Principles: Life and Work
Metadata
- Title: Principles: Life and Work
- Author: Ray Dalio
- Book URL: https://amazon.com/dp/B071CTK28D?tag=malvaonlin-20
- Open in Kindle: kindle://book/?action=open&asin=B071CTK28D
- Last Updated on: Wednesday, December 20, 2017
Highlights & Notes
Principles are fundamental truths that serve as the foundations for behavior that gets you what you want out of life. They can be applied again and again in similar situations to help you achieve your goals.
Having a good set of principles is like having a good collection of recipes for success.
To be principled means to consistently operate with principles that can be clearly explained.
We come by our principles in different ways. Sometimes we gain them through our own experiences and reflections. Sometimes we accept them from others, like our parents, or we adopt holistic packages of principles, such as those of religions and legal frameworks.
If you can think for yourself while being open-minded in a clearheaded way to find out what is best for you to do, and if you can summon up the courage to do it, you will make the most of your life.
• Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve #1 in light of #2 … … and do that with humility and open-mindedness so that you consider the best thinking available to you.
interact. People who have shared values and principles get along. People who don’t will suffer through constant misunderstandings and conflicts.
Too often in relationships, people’s principles aren’t clear. This is especially problematic in organizations where people need to have shared principles to be successful.
I believe that the key to success lies in knowing how to both strive for a lot and fail well. By failing well, I mean being able to experience painful failures that provide big learnings without failing badly enough to get knocked out of the game.
Operate by principles … … that are so clearly laid out that their logic can easily be assessed and you and others can see if you walk the talk. Experience taught me how invaluable it is to reflect on and write down my decision-making criteria whenever I made a decision, so I got in the habit of doing that.
Systemize your decision making.
The most important thing is that you develop your own principles and ideally write them down, especially if you are working with others.
Think for yourself! 1) What do you want? 2) What is true? 3) What are you going to do about it?
Over the course of our lives, we make millions and millions of decisions that are essentially bets, some large and some small. It pays to think about how we make them because they are what ultimately determine the quality of our lives.
Thoreau: “If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away.”
Meditation has benefited me hugely throughout my life because it produces a calm open-mindedness that allows me to think more clearly and creatively.
“You better make sense of what happened to other people in other times and other places because if you don’t you won’t know if these things can happen to you and, if they do, you won’t know how to deal with them.”
In trading you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep money.
To me it all looked like a beautiful machine with logical cause-effect relationships. By understanding these relationships, I could come up with decision rules (or principles) I could model.
Visualizing complex systems as machines, figuring out the cause-effect relationships within them, writing down the principles for dealing with them, and feeding them into a computer so the computer could “make decisions” for me all became standard practices.
The most painful lesson that was repeatedly hammered home is that you can never be sure of anything: There are always risks out there that can hurt you badly, even in the seemingly safest bets, so it’s always best to assume you’re missing something.
Think about it: It’s senseless to have making money as your goal as money has no intrinsic value—its value comes from what it can buy, and it can’t buy everything. It’s smarter to start with what you really want, which are your real goals, and then work back to what you need to attain them. Money will be one of the things you need, but it’s not the only one and certainly not the most important one once you get past having the amount you need to get what you really want.
Timing is everything. I was relieved that I was out of that market, but watching the richest man in the world—who was also someone I empathized with—go broke was jarring. Yet it was nothing compared to what was to come.
I had to share my thinking with my clients. Because my views were so controversial I asked others to track my reasoning and point out to me where it was bad. No one could find any flaws in my logic, though they were all reluctant to endorse my conclusion.
Losing people I cared so much about and very nearly losing my dream of working for myself was devastating. To make ends meet, I even had to borrow $4,000 from my dad until we could sell our second car. I had come to a fork in the road: Should I put on a tie and take a job on Wall Street? That was not the life I wanted. On the other hand, I had a wife and two young children to support. I realized I was facing one of life’s big turning points and my choices would have big implications for me and for my family’s future.
Imagine that in order to have a great life you have to cross a dangerous jungle. You can stay safe where you are and have an ordinary life, or you can risk crossing the jungle to have a terrific life. How would you approach that choice? Take a moment to think about it because it is the sort of choice that, in one form or another, we all have to make.
In retrospect, my crash was one of the best things that ever happened to me because it gave me the humility I needed to balance my aggressiveness. I learned a great fear of being wrong that shifted my mind-set from thinking “I’m right” to asking myself “How do I know I’m right?” And I saw clearly that the best way to answer this question is by finding other independent thinkers who are on the same mission as me and who see things differently from me. By engaging them in thoughtful disagreement, I’d be able to understand their reasoning and have them stress-test mine. That way, we can all raise our probability of being right.
1. Seek out the smartest people who disagreed with me so I could try to understand their reasoning. 2. Know when not to have an opinion. 3. Develop, test, and systemize timeless and universal principles. 4. Balance risks in ways that keep the big upside while reducing the downside.
this experience led me to build Bridgewater as an idea meritocracy—not an autocracy in which I lead and others follow, and not a democracy in which everyone’s vote is equal—but a meritocracy that encourages thoughtful disagreements and explores and weighs people’s opinions in proportion to their merits.
beneficial change begins when you can acknowledge and even embrace your weaknesses.
I saw that to do exceptionally well you have to push your limits and that, if you push your limits, you will crash and it will hurt a lot. You will think you have failed—but that won’t be true unless you give up. Believe it or not, your pain will fade and you will have many other opportunities ahead of you, though you might not see them at the time. The most important thing you can do is to gather the lessons these failures provide and gain humility and radical open-mindedness in order to increase your chances of success. Then you press on.
“He who lives by the crystal ball is destined to eat ground glass”
However, rather than blindly following the computer’s recommendations, I would have the computer work in parallel with my own analysis and then compare the two. When the computer’s decision was different from mine, I would examine why. Most of the time, it was because I had overlooked something. In those cases, the computer taught me. But sometimes I would think about some new criteria my system would’ve missed, so I would then teach the computer. We helped each other.
grew. Rather than argue about our conclusions, my partners and I would argue about our different decision-making criteria. Then we resolved our disagreements by testing the criteria objectively.
I believe one of the most valuable things you can do to improve your decision making is to think through your principles for making decisions, write them out in both words and computer algorithms, back-test them if possible, and use them on a real-time basis to run in parallel with your brain’s decision making.
I learned that if you work hard and creatively, you can have just about anything you want, but not everything you want. Maturity is the ability to reject good alternatives in order to pursue even better ones.
I’ve also learned that judging people before really seeing things through their eyes stands in the way of understanding their circumstances—and that isn’t smart. I urge you to be curious enough to want to understand how the people who see things differently from you came to see them that way. You will find that interesting and invaluable, and the richer perspective you gain will help you decide what you should do.
I believe that all organizations basically have two types of people: those who work to be part of a mission, and those who work for a paycheck. I wanted to surround myself with people who needed what I needed, which was to make sense of things for myself. I spoke frankly, and I expected those around me to speak frankly. I fought for what I thought was best, and I wanted them to do so as well. When I thought someone did something stupid, I said so and I expected them to tell me when I did something stupid. Each of us would be better for it. To me, that was what strong and productive relationships looked like. Operating any other way would be unproductive and unethical.
At that time, and for quite a while longer, I tended to hire people just out of school who didn’t have much experience but were smart, determined, and committed to the mission of making the company great.
I didn’t value experience as much as character, creativity, and common sense, which I suppose was related to my having started Bridgewater two years out of school myself, and my belief that having an ability to figure things out is more important than having specific knowledge of how to do something. It seemed to me, young people were creating sensible innovation that was exciting.
Whether you own a hotel, run a technology company, or do anything else, your business produces a return stream. Having a few good uncorrelated return streams is better than having just one, and knowing how to combine return streams is even more effective than being able to choose good ones (though of course you have to do both).
Making a handful of good uncorrelated bets that are balanced and leveraged well is the surest way of having a lot of upside without being exposed to unacceptable downside.
It was a terrible and costly error, and I could’ve done something dramatic like fire Ross to set a tone that mistakes would not be tolerated. But since mistakes happen all the time, that would have only encouraged other people to hide theirs, which would have led to even bigger and more costly errors. I believed strongly that we should bring problems and disagreements to the surface to learn what should be done to make things better. So Ross and I worked to build out an “error log” in the trading department.
Having a process that ensures problems are brought to the surface, and their root causes diagnosed, assures that continual improvements occur.
My rule was simple: If something went badly, you had to put it in the log, characterize its severity, and make clear who was responsible for it. If a mistake happened and you logged it, you were okay. If you didn’t log it, you would be in deep trouble. This way managers had problems brought to them, which was worlds better than having to seek them out. The error log (which we now call the issue log) was our first management tool. I learned subsequently how important tools are in helping to reinforce desired behaviors, which led us to create a number of tools I will describe later. This culture of bringing problems and disagreements to the surface generated a lot of discomfort and conflict, especially when it came to exploring people’s weaknesses. Before long, things came to a boil.
I had to choose between one of two seemingly essential but mutually exclusive options: 1) being radically truthful with each other including probing to bring our problems and weaknesses to the surface so we could deal with them forthrightly and 2) having happy and satisfied employees. And it reminded me that when faced with the choice between two things you need that are seemingly at odds, go slowly to figure out how you can have as much of both as possible. There is almost always a good path that you just haven’t figured out yet, so look for it until you find it rather than settle for the choice that is then apparent to you.
1. Put our honest thoughts out on the table, 2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and 3. Have agreed-upon ways of deciding (e.g., voting, having clear authorities) if disagreements remain so that we can move beyond them without resentments.
Most people assume that the challenges that go along with growing a large business are greater than those of growing a smaller one. That is not true. Going from a five-person organization to a sixty-person organization was just as challenging as going from a sixty-person organization to a seven-hundred-person organization—and from a seven-hundred-person organization to a 1,500-person one.
To have a real idea meritocracy, there must be transparency so that people can see things for themselves.
Bob Kegan called Bridgewater “a form of proof that the quest for business excellence and the search for personal realization need not be mutually exclusive—and can, in fact, be essential to each other.”
Since I started Bridgewater we always had some problems because we were always doing bold new things, making mistakes, and evolving quickly.
I conducted a time-and-motion study of all of my investment and management responsibilities; it showed it would take me about 165 hours a week to achieve the level of excellence that I would be satisfied with in overseeing both our investments and management. That was obviously impossible. Since I wanted to delegate as much as possible, I asked whether the things I was doing could be done excellently by others, and if so, who those others were. Everyone agreed that most of those areas couldn’t adequately be delegated. I clearly hadn’t done a good enough job of finding and training others to whom I could delegate my responsibilities.
To me, the greatest success you can have as the person in charge is to orchestrate others to do things well without you. A step below that is doing things well yourself, and worst of all is doing things poorly yourself.
As much as I love and have benefited from artificial intelligence, I believe that only people can discover such things and then program computers to do them. That’s why I believe that the right people, working with each other and with computers, are the key to success.
Getting a lot of attention for being successful is a bad position to be in.
As a result, I tended to hire people who were the same way—who would dive right into challenges, figure out what to do about them, and then do it. I figured that if they had great character, common sense, and creativity, and were driven to achieve our shared mission, they would discover what it took to be successful if I gave them the freedom to figure out how to make the right decisions.
But while almost all of us quickly agreed on the principles intellectually, many still struggled to convert what they had agreed to intellectually into effective action. This was because their habits and emotional barriers remained stronger than their reasoning.
New hires typically go through an acclimation period of about eighteen to twenty-four months before becoming comfortable with the truthfulness and transparency that is such an essential part of the Bridgewater culture—especially accepting one’s mistakes and figuring out how to deal with them.
People who run companies are faced with important choices every day. How they make those choices determines the character of the company, the quality of its relationships, and the outcomes it produces.
It seems to me that life consists of three phases. In the first, we are dependent on others and we learn. In the second, others depend on us and we work. And in the third and last, when others no longer depend on us and we no longer have to work, we are free to savor life.
We diagnosed why in the same way an engineer would diagnose why a machine is operating suboptimally so it could be reengineered to perform better. Since different people produce different outcomes based on differences in what they are like, whenever we create a team we seek to “engineer” the right mix of attributes and people to achieve our goals.
It turns out they have a lot in common. They are all independent thinkers who do not let anything or anyone stand in the way of achieving their audacious goals. They have very strong mental maps of how things should be done, and at the same time a willingness to test those mental maps in the world of reality and change the ways they do things to make them work better. They are extremely resilient, because their need to achieve what they envision is stronger than the pain they experience as they struggle to achieve it. Perhaps most interesting, they have a wider range of vision than most people, either because they have that vision themselves or because they know how to get it from others who can see what they can’t. All are able to see both big pictures and granular details (and levels in between) and synthesize the perspectives they gain at those different levels, whereas most people see just one or the other. They are simultaneously creative, systematic, and practical. They are assertive and open-minded at the same time. Above all, they are passionate about what they are doing, intolerant of people who work for them who aren’t excellent at what they do, and want to have a big, beneficial impact on the world.
When faced with a choice between achieving their goal or pleasing (or not disappointing) others, they would choose achieving their goal every time.
nobody sees the full range of what they need to see in order to be exceptionally successful, though some see a wider range than others. Those that do best both see a wide range themselves while triangulating well with other brilliant people who see things in different, complementary ways.
While in the past I would encounter problems, figure out their causes, and design my own ways to get around them, others who think differently than I do will make different diagnoses and designs. My job as mentor was to help them be successful at that.
This exercise reminded me that there are far fewer types of people in the world than there are people and far fewer different types of situations than there are situations, so matching the right types of people to the right types of situations is key.
So I was more motivated than ever to continue gathering lots of data on what people are like to build pointillist pictures of them to help us match people to responsibilities well. Doing this in an evidence-based way would enhance the idea-meritocratic process of aligning people’s responsibilities with their merits.
While we have principles, we don’t have decision-making systems.
I believe that the investment decision-making process is effective because the investment principles have been put into decision rules that make decisions that people then follow while the management decision-making process is less effective because the management principles have not been put into decision rules that people can follow to make management decisions.
One of the great things about algorithmic decision making is that it focuses people on cause-effect relationships and, in that way, helps foster a real idea meritocracy. When everyone can see the criteria the algorithms use and have a hand in developing them, they can all agree that the system is fair and trust the computer to look at the evidence, make the right assessments about people, and assign them the right authorities. The algorithms are essentially principles in action on a continuous basis.
All these tools reinforce good habits and good thinking. The good habits come from thinking repeatedly in a principled way, like learning to speak a language. The good thinking comes from exploring the reasoning behind the principles.
When countries negotiate with one another, they typically operate as if they are opponents in a chess match or merchants in a bazaar in which maximizing one’s own benefit is the sole objective. Smart leaders know their own countries’ vulnerabilities, take advantage of others’ vulnerabilities, and expect the other countries’ leaders to do the same.
As a result, most people who see the world through the lens of the media tend to look for who is good and who is evil rather than what the vested interests and relative powers are and how they are being played out.
A community in which you always have the right and obligation to make sense of things and a process for working yourselves through disagreements—i.e., a real, functioning idea meritocracy. I want you to think, not follow—while recognizing that you can be wrong and that you have weaknesses—and I want to help you get the most likely best answers, even if you personally don’t believe that they’re the best answers. I want to give you radical open-mindedness and an idea meritocracy that will take you from being trapped in your own heads to having access to the best minds in the world to help you make the best decisions for you and for our community. I want to help you all struggle well and evolve to get the most out of life.
I had learned that it’s wrong to assume either that a person in one role will be successful in another role or that the ways one person operates will work well for another.
Watching the same things happen again and again, I began to see reality as a gorgeous perpetual motion machine, in which causes become effects that become causes of new effects, and so on.
being strong is better than being weak, and that struggling gives one strength.
What I have seen is that the happiest people discover their own nature and match their life to it.
I realized that passing on knowledge is like passing on DNA—it is more important than the individual, because it lives way beyond the individual’s life.
I believe that everything that happens comes about because of cause-effect relationships that repeat and evolve over time.
Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively.
Having good principles for dealing with the realities we encounter is the most important driver of how well we handle them.
There is nothing more important than understanding how reality works and how to deal with it. The state of mind you bring to this process makes all the difference.
If I can reconcile my emotions with my logic and only act when they are aligned, I make better decisions.
Understanding, accepting, and working with reality is both practical and beautiful. I have become so much of a hyperrealist that I’ve learned to appreciate the beauty of all realities, even harsh ones, and have come to despise impractical idealism.
Dreams + Reality + Determination = A Successful Life. People who achieve success and drive progress deeply understand the cause-effect relationships that govern reality and have principles for using them to get what they want. The converse is also true: Idealists who are not well grounded in reality create problems, not progress.
understanding of reality—is the essential foundation for any good outcome.
Most people fight seeing what’s true when it’s not what they want it to be. That’s bad, because it is more important to understand and deal with the bad stuff since the good stuff will take care of itself.
b. Don’t let fears of what others think of you stand in your way. You must be willing to do things in the unique ways you think are best—and to open-mindedly reflect on the feedback that comes inevitably as a result of being that way.
1.4 Look to nature to learn how reality works. All the laws of reality were given to us by nature. Man didn’t create these laws, but by understanding them we can use them to foster our own evolution and achieve our goals.
To try to figure out the universal laws of reality and principles for dealing with it, I’ve found it helpful to try to look at things from nature’s perspective.
Don’t get hung up on your views of how things “should” be because you will miss out on learning how they really are. It’s important not to let our biases stand in the way of our objectivity. To get good results, we need to be analytical rather than emotional.
Whenever I observe something in nature that I (or mankind) think is wrong, I assume that I’m wrong and try to figure out why what nature is doing makes sense.
b. To be “good” something must operate consistently with the laws of reality and contribute to the evolution of the whole; that is what is most rewarded.
From this perspective, we can see that perfection doesn’t exist; it is a goal that fuels a never-ending process of adaptation. If nature, or anything, were perfect it wouldn’t be evolving. Organisms, organizations, and individual people are always highly imperfect but capable of improving. So rather than getting stuck hiding our mistakes and pretending we’re perfect, it makes sense to find our imperfections and deal with them. You will either learn valuable lessons from your mistakes and press on, better equipped to succeed—or you won’t and you will fail.
The individual’s incentives must be aligned with the group’s goals.To
Reality is optimizing for the whole—not for you. Contribute to the whole and you will likely be rewarded.
Adaptation through rapid trial and error is invaluable.
Realize that you are simultaneously everything and nothing—and decide what you want to be.
Because we are capable of conscious, memory-based learning, we can evolve further and faster than any other species, changing not just across generations but within our own lifetimes.
This means that for most people success is struggling and evolving as effectively as possible, i.e., learning rapidly about oneself and one’s environment, and then changing to improve.
It is a fundamental law of nature that in order to gain strength one has to push one’s limits, which is painful.
If you can develop a reflexive reaction to psychic pain that causes you to reflect on it rather than avoid it, it will lead to your rapid learning/evolving.22 After seeing how much more effective it is to face the painful realities that are caused by your problems, mistakes, and weaknesses, I believe you won’t want to operate any other way. It’s just a matter of getting in the habit of doing it.
Every time you confront something painful, you are at a potentially important juncture in your life—you have the opportunity to choose healthy and painful truth or unhealthy but comfortable delusion.
• Identifying, accepting, and learning how to deal with your weaknesses, • Preferring that the people around you be honest with you rather than keep their negative thoughts about you to themselves, and • Being yourself rather than having to pretend to be strong where you are weak.
The quality of your life will depend on the choices you make at those painful moments. The faster one appropriately adapts, the better.24 No matter what you want out of life, your ability to adapt and move quickly and efficiently through the process of personal evolution will determine your success and your happiness. If you do it well, you can change your psychological reaction to it so that what was painful can become something you crave.
Quite often the first-order consequences are the temptations that cost us what we really want, and sometimes they are the barriers that stand in our way. It’s almost as though nature sorts us by throwing us trick choices that have both types of consequences and penalizing those who make their decisions on the basis of the first-order consequences alone.
Whatever circumstances life brings you, you will be more likely to succeed and find happiness if you take responsibility for making your decisions well instead of complaining about things being beyond your control.
Think of yourself as a machine operating within a machine and know that you have the ability to alter your machines to produce better outcomes.
By comparing your outcomes with your goals, you can determine how to modify your machine.
Distinguish between you as the designer of your machine and you as a worker with your machine.
The biggest mistake most people make is to not see themselves and others objectively, which leads them to bump into their own and others’ weaknesses again and again.
Successful people are those who can go above themselves to see things objectively and manage those things to shape change.
You will just have to learn how to face your realities and use the full range of resources at your disposal.
Watching people struggle and having others watch you struggle can elicit all kinds of ego-driven emotions such as sympathy, pity, embarrassment, anger, or defensiveness. You need to get over all that and stop seeing struggling as something negative. Most of life’s greatest opportunities come out of moments of struggle; it’s up to you to make the most of these tests of creativity and character.
When encountering your weaknesses you have four choices: 1. You can deny them (which is what most people do). 2. You can accept them and work at them in order to try to convert them into strengths (which might or might not work depending on your ability to change). 3. You can accept your weaknesses and find ways around them. 4. Or, you can change what you are going after.
Asking others who are strong in areas where you are weak to help you is a great skill that you should develop no matter what, as it will help you develop guardrails that will prevent you from doing what you shouldn’t be doing.
Because it is difficult to see oneself objectively, you need to rely on the input of others and the whole body of evidence.
If you are open-minded enough and determined, you can get virtually anything you want.
1. Don’t confuse what you wish were true with what is really true. 2. Don’t worry about looking good—worry instead about achieving your goals. 3. Don’t overweight first-order consequences relative to second- and third-order ones. 4. Don’t let pain stand in the way of progress. 5. Don’t blame bad outcomes on anyone but yourself.
1. Have clear goals. 2. Identify and don’t tolerate the problems that stand in the way of your achieving those goals. 3. Accurately diagnose the problems to get at their root causes. 4. Design plans that will get you around them. 5. Do what’s necessary to push these designs through to results.
Choosing a goal often means rejecting some things you want in order to get other things that you want or need even more.
b. Don’t confuse goals with desires. A proper goal is something that you really need to achieve. Desires are things that you want that can prevent you from reaching your goals. Typically, desires are first-order consequences.
What will ultimately fulfill you are things that feel right at both levels, as both desires and goals.
Never rule out a goal because you think it’s unattainable.
Remember that great expectations create great capabilities. If you limit your goals to what you know you can achieve, you are setting the bar way too low.
Almost nothing can stop you from succeeding if you have a) flexibility and b) self-accountability. Flexibility is what allows you to accept what reality (or knowledgeable people) teaches you; self-accountability is essential because if you really believe that failing to achieve a goal is your personal failure, you will see your failing to achieve it as indicative that you haven’t been creative or flexible or determined enough to do what it takes. And you will be that much more motivated to find the way.
Knowing how to deal well with your setbacks is as important as knowing how to move forward.
View painful problems as potential improvements that are screaming at you.
Don’t avoid confronting problems because they are rooted in harsh realities that are unpleasant to look at.
Acknowledging your weaknesses is not the same as surrendering to them. It’s the first step toward overcoming them. The pains you are feeling are “growing pains” that will test your character and reward you as you push through them.
Be specific in identifying your problems.
Don’t mistake a cause of a problem with the real problem.
Once you identify a problem, don’t tolerate it.
Focus on the “what is” before deciding “what to do about it.”
You can only truly solve your problems by removing their root causes, and to do that, you must distinguish the symptoms from the disease.
Recognize that knowing what someone (including you) is like will tell you what you can expect from them.
More than anything else, what differentiates people who live up to their potential from those who don’t is their willingness to look at themselves and others objectively and understand the root causes standing in their way.
a. Go back before you go forward. Replay the story of where you have been (or what you have done) that led up to where you are now, and then visualize what you and others must do in the future so you will reach your goals.
Think about your problem as a set of outcomes produced by a machine.
c. Remember that there are typically many paths to achieving your goals. You only need to find one that works.
Think of your plan as being like a movie script in that you visualize who will do what through time.
e. Write down your plan for everyone to see and to measure your progress against.
Recognize that it doesn’t take a lot of time to design a good plan.
Good work habits are vastly underrated.
Establish clear metrics to make certain that you are following your plan. Ideally, someone other than you should be objectively measuring and reporting on your progress.
Everyone has weaknesses. They are generally revealed in the patterns of mistakes they make. Knowing what your weaknesses are and staring hard at them is the first step on the path to success.
Look at the patterns of your mistakes and identify at which step in the 5-Step Process you typically fail.
Everyone has at least one big thing that stands in the way of their success; find yours and deal with it.
- life issue
The two biggest barriers to good decision making are your ego and your blind spots.
weaknesses. Your deepest-seated needs and fears—such as the need to be loved and the fear of losing love, the need to survive and the fear of not surviving, the need to be important and the fear of not mattering—reside in primitive parts of your brain such as the amygdala, which are structures in your temporal lobe that process emotions. Because these areas of your brain are not accessible to your conscious awareness, it is virtually impossible for you to understand what they want and how they control you. They oversimplify things and react instinctively. They crave praise and respond to criticism as an attack, even when the higher-level parts of the brain understand that constructive criticism is good for you. They make you defensive, especially when it comes to the subject of how good you are.
- fight or flight. lizzard brain
To be effective you must not let your need to be right be more important than your need to find out what’s true. If you are too proud of what you know or of how good you are at something you will learn less, make inferior decisions, and fall short of your potential.
Aristotle defined tragedy as a terrible outcome arising from a person’s fatal flaw—a flaw that, had it been fixed, instead would have led to a wonderful outcome. In my opinion, these two barriers—ego and blind spots—are the fatal flaws that keep intelligent, hardworking people from living up to their potential.
Radical open-mindedness is motivated by the genuine worry that you might not be seeing your choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way. It requires you to replace your attachment to always being right with the joy of learning what’s true. Radical open-mindedness allows you to escape from the control of your lower-level you and ensures your upper-level you sees and considers all the good choices and makes the best possible decisions. If you can acquire this ability—and with practice you can—you’ll be able to deal with your realities more effectively and radically improve your life.
Sincerely believe that you might not know the best possible path and recognize that your ability to deal well with “not knowing” is more important than whatever it is you do know.
Recognize that decision making is a two-step process: First take in all the relevant information, then decide. Most people are reluctant to take in information that is inconsistent with what they have already concluded. When I ask why, a common answer is: “I want to make up my own mind.” These people seem to think that considering opposing views will somehow threaten their ability to decide what they want to do. Nothing could be further from the truth. Taking in others’ perspectives in order to consider them in no way reduces your freedom to think independently and make your own decisions. It will just broaden your perspective as you make them.
Don’t worry about looking good; worry about achieving your goal.
Recognize that to gain the perspective that comes from seeing things through another’s eyes, you must suspend judgment for a time—only by empathizing can you properly evaluate another point of view.
Remember that you’re looking for the best answer, not simply the best answer that you can come up with yourself.
Be clear on whether you are arguing or seeking to understand, and think about which is most appropriate based on your and others’ believability.
In thoughtful disagreement, your goal is not to convince the other party that you are right—it is to find out which view is true and decide what to do about it. In thoughtful disagreement, both parties are motivated by the genuine fear of missing important perspectives. Exchanges in which you really see what the other person is seeing and they really see what you are seeing—with both your “higher-level yous” trying to get to the truth—are immensely helpful and a giant source of untapped potential.
People who change their minds because they learned something are the winners, whereas those who stubbornly refuse to learn are the losers.
Closed-minded people are more likely to make statements than ask questions. While believability entitles you to make statements in certain circumstances, truly open-minded people, even the most believable people I know, always ask a lot of questions.
Open-minded people genuinely believe they could be wrong; the questions that they ask are genuine. They also assess their relative believability to determine whether their primary role should be as a student, a teacher, or a peer.
Closed-minded people focus much more on being understood than on understanding others. When people disagree, they tend to be quicker to assume that they aren’t being understood than to consider whether they’re the ones who are not understanding the other person’s perspective.
Open-minded people know when to make statements and when to ask questions.
Closed-minded people block others from speaking. If it seems like someone isn’t leaving space for the other person in a conversation, it’s possible they are blocking.
Open-minded people are always more interested in listening than in speaking; they encourage others to voice their views.
Closed-minded people have trouble holding two thoughts simultaneously in their minds. They allow their own view to crowd out those of others. Open-minded people can take in the thoughts of others without losing their ability to think well—they can hold two or more conflicting concepts in their mind and go back and forth between them to assess their relative merits.
even the best decision maker can significantly improve his or her decision making with the help of other excellent decision makers.
Regularly use pain as your guide toward quality reflection. Mental pain often comes from being too attached to an idea when a person or an event comes along to challenge it. This is especially true when what is being pointed out to you involves a weakness on your part. This kind of mental pain is a clue that you are potentially wrong and that you need to think about the question in a quality way.
Make being open-minded a habit. The life that you will live is most simply the result of habits you develop. If you consistently use feelings of anger/frustration as cues to calm down, slow down, and approach the subject at hand thoughtfully, over time you’ll experience negative emotions much less frequently and go directly to the open-minded practices I just described.
If a number of different believable people say you are doing something wrong and you are the only one who doesn’t see it that way, assume that you are probably biased.
Be evidence-based and encourage others to be the same. Most people do not look thoughtfully at the facts and draw their conclusions by objectively weighing the evidence. Instead, they make their decisions based on what their deep-seated subconscious mind wants and then they filter the evidence to make it consistent with those desires. It is possible to become aware of this subconscious process happening and to catch yourself, or to allow others to catch you going down this path. When you’re approaching a decision, ask yourself: Can you point to clear facts (i.e., facts believable people wouldn’t dispute) leading to your view? If not, chances are you’re not being evidence-based.
Being calm and reasonable in how you present your view will help prevent the “flight-or-fight” animal/amygdala reaction in others. Be reasonable and expect others to be reasonable. Ask them to point to the evidence that supports their point of view. Remember, it is not an argument; it is an open exploration of what’s true. Demonstrating that you are taking in what they are telling you can be helpful.
Know when it’s best to stop fighting and have faith in your decision-making process. It’s important that you think independently and fight for what you believe in, but there comes a time when it’s wiser to stop fighting for your view and move on to accepting what believable others think is best.
Gaining open-mindedness doesn’t mean losing assertiveness. In fact, because it increases one’s odds of being right, it should increase one’s confidence.
For me, there is really only one big choice to make in life: Are you willing to fight to find out what’s true? Do you deeply believe that finding out what is true is essential to your well-being? Do you have a genuine need to find out if you or others are doing something wrong that is standing in the way of achieving your goals? If your answer to any of these questions is no, accept that you will never live up to your potential. If, on the other hand, you are up for the challenge of becoming radically open-minded, the first step in doing so is to look at yourself objectively.
Because of the different ways that our brains are wired, we all experience reality in different ways and any single way is essentially distorted. This is something that we need to acknowledge and deal with. So if you want to know what is true and what to do about it, you must understand your own brain.
Good people with good intentions get angry and emotional; it is frustrating and often becomes personal. Most companies avoid this by suppressing open debate and having those with the most authority simply make the calls.
Our differences weren’t a product of poor communication; it was the other way around. Our different ways of thinking led to our poor communications.
While I used to get angry and frustrated at people because of the choices they made, I came to realize that they weren’t intentionally acting in a way that seemed counterproductive; they were just living out things as they saw them, based on how their brains worked. I also realized that as off-base as they seemed to me, they saw me the same way. The only sensible way of behaving with each other was to look down upon ourselves with mutual understanding so we could make objective sense of things. Not only did this make our disagreements less frustrating, it also allowed us to maximize our effectiveness.
Having expectations for people (including yourself) without knowing what they are like is a sure way to get in trouble.
This led to one of my most valuable management tools: Baseball Cards, which I mentioned in the first part of this book. Just as a baseball card compiles the relevant data on a baseball player, helping fans know what that player is good and bad at, I decided that it would be similarly helpful for us to have cards for all of our players at Bridgewater.
In creating the attributes for our baseball cards, I used a combination of adjectives we already used to describe people, like “conceptual,” “reliable,” “creative,” and “determined”; the actions people took or didn’t take such as “holding others accountable” and “pushing through to results”; and terms from personality tests such as “extroverted” or “judging.” Once the cards were established, I created a process to have people evaluate each other, with the people rated highest in each dimension (e.g., “most creative”) having more weight on the ratings of other people in that dimension. People with proven track records in a certain area would get more believability, or decision-making weight, within that area. By recording these qualities in people’s Baseball Cards, others who’d never worked with them before could know what to expect from them. When people changed, their rating would change.
Meaningful work and meaningful relationships aren’t just nice things we chose for ourselves—they are genetically programmed into us.
Which of these forces (self-interest or collective interest) wins out in any organization is a function of that organization’s culture, which is a function of the people who shape it. But it’s clear that collective interest is what’s best, not just for the organization but for the individuals who make it up.
Realize that the conscious mind is in a battle with the subconscious mind.
When thoughts and instructions come to me from my subconscious, rather than acting on them immediately, I have gotten into the habit of examining them with my conscious, logical mind.
Know that the most constant struggle is between feeling and thinking.
Good habits are those that get you to do what your “upper-level you” wants, and bad habits are those that are controlled by your “lower-level you” and stand in the way of your getting what your “upper-level you” wants.
The Power of Habit,
The most valuable habit I’ve acquired is using pain to trigger quality reflections.
Train your “lower-level you” with kindness and persistence to build the right habits.
Understand the differences between right-brained and left-brained thinking.
I have seen wonderful results occur when people know where their own and others’ inclinations lie, realize that both ways of thinking are invaluable, and assign responsibilities accordingly.
Remember that accepting your weaknesses is contrary to the instincts of those parts of your brain that want to hold on to the illusion that you are perfect. Doing the things that will reduce your instinctual defensiveness takes practice, and requires operating in an environment that reinforces open-mindedness.
Though psychometric assessments cannot fully replace speaking with people and looking at their backgrounds and histories, they are far more powerful than traditional interviewing and screening methods.
The four main assessments we use are the Myers-Briggs Type Indicator (MBTI), the Workplace Personality Inventory, the Team Dimensions Profile, and Stratified Systems Theory.
Introverts focus on the inner world and get their energy from ideas, memories, and experiences while extroverts are externally focused and get their energy from being with people. Introversion and extroversion are also linked to differences in communication styles.
• Creators generate new ideas and original concepts. They prefer unstructured and abstract activities and thrive on innovation and unconventional practices. • Advancers communicate these new ideas and carry them forward. They relish feelings and relationships and manage the human factors. They are excellent at generating enthusiasm for work. • Refiners challenge ideas. They analyze projects for flaws, then refine them with a focus on objectivity and analysis. They love facts and theories and working with a systematic approach. • Executors can also be thought of as Implementers. They ensure that important activities are carried out and goals accomplished; they are focused on details and the bottom line. • Flexors are a combination of all four types. They can adapt their styles to fit certain needs and are able to look at a problem from a variety of perspectives.
It doesn’t matter what you do with your life, as long as you are doing what is consistent with your nature and your aspirations.
Getting the right people in the right roles in support of your goal is the key to succeeding at whatever you choose to accomplish.
Manage yourself and orchestrate others to get what you want.
Recognize that 1) the biggest threat to good decision making is harmful emotions, and 2) decision making is a two-step process (first learning and then deciding).
One of the most important decisions you can make is who you ask questions of. Make sure they’re fully informed and believable. Find out who is responsible for whatever you are seeking to understand and then ask them. Listening to uninformed people is worse than having no answers at all.
Everything important in your life needs to be on a trajectory to be above the bar and headed toward excellent at an appropriate pace.
For example, when asked to multiply 38 by 12, most people do it the slow and hard way rather than simply rounding 38 up to 40, rounding 12 down to 10, and quickly determining that the answer is about 400.
“By-and-large” is the level at which you need to understand most things in order to make effective decisions.
“When you ask someone whether something is true and they tell you that it’s not totally true, it’s probably by-and-large true.”
1 The High-Level Big Picture: I want meaningful work that’s full of learning. 1.1 Subordinate Concept: I want to be a doctor. • Sub-Point: I need to go to medical school. • Sub-Sub Point: I need to get good grades in the sciences. • Sub-Sub-Sub Point: I need to stay home tonight and study.
Use the terms “above the line” and “below the line” to establish which level a conversation is on. An above-the-line conversation addresses the main points and a below-the-line conversation focuses on the sub-points. When a line of reasoning is jumbled and confusing, it’s often because the speaker has gotten caught up in below-the-line details without connecting them back to the major points. An above-the-line discourse should progress in an orderly and accurate way to its conclusion, only going below the line when it’s necessary to illustrate something about one of the major points.
Remember that decisions need to be made at the appropriate level, but they should also be consistent across levels.
1. Remember that multiple levels exist for all subjects. 2. Be aware on what level you’re examining a given subject. 3. Consciously navigate levels rather than see subjects as undifferentiated piles of facts that can be browsed randomly. 4. Diagram the flow of your thought processes using the outline template shown on the previous page.
there are two broad approaches to decision making: evidence/logic-based (which comes from the higher- level brain) and subconscious/emotion-based (which comes from the lower-level animal brain).
Logic, reason, and common sense are your best tools for synthesizing reality and understanding what to do about it.
“Until you make the unconscious conscious, it will direct your life and you will call it fate.”
Successful organizations have cultures in which evidence-based decision making is the norm rather than the exception.
Think of every decision as a bet with a probability and a reward for being right and a probability and a penalty for being wrong.
Raising the probability of being right is valuable no matter what your probability of being right already is.
(you can almost always improve your odds of being right by doing things that will give you more information).
Knowing when not to bet is as important as knowing what bets are probably worth making.
The best choices are the ones that have more pros than cons, not those that don’t have any cons at all.
Prioritize by weighing the value of additional information against the cost of not deciding.
Some decisions are best made after acquiring more information; some are best made immediately.
Don’t mistake possibilities for probabilities. Anything is possible. It’s the probabilities that matter. Everything must be weighed in terms of its likelihood and prioritized. People who can accurately sort probabilities from possibilities are generally strong at “practical thinking”; they’re the opposite of the “philosopher” types who tend to get lost in clouds of possibilities.
“Any damn fool can make it complex. It takes a genius to make it simple.”
Using principles is a way of both simplifying and improving your decision making.
1. Slow down your thinking so you can note the criteria you are using to make your decision. 2. Write the criteria down as a principle. 3. Think about those criteria when you have an outcome to assess, and refine them before the next “one of those” comes along.
I have found triangulating with highly believable people who are willing to have thoughtful disagreements has never failed to enhance my learning and sharpen the quality of my decision making. It typically leads me to make better decisions than I could have otherwise and it typically provides me with thrilling learning. I urge you to do it. To do it well, be sure to avoid the common perils of: 1) valuing your own believability more than is logical and 2) not distinguishing between who is more or less credible.
In case of a disagreement with others, start by seeing if you can agree on the principles that should be used to make that decision. This discussion should include exploring the merits of the reasoning behind the different principles. If you agree on them, apply them to the case at hand and you’ll arrive at a conclusion everyone agrees on.
Convert your principles into algorithms and have the computer make decisions alongside you.
Your children and their peers must learn to speak this language because it will soon be as important or more important than any other language.
By developing a partnership with your computer alter ego in which you teach each other and each do what you do best, you will be much more powerful than if you went about your decision making alone. The computer will also be your link to great collective decision making, which is far more powerful than individual decision making, and will almost certainly advance the evolution of our species.
The process of man’s mind working with technology is what elevates us—
I worry about the dangers of AI in cases where users accept—or, worse, act upon—the cause-effect relationships presumed in algorithms produced by machine learning without understanding them deeply.
Expert systems are what we use at Bridgewater, where designers specify criteria based on their logical understandings of a set of cause-effect relationships, and then see how different scenarios would emerge under different circumstances.
sense. For example, a computer could easily misconstrue the fact that people wake up in the morning and then eat breakfast to indicate that waking up makes people hungry.
When you get down to it, our brains are essentially computers that are programmed in certain ways, take in data, and spit out instructions. We can program the logic in both the computer that is our mind and the computer that is our tool so that they can work together and even double-check each other. Doing that is fabulous.
In order to have the best life possible, you have to: 1) know what the best decisions are and 2) have the courage to make them.
To acquire principles that work, it’s essential that you embrace reality and deal with it well.
Your evolutionary process can be described as a 5-Step Process for getting what you want. It consists of setting goals, identifying and not tolerating problems, diagnosing problems, coming up with designs to get around them, and then doing the tasks required.
Our biggest barriers for doing this well are our ego barrier and our blind spot barrier. The ego barrier is our innate desire to be capable and have others recognize us as such. The blind spot barrier is the result of our seeing things through our own subjective lenses; both barriers can prevent us from seeing how things really are. The most important antidote for them is radical open-mindedness, which is motivated by the genuine worry that one might not be seeing one’s choices optimally. It is the ability to effectively explore different points of view and different possibilities without letting your ego or your blind spots get in your way.
In a nutshell, learning how to make decisions in the best possible way and learning to have the courage to make them comes from a) going after what you want, b) failing and reflecting well through radical open-mindedness, and c) changing/evolving to become ever more capable and less fearful.
More than anything else, your life is affected by the people around you and how you interact with each other.
I hope these principles will help you struggle well and get all the joy you can out of life.
Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve #1 in light of #2, and do that with humility and open-mindedness so that you consider the best thinking available to you.
Look to the patterns of those things that affect you in order to understand the cause-effect relationships that drive them and to learn principles for dealing with them effectively.
An organization is a machine consisting of two major parts: culture and people. a. A great organization has both great people and a great culture. b. Great people have both great character and great capabilities. c. Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before.
For any group or organization to function well, its work principles must be aligned with its members’ life principles.
Each influences the other, because the people who make up an organization determine the kind of culture it has, and the culture of the organization determines the kinds of people who fit in.
A great organization has both great people and a great culture.
Great people have both great character and great capabilities. By great character, I mean they are radically truthful, radically transparent, and deeply committed to the mission of the organization. By great capabilities, I mean they have the abilities and skills to do their jobs excellently. People who have one without the other are dangerous and should be removed from the organization. People who have both are rare and should be treasured.
Great cultures bring problems and disagreements to the surface and solve them well, and they love imagining and building great things that haven’t been built before.
- having clear goals, 2) identifying the problems preventing the goals from being achieved, 3) diagnosing what parts of the machine (i.e., which people or which designs) are not working well, 4) designing changes, and 5) doing what is needed. This is the fastest and most efficient way that an organization improves.
A manager’s ability to recognize when outcomes are inconsistent with goals and then modify designs and assemble people to rectify them makes all the difference in the world. The more often and more effectively a manager does this, the steeper the upward trajectory.
The main test of a great partnership is not whether the partners ever disagree—people in all healthy relationships disagree—but whether they can bring their disagreements to the surface and get through them well.
Putting comfort ahead of success produces worse results for everyone.
Conflict in the pursuit of excellence is a terrific thing. There should be no hierarchy based on age or seniority. Power should lie in the reasoning, not the position, of the individual. The best ideas win no matter who they come from.
I knew that without such a system, we would lose both the best thinking and the best thinkers, and I’d be stuck with either kiss-asses or subversives who kept their disagreements and hidden resentments to themselves.
in most companies people are doing two jobs: their actual job and the job of managing others’ impressions of how they’re doing their job.
We’ve found that bringing everything to the surface 1) removes the need to try to look good and 2) eliminates time required to guess what people are thinking. In doing so, it creates more meaningful work and more meaningful relationships.
No matter what path you choose to follow, your organization is a machine made up of culture and people that will interact to produce outcomes, and those outcomes will provide feedback about how well your organization is working. Learning from this feedback should lead you to modify the culture and the people so your organizational machine improves.
Make your passion and your work one and the same and do it with people you want to be with.
I believe that great cultures, like great people, recognize that making mistakes is part of the process of learning, and that continuous learning is what allows an organization to evolve successfully over time.
While all of what you read here may seem challenging and complicated in practice, if you believe as I do that there is no better way to make decisions than to have believable people open-mindedly and assertively surface, explore, and resolve their differences, then you will figure out what it takes to operate that way. If an idea meritocracy doesn’t work well, the fault doesn’t lie in the concept; it lies in people not valuing it enough to make sure that it works.
To have an Idea Meritocracy: 1) Put your honest thoughts on the table 2) Have thoughtful disagreement 3) Abide by agreed-upon ways of getting past disagreement
Understanding what is true is essential for success, and being radically transparent about everything, including mistakes and weaknesses, helps create the understanding that leads to improvements.
If you are handling things well, radical transparency will make that clear, and if you are handling things badly, radical transparency will make that clear as well, so it helps to maintain high standards.
The more people can see what is happening—the good, the bad, and the ugly—the more effective they are at deciding the appropriate ways of handling things. This approach is also invaluable for training: Learning is compounded and accelerated when everyone has the opportunity to hear what everyone else is thinking. As a leader, you will get the feedback essential for your learning and for the continual improvement of the organization’s decision-making rules. And seeing firsthand what’s happening and why builds trust and allows people to make the independent assessments of the evidence that a functioning idea meritocracy requires.
It is a fundamental law of nature that you get stronger only by doing difficult things.
For me, not telling people what’s really going on so as to protect them from the worries of life is like letting your kids grow into adulthood believing in the Tooth Fairy or Santa Claus. While concealing the truth might make people happier in the short run, it won’t make them smarter or more trusting in the long run.
“There is no worse course in leadership than to hold out false hopes soon to be swept away.”
People need to face harsh and uncertain realities if they are going to learn how to deal with them—and you’ll learn a lot about the people around you by seeing how well they
Realize that you have nothing to fear from knowing the truth.
If you’re sick, it’s natural to fear your doctor’s diagnosis—what if it’s cancer or some other deadly disease? As scary as the truth may turn out to be, you will be better off knowing it in the long run because it will allow you to seek the most appropriate treatment. The same holds for learning painful truths about your own strengths and weaknesses.
While presenting your view as something other than it is can sometimes be easier in the moment (because you can avoid conflict, or embarrassment, or achieve some other short-term goal), the second- and third-order effects of having integrity and avoiding duality are immense. People who are one way on the inside and another on the outside become conflicted and often lose touch with their own values. It’s difficult for them to be happy and almost impossible for them to be their best.
Aligning what you say with what you think and what you think with what you feel will make you much happier and much more successful. Thinking solely about what’s accurate instead of how it is perceived pushes you to focus on the most important things. It helps you sort through people and places because you’ll be drawn to people and places that are open and honest. It’s also fairer to those around you: Making judgments about people so that they are tried and sentenced in your head, without asking for their perspective, is both unethical and unproductive. Having nothing to hide relieves stress and builds trust.
Don’t let loyalty to people stand in the way of truth and the well-being of the organization. In some companies, employees hide their employer’s mistakes, and employers do the same in return. This is unhealthy and stands in the way of improvement because it prevents people from bringing their mistakes and weaknesses to the surface, encourages deception, and eliminates subordinates’ right of appeal.
Judging one person by a different set of rules than another is an insidious form of corruption that undermines the meritocracy.
I believe in a healthier form of loyalty founded on openly exploring what is true. Explicit, principled thinking and radical transparency are the best antidotes for self-dealing. When everyone is held to the same principles and decision making is done publicly, it is difficult for people to pursue their own interests at the expense of the organization’s. In such an environment, those who face their challenges have the most admirable character; when mistakes and weaknesses are hidden, unhealthy character is rewarded instead.
Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency.
The most meaningful relationships are achieved when you and others can speak openly to each other about everything that’s important, learn together, and understand the need to hold each other accountable to be as excellent as you can be. When you have such relationships with those you work with, you pull each other through challenging times; at the same time, sharing challenging work draws you closer and strengthens your relationships. This self-reinforcing cycle creates the success that allows you to pursue more and more ambitious goals.
When I treated my employees like extended family, I found that they typically behaved the same way with each other and our community as a whole, which was much more special than having a strictly quid pro quo relationship. I can’t tell you how many people would do anything in their power to help our community/company and wouldn’t want to work anywhere else. This is invaluable.
Loyalty to specific people who are not in tight sync with the mission and how to achieve it will create factionalism and undermine the well-being of the community. It is often the case, and quite beautiful, that personal loyalties exist. However, it is also often the case, and quite ugly, when personal loyalties come into conflict with the organization’s interests.
Naturally there will be disagreement and negotiation, but some things cannot be compromised and you and your employees must know what those things are. This is especially true if you’re seeking to create an environment that has shared values, a deep commitment to the mission, and high standards of behavior.
Make sure people give more consideration to others than they demand for themselves.
Generosity is good and entitlement is bad, and they can easily be confused, so be crystal clear on which is which.
If you want to have a community of people who have both high-quality, long-term relationships and a high sense of personal responsibility, you can’t allow a sense of entitlement to creep in.
While you should by and large stick to the arrangement, you should also recognize that there are rare, special times when employees will need a bit of extra time off and there are times that the company will require employees to give it extra hours.
Remember that most people will pretend to operate in your interest while operating in their own. For example, most people will operate in a way that maximizes the amount of money they will get and that minimizes the amount of work they have to do to get it.
Strive for the highest possible percentage of your population having meaningful work and meaningful relationships while recognizing that there will always be some percentage of the population who won’t care for the community and/or will do it harm.
Treasure honorable people who are capable and will treat you well even when you’re not looking. They are rare. Such relationships take time to build and can only be built if you treat such people well.
Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them
Everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don’t. By creating an environment in which it is okay to safely make mistakes so that people can learn from them, you’ll see rapid progress and fewer significant mistakes. This is especially true in organizations where creativity and independent thinking are important, as success will inevitably require the acceptance of failure as a part of the process.
Mistakes will cause you pain, but you shouldn’t try to shield yourself or others from it. Pain is a message that something is wrong and it’s an effective teacher that one shouldn’t do that wrong thing again.
It seems to me that if you look back on yourself a year ago and aren’t shocked by how stupid you were, you haven’t learned much.
Of course, in managing others who make mistakes, it is important to know the difference between 1) capable people who made mistakes and are self-reflective and open to learning from them, and 2) incapable people, or capable people who aren’t able to embrace their mistakes and learn from them.
Intelligent people who embrace their mistakes and weaknesses substantially outperform their peers who have the same abilities but bigger ego barriers.
If you don’t mind being wrong on the way to being right you’ll learn a lot—and increase your effectiveness. But if you can’t tolerate being wrong, you won’t grow, you’ll make yourself and everyone around you miserable, and your work environment will be marked by petty backbiting and malevolent barbs rather than by a healthy, honest search for truth.
You must not let your need to be right be more important than your need to find out what’s true.
The people I respect most are those who fail well. I respect them even more than those who succeed. That is because failing is a painful experience while succeeding is a joyous one, so it requires much more character to fail, change, and then succeed than to just succeed. People who are just succeeding must not be pushing their limits. Of course the worst are those who fail and don’t recognize it and don’t change.
Put your insecurities away and get on with achieving your goals. Reflect and remind yourself that an accurate criticism is the most valuable feedback you can receive.
Observe the patterns of mistakes to see if they are products of weaknesses. Everyone has weaknesses and they are generally revealed in the patterns of mistakes they make. The fastest path to success starts with knowing what your weaknesses are and staring hard at them. Start by writing down your mistakes and connecting the dots between them. Then write down your “one big challenge,” the weakness that stands the most in the way of your getting what you want. Everyone has at least one big challenge. You may in fact have several, but don’t go beyond your “big three.” The first step to tackling these impediments is getting them out into the open.
Because these moments of pain are so important, you shouldn’t rush through them. Stay in them and explore them so you can build a foundation for improvement. Embracing your failures—and confronting the pain they cause you and others—is the first step toward genuine improvement; it is why confession precedes forgiveness in many societies. Psychologists call this “hitting bottom.” If you keep doing this you will convert the pain of facing your mistakes and weaknesses into pleasure and “get to the other side” as I explained in Embrace Reality and Deal with It.
Know what types of mistakes are acceptable and what types are unacceptable, and don’t allow the people who work for you to make the unacceptable ones.
Remember that for an organization to be effective, the people who make it up must be aligned on many levels—from what their shared mission is, to how they will treat each other, to a more practical picture of who will do what when to achieve their goals. Yet alignment can never be taken for granted because people are wired so differently.
Many people mistakenly believe that papering over differences is the easiest way to keep the peace. They couldn’t be more wrong. By avoiding conflicts one avoids resolving differences. People who suppress minor conflicts tend to have much bigger conflicts later on, which can lead to separation, while people who address their mini-conflicts head on tend to have the best and the longest-lasting relationships.
Thoughtful disagreement is not a battle; its goal is not to convince the other party that he or she is wrong and you are right, but to find out what is true and what to do about it.
If we hadn’t laid out our principles and used them to judge cases like this, we would have people with power making decisions however they wanted instead of in mutually agreed-upon ways.
Recognize that conflicts are essential for great relationships … … because they are how people determine whether their principles are aligned and resolve their differences.
Spend lavishly on the time and energy you devote to getting in sync, because it’s the best investment you can make.
It is harder to run an idea meritocracy in which disagreements are encouraged than a top-down autocracy in which they are suppressed.
It is never acceptable to get upset if the idea meritocracy doesn’t produce the decision that you personally wanted.
Distinguish between idle complaints and complaints meant to lead to improvement.
Remember that every story has another side. Wisdom is the ability to see both sides and weigh them appropriately.
Being effective at thoughtful disagreement requires one to be open-minded (seeing things through the other’s eyes) and assertive (communicating clearly how things look through your eyes) and to flexibly process this information to create learning and adaptation.
It also helps to remind people that those who change their minds are the biggest winners because they learned something, whereas those who stubbornly refuse to see the truth are losers.
Distinguish open-minded people from closed-minded people. Open-minded people seek to learn by asking questions; they realize how little they know in relation to what there is to know and recognize that they might be wrong; they are thrilled to be around people who know more than they do because it represents an opportunity to learn something. Closed-minded people always tell you what they know, even if they know hardly anything. They are typically uncomfortable being around those who know a lot more than they do.
Don’t have anything to do with closed-minded people.
Watch out for people who think it’s embarrassing not to know. They’re likely to be more concerned with appearances than actually achieving the goal; this can lead to ruin over time.
Be reasonable and expect others to be reasonable. You have a responsibility to be reasonable and considerate when you are advocating for your point of view and should never let your “lower-level you” gain control, even if the other person loses his or her temper. Their bad behavior doesn’t justify yours. If either party to a disagreement is too emotional to be logical, the conversation should be deferred. Pausing a few hours or even a few days in cases where decisions do not have to be made immediately is sometimes the best approach.
Making suggestions and questioning are not the same as criticizing, so don’t treat them as if they are. A person making suggestions may not have concluded that a mistake will be made—they could just be making doubly sure that the person they’re talking to has taken all the risks into consideration. Asking questions to make sure that someone hasn’t overlooked something isn’t the same thing as saying that he or she has overlooked it (“watch out for the ice” vs. “you’re being careless and not looking out for the ice”). Yet I often see people react to constructive questions as if they were accusations. That is a mistake.
Make it clear who is directing the meeting and whom it is meant to serve. Every meeting should be aimed at achieving someone’s goals; that person is the one responsible for the meeting and decides what they want to get out of it and how they will do so. Meetings without someone clearly responsible run a high risk of being directionless and unproductive.
Be careful not to lose personal responsibility via group decision making. Too often groups will make a decision to do something without assigning personal responsibilities, so it is not clear who is supposed to follow up by doing what. Be clear in assigning personal responsibilities.
Watch out for assertive “fast talkers.” Fast talkers are people who articulately and assertively say things faster than they can be assessed as a way of pushing their agenda past other people’s examination or objections.
Recognize that it’s your responsibility to make sense of things and don’t move on until you do. If you’re feeling pressured, say something like “Sorry for being stupid, but I’m going to need to slow you down so I can make sense of what you’re saying.” Then ask your questions. All of them.
People can have a wonderful relationship and disagree about some things; you don’t have to agree on everything.
Great collaboration feels like playing jazz. In jazz, there’s no script: You have to figure things out as you go along. Sometimes you need to sit back and let others drive things; other times, you blare it out yourself. To do the right thing at the right moment you need to really listen to the people you’re playing with so that you can understand where they’re going. All great creative collaboration should feel the same way. Combining your different skills like different instruments, improvising creatively, and at the same time subordinating yourself to the goals of the group leads to playing great music together. But it’s important to keep in mind what number of collaborators will play well together: A talented duo can improvise beautifully, as can a trio or quartet. But gather ten musicians and no matter how talented they are, it’s probably going to be too many unless they’re carefully orchestrated.
3 to 5 is more than 20. Three to five smart, conceptual people seeking the right answers in an open-minded way will generally lead to the best answers. It may be tempting to convene a larger group, but having too many people collaborate is counterproductive, even if the members of the larger group are smart and talented. The symbiotic advantages of adding people to a group grow incrementally (2+1=4.25) up to a point; beyond that, adding people actually subtracts from effectiveness. That is because 1) the marginal benefits diminish as the group gets larger (two or three people might be able to cover most of the important perspectives, so adding more people doesn’t bring much more) and 2) larger group interactions are less efficient than smaller ones. Of course, what’s best in practice depends on the quality of the people and the differences of the perspectives that they bring and how well the group is managed.
If you find you can’t reconcile major differences—especially in values—consider whether the relationship is worth preserving. There are all kinds of different people in the world, many of whom value different kinds of things. If you find you can’t get in sync with someone on shared values, you should consider whether that person is worth keeping in your life. A lack of common values will lead to a lot of pain and other harmful consequences and may ultimately drive you apart. It might be better to head all that off as soon as you see it coming.
In typical organizations, most decisions are made either autocratically, by a top-down leader, or democratically, where everyone shares their opinions and those opinions that have the most support are implemented. Both systems produce inferior decision making. That’s because the best decisions are made by an idea meritocracy with believability-weighted decision making, in which the most capable people work through their disagreements with other capable people who have thought independently about what is true and what to do about it.
The most believable opinions are those of people who 1) have repeatedly and successfully accomplished the thing in question, and 2) have demonstrated that they can logically explain the cause-effect relationships behind their conclusions. When believability weighting is done correctly and consistently, it is the fairest and the most effective decision-making system.
Recognize that having an effective idea meritocracy requires that you understand the merit of each person’s ideas.
Treating all people equally is more likely to lead away from truth than toward it.
If I were that new batter, I wouldn’t stop questioning Ruth until I was confident I had found the truth.
a. If you can’t successfully do something, don’t think you can tell others how it should be done.
Find the most believable people possible who disagree with you and try to understand their reasoning.
Having open-minded conversations with believable people who disagree with you is the quickest way to get an education and to increase your probability of being right.
Remember that the quality of the life you get will depend largely on the quality of the decisions that you make as you pursue your goals.
The dilemma you face is trying to understand as accurately as you can what’s true in order to make decisions effectively while realizing many of the opinions you will hear won’t be worth much, including your own.
c. If someone hasn’t done something but has a theory that seems logical and can be stress-tested, then by all means test it. Keep in mind that you are playing probabilities.
Don’t pay as much attention to people’s conclusions as to the reasoning that led them to their conclusions.
Inexperienced people can have great ideas too, sometimes far better ones than more experienced people.
Everyone should be up-front in expressing how confident they are in their thoughts. A suggestion should be called a suggestion; a firmly held conviction should be presented as such—particularly if it’s coming from someone with a strong track record in the area in question.
Think about whether you are playing the role of a teacher, a student, or a peer …
It’s more important that the student understand the teacher than that the teacher understand the student, though both are important.
Recognize that while everyone has the right and responsibility to try to make sense of important things, they must do so with humility and radical open-mindedness.
Our brains work like computers: They input data and process it in accordance with their wiring and programming. Any opinion you have is made up of these two things: the data and your processing or reasoning.
Dealing with raw opinions will get you and everyone else confused; understanding where they come from will help you get to the truth.
Assess believability by systematically capturing people’s track records over time.
It’s more important to do big things well than to do the small things perfectly.
An organization is a community with a set of shared values and goals. Its morale and smooth functioning should always take precedence over your need to be right—and besides, you could be wrong.
verdict. This requires them to separate themselves from their own opinion and avoid getting angry when a decision doesn’t go their way.
If you don’t think the principles provide the right way to resolve a problem or disagreement, you need to fight to change the principles, not just do what you want to do.
Make sure people don’t confuse the right to complain, give advice, and openly debate with the right to make decisions.
Everyone does not report to everyone. Responsibilities and authorities are assigned to individuals based on assessments of their ability to handle them. People are given the authority that they need to achieve outcomes and are held accountable for their ability to produce them.
While it’s easier to avoid confrontations in the short run, the consequences of doing so can be massively destructive in the long term. It’s critical that conflicts actually get resolved—not through superficial compromise, but through seeking the important, accurate conclusions.
Don’t let the little things divide you when your agreement on the big things should bind you.
The group is more important than the individual; don’t behave in a way that undermines the chosen path.
By the way, it is of course okay to continue to disagree on some things as long as you don’t keep fighting, thereby undermining the idea meritocracy. If you continue to fight the idea meritocracy, you must go.
Never allow the idea meritocracy to slip into anarchy. In an idea meritocracy, there is bound to be more disagreement than in a typical organization, but when it’s taken to an extreme, arguing and nitpicking can undermine the idea meritocracy’s effectiveness.
Don’t allow lynch mobs or mob rule. Part of the purpose of having a believability-weighted system is to remove emotion from decision making. Crowds get emotional and seek to grab control. That must be prevented. While all individuals have the right to have their own opinions, they do not have the right to render verdicts.
Declare “martial law” only in rare or extreme circumstances when the principles need to be suspended.
Be wary of people who argue for the suspension of the idea meritocracy for the “good of the organization.”
However, I also know that there will be people who put what they want above the idea meritocracy and threaten it. Consider those people to be enemies of the system and get rid of them.
A culture and its people are symbiotic—the culture attracts certain kinds of people and the people in turn either reinforce or evolve the culture based on their values and what they’re like. If you choose the right people with the right values and remain in sync with them, you will play beautiful jazz together. If you choose the wrong people, you will all go over the waterfall together.
Yet most organizations are bad at recruiting. It starts with interviewers picking people they like and who are like them instead of focusing on what people are really like and how well they will fit in their jobs and careers.
The “interviewing” process doesn’t end when employment begins, but transitions into a rigorous process of training, testing, sorting, and most importantly, getting in sync,
I believe that the ability to objectively self-assess, including one’s own weaknesses, is the most influential factor in whether a person succeeds, and that a healthy organization is one in which people compete not so much against each other as against the ways in which their lower-level selves get in the way. Your goal should be to hire people who understand this, equip them with the tools and the information they need to flourish in their jobs, and not micromanage them. If they can’t do the job after being trained and given time to learn, get rid of them; if they can, promote them.
People often make the mistake of focusing on what should be done while neglecting the more important question of who should be given the responsibility for determining what should be done. That’s backward. When you know what you need in a person to do the job well and you know what the person you’re putting into it is like, you can pretty well visualize how things will go.
Not knowing what is required to do the job well and not knowing what your people are like is like trying to run a machine without knowing how its parts work together.
My ultimate goal is to create a machine that works so well that I can just sit back and watch beauty happen.
1. Remember the goal. 2. Give the goal to people who can achieve it (which is best) or tell them what to do to achieve it (which is micromanaging and therefore less good). 3. Hold them accountable. 4. If they still can’t do the job after you’ve trained them and given them time to learn, get rid of them.
7.1 Recognize that the most important decision for you to make is who you choose as your Responsible Parties.
If you put your goals in the hands of RPs who can execute those goals well, and if you make it clear to them that they are personally responsible for achieving those goals and doing the tasks, they should produce excellent results.
Understand that the most important RPs are those responsible for the goals, outcomes, and machines at the highest levels.
Senior managers must be capable of higher-level thinking, and understand the difference between goals and tasks—otherwise you will have to do their jobs for them.
Know that the ultimate Responsible Party will be the person who bears the consequences of what is done.
When putting someone in a position of responsibility, make sure their incentives are aligned with their responsibilities and they experience the consequences of the outcomes they produce. As an example, structure their deals so that they do well or badly based on how well or badly you do in the areas they are responsible for. This is fundamental for good management.
Even if a person’s job is unique, someone needs to be holding them accountable at all times.
7.3 Remember the force behind the thing. Most people see the things around them without considering the forces that created them. In most cases those forces were specific people with specific qualities who worked in specific ways. Change the people and you change how things develop; replace creators with noncreators and you stop having creations. People tend to personify organizations (“Apple is a creative company”) while mistakenly depersonalizing their results, thus losing sight of who did what to produce them. That’s misguided because companies don’t make decisions—people do. So who are the people in your organization behind the results and culture that make it special? Think about who they are and how they work together to make it what it is.
At a high level, we look for people who think independently, argue open-mindedly and assertively, and above all else value the intense pursuit of truth and excellence, and through it, the rapid improvement of themselves and the organization. Because we treat work as more than just what we do to make a living, we look at every potential hire not just as an employee but as someone we’d want share our lives with. We insist that the people we work with are considerate and have a high sense of personal accountability to do the difficult, right things. We look for people with generous natures and high standards of fairness. Most important, they must be able to put their egos aside and assess themselves candidly.
So whenever you think you are ready to make someone an offer, think one last time about the important things that might go wrong and what else you can do to better assess those risks and raise your probability of being right.
It is futile to give responsibilities to people who do not have the qualities required to succeed. It frustrates, and inevitably angers, all parties, which is damaging to the environment.
Think through which values, abilities, and skills you are looking for (in that order).
In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important.
We value people most who have what I call the three C’s: character, common sense, and creativity.
If your people are bound by a sense of community and mission and they are capable, you will have an extraordinary organization.
Hear the click: Find the right fit between the role and the person.Remember that your goal is to put the right people in the right design. First understand the responsibilities of the role and the qualities needed to fulfill them, then ascertain whether an individual has them. When you’re doing this well, there should almost be an audible “click” as the person you’re hiring fits into his or her role.
Look for people who sparkle, not just “any ol’ one of those.”
When reviewing any candidate’s background, you must identify whether they have demonstrated themselves to be extraordinary in some way. The most obvious demonstration is outstanding performance within an outstanding peer group. If you’re less than excited to hire someone for a particular job, don’t do it. The two of you will probably make each other miserable.
Understand how to use and interpret personality assessments. Personality assessments are valuable tools for getting a quick picture of what people are like in terms of their abilities, preferences, and style. They are often more objective and reliable than interviews.
Remember that people tend to pick people like themselves, so choose interviewers who can identify what you are looking for.
Look for people who are willing to look at themselves objectively.
Everybody has strengths and weaknesses. The key to success is understanding one’s weaknesses and successfully compensating for them. People who lack that ability fail chronically.
Think of your teams the way that sports managers do: No one person possesses everything required to produce success, yet everyone must excel.
homework. You have to get at their values, abilities, and skills: Do they have a track record of excellence in what you’re expecting them to do? Have they done the thing you want them to do successfully at least three times? If not, you’re making a lower-probability bet, so you want to have really good reasons for doing so.
Recognize that performance in school doesn’t tell you much about whether a person has the values and abilities you are looking for.
Don’t assume that a person who has been successful elsewhere will be successful in the job you’re giving them.
capable. The person who is capable but doesn’t have good character is generally destructive, because he or she has the cleverness to do you harm and will certainly erode the culture. In my opinion, most organizations overvalue the abilities piece and undervalue the character piece because of a shortsighted focus on getting the job done. In doing so, they lose the power of the great relationships that will take them through both good and bad times.
Don’t hire people just to fit the first job they will do; hire people you want to share your life with. Turnover is costly and inefficient because of the time it takes for people to get to know each other and the organization. Both the people you work with and the company itself will evolve in ways you can’t anticipate. So hire the kind of people you want to share a long-term mission with. You will always have uses for great people.
Look for people who have lots of great questions. Smart people are the ones who ask the most thoughtful questions, as opposed to thinking they have all the answers. Great questions are a much better indicator of future success than great answers.
Play jazz with people with whom you are compatible but who will also challenge you. You need people who share your tastes and style but who can also push and challenge each other. The best teams, whether in music, in sports, or in business, do all those things at the same time.
When considering compensation, provide both stability and opportunity. Pay people enough so that they’re not under financial stress, but not so much that they become fat and happy. You want your people to be motivated to perform so they can realize their dreams. You don’t want people to accept a job for the security of making a lot more money—you want them to come for the opportunity to earn it through hard and creative work.
Great people are hard to find so make sure you think about how to keep them.
When you know what someone is like, you know what you can expect from them.
Both your people and your design must evolve for your machine to improve. When you get personal evolution right, the returns are exponential. As people get better and better, they are more able to think independently, probe, and help you refine your machine. The faster they evolve, the faster your outcomes will improve.
Your part in an employee’s personal evolution begins with a frank assessment of their strengths and weaknesses, followed by a plan for how their weaknesses can be mitigated either through training or by switching to a different job that taps into their strengths and preferences.
Remember that most people are happiest when they are improving and doing the things that suit them naturally and help them advance. So learning about your people’s weaknesses is just as valuable (for them and for you) as is learning their strengths.
Helping people acquire skills is easy—it’s typically a matter of providing them with appropriate training. Improvements in abilities are more difficult but essential to expanding what a person can be responsible for over time. And changing someone’s values is something you should never count on.
Every leader must decide between 1) getting rid of liked but incapable people to achieve their goals and 2) keeping the nice but incapable people and not achieving their goals. Whether or not you can make these hard decisions is the strongest determinant of your own success or failure.
Recognize that personal evolution should be relatively rapid and a natural consequence of discovering one’s strengths and weaknesses; as a result, career paths are not planned at the outset. The evolutionary process is about discovering people’s likes and dislikes as well as their strengths and weaknesses; it occurs when people are put into jobs they are likely to succeed at, but in which they have to stretch themselves. Each person’s career will evolve based on what we all learn about what the person is like.
They should be given enough freedom to learn and think for themselves while being coached so they are prevented from making unacceptable mistakes.
Understand that training guides the process of personal evolution.Trainees must be open-minded; the process requires them to suspend their egos while they discover what they are doing well and what they are doing poorly and decide what to do about it. The trainer must be open-minded as well, and it’s best if at least two believable trainers work with each trainee in order to triangulate their views about what the trainee is like.
Teach your people to fish rather than give them fish, even if that means letting them make some mistakes.
Instead of micromanaging, you should be training and testing. Give people your thoughts on how they might approach their decisions, but don’t dictate to them. The most useful thing you can do is to get in sync with them, exploring how they are doing things and why.
Recognize that experience creates internalized learning that book learning can’t replace.
Evaluate accurately, not kindly.
In the end, accuracy and kindness are the same thing. What might seem kind but isn’t accurate is harmful to the person and often to others in the organization as well.
Think about accuracy, not implications. It’s often the case that someone receiving critical feedback gets preoccupied with the implications of that feedback instead of whether it’s true. This is a mistake. As I’ll explain later, conflating the “what is” with the “what to do about it” typically leads to bad decision making.
Know that most everyone thinks that what they did, and what they are doing, is much more important than it really is.
Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed).
The greatest gift you can give someone is the power to be successful. Giving people the opportunity to struggle rather than giving them the things they are struggling for will make them stronger.
Compliments are easy to give but they don’t help people stretch. Pointing out someone’s mistakes and weaknesses (so they learn what they need to deal with) is harder and less appreciated, but much more valuable in the long run.
Recognize that while most people prefer compliments, accurate criticism is more valuable.
Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance.It’s
Metrics tell us whether things are going according to plan—they are an objective means of assessment and they improve people’s productivity.
Make your metrics clear and impartial. To help you build your perpetual motion machine, have a clear set of rules and a clear set of metrics to track how people are performing against those rules—and predetermined consequences that are determined formulaically based on the output of those metrics.
For performance reviews, start from specific cases, look for patterns, and get in sync with the person being reviewed by looking at the evidence together.
Learn about your people and have them learn about you through frank conversations about mistakes and their root causes.
Recognizing and communicating people’s weaknesses is one of the most difficult things managers have to do. It’s important for the party receiving feedback to be sympathetic to the person trying to give it, because it’s not easy—it takes character on the part of both participants to get to the truth.
Help people through the pain that comes with exploring their weaknesses. Emotions tend to heat up during most disagreements, especially when the subject is someone’s weaknesses.
Ultimately, to help people succeed you have to do two things: First let them see their failures so clearly that they are motivated to change them, and then show them how to either change what they are doing or rely on others who are strong where they are weak.
Knowing how people operate and being able to judge whether that way of operating will lead to good results is more important than knowing what they did.
It should take you no more than a year to learn what a person is like and whether they are a click for their job.
Evaluate employees with the same rigor as you evaluate job candidates.
Training is part of a plan to develop people’s skills and help them evolve. Rehabilitation is an attempt to create significant changes in people’s values and/or abilities. Since values and abilities are difficult to change, rehabilitation is typically impractical.
Keeping people in jobs they are not suited for is terrible for them because it allows them to live in a false reality while holding back their personal evolution, and it is terrible for the community because it compromises the meritocracy and everyone pays the price.
Be willing to “shoot the people you love.” It is very difficult to fire people you care about. Cutting someone that you have a meaningful relationship with but who isn’t an A player in their job is difficult because ending good relationships is hard, but it is necessary for the long-term excellence of the company.
When someone is “without a box,” consider whether there is an open box that would be a better fit or whether you need to get them out of the company.
Be cautious about allowing people to step back to another role after failing. Note I said “be cautious.” I didn’t say never, because it depends on the circumstances. On the one hand, you want people to stretch themselves and experiment with new jobs. You don’t want to get rid of a great person just because he or she tried something new and failed. But on the other hand, if you look at most people in this situation, by and large you’ll regret allowing them to step back. There are three reasons for this: 1) You’re giving up a seat for someone else who might be able to advance, and people who can advance are better to have than people who can’t; 2) The person stepping back could continue to want to do what they aren’t capable of doing, so there’s a real risk of them job slipping into work they’re not a fit for; 3) The person may experience a sense of confinement and resentment being back in a job that they probably can’t advance beyond. Keeping them is generally viewed as the preferable short-run decision but in the long run it’s probably the wrong thing to do. This is a hard decision. You need to understand deeply what the person in this situation is like and weigh the costs carefully before deciding.
we cannot compromise on the fundamentals of our culture, so if a person cannot operate within our requirements of excellence through radical truth and transparency in an acceptable time frame, he or she must leave.
Tough love is both the hardest and the most important type of love to give.
No matter what work you do, at a high level you are simply setting goals and building machines to help you achieve them.
Constantly compare your outcomes to your goals. You must always be simultaneously trying to accomplish the goal and evaluating the machine (the people and the design), as all outcomes are reflections of how the machine is running. Whenever you identify a problem with your machine, you need to diagnose whether it is the result of a flaw in its design or in the way your people are handling their responsibilities.
Understand that a great manager is essentially an organizational engineer. Great managers are not philosophers, entertainers, doers, or artists. They are engineers. They see their organizations as machines and work assiduously to maintain and improve them. They create process-flow diagrams to show how the machine works and to evaluate its design. They build metrics to light up how well each of the individual parts of the machine (most importantly, the people) and the machine as a whole are working. And they tinker constantly with its designs and its people to make both better.
Build great metrics. Metrics show how the machine is working by providing numbers and setting off alert lights in a dashboard. Metrics are an objective means of assessment and they tend to have a favorable impact on productivity. If your metrics are good enough, you can gain such a complete and accurate view of what your people are doing and how well they are doing it that you can almost manage via the metrics alone.
Beware of paying too much attention to what is coming at you and not enough attention to your machine. If you keep your focus on each individual task, you will inevitably get bogged down. If instead you pay attention to building and managing your machines, you will be rewarded many times over.
- to move you closer to your goal, and 2) to train and test your machine (i.e., your people and your design).
When a problem occurs, conduct the discussion at two levels: 1) the machine level (why that outcome was produced) and 2) the case-at-hand level (what to do about it).
While good principles and policies almost always provide good guidance, remember that there are exceptions to every rule.
Great managers orchestrate rather than do. Like the conductor of an orchestra, they do not play an instrument, but direct their people so that they play beautifully together. Micromanaging, in contrast, is telling the people who work for you exactly what tasks to do or doing their tasks for them. Not managing is having them do their jobs without your oversight and involvement. To be successful, you need to understand these differences and manage at the right level.
Managers must make sure that what they are responsible for works well. They can do this by 1) managing others well (as explained above), 2) job slipping down to do work they’re not responsible for because others can’t do their jobs well, or 3) escalating what they can’t manage well. The first choice is optimal; the second signals that a change is needed in the people and the design; the third choice is harder still but mandatory.
You should be able to delegate the details. If you keep getting bogged down in details, you either have a problem with managing or training, or you have the wrong people doing the job. The real sign of a master manager is that he doesn’t have to do practically anything. Managers should view the need to get involved in the nitty-gritty as a bad sign. At the same time, there’s danger in thinking you’re delegating details when you’re actually being too distant from what’s important and essentially are not managing. Great managers know the difference. They strive to hire, train, and oversee in a way in which others can superbly handle as much as possible on their own.
Know what your people are like and what makes them tick, because your people are your most important resource. Develop a full profile of each person’s values, abilities, and skills. These qualities are the real drivers of behavior, so knowing them in detail will tell you which jobs a person can and cannot do well, which ones they should avoid, and how the person should be trained. These profiles should change as the people change.
Vary your involvement based on your confidence. Management largely consists of scanning and probing everything you are responsible for to identify suspicious signs. Based on what you see, you should vary your degree of digging, doing more for people and areas that look suspicious, and less where what you see instills confidence.
Clearly assign responsibilities. Eliminate any confusion about expectations and ensure that people view their failures to complete their tasks and achieve their goals as personal failures. The most important person on a team is the one who is given the overall responsibility for accomplishing the mission. This person must have both the vision to see what should be done and the discipline to make sure it’s accomplished.
Remember who has what responsibilities. While that might sound obvious, people often fail to stick to their own responsibilities. Even senior people in organizations sometimes act like young kids just learning to play soccer, running after the ball in an effort to help but forgetting what position they are supposed to play. This can undermine rather than improve performance. So make sure that people remember how the team is supposed to work and play their positions well.
Watch out for “job slip.” Job slip is when a job changes without being explicitly thought through and agreed to, generally because of changing circumstances or a temporary necessity. Job slip often leads to the wrong people handling the wrong responsibilities and confusion over who is supposed to do what.
Constantly probe the people who report to you while making sure they understand that it’s good for them and everyone else to surface their problems and mistakes. Doing so is required to make sure you’re getting what you want, even from people who are doing their jobs well (though they can be given a bit more leeway). Probing shouldn’t just come from the top down. The people who work for you should constantly challenge you, so that you can become as good as you can be. In doing so, they will understand that they are just as responsible for finding solutions as you are. It’s much easier for people to remain spectators than to become players. Forcing them onto the field strengthens the whole team.
Use daily updates as a tool for staying on top of what your people are doing and thinking. I ask each person who reports to me to take about ten to fifteen minutes to write a brief description of what they did that day, the issues pertaining to them, and their reflections. By reading these updates and triangulating them (i.e., seeing other people’s takes on what they are doing together), I can gauge how they are working together, what their moods are, and which threads I should pull on.
Probe so you know whether problems are likely to occur before they actually do.
Probe to the level below the people who report to you.
Have the people who report to the people who report to you feel free to escalate their problems to you. This is a great and useful form of upward accountability.
Don’t assume that people’s answers are correct. People’s answers could be erroneous theories or spin, so you need to occasionally double-check them, especially when they sound questionable. Some managers are reluctant to do this, feeling it is the equivalent of saying they don’t trust their people. These managers need to understand that this process is how trust is earned or lost. Your people will learn to be much more accurate in what they tell you if they understand this—and you will learn who you can rely on.
Welcome probing. It’s important to welcome probing of yourself because no one can see themselves objectively. When you are being probed, it’s essential to stay calm. Your emotional “lower-level you” will probably react to probing with something like, “You’re a jerk because you’re against me and making me feel bad,” whereas your thoughtful “higher-level you” should be thinking, “It’s wonderful that we can be completely honest like this and have such a thoughtful exchange to help assure that I’m doing things well.” Listen to your higher-level you and don’t lose sight of how difficult it can be for the person doing the probing. Besides helping to make the organization and your relationship with the person who is probing you go well, working yourself through this difficult probing will build your character and your equanimity.
Remember that people who see things and think one way often have difficulty communicating with and relating to people who see things and think another way.
Pull all suspicious threads. It’s worth pulling all suspicious threads because: 1) Small negative situations can be symptomatic of serious underlying problems; 2) Resolving small differences of perception may prevent more serious divergence of views; and 3) In trying to create a culture that values excellence, constantly reinforcing the need to point out and stare at problems—no matter how small—is essential (otherwise you risk setting an example of tolerating mediocrity).
Prioritization can be a trap if it causes you to ignore the problems around you. Allowing small problems to go unnoticed and unaddressed creates the perception that it’s acceptable to tolerate such things. Imagine that all your little problems are small pieces of trash you’re stepping over to get to the other side of a room. Sure, what’s on the other side of the room may be very important, but it won’t hurt you to pick up the trash as you come to it, and by reinforcing the culture of excellence it will have positive second- and third-order consequences that will reverberate across your whole organization. While you don’t need to pick up every piece, you should never lose sight of the fact that you’re stepping over the trash nor that it’s probably not as hard as you think to pick up a piece or two as you go on your way.
Recognize that there are many ways to skin a cat. Your assessment of how Responsible Parties are doing their jobs should not be based on whether they’re doing it your way but whether they’re doing it in a good way. Be careful about expecting a person who achieves success one way to do it…
Think like an owner, and expect the people you work with…
It’s a basic reality that if you don’t experience the consequences of your actions, you’ll take less ownership of them. If you are an employee, and you get a paycheck for turning up and pleasing your boss, your mind-set will inevitably be trained to this cause-effect relationship. If you are a manager, make sure you structure incentives and penalties that encourage people to take full ownership of what they do and not just coast by. This includes straightforward things such as spending money like it’s their own and making sure their responsibilities aren’t neglected when they’re out of the…
Going on vacation doesn’t mean one can neglect one’s responsibilities. Thinking like an owner means making sure that your responsibilities are handled well regardless of what comes up. While you are away on vacation, it’s your responsibility to make sure nothing drops. You can do that via a combination of good planning and coordination before you go and staying on top of things while you are away. This needn’t take much time—it can be as little as an hour of…
Force yourself and the people who work for you to do difficult things. It’s a basic law of nature: You must stretch yourself if you want to get strong. You and your people must act with each other…
Recognize and deal with key-man risk. Every key person should have at least one person who can replace him or her. It’s best to have those people designated as likely successors and to…
Don’t treat everyone the same—treat them appropriately. It’s often said that it is neither fair nor appropriate to treat people differently. But in order to treat people appropriately you must treat them differently. That is because people and their circumstances are different. If you were a tailor you wouldn’t give all of your customers the same…
Don’t let yourself get squeezed. Plenty of people have threatened me over the years by saying they’d quit, bring a lawsuit, embarrass me in the press—you name it. While some people have advised me that it’s easier to just make such things go away, I’ve found doing that is almost always shortsighted. Giving in not only compromises your values, it telegraphs that the rules of the game have changed and opens you up to more of the same. Fighting for what’s right can be hard in the short term, of…
Care about the people who work for you. If you aren’t working with people you care about and respect, your job probably isn’t the one for you. I will be there for anyone who really needs me; when a whole community operates this way, it is very powerful and…
It is more practical to be honest about one’s uncertainties, mistakes, and weaknesses than to pretend they don’t exist.
Thoughtful discussion and disagreement is practical because it stress-tests leaders and brings what they are missing to their attention.
The most effective leaders work to 1) open-mindedly seek out the best answers and 2) bring others along as part of that discovery process.
A truly great leader is appropriately uncertain but well equipped to deal with that uncertainty through open-minded exploration.
Always seek the advice of wise others and let those who are better than you take the lead. The objective is to have the best understanding to make the best possible leadership decisions. Be open-minded and assertive at the same time and get in tight sync with those who work with you, recognizing that sometimes not all or even the majority of people will agree with you.
Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do. Just worry about making the best decisions possible, recognizing that no matter what you do, most everyone will think you’re doing something—or many things—wrong. It is human nature for people to want you to believe their own opinions and to get angry at you if you don’t, even when they have no reason to believe that their opinions are good. So, if you’re leading well, you shouldn’t be surprised if people disagree with you. The important thing is for you to be logical and objective in assessing your probabilities of being right.
In other words, if you don’t have better insights than them, you shouldn’t be a leader—and if you do have better insights than them, don’t worry if you are doing unpopular things.
I believe that an idea meritocracy will not only produce better results than other systems but will also ensure more alignment behind appropriate yet unpopular decisions.
Don’t give orders and try to be followed; try to be understood and to understand others by getting in sync. If you want to be followed, either for egotistical reasons or because you believe it more expedient to operate that way, you will pay a heavy price in the long run. When you are the only one thinking, the results will suffer.
Hold yourself and your people accountable and appreciate them for holding you accountable.
Holding people accountable means understanding them and their circumstances well enough to assess whether they can and should do some things differently, getting in sync with them about that, and, if they can’t adequately do what is required, removing them from their jobs. It is not micromanaging them, nor is it expecting them to be perfect (holding particularly overloaded people accountable for doing everything excellently is often impractical, not to mention unfair). But people can resent being held accountable, and you don’t want to have to tell them what to do all the time. Reason with them so that they understand the value of what you’re doing, but never let them off the hook.
If you’ve agreed with someone that something is supposed to go a certain way, make sure it goes that way—unless you get in sync about doing it differently. People will often subconsciously gravitate toward activities they like rather than what’s required. If they lose sight of their priorities, you need to redirect them. This is part of why it’s important to get frequent updates from people about their progress.
Distinguish between a failure in which someone broke their “contract” and a failure in which there was no contract to begin with. If you didn’t make an expectation clear, you can’t hold people accountable for it not being fulfilled. Don’t assume that something was implicitly understood. Common sense isn’t actually all that common—be explicit. If responsibilities keep falling between the cracks, consider editing the design of your machine.
The sucked-down phenomenon is what happens when a manager chronically fails to properly redesign an area of responsibility to keep him or herself from having to do the job that others should be capable of doing well. You can tell this problem exists when the manager focuses more on getting tasks done than on operating his or her machine.
Watch out for people who confuse goals and tasks, because if they can’t make that distinction, you can’t trust them with responsibilities. People who can see the goals are usually able to synthesize too. One way to test this: If you ask a high-level question like “How is goal XYZ going?” a good answer will provide a synthesis up-front of how XYZ is going overall and, if needed, will support it by accounting for the tasks that were done to achieve it. People who see the tasks and lose sight of the goals will just describe the tasks that were done.
Watch out for the unfocused and unproductive “theoretical should.”
Communicate the plan clearly and have clear metrics conveying whether you are progressing according to it.
Goals, tasks, and assigned responsibilities should be reviewed at department meetings at least once a quarter, perhaps as often as once a month.
Put things in perspective by going back before going forward. Before moving forward with a new plan, take the time to reflect on how the machine has been working up till now.
Escalate when you can’t adequately handle your responsibilities … … and make sure that the people who work for you are proactive about doing the same. Escalating means saying you don’t believe you can successfully handle a situation and that you are passing the Responsible Party job to someone else. The person you are escalating to—the person to whom you report—can then decide whether to coach you through it, take control themselves, have someone else handle it, or do something else. It’s critical that escalation not be seen as a failure but as a responsibility. All Responsible Parties will eventually face tests that they don’t know whether they can handle; what’s important is raising their concerns so their boss knows about the risks and both the boss and the escalating RP can get in sync about what to do about it. There is no greater failure than to fail to escalate a responsibility you cannot handle. Make sure your people are proactive; demand that they speak up when they can’t meet agreed-upon deliverables or deadlines. Such communication is essential to get in sync both on the case at hand and on what the person handling it is like.
On your way to your goals, you will inevitably encounter problems. To be successful you must perceive and not tolerate them. Problems are like coal thrown into a locomotive engine because burning them up—inventing and implementing solutions for them—propels us forward. Every problem you find is an opportunity to improve your machine. Identifying and not tolerating problems is one of the most important and disliked things people can do.
Acknowledging a weakness isn’t the same thing as accepting it.
Assign people the job of perceiving problems, give them time to investigate, and make sure they have independent reporting lines so that they can convey problems without any fear of recrimination.Without these things in place, you can’t rely on people raising all the problems you need to hear about.
Beware of group-think: The fact that no one seems concerned doesn’t mean nothing is wrong.
Have as many eyes looking for problems as possible. Encourage people to bring problems to you. If everyone in your area feels responsible for the area’s well-being and no one is afraid to speak up, you will learn about problems when they are still easy to fix and haven’t caused serious damage. Stay in sync with the people who are closest to the most important functions.
For example, don’t say, “Client advisors aren’t communicating well with the analysts.” Be specific: Name which client advisors aren’t doing this well and in which ways. Start with the specifics and then observe patterns.
In some cases, people accept unacceptable problems because they are perceived as too difficult to fix. Yet fixing unacceptable problems is a lot easier than not fixing them, because not fixing them will lead to more stress, more work, and chronic bad outcomes that could get you fired. So remember one of the first principles of management: You need to look at the feedback you’re getting on your machine and either fix your problems or escalate them, if need be, over and over again. There is no easier alternative than bringing problems to the surface and putting them in the hands of good problem solvers.
Understand that problems with good, planned solutions in place are completely different from those without such solutions. Unidentified problems are the worst; identified problems without planned solutions are better, but worse for morale; identified problems with a good planned solution are better still; and solved problems are best. It’s really important to know which category a problem belongs to.
Think of the problems you perceive in a machinelike way. There are three steps to doing this well: First, note the problem; then determine who the RPs to raise it to are; and finally decide when the right time to discuss it is. In other words: what, who, when. Then follow through.
Bad outcomes don’t just happen; they occur because specific people make, or fail to make, specific decisions. A good diagnosis always gets to the level of determining what it is about those people that led to the bad outcomes. This can be uncomfortable but if someone isn’t suited for a job, they need to be moved out of it so that the same mistakes won’t keep occurring. Of course, nobody is perfect; everyone makes mistakes. So it is important to look at people’s track records and their specific strengths and weaknesses in doing a diagnosis.
To diagnose well, ask the following questions: 1. Is the outcome good or bad? 2. Who is responsible for the outcome? 3. If the outcome is bad, is the Responsible Party incapable and/or is the design bad?
Is the outcome good or bad? And who is responsible for the outcome? If you can’t quickly get in sync that the outcome was bad and who specifically was responsible, you’re probably already headed for the weeds (in other words, into a discussion of tiny, irrelevant details).
If the outcome is bad, is the RP incapable and/or is the design bad? The goal is to come to this synthesis, though to get there you may need to examine how the machine worked in this instance and build the synthesis from there.
• Are there responsibilities that need to be assigned or clarified? • Are there machine designs that need to be reworked? • Are there people whose fit for their roles needs to be reevaluated?
Ask yourself: “Who should do what differently?”
Since all outcomes ultimately come from people and designs, asking yourself “Who should do what differently?” will point you in the direction of the kind of understanding that you need to actually change outcomes in the future (versus just chirping about them).
Identify at which step in the 5-Step Process the failure occurred.
Identify the principles that were violated.
Avoid Monday morning quarterbacking. Evaluate the merits of a past decision based not on what you know now but only on what you could have reasonably known at the time the decision was made. Every decision has pros and cons; you can’t evaluate choices in retrospect without the appropriate context.
Identifying the fact that someone else doesn’t know what to do doesn’t mean that you know what to do.
Remember that a root cause is not an action but a reason. Root causes are described in adjectives, not verbs, so keep asking “why” to get at them. Since most things are done or not done because someone decided to do them or not do them in a certain way, most root causes can be traced to specific people who have specific patterns of behavior.
A root cause discovery process might proceed like this: The problem was due to bad programming. Why was there bad programming? Because Harry programmed it badly. Why did Harry program it badly? Because he wasn’t well trained and because he was in a rush. Why wasn’t he well trained? Did his manager know that he wasn’t well trained and let him do the job anyway, or did he not know? Consider how personal the questioning is. It doesn’t stop at “Because Harry programmed it badly.” You must go deeper in order to understand what about the people and/or the design led to the failure. This is difficult for both the diagnoser and the RPs, and it often results in people bringing up all kinds of irrelevant details. Be on your guard because people will often look to cover themselves by diving into the weeds.
Keep in mind that managers usually fail or fall short of their goals for one (or more) of five reasons. 1. They are too distant. 2. They have problems perceiving bad quality. 3. They have lost sight of how bad things have become because they have gotten used to it. 4. They have such high pride in their work (or such large egos) that they can’t bear to admit they are unable to solve their own problems. 5. They fear adverse consequences from admitting failure.
Keep in mind that diagnoses should produce outcomes. If they don’t, there’s no purpose to them. At a minimum, a diagnosis should take the form of theories about root causes and clarity about what information needs to be gathered to find out more. At best, it should lead directly to a plan or design to fix the problem or problems.
Most problems happen for one of two reasons: 1) It isn’t clear who the Responsible Party is, or 2) The Responsible Party isn’t handling his/her responsibilities well.
To get at the root cause, keep asking “Why?” For example: Problem: The team is continually working late and is on the verge of burning out. Why? Because we don’t have enough capacity to meet the demand put on the team. Why? Because we inherited this new responsibility without additional staff. Why? Because the manager did not understand the volume of work before accepting the responsibility. Why? Because the manager is bad at anticipating problems and creating plans. [Root Cause]
It is your job as a manager to get at truth and excellence, not to make people happy. For example, the correct path might be to fire some people and replace them with better people, or put them in jobs they might not want. Everyone’s objective must be to get at the best answers, not the answers that will make the most people happy.
Create a Plan. Step away from the group and develop a plan that addresses the root causes. Plans are like movie scripts, where you visualize who will do what through time to achieve the goals. They are developed by iterating through multiple possibilities, weighing the likelihood of goal achievement versus costs and risks. They should have specific tasks, outcomes, Responsible Parties, tracking metrics, and timelines. Allow the key people involved to discuss the plan thoroughly. Not everyone needs to agree on the plan but the Responsible Parties and other key people must be in sync.
Execute the Plan. Execute the agreed-upon plan and transparently track its progress. At least monthly, report on the planned and actual progress to date and the expectations for the coming period, and hold people publicly accountable for delivering their outcomes successfully and on time. Make adjustments to the plan as required to reflect reality.
Understand that diagnosis is foundational to both progress and quality relationships. If you and others are open-minded and engage in a quality back-and-forth, not only will you find better solutions, you will also get to know each other better. It is an opportunity for you to assess your people and to help them grow—and vice versa.
While the best designs are drawn from a rich understanding of actual problems, when you’re just starting out on something, you often have to design based on anticipated problems as opposed to actual ones.
Focus on each task or case at hand and you will be stuck dealing with them one by one. Instead, build a machine by observing what you’re doing and why, extrapolating the relevant principles from the cases at hand, and systemizing that process. It typically takes about twice as long to build a machine as it does to resolve the task at hand, but it pays off many times over because the learning and efficiency compound into the future.
Create great decision-making machines by thinking through the criteria you are using to make decisions while you are making them.Whenever
The more vividly you can visualize how the scenario you create will play out, the more likely it is to happen as you plan. Visualize who will do what when and the result they’ll produce. This is your mental map of your machine. Recognize that some people are better or worse at visualization. Accurately assess your own abilities and those of others so you can use the most capable people to create your plans.
Put yourself in the position of pain for a while so that you gain a richer understanding of what you’re designing for.
Visualize alternative machines and their outcomes, and then choose. A good designer is able to visualize the machine and its outcomes in various iterations.
Use standing meetings to help your organization run like a Swiss clock. Regularly scheduled meetings add to overall efficiency by ensuring that important interactions and to-do’s aren’t overlooked, eliminating the need for inefficient coordination, and improving operations (because repetition leads to refinement). It pays to have standardized meeting agendas that ask the same feedback questions in each meeting (such as how effective the meeting was) and nonstandard meeting agendas that include things done infrequently (such as quarterly budget reviews).
Remember that a good machine takes into account the fact that people are imperfect. Design in such a way that you produce good results even when people make mistakes.
Recognize that design is an iterative process. Between a bad “now” and a good “then” is a “working through it” period.
Understand the power of the “cleansing storm.” In nature, cleansing storms are big infrequent events that clear out all the overgrowth that’s accumulated during good times. Forests need these storms to be healthy—without them, there would be more weak trees and a buildup of overgrowth that stifles other growth. The same is true for companies. Bad times that force cutbacks so only the strongest and most essential employees (or companies) survive are inevitable and can be great, even though they seem terrible at the time.
Build the organization around goals rather than tasks. Giving each department a clear focus and the appropriate resources to achieve its goals makes the diagnosis of resource allocations more straightforward and reduces job slip. As an example of how this works, at Bridgewater we have a Marketing Department (goal: to market) that is separate from our Client Service Department (goal: to service clients), even though they do similar things and there would be advantages to having them work together. But marketing and servicing clients are two distinct goals; if they were merged, the department head, salespeople, client advisors, analysts, and others would be giving and receiving conflicting feedback. If asked why clients were receiving relatively poor attention, the answer might be: “We have incentives to raise sales.” If asked why they weren’t making sales, the merged department might explain that they need to take care of their clients.
Build your organization from the top down. An organization is the opposite of a building: Its foundation is at the top, so make sure you hire managers before you hire their reports. Managers can help design the machine and choose the people who complement it. People overseeing departments need to be able to think strategically as well as run the day-to-day. If they don’t anticipate what’s coming up, they’ll run the day-to-day off a cliff.
Remember that everyone must be overseen by a believable person who has high standards. Without strong oversight, there is potential for inadequate quality control, inadequate training, and inadequate appreciation of excellent work. Never just trust people to do their jobs well.
Make sure the people at the top of each pyramid have the skills and focus to manage their direct reports and a deep understanding of their jobs.
In designing your organization, remember that the 5-Step Process is the path to success and that different people are good at different steps. Assign specific people to do each of these steps based on their natural inclinations. For example, the big-picture visionary should be responsible for goal setting, the taste tester should be assigned the job of identifying and not tolerating problems, the logical detective who doesn’t mind probing people should be the diagnoser, the imaginative designer should craft the plan to make the improvements, and the reliable taskmaster should make sure the plan gets executed. Of course, some people can do more than one of these things—generally people do two or three well. Virtually nobody can do them all well. A team should consist of people with all of these abilities and they should know who is responsible for which steps.
Don’t build the organization to fit the people. Managers will often take the people who work in their organization as a given and try to make the organization work well with them. That’s backward. Instead, they should imagine the best organization and then make sure the right people are chosen for it. Jobs should be created based on the work that needs to be done, not what people want to do or which people are available. You can always search outside to find the people who click best for a particular role. First come up with the best workflow design, then sketch it out on an organizational chart, visualize how the parts interact, and specify what qualities are required for each job. Only after all that is done should you choose the people to fill the slots.
Keep scale in mind. Your goals must be the right size to warrant the resources that you allocate to them. An organization might not be big enough to justify having both a sales and an analytics group, for example. Bridgewater successfully evolved from a one-cell organization, in which most people were involved in everything, to a multi-cellular organization because we retained our ability to focus efficiently as we grew. Temporarily sharing or rotating resources is fine and is not the same as a merging of responsibilities. On the other hand, the efficiency of an organization decreases as the number of people and/or its complexity increases,…
Organize departments and sub-departments around the most logical groupings based on “gravitational pull.” Some groups naturally gravitate toward one another. That gravitational pull might be based on common goals, shared abilities and skills, workflow, physical location, and so forth. Imposing your own structure…
Make departments as self-sufficient as possible so that they have control over the resources they…
Ensure that the ratios of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding. Generally, the ratio should not be more than 1:10, and preferably closer to 1:5. Of course, the appropriate ratio will vary depending on how many people your direct reports have reporting to them, the complexity of the jobs they’re doing, and a manager’s ability to handle several people or projects at once. The number of…
To ensure that your organization continues to deliver results, you need to build a perpetual motion machine…
Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around.
If you are always trying to hire somebody who is as good as or better than you at your job, that will both free you up to go on to other things and build your succession pipeline.
Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly. Double-checking has a much higher rate of errors than double-doing, which is having two different people do the same task so that they produce two independent answers.
Use consultants wisely and watch out for consultant addiction. Sometimes hiring an external consultant is the best fit for your design. Doing so can get you precisely the amount of specialized expertise you need to tackle a problem. When you can outsource you don’t have to worry about managing, and that’s a real advantage. If a position is part-time and requires highly specialized knowledge, I would prefer to have it done by consultants or outsiders. At the same time, you need to beware of the chronic use of consultants to do work that should be done by employees. This will cost you in the long run and erode your culture. Also make sure you are careful not to ask consultants to do things that they don’t normally do. They will almost certainly revert to doing things in their usual way; their own employers will demand that.
You have to consider whether you should be outsourcing or developing capabilities in-house. Though temps and consultants are good for a quick fix, they won’t augment your capacities in the long term.
Don’t do work for people in another department or grab people from another department to do work for you unless you speak to the person responsible for overseeing the other department.
Watch out for “department slip.” This happens when a support department mistakes its responsibility to provide support with a mandate to determine how the thing they are supporting should be done.
So look down on your machine and the people you choose for your roles, and think about where you might need to supplement your design by adding people or processes to ensure that each job is done excellently.
Remember, guardrailing is meant to help people who can by and large do their jobs well—it’s intended to help good people perform better, not to help failing people reach the bar. If you’re trying to guardrail someone who is missing the core abilities required for their job, you should probably just fire them and look for someone else who will be a better click.
Don’t expect people to recognize and compensate for their own blind spots. I constantly see people form wrong opinions and make bad decisions, even though they’ve made the same kinds of mistakes before—and even though they know that doing so is illogical and harmful. I used to think that they would avoid these pitfalls when they became aware of their blind spots, but typically that’s not the case. Only very rarely do I hear someone recuse himself from offering an opinion because they aren’t capable of forming a good one in a particular area. Don’t bet on people to save themselves; proactively guardrail them or, better yet, put them in roles in which it’s impossible for them to make the types of decisions they shouldn’t make.
To help nurture that, it is desirable to reinforce the traditions and reasons for them, as well as to make sure the values and strategic goals are imbued in the successive leaders and the population as a whole.
Effective managers pay attention both to imminent problems and to problems that haven’t hit them yet. They constantly feel the tug of the strategic path because they worry about not getting to their ultimate goal and they are determined to continue their process of discovery until they do.
Think about both the big picture and the granular details, and understand the connections between them.
Don’t assume that people are operating in your interest rather than their own. A higher percentage of the population than you might imagine will cheat if given the opportunity. When offered the choice of being fair with you or taking more for themselves, most people will take more for themselves. Even a tiny amount of cheating is intolerable, so your happiness and success will depend on your controls. I have repeatedly learned this lesson the hard way.
Investigate and let people know you are going to investigate. Investigate and explain to people that you are going to investigate so there are no surprises. Security controls should not be taken personally by the people being checked, just like a teller shouldn’t view the bank counting the money in the drawer (rather than just accepting the teller’s count) as an indication that the bank thinks the teller is dishonest.
Remember that there is no sense in having laws unless you have policemen (auditors). The people doing the auditing should report to people outside the department being audited, and auditing procedures should not be made known to those being audited. (This is one of our few exceptions to radical transparency.)
Beware of rubber-stamping. When a person’s role involves reviewing or auditing a high volume of transactions or things that other people are doing, there’s a real risk of rubber-stamping. One particularly risky example is expense approvals. Make sure you have ways to audit the auditors.
Recognize that people who make purchases on your behalf probably will not spend your money wisely. This is because 1) it is not their money and 2) it is difficult to know what the right price should be.
Use “public hangings” to deter bad behavior. No matter how carefully you design your controls and how rigorously you enforce them, malicious and grossly negligent people will sometimes find a way around them. So when you catch someone violating your rules and controls, make sure that everybody sees the consequences.
Assign responsibilities based on workflow design and people’s abilities, not job titles. Just because someone is responsible for “Human Resources,” “Recruiting,” “Legal,” “Programming,” and so forth, doesn’t necessarily mean they are the appropriate person to do everything associated with those functions.
Constantly think about how to produce leverage. Leverage in an organization is not unlike leverage in the markets; you’re looking for ways to achieve more with less. At Bridgewater, I typically work at about 50:1 leverage, meaning that for every hour I spend with each person who works for me, they spend about fifty hours working to move the project along. At our sessions, we go over the vision and the deliverables, then they work on them, and then we review the work, and they move forward based on my feedback—and we do that over and over again. The people who work for me typically have similar relationships with those who work for them, though their ratios are typically between 10:1 and 20:1. I am always eager to find people who can do things nearly as well as (and ideally better than) I can so that I can maximize my output per hour.
Technology is another great tool for providing leverage. To make training as easy to leverage as possible, document the most common questions and answers through audio, video, or written guidelines, and then assign someone to organize them and incorporate them into a manual, which is updated on a regular basis. Principles themselves are a form of leverage—they’re a way to compound your understanding of situations so that you don’t need to exert the same effort each time you encounter a problem.
Recognize that it is far better to find a few smart people and give them the best technology than to have a greater number of ordinary people who are less well equipped. Great people and great technology both enhance productivity. Put them together in a well-designed machine and they improve it exponentially.
Remember that almost everything will take more time and cost more money than you expect. Virtually nothing goes according to plan because one doesn’t plan for the things that go wrong. I personally assume things will take about one and a half times as long and cost about one and a half times as much because that’s what I’ve typically experienced. How well you and the people working with you manage will determine your expectations.
Work for goals that you and your organization are excited about … … and think about how your tasks connect to those goals. If you’re focused on the goal, excited about achieving it, and recognize that doing some undesirable tasks to achieve the goal is required, you will have the right perspective and will be appropriately motivated. If you’re not excited about the goal that you’re working for, stop working for it. Personally, I like visualizing exciting new and beautiful things that I want to make into realities. The excitement of visualizing these ideas and my desire to build them out is what pulls me through the thorny realities of life to make my dreams happen.
Be coordinated and consistent in motivating others. Managing groups to push through to results can be done emotionally or intellectually, and by carrots or by sticks. While we each have our own reasons for working, there are unique challenges and advantages to motivating a community. The main challenge is the need to coordinate, i.e., to get in sync on the reasons for pursuing a goal and the best way to do it.
Don’t act before thinking. Take the time to come up with a game plan.
Look for creative, cut-through solutions. When people are facing thorny problems or have too much to do, they often think that they need to work harder. But if something seems hard, time-consuming, and frustrating, take some time to step back and triangulate with others on whether there might be a better way to handle it. Of course, many things that need getting done are just a slog, but it’s often the case that there are better solutions out there that you’re not seeing.
How to do more than we think we can is a puzzle we all struggle with. Other than working harder for longer hours, there are three ways to fix the problem: 1) having fewer things to do by prioritizing and saying no, 2) finding the…
Some people spend a lot of time and effort accomplishing very little while others do a lot in the same amount of time. What differentiates people who can do a lot from those who can’t is creativity, character, and wisdom. Those with more creativity invent ways to do things more effectively (for instance by finding good people, good technologies, and/or good designs). Those with more character are better able to wrestle with their challenges and demands. And those with more wisdom can maintain their equanimity by going to the…
Don’t get frustrated. If nothing bad is happening to you now, wait a bit and it will.…
It makes no sense to get frustrated when there’s so much that you can do, and when life offers…
There’s nothing you can’t accomplish if you think creatively and have the character to…
When people are assigned tasks, it is generally desirable to have them captured on checklists. Crossing items off a checklist will serve as both a task reminder and a confirmation of what has been done. a. Don’t confuse checklists with personal responsibility. People should be…
If you just keep doing, you will burn out and grind to a halt. Build downtime into your schedule just as you would make time for all the…
Ring the bell. When you and your team have successfully pushed through to achieve…
Words alone aren’t enough. That’s something I learned from watching people struggle to get themselves to do things…
But there’s a big difference between wanting to do something and actually being able to do it. Assuming people will do what they intellectually want to do is like assuming that people will lose weight simply because they understand why it’s beneficial for them to do it. It won’t happen until the proper habits are…
Rather than be above the principles, the people responsible for running the organization must be evaluated, chosen, and—if needed—replaced in an evidence-based way according to rules, just like everyone else in the organization. Their strengths and weaknesses, like everyone’s, must be taken into consideration. Collecting objective data about all people is essential for this. And you need good tools to convert data into decisions in agreed-upon ways. Moreover, the tools allow the people and the system to work together in a symbiotic way to improve each other.
To produce real behavioral change, understand that there must be internalized or habituated learning.
Use tools to collect data and process it into conclusions and actions.
Imagine that virtually everything important going on in your company can be captured as data, and that you can build algorithms to instruct the computer, as you would instruct a person, to analyze that data and use it in the way you agreed it should be used.
Foster an environment of confidence and fairness by having clearly-stated principles that are implemented in tools and protocols so that the conclusions reached can be assessed by tracking the logic and data behind them.
- learning what people are like, 2) sharing what people are like, 3) providing personalized training and development, 4) offering guidance and oversight in specific situations, and 5) helping managers sort people into the right roles or out of the company based on what they are like and what is required.
Governance is the oversight system that removes the people and the processes if they aren’t working well. It is the process that checks and balances power to assure that the principles and interests of the community as a whole are always placed above the interests and power of any individual or faction. Because power will rule, power must be put in the hands of capable people in key roles who have the right values, do their jobs well, and will check and balance the power of others.
To be successful, all organizations must have checks and balances. By checks, I mean people who check on other people to make sure they’re performing well, and by balances, I mean balances of power.
Even in an idea meritocracy, merit cannot be the only determining factor in assigning responsibility and authority. Appropriate vested interests also need to be taken into consideration.
Make sure that no one is more powerful than the system or so important that they are irreplaceable.
Make clear that the organization’s structure and rules are designed to ensure that its checks-and-balances system functions well.
There are one to three chairmen working with seven to fifteen board members supported by staff, whose purpose is primarily to assess whether: 1) The people running the company are capable; 2) The company is operating in accordance with its agreed-upon principles and rules. The board has the power to select and replace the CEOs, but doesn’t engage in the micromanagement of the firm nor the people running it, though in the event of an emergency, they can drop into a more active role. (They can also help the CEOs to the extent they want it.)
Make sure reporting lines are clear. While this is important throughout the organization, it is especially important that the reporting lines of the board (those doing the oversight) are independent of the reporting lines of the CEOs (those doing the management), though there should be cooperation between them.
Make sure decision rights are clear. Make sure it’s clear how much weight each person’s vote has so that if a decision must be made when there is still disagreement, there is no doubt how to resolve it.
Make sure that the people doing the assessing 1) have the time to be fully informed about how the person they are checking on is doing, 2) have the ability to make the assessments, and 3) are not in a conflict of interest that stands in the way of carrying out oversight effectively.
Some people have the ability and the courage to hold people accountable, while most don’t; having such ability and courage is essential.
Recognize that decision makers must have access to the information necessary to make decisions and must be trustworthy enough to handle that information safely.
We work with others to get three things: 1) Leverage to accomplish our chosen missions in bigger and better ways than we could alone. 2) Quality relationships that together make for a great community. 3) Money that allows us to buy what we need and want for ourselves and others.
An idea meritocracy requires people to do three things: 1) Put their honest thoughts on the table for everyone to see, 2) Have thoughtful disagreements where there are quality back-and-forths in which people evolve their thinking to come up with the best collective answers possible, and 3) Abide by idea-meritocratic ways of getting past the remaining disagreements (such as believability-weighted decision making).
It’s up to you to decide what you want to get out of life and what you want to give.