4 things that Warren Buffet does—and why CIOs should take note

I have long been fascinated with Warren Buffet. He has neither the bearing nor the speech that one would expect from an extremely wealthy investor and business magnate. I find he is further set apart by his restrained, levelheaded approach to investing. There is much wisdom to be found in his business management and investment philosophies that can benefit CIOs. The following insights were gleaned from an annual letter he sent to Berkshire Hathaway shareholders some years ago, and a subsequent interview he gave shortly thereafter on CNBC.

 

Don’t do something you don’t understand.

Buffett doesn’t invest in businesses he doesn’t understand. I am amazed by how frequently companies make investments in technologies that they simply don’t understand. Most new innovations in our field are surrounded by a cloud (pardon the pun, I couldn’t resist!) of hype that serves to create unrealistic expectations. Add to this the underlying complexity and immaturity of many technologies, and the probability of disaster grows exponentially. It is imperative that responsible CIOs be the voice of reason in these decisions. This begins by asking questions—lots of questions. No question is too basic if you don’t know the answer. I can’t tell you how many times I have sat through detailed technical presentations with countless architectural diagrams and a sea of acronyms presented by polished sales representatives supplemented by brilliant technical staff. Everyone nods their heads knowingly and a form of “group think” takes over as everyone becomes enamored with the possibilities. The problem at this point is that most of the participants don’t know what they don’t know and are reluctant to ask the basic clarifying questions lest they look bad in front of their peers. It is precisely at this point that CIOs need to lead by asking the obvious questions.

 

In the interview Buffett remarked, “I understand why people drink Coke, chew Wrigley’s gum and why people buy insurance” (Buffett is a long-term investor in Geico). The key word here is “why.” His fundamental understanding of the businesses he invests in begins with why they exist in the first place. I have found that questions that begin with the word “why” get to the heart of a matter quickly. Make sure that you ask the “why” questions, the “how” questions and the “what if” questions, because it is quite possible that no one else will. Make sure that you fully understand why and how the technology will make your company more successful and the implications to the business and its people. Make sure you are satisfied that you understand the risks and benefits. The buck stops with you. Don’t sign off on an investment you don’t understand. 

 

Stick to the fundamentals.

Within nature, there are laws that we cannot violate without consequences. Take gravity for example. It doesn’t matter who you are or how smart you are, step off the roof of a building and you will hit the ground. Gravity exists and it doesn’t discriminate.

 

Likewise, there are fundamental laws of economics. Almost all economic disasters have been caused by the violation of basic laws of economics. Don’t loan money to people who can’t repay you. Don’t buy a house or car that you can’t afford. A company with no plan to ever turn a profit is not a good long-term investment. The violation of these basis economic laws led, in the first two examples, to the housing crisis and in the third case to the bursting of the “dot-com bubble” in the early 2000s. Buffett understands this and as a result you will not see him investing in “too-good-to-be-true” businesses. He is a value investor who invests for the long haul in stable businesses. In short, he sticks to the fundamentals.

 

For CIOs, sticking to the fundamentals means hiring the best people possible, developing your promising employees and dealing promptly and responsibly with poor performers. It means balancing the three legs of the CIO success stool: high quality service, operational excellence and strategic leadership. If you want to understand the fundamentals of executive leadership, read Peter Drucker’s The Effective Executive. First published in 1967, the book is a timeless discussion of executive leadership. The very fact that, despite all of the changes in the world of business, it is still both relevant and popular after 44 years speaks volumes. Wisdom never goes out of style.

 

Focus on long-term results.

Buffett is a “value investor” who is known for his buy-and-hold strategy. He is in it for the long term. You won’t find him in obscure investments or following the latest get-rich-quick schemes. No investments in Madoff Investment Securities!

 

For CIOs, the lesson is to maintain a relentless focus on long-term results as defined by the long-term success of the business. Measure your long-term success by the same metrics that appear in the annual report. How are you and your organization contributing to top-line growth, profitability, lower cost of goods and other barometers of company success?

 

Don’t get distracted by “shiny things.”

Finally, Warren Buffett is famous for leading a simple life. He still lives in the modest house he bought in the late 1950s. He is famous for driving older cars. He does fly on a private jet but, after all, he owns NetJets and his time is certainly valuable. The lesson here is that he is not distracted by “shiny things.” He is focused on long-term results.

 

For CIOs, this means not getting too wrapped up in the perks of the job. Don’t let these begin to define who you are. When we get addicted to the perks, power and prestige of the job the natural inclination is to get focused on protecting these aspects. This translates into risk-aversion, office politics and other forms of self-preservation. When we focus on protecting our position and power, we are usually not focusing on doing our job. That job is facilitating long-term business growth.

 

Follow me on Twitter.

 

Related links:

How your IT shop can become “self-actualized”

The CIO’s New Year’s resolution: A new year, a new you

 

Joel H. Dobbs is the CEO and President of The Compass Talent Management Group LLC (CTMG), a consulting firm that assists organizations with the identification and development of key talent and with designing organizational strategies and structures to maximize their ability to compete in the business worlds of today and tomorrow. He is also an executive coach and serves as Executive in Residence at the University of Alabama at Birmingham School of Business. Joel is also a popular and frequent contributor to the Enterprise CIO Forum where a version of this article was first published.

Labels: IT leadership
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