1. Corporate strategy is about how a company generates value across different values and all other issues that might influence the company. An effective corporate strategy requires the management to know clearly the current situation of the company, where they want the company to be and how they can achieve their goals. One of the most distinctive features of Berkshire Hathaway was its diversified investment portfolio which covered insurance, housing manufacturing, wholesale distribution, electric utility and so on which enable the company to maintain profitability throughout economic cycles. The acquisition strategy of Berkshire Hathaway was an aggregation of different businesses and little attention is paid …show more content…
The corporate model of Berkshire Hathaway is a combination of extreme centralization of capital allocations and extreme decentralization of operating authority. To be more specifically, the headquarter took its primary responsibility to allocate resources and capitals to each subsidiaries and the subsidiaries were allowed to be performed by local managers with high level of authority. The CEO of Berkshire Buffett as well as the sounding board Munger with limited authority was the only person who could decide capital allocation and no other analytical staff or investment committee were responsible for making the decision. The headquarter had the lowest overhead which had many advantages including financial savings, expense reduction due to a small number of staff, and the increased speed of decision making. With a small number of staff to manage, Buffett was able to devote most of his time to his major roles. In terms of the operating authority for each business unit, local managers were allowed to operate their business at their own discretion. After Buffett allocated resources and capitals to each business unit, the local managers were those who have the final word on how to allocate these capitals within their own businesses. Since the local managers were responsible for their own business performance, they tended to be more considerate on how to allocate their capitals more efficiently in order to generate more revenues. The high autonomy that the managers at each …show more content…
When powers are distributed to each local business unit, the company development depends much on trust and faith, which means that mutual trusts between the headquarter and subsidiaries are required. But there are also risks that the trusted associates may abuse their autonomy and power. Fragmentation means that each business unit may lose their sense of team spirit and cooperation when the company is too decentralized. However, as the business in each subsidiary of Berkshire is totally different, decentralization might still be an effective way for each business unit to grow more