation can bring a positive result for a firm if it is controlled to a certain extent through vertical differentiation (p.14-15).

The company encourages fair dealing and provides clear instructions for all the managers and leaders to maintain a transformational leadership style. Besides, employees are free to enjoy flexibility in decision-making but are monitored by their leaders to implement accountability. Berkshire Hathaway is following a matrix organizational structure. The firm strictly protests against bureaucracy so the implication of bureaucratic structure in the firm would be a punishable action (Cunningham, 2015). All senior managers can be accessed by the employees in Berkshire which is an indicator of a flexible organizational structure. In their study, Bentley et al. (2016) found that perceived social support of the supervisor improves employee performances (p.213). The firm’s compliance policies are very supportive and encourage innovation within the firm. It also provides an opportunity for all the employees to report the violation of any compliance law.

In brief, Berkshire Hathaway follows a matrix organizational structure that has facilitated the practice of task leadership and relational leadership to ensure optimum employee performances. The strategic flexibility of the organization is absolutely supportive of the firm. The theory of organizational culture (Schein, 1990) suggests that an organizational culture develops based on three levels visible organizational structure and processes, strategies, goals, and philosophies of the organization, and underlying assumptions that create values, beliefs, and thoughts and feelings among the employees of the firm.

Berkshire Hathaway practices a transformational leadership style. This type of leadership generates a strong culture where employees are committed to performing their best (Mayer, 2014). When a firm creates a strong ethical culture, the performance of the firm increases. In support of this idea, Huhtala et al. (2016) proved that managers who belong to an organization that has a strong ethical culture demonstrate the highest level of engagement in their work (p.21).

The values of the organization are extremely related to all the employees’ personal gains. As it is a financial company, it focuses on optimized investments which are related to the personal interests of the majority of the people around the world (Cunningham, 2015). It is believed that employees prefer having financial benefits to remain motivated and committed to their work. Berkshires Hathaway offers notable financial benefits to its employees. Apart from that, Warren Buffet convinces key managers of many other companies all over the world to take their profits and invest in other companies, which makes the managers more committed to their companies. The performance of employees is greatly influenced by their interdependence and working ability within the team; and to increase the team performance, the managers must consider the inclusion of benefits for human capital traits in the compensation system (Howard et al., 2016, p.216). In addition to that, all the underlying assumptions, i.e. beliefs, perceptions of employees, thoughts, and feelings for the organization and other aspects that generate values, are designed in a way to adjust the course of actions as required. In other words, Berkshire follows the contingency theory of Chapman and Robbins (1990) to create its third level of organizational culture.

Berkshire Hathaway prefers the structure which is a mix of vertical and horizontal control, and the firm practices a combination of task-based and relational leadership to boost its employee performance. As a result, the company managed to establish a strong ethical culture successfully which has positive impacts on the firm’s performance in the long run.

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Leadership Styles and Conflict Management

It is quite natural that a company will encounter some conflicts between the involved parties and it is the responsibility of the organization leaders to mitigate the existing conflicts through effective negotiation. This section of the paper discusses how leadership styles can have an impact on the conflict management and negotiation practices within Berkshire Hathaway.

Different types of conflict management techniques can be applied to the company depending on the existing leadership practices of every particular organization. Some managers demonstrate low engagement when dealing with conflicts created by their subordinates while other managers might demonstrate active participation in resolving the conflicts that arise within the company. Leaders with coercive power tend to avoid conflicts excepting the leaders with legitimate power who tend to exhibit an accommodating and collaborating conflict management style (Riasi and Asadzadeh, 2016). The creation of a particular environment for conflict management is likely to prevent the increase of bullying in the workplace as well as increase employee engagement in the organization. Moreover, the managers can minimize bullying through active collaboration (Einarsen et al., 2016, p.17).

Jiang et al. (2016) found that “knowledge sharing facilitates team performance, while intra-group conflict impairs team performance in the long run. Team empowerment yields different team performance across cultures due to the respective moderating effects of power distance and collectivism” (p.62). With attention to these findings, it can be concluded that management of conflicts within an organization requires the active participation of the managers or leaders. If the leadership style of the firm is not relational style, it becomes difficult for the firm to manage the conflict of interests among the employees who have a severe negative impact on the company’s performance. Similarly, the organizational structure has a significant impact on the conflict management policy of a firm. To sum up, organizational culture, which is determined by the structure and leadership styles, has a significant impact on the conflict management practices of a company.

The conflict management policy of Berkshire Hathaway seems to be very supportive due to its strong ethical organization. The company provides clear guidance to its employees to react when there is a conflict of interest. The managers of the firm are given clear and proper instructions to take the necessary steps to resolve any conflict raised in the organization between different parties. Apart from this fact, the company has empowered its team and has fostered a knowledge-sharing culture that has increased the average employee performance of Berkshire Hathaway. Shao et al. (2016) suggested that transformational leadership styles fit best of all during the adoption phase which is related to conflict management while transactional leadership fits best during the implementation phase (p.148). Warren Buffet has clearly adopted the best organizational structure and appropriate leadership style for the business organization in his company.

Leadership Styles and Negotiation

According to Clohisy et al. (2017) “The most basic goal in any negotiation should be to establish a relationship (or deepen an existing relationship) while seeking an agreement that provides win-win opportunities for all parties” (p.60). This section analyses the negotiation styles of the leaders of Berkshire Hathaway. It also tries to establish a relationship between the leadership style and negotiation skills that can be beneficial for the general performance of the company.

Effective negotiation within the business organization is necessary to improve communication effectiveness. Negotiation usually takes place between two or more parties that are dealing with a conflict of interest. The negotiation styles of managers have a significant impact on the solution of a conflict with the best possible outcomes for all the parties involved. Besides that, negotiation takes place between parties outside the organization as well where effective negotiation skills are the key to the success of the company. It is considered that the negotiation style of managers and leaders changes drastically with the negotiation phases; it also changes depending on the situation and context of the negotiation (Preuss and Wijst, 2017). In their study, Keshtkaran et al. (2017) found that negotiation style changes with the management experience, context of the manager, also manager’s age is positively related to the negotiation styles. There are many researchers who argue that the negotiation style of the managers depends on their personal traits and it does not have any impact on the leadership styles followed by the manager. Negotiation skills of a negotiator largely dependent on personal characteristics, personality traits, cultural views, and some other characteristics (Grabowska and Kozina, 2016, p.3-4).

Discussing the relationship between negotiation and leadership, it is necessary to admit that leadership style has an impact on the negotiation styles. For example, Alavi et al. (2017) found changes in people’s negotiation behavior that salespeople might embrace their leaders’ price defending behavior if the leader follows transformational style. Based on the findings, it can be concluded that the negotiation styles applied by Berkshire Hathaway are efficient because the company seems to be performing better in the course of time. Moreover, the company has established a deep understanding of the employees. The managers are closely connected to their subordinates which suggests the idea that their negotiation skills are efficient. Although there is no information about the price defending behavior of the sales team, logically the sales team should follow an effective negotiation style because the company follows transformational leadership styles while engaging with subordinates.

Findings and Conclusion

The qualitative analysis on Berkshire Hathaway explains many important issues of management and leadership. This study aimed at discussing the peculiar features of management and leadership of the company and its impact on organizational and cultural development. The relationship between organizational structure, leadership on the conflict management, and available negotiation styles were considered. A qualitative analysis of Berkshire Hathaway reveals that there is a strong positive relationship between organizational structure and leadership style. In addition, the leadership style of the firm defines the organizational culture of a company; therefore, the leaders prefer to combine the characteristics of transformational and transactional styles fostering a strong ethical culture and successful conflict management processes. Berkshire Hathaway succeeds in adopting a strong ethical culture through a combination of organizational structures. A collaborative and supportive conflict management style is initiated by a relational leadership model developed by Warren Buffet in terms of which personal characteristics of the negotiators can be defined, and a pool of effective negotiators is created.

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To conclude, it can be said that properly chosen leadership and management styles play a vital role in achieving organizational success. Subsequently, leadership style defines the corporate culture which has a positive impact on the conflict management and negotiation styles of the organization. Management skills are also important for leaders and organizational development because they create a solid ground for future decisions and activities. Briefly speaking, management structure, leadership style, conflict management, and negotiation style are closely interrelated and push an organization’s performance.

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