Principles: Work Principles 1 (part 5 of 14)

For any group or organization to function well, its work principles must be aligned with its members’ life principles.

I don’t mean that they must be aligned on everything, but I do mean that they have to be aligned on the most important things, like the mission they’re on and how they will be with each other.

If people in an organization feel that alignment, they will treasure their relationships and work together harmoniously; its culture will permeate everything they do. If they don’t they will work for different, often conflicting, goals and will be confused about how they should be with each other. For that reason, it pays for all organizations – companies, governments, foundations, schools, hospitals, and so on – to spell out their principles and values clearly and explicitly and to operate by them consistently.

those principles and values aren’t vague slogans, like “the customer always comes first” or “we should strive to be the best in our industry,” but a set of concrete directives anyone can understand, get aligned on, and carry out. As we shift our attention from Life Principles to Work Principles, I will explain how we went about achieving these alignments at Bridgewater and how that affected our results. But first, I want to explain how I think about organizations.

An organization is a machine consisting of two major parts: culture and people.

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 kind of people who fit in.

a. A great organization has both great people and a great culture. Companies that get progressively better over time have both. Nothing is more important or more difficult than to get the culture and the people right.

b. 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.

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. Doing that sustains their evolution. In our case, we do that by having an idea meritocracy that strives for meaningful work and meaningful relationships through radical truth and radical transparency. By meaningful work, I mean work that people are excited to get their heads into, and by meaningful relationships I mean those in which there is genuine caring for each other (like an extended family). I find that these reinforce each other and that being radically truthful and radically transparent with each other makes both the work and the relationships go better.

By constantly looking down on the machine, its managers can objectively compare the outcomes it produces with their goals. If those outcomes are consistent with those goals, then the machine is working effectively; if the outcomes are inconsistent with the goals, then something is boring with either the design of the machine or the people who are a part of it and the problem needs to be diagnosed so the machine can be modified. As laid out in Chapter Two of Life Principles, this ideally happens in a 5-Step Process: 1) 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.

I call this process of converting problems into progress “looping,” and how it happens through time is visualized [as a series of loops rising from the bottom left of the page to the top right]. In the first, a problem occurs that takes you off track from your goals and makes things worse than you planned.

If you identify the decline, diagnose the problems that caused it so as to get at their root causes, come up with new designs, and then push them through, the trajectory will loop back on itself and continue its upward ascent.

If you don’t identify the problem, design a suboptimal solution, or fail to push it through effectively, the decline will continue.

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.

As I explained in Life Principles, this is what I believe evolution looks like for all organisms and organizations. Having a culture and people that will evolve in this way is critical because the world changes quickly and in ways that can’t possibly be anticipated. I’m sure you can think of a number of companies that failed to identify and address their problems on time and ended up in a terminal decline (see: BlackBerry and Palm) and a rare few that have consistently looped well. Most don’t. For example, only six of the companies that for years ago made up the Dow Jones 30, which is about when Bridgwater got started, are still in the Dow 30 today. Many of them – American Can, American Tobacco, Bethlehem Steel, General Foods, Inco, F.W. Woolworth – don’t even exist; some (Sears Roebuck, Johns-Manville, Eastman Kodak) are so different as to be almost unrecognizable. And many of the standouts on the list today – Apple, Cisco – were yet to be founded.

The rare few that have been able to evolve well over the decades have been successful at that evolutionary/ looping process, which also is the process that has made Bridgewater progressively more successful for forty years. That is the process I want to pass along to you.