In a previous podcast, we discussed about what makes a good management, where we cited operational management and resource allocation as two key elements of good management. In this short article, we zoom in on the key qualities of an individual that makes him or her a good manager. We borrow from the observations and experiences of Warren Buffett and Charlie Munger, two great investors of our time, in judging the quality of managers. Spotting a good manager of a company is important if you are an investor or owner of a company. A group of good managers comprise high quality management that is a critical element to the success of a company.
The primary quality is the interest and habit of continuous learning. The world is complex. The more we know about ourselves and the environment, the more effective we are in shaping the world around us. The world also changes, and it is important to know how the world is changing in ways that affect our lives and organizations. Managers who constantly learn and adopt to new things have an edge over those who stops learning after leaving schools.
Second is resource allocation. We provided examples in podcast no. 34 about choosing the most profitable clients or products. But in addition to this, resource allocation is also about effective investment of retained earnings of a company by channeling the excess funds to the most profitable investments. In practical terms, resource allocation also means choosing the right people to hire, promote, or assign to specific tasks. Successful managers are very good at channeling all types of resources to where they count.
The third quality of a good manager is being a Level 5 leader. Introduced by leadership author Jim Collins, level 5 leadership means answering the question of whether the person prioritizes the company or the self? Level 5 leaders puts the health of the company and other people as the primary goal for leadership and management. Conversely, lower quality managers put the self above all else. Level 5 leaders are uncommon, but the outcome of the two opposing orientation can be staggering.
The last quality is track record. We should not discount the basic value of track record. Managers who have succeeded in managing complex organizations and projects with consistency are poised to do well in future projects. Without the outcome of management in practice, it will be difficult to gauge the effectiveness of a manager. A manager can try to impress other people about his knowledge of management, but unless he applied them successfully in an organization, no one would know for sure whether he can pull it off in the future.
These four key elements will be very useful to any investor or business owner in their goal to maximize the value of the company they own.