Berkshire Hathaway: Principles of Management

The selected organization of interest is Berkshire Hathaway, which is a holding company. There are 14 key Fayol’s principles, which include division of work, authority and responsibility, discipline, unity of command, unity of direction, subordination of individual interest, and remuneration (Rodrigues, 2001). The framework also involves centralization, scalar chain, order, equity, stability, initiative, and Esprit de corps (McLean, 2011). Berkshire Hathaway incorporates centralization because although “Berkshire’s operating businesses are managed on an unusually decentralized basis,” it should be noted that “there are few centralized or integrated business functions” (Berkshire Hathaway Inc., 2020, p. 21). It is stated that the company’s “corporate senior management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses” (Berkshire Hathaway Inc., 2020, p. 21). However, in most business operations, the company uses a decentralized approach, where managers are responsible for motivating their employees, which implies the principle of Esprit de corps. The third principle is order since the company’s “operating businesses establish specific policies and practices for their businesses concerning the attraction and retention of personnel within the organizations” (Berkshire Hathaway Inc., 2020, p. 21).

Berkshire Hathaway favors order above all other principles because the company employs around 360000 people on a decentralized basis (Berkshire Hathaway Inc., 2020). Therefore, the performance of the company is highly reliant not on close-up supervision but rather on Berkshire’s strict rules of operations. The principle of order and Esprit de corps can be linked to the organizational roles of managers of each individual branch of the company. Since these branches operate with some degree of autonomy, except for major decisions, employee motivation and flexibility within the protocols of conduct are navigated by these positions.

References

Berkshire Hathaway Inc. (2020). Annual report [PDF document].

McLean, J. (2011). Fayol: Standing the test of time. Manager: British Journal of Administrative Management, 74, 32–33. Web.

Rodrigues, C. A. (2001). Fayol’s 14 principles of management then and now: A framework for managing today’s organizations effectively. Management Decision, 39(10), 880-889.