The Strategic Control Process Essay

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The Strategic Control Process

Berkshire Hathaway Inc. Facts

            Berkshire Hathaway Inc. is a holding company that allows only in possessing outstanding shares of other companies to own and control a number of various companies. The core business of Berkshire Hathaway Inc. is to offer insurance, which comprise of property, casualty and reinsurance services. Also, it is engaged in specialty substandard insurance policies.

Berkshire Hathaway Inc. is owned by the ‘world’s famous greatest stock market investor of the modern times’, Warren Edward Buffett. He is the current chairperson and the Chief Executive Officer of Berkshire Hathaway Inc. According to Anthony Bianco, author of the article ‘The Warren Buffett You Don’t Know’, Warren Buffet considered Berkshire as his baby. He had purchased Berkshire Hathaway that amounts to $11 million in the year 1965. The legendary investor handled his business bearing in mind the investors and managers. However, he managed the holding company the way it is suitable with him. (BIANCO, July 5, 1999)

            Warren Edward Buffett is the second richest person next to Bill Gates in the whole world. He just started with a vanishing textile manufacturer and he made good use of the cash flows of his business into an enormous assortment of businesses that is stable and profitable. He invested from insurance and building equipments to clothing and furniture trading. The Insurance and finance subsidiaries are consisted of National Indemnity, GEICO Corporation and General Re, which is a mammoth reinsurance company.

Other companies include See’s Candies, Dairy Queen, Clayton Homes, and Flight Safety International. And in the year 2006, the Business wire which is a press release distributor, and Russell, a sportswear company, were added to the list of subsidiaries that Berkshire Hathaway bought. Furthermore, ISCAR Metalworking, a manufacturer of metal cutting tools which was based in Israel was the primary foreign-based company that has been part of the Berkshire Hathaway Inc.

            Warren Buffett possesses the 38 percent share of stock of Berkshire Hathaway. His trusted friend, Mr. Charles Munger is the co-owner and Vice-Chairman of Berkshire Hathaway Inc holding also big enough share of the company. However, the two principal stock holders of the Berkshire Hathaway business do not engage in a conversation that much anymore. Nevertheless, they did not argue on the matters that concerns the operation of the holding company.  As a matter of fact, the two investors are engaged in different leisure pursuit, Buffett on his dedicated way of continuous developing of Berkshire and Munger on his charitable works. (BIANCO, July 5, 1999)

Strategic Management

Strategic management is functioned as the most advanced and modern stage of the whole management process. It assists in directing employees’ sense of direction toward the accomplishment of the company’s goal. It is the fusion of strategic planning, implementation and controlling management where strategic control is to be focused.

            Strategic control organization supports the implementation of the strategic plans. This aims to identify and fix the occurrence of problems that leads away from the main goal of the company without affecting the inventiveness and ingenuity of the process.(“Lecture E-Strategic Planning,”) This is connected with the monitoring progress towards strategic targets of the company (“What is Strategic Control?,” 2001).

Almost every investments made by the Berkshire Hathaway prospers like gold. With this ability of Buffett, he was entitled as the modern – day Midas, a Phrygian king in Greek mythology, who has the power to turn everything that he had touched into gold. (BIANCO, July 5, 1999)

But what makes Warren Buffet the world’s famous and greatest inventor of the modern time? How did Buffet manage Berkshire Hathaway, Inc., the holding company that finances his investments in public quoted stocks and buying companies?

As mentioned in page above, Mr. Buffet is the owner and CEO of Berkshire Hathaway and Mr. Munger, the Vice-Chairman of the same holding company. The two managing partner of Berkshire Hathaway holding company delegate the responsibility of operating the business to the managers of every company subsidiary. Buffet and Munger left the key manager run their businesses as that is how those key managers like to operate. All the decisions regarding the functioning of the business operation is assigned to the managers. They would just turn over the excess profit that they have generated to the headquarters thus allowing them to concentrate on their responsibilities of the organizational cash flow and not with the diverse temptations.

Furthermore, to gain the loyalty and commitment of the subordinates of the Berkshire Hathaway Inc., they comprehend the need to deal with the key managers specifically in the fairest manner possible. Because this is how they wanted to be treated if the situation is inverted. (BUFFET, 1996)

As a matter of fact, Buffett intercept less in the operation of the business and rather oversee the whole operations from the top. He cultivated to initiate communication with the company’s executives and waited for them to report to him the things that were likely to cause trouble. He allowed his higher subordinates to directly contact him anytime they want. With that, many believed that the famous Warren Buffet is utilizing the laissez – faire management style.

Laissez – faire style of leadership is where delegation of all duties and tasks is placed to the management staff while the role of the leader is just tangential. This is true in the case of how Warren Buffett manage the Berkshire Hathaway. Furthermore, less communication takes place in this type of leadership, the same with what Buffet is executing within the company.

It is known that applying this type of leadership style generally leads to poor management, deficient in concentrating and sense of direction toward the main goal of the company. However, the opposite of the result is correct with what is happening in the Berkshire Hathaway management. With Laissez – faire style of leadership implemented in Buffet’s management of the holding company, professionalism and creativity in the group of employees is inculcated.

            On the contrary, there is no absolute thing in the world. So the weak point of the Laissez – faire leadership type of Buffet surfaced. According also to the article of Pallavi Gogoi in his article “Buffet: Right Again?’, in 2002, General Re, the world’s largest reinsurance company which provides insurance for insurance company and the also the major subsidiary of the Berkshire Hathaway crediting for about 25 percent of the revenue of the holding company, got into intensifying reduction of profit and unfortunate operation. These losses are contributed in the desire to put policies in the competition out of business to increase the market share. The company had neglected the fact to allocate enough savings as for the compensation of the maintenance.  (GOGOI, MARCH 4, 2002)

            Buffet set down the management to the Ronald Ferguson, the CEO of General Re for a long period of time. He was confident enough of General Re CEO. However, it turned out that Ferguson had ignored the early indications of weaknesses thus resulting to the misfortune losses.

            Nonetheless, the business had the chance to rise again after the incident with the occurrence of the September 11 bombing tragedy. There was a sudden increase in the first – class income of the entire insurers. From that time on and for that specific reason, Warren Buffet took an active role in the operation of the reinsurance company. He had abandoned the hands – off rule in dealing with his business. (GOGOI, MARCH 4, 2002)

Business Principles

            Warren Buffett arranges 13 basic business principles to recognize the management approach. This is made by Mr. Buffett himself in his ‘Owner’s Manual’. (BUFFET, 1996)

            The first principle is stated that even if the Berkshire Hathaway is a corporation, the managerial approach is the same with partnership with the shareholders of the holding company as owner – partners. The second principle said that a principal fraction of the company’s net worth endowed in the business is shared to majority of the directors thus both the owners and the shareholders get the advantage and disadvantage of the business operation.

            With this comes the ‘long – term economic goal’ of Berkshire Hathaway of making the most of the average annual rate of gain (AARG) through progress and development. Thus, this gives the third principle. Going on the fourth regulation is the acquisition and branching out of varying businesses that could produce earning beyond average returns on capital. The fifth is providing seemed – essential earning reports of the main businesses for individual decision makings. And the sixth code is that the operation and the decision for allocation of resources are indeterminate of the result of any financial reports.

            The seventh attitude is by organizing fixed – rate basis in a long period of time when borrowing loans as to be fair with the policyholders, lenders and many equity holders. Protection of the shareholder interest is considered in purchasing whole businesses and by which the eighth rule applies.

            The ninth conduct is the regular inspection of the retention earning results. The tenth standard implies the issuing of common stock to the deserving businesses that in return generate the same business value. The issue of selling any company of good performance under Berkshire is the eleventh conduct thus maintaining the loyalty of the shareholders.

            The assurance of being truthful with the reports given to the shareholders is the twelfth code. And lastly, the thirteenth principle that Warren Buffet organize is in the degree level of lawfully necessity conferring about the business pursuit in profitable safety.

“I love running Berkshire, and if enjoying life promotes longevity, Methuselah’s record is in jeopardy. “ – Warren E. Buffett, Chairman

References

BIANCO, A. (July 5, 1999). The Warren Buffett You Don’t Know [Electronic Version], 54. Retrieved May 17, 2007 from http://user.chollian.net/~hwangone/notice/notice20040830.htm.

BUFFET, W. (1996). “An Owner’s Manual” [Electronic Version]. Retrieved May 17, 2007 from http://www.berkshirehathaway.com/ownman.pdf.

GOGOI, P. ( MARCH 4, 2002). Buffett: Right Again? [Electronic Version]. Retrieved May 17, 2007 from http://www.businessweek.com/magazine/content/02_09/b3772094.htm.

Lecture E-Strategic Planning [Electronic Version]. Retrieved May 17, 2007 from http://www.ee.uwa.edu.au/~ccroft/em333/lectures97/lece.pdf.

What is Strategic Control? [Electronic (2001). Version]. Retrieved May 17, 2007 from http://www.2gc.co.uk/pdf/2GC-FAQP02.pdf.

 

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