Principles: Table of Work Principles 12 – 16 (part 14 of 14)

12. Diagnose Problems to Get at Their Root Causes

  1. To diagnose well, ask the 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? 
    • Ask yourself: “Who should do what differently?”
    • Identify the principles that were violated.
    • Avoid Monday morning quarterbacking.
    • Don’t confuse the quality of someone’s circumstances with the quality of their approach to dealing with the circumstances.
    • 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.
    • To distinguish between a capacity issue and a capability issue, imagine how the person would perform at that particular function if they had ample capacity.
    • Keep in mind that mangers usually fail or fall short of their goals for one (or more) of five reasons.
  2. Maintain an emerging synthesis by diagnosing continuously
  3. Keep in mind that diagnoses should produce outcomes.
    • Remember that if you have the same people doing the same things, you should expect the same results.
  4. Use the following “drill-down” technique to gain an 80/20 understanding of a department or sub-department that is having problems.
  5. Understand that diagnosis is foundational to both progress and quality relationships.

13. Design Improvements to Your Machine to Get Around Your Problems

  1. Build your machine.
  2. Systemize your principles and how they will be implemented.
    • Create great decision-making machines by thinking through the criteria you are using to make decisions while you are making them.
  3. Remember that a good plan should resemble a movie script.
    • 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.
    • Consider second- and third-order consequences, not just first-order ones.
    • Use standing meetings to help your organization run like a Swiss clock.
    • Remember that a good machine takes into account the fact that people are imperfect.
  4. Recognize that design is an iterative process. Between a bad “now” and good “then” is a “working through it” period.
    • Understand the power of the “cleansing storm.”
  5. Build the organization around goals rather than tasks.
    • Build your organization from the top down.
    • Remember that everyone must be overseen by a believable person who has high standards.
    • 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.
    • Don’t build the organization to fit the people.
    • Keep scale in mind.
    • Organize departments and sub-departments around the most logical groupings based on “gravitational pull.”
    • Make departments as self-sufficient as possible so that they have control over the resources they need to achieve their goals.
    • Ensure that the rations of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding.
    • Consider succession and training in your design.
    • Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around.
    • Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly.
    • Use consultants wisely and watch out for consultant addiction.
  6. Create an organizational chart to look like a pyramid, with straight lines down that don’t cross.
    • Involve the person who is the point of the pyramid when encountering cross-departmental or cross-sub-departmental issues.
    • 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.”
  7. Create guardrails when needed – and remember it’s better not to guardrail at all.
    • Don’t expect people to recognize and compensate for their own blind spots.
    • Consider the clover-leaf design.
  8. Keep your strategic vision the same while making appropriate tactical changes as circumstances dictate.
    • Don’t put the expedient ahead of the strategic.
    • Think about both the big picture and the granular details, and understand the connections between them.
  9. Have good controls so that you are not exposed to the dishonesty of others.
    • Investigate and let people know you are going to investigate.
    • Remember that there is no sense in having laws unless you have policemen (auditors).
    • Beware of rubber-stamping.
    • Recognize that people who make purchases on your behalf probably will not spend your money wisely.
    • Use “public hangings” to deter bad behavior.
  10. Have the clearest possible reporting lines and delineations of responsibilities.
    • Assign responsibilities based on workflow design and people’s abilities, not job titles.
    • Constantly think about how to produce leverage.
    • Recognize that it is far better to find a few smart people and give them the best technology than to have greater number of ordinary people who are less well equipped.
    • Use leveragers.
  11. Remember that almost everything will take more time and cost more money than you expect. 

14. Do What You Set Out to Do

  1. Work for goals that you and your organization are excited about and think about how your tasks connect to those goals. 
    • Be coordinated and consistent in motivating others.
    • Don’t act before thinking. Take the time to come up with a game plan.
    • Look for create, cut-through solutions.
  2. Recognize that everyone has too much to do.
    • Don’t get frustrated.
  3. Use checklists.
    • Don’t confuse checklists with personal responsibility
  4. Allow time for rest and renovation.
  5. Ring the bell.

15. Use Tools and Protocols to Show How Work Is Done

  1. Having systemized principles embedded in tools is especially valuable for an idea meritocracy.
    • To produce real behavioral change, understand that there must be internalized or habitualized learning.
    • Use tools to collect data and process it into conclusions and actions.
    • 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.

16. And for Heaven’s Sake, Don’t Overlook Governance!

  1. To be successful, all organizations must have checks and balances.
    • Even in an idea meritocracy, merit cannot be the only determining factor in assigning responsibility and authority.
    • Make sure that no one is more powerful than the system or so important that they are irreplaceable.
    • Beware of fiefdoms.
    • Make clear that the organizations’s structure and rules are designed to ensure that it’s checks-and-balances system functions well.
    • Make sure reporting lines are clear.
    • Make sure decision rights are clear.
    • 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.
    • Recognize that decision makers must have access to the information necessary to make decisions and must be trustworthy enough to handle that information safely.
  2. Remember that in an idea meritocracy a single CEO is not as good as a great group of leaders.
  3. No governance system of principles, rules, and checks and balances can substitute for a great partnership.

Principles: Table of Work Principles 10 and 11 (Part 13 of 14)

TO BUILD AND EVOLVE YOUR MACHINE …

10. Manage as Someone Operating a Machine to Achieve a Goal

  1. Look down on your machine and yourself within it from the higher level
    • Constantly compare your outcomes to your goals.
    • Understand that a great manager is essentially an organizational engineer.
    • Build great metrics.
    • Beware of paying too much attention to what is coming at you and not enough attention to your machine.
    • Don’t get distracted by shiny objects.
  2. Remember that for every case you deal with, your approach should have two purposes: 1) to move you closer to your goal, and 2) to train and test your machine (i.e. your people and your design)
    • Everything is a case study.
    • 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)
    • When making rules, explain the principles behind them.
    • Your policies should be natural extensions of your principles.
    • While good principles and policies almost always provide good guidance, remember that there are exceptions to every rule.
  3. Understand the differences between managing, micromanaging, and not managing. 
    • Managers must make sure that what they are responsible for works well.
    • Managing the people who report to you should feel like skiing together.
    • An excellent skier is probably going to be a better ski coach than a novice skier.
    • You should be able to delegate the details.
  4. Know what your people are like and what makes them tick, because your people are your most important resource.
    • Regularly take the temperature of each person who is important to you and to the organization.
    • Learn how much confidence to have in your people – don’t assume it.
    • Vary your involvement based on your confidence.
  5. Clearly assign responsibilities. 
    • Remember who has what responsibilities.
    • Watch out for “job slip.”
  6. Probe deep and hard to learn what you can expect from your machine.
    • Get a threshold level of understanding.
    • Avoid staying too distant.
    • Use daily updates as a tool for staying on top of what your people are doing and thinking.
    • 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.
    • Don’t assume that people’s answers are correct.
    • Train your ear.
    • Make your probing transparent rather than private.
    • Welcome probing.
    • 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.
    • Recognize that there are many ways to skin a cat.
  7. Think like an owner, and expect the people you work with to do the same.
    • Going on vacation doesn’t mean one can neglect one’s responsibilities.
    • Force yourself and the people who work for you to do difficult things.
  8. Recognize and deal with key-man risk.
  9. Don’t treat everyone the same – treat them appropriately.
    • Don’t let yourself get squeezed.
    • Care about the people who work for you.
  10. Know that great leadership is generally not what it’s made out to be.
    • Be weak and strong at the same time.
    • Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do.
    • Don’t give orders and try to be followed; try to be understood and to understand others by getting in sync.
  11. Hold yourself and your people accountable and appreciate them for holding your accountable.
    • 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.
    • Distinguish between a failure in which someone broke their “contract” and a failure in which there was no contract to begin with.
    • Avoid getting sucked down.
    • Watch out for people who confuse goals and tasks, because if they can’t make that distinction, you can’t trust them with responsibilities.
    • Watch out for the unfocused and unproductive “theoretical should.”
  12. Communicate the plan clearly and have clear metrics conveying whether you are progressing according to it.
    • Put things in perspective by going back before going forward.

11. Perceive and Don’t Tolerate Problems

  1. If you’re not worried, you need to worry – and if you’re worried, you don’t need to worry.
  2. Design and oversee a machine to perceive whether things are good enough or not good enough, or do it yourself.
    • 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.
    • Watch out for the “Frog in the Boiling Water Syndrome.”
    • Beware of group-think: The fact that no one seems concerned doesn’t mean nothing is wrong.
    • To perceive problems, compare how the outcomes are lining p with your goals.
    • “Taste the soup.”
    • Have as many eyes looking for problems as possible.
    • “Pop the cork.”
    • Realize that the best people closest to certain jobs probably know them best.
  3. Be very specific about problems; don’t start with generalizations.
    • Avoid the anonymous “we” and “they,” because they mask personal responsibility.
  4. Don’t be afraid to fix the difficult things.
    • Understand that problems with good, planned solutions in place are completely different from those without such solutions.
    • Think of the problems you perceive in a machinelike way.

Principles: Table of Work Principles 7, 8 and 9 (part 12 of 14)

TO GET THE PEOPLE RIGHT …

7. Remember That the WHO is More Important than the WHAT

  1. Recognize that the most important decision for you to make is who you choose as your Responsible Parties.
    • Understand that he most important RPs are those responsible for the goals, outcomes, and machines at the highest levels.
  2. Know that the ultimate Responsible Party will be the person who bears the consequences of what is done.
    • Make sure the everyone has someone they report to.
  3. Remember the force behind the thing.

8. Hire Right, Because the Penalties for Hiring Wrong Are Huge

  1. Match the person to the design
    • Thing through which values, abilities, and skills you are looking for (in that order).
    • Make finding the right people systematic and scientific
    • Hear the click: Find the right fit between the role and the person.
    • Look for pool who sparkle, not just “any ol’ one of those.”
    • Don’t use your pull to get someone a job.
  2. Remember that people are built very differently and that different ways of seeing and thinking make people suitable for different jobs.
    • Understand how to use and interpret personality assessments.
    • 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.
    • Remember that people typically don’t change all that much.
  3. Think of your teams the way that sports manager do: No one person possesses everything required to produce success, yet everyone must excel.
  4. Pay attention to people’s track records.
    • Check references
    • Recognize that performance in school doesn’t tell you much about whether a person has the values and abilities you are looking for.
    • While it’s best to have great conceptual thinkers, understand that great experience and a great track record also count for a lot.
    • Beware of the impractical idealist.
    • Don’t assume that a person who has been successful elsewhere will be successful in the job you’re giving them.
    • Make sure your people have character and are capable.
  5. Don’t hire people just to fit the first job they will do; hire people you want to share your life with.
    • Look for people who have lots of great questions.
    • Show candidates your warts.
    • Play jazz with people with whom you are compatible but who will also challenge you.
  6. When considering compensation, provide both stability and opportunity.
    • Pay for the person, not the job.
    • Have performance metrics tie at least loosely to compensation.
    • Pay north of fair.
    • Focus more on making the pie bigger than on exactly how to slice it so that you or anyone else gets the biggest piece.
  7. Remember that in great partnerships, consideration and generosity are more important than money.
    • Be generous and expect generosity from others.
  8. Great people are hard to find so make sure you think about how to keep them. 

9. Constantly Train, Test, Evaluate, and Sort People

  1. Understand that you and the people you manage will go through a process of personal evolution.
    • 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.
    • Understand that training guides the process of personal evolution.
    • Teach your people to fish rather than give them fish, even if that means letting them make some mistakes.
    • Recognize that experience creates internalized learning that book learning can’t replace.
  2. Provide constant feedback
  3. Evaluate accurately, not kindly.
    • In the end, accuracy and kindness are the same thing.
    • Put your compliments and criticisms in perspective.
    • Think about accuracy, not implications.
    • Make accurate assessments.
    • Learn from success as well as from failure.
    • Know that most everyone thinks that what they did, and what they are doing, is much more important than it really is.
  4. Recognize that tough love is both the hardest and the most important type of love to give (because it is so rarely welcomed)
    • Recognize that while most people prefer compliments, accurate criticism is more valuable.
  5. Don’t hide your observations about people.
    • Build your synthesis from the specifics up.
    • Squeeze the dots.
    • Don’t over squeeze a dot.
    • Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance.
  6. Make the process of learning what someone is like open, evolutionary, and iterative. 
    • Make your metrics clear and impartial.
    • Encourage people to be objectively reflective about their performance.
    • Look at the whole picture.
    • For performance reviews, start from specific cases, look for patterns, and get in sync with the person being reviewed by looking at evidence together.
    • Remember that when it comes to assessing people, the two biggest mistakes you can make are being overconfident in your assessment and failing to get in sync on it.
    • Get in sync on assessments in a nonhierarchical way.
    • Learn about your people and have them learn about you through frank conversations about mistakes and their root causes.
    • Understand that making sure people are doing a good job doesn’t require watching everything that everybody is doing at all times.
    • Recognize that change is difficult.
    • Help people though the pain that comes with exploring their weaknesses.
  7. 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.
    • If someone is doing their job poorly, consider whether it is due to inadequate learning or inadequate ability.
    • Training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to asses their abilities is a common mistake.
  8. Recognize that wen you are really in sync with someone about their weaknesses, the weaknesses are probably true.
    • When judging people, remember that yo don’t have to get to the point of “beyond a shadow of a doubt,”
    • It should take you no more than a year to learn what a person is like and whether they are a click for the job.
    • Continue assessing people throughout their tenure.
    • Evaluate employees with the same rigor as you evaluate job candidates.
  9. Train, guardrail, or remove people; don’t rehabilitate them.
    • Don’t collect people.
    • Be willing to “shoot the people you love.”
    • 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.
  10. Remember that the goal of a transfer is best, highest use of the person in a way that benefits the community as a whole.
    • Have people “complete their swings” before moving on to new roles.
  11. Don’t lower the bar. 

Principles: Table of Work Principles 5 and 6 (part 11 of 14)

5. Believability Weight Your Decision Making

  1. Recognize that having an effective idea meritocracy requires that you understand the merit of each person’s ideas.
    • If you can’t successfully do something, don’t think you can tell others how it should be done.
    • Remember that everyone has opinions and they are often bad.
  2. Find the most believable people possible who disagree wth you and try to understand their reasoning.
    • Think about people’s believability in order to assess the likelihood that their opinions are good.
    • Remember that believable opinions are most likely to come from people 1) who have successfully accomplished the thing in question at least three times, and 2) who have great explanations of the cause-effect relationships that lead them to their conclusions.
    • If someone hasn’t done something but has a theory that seems logical and can be stress-tested, then by all means test it.
    • 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.
  3. Think about whether you are playing the role of teacher, a student, or a peer and whether you should be teaching, asking questions, or debating. 
    • It’a 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.
  4. Understand how people come by their opinions
    • If you ask someone a question, they will probably give you an answer, so thin through to whom you should address your questions.
    • Having everyone randomly probe everyone else is an unproductive waste of time.
    • Beware of statements that begin with “I think that …”
    • Assess believability by systematically capturing people’s track records over time.
  5. Disagreeing must be done efficiently
    • Know when to stop debating and move on to agreeing about what should be done.
    • Use believability weighting as a tool rathe than a substitute for decision making by Responsible Parties.
    • Since you don’t have the time to thoroughly examine everyone’s thinking yourself, choose your believable people wisely.
    • When you’re responsible for a decision, compare the believability-weighted decision making of the crowd to what you believe.
  6. Recognize that everyone has the right and responsibility to try to make sense of important things.
    • Communications aimed at getting the best answer should involve the most relevant people.
    • Communication aimed at educating or boosting cohesion should involve a broader set of people than would be need if the aim were just getting the best answer.
    • Recognize that you don’t need to make judgments about everything.
  7. Pay more attention to whether the decision-making system is fair than whether you get your way.

6. Recognize how to Get Beyond Disagreements

  1. Remember: Principles can’t be ignored by mutual agreement
    • The same standards of behavior apply to everyone
  2. Make suer people don’t confuse the right to complain, give advice, and openly debate with the right to make decisions.
    • When challenging a decision and/or a decision maker, consider the broader context.
  3. Don’t leave important conflicts unresolved.
    • Don’t let the little things divide you when your agreement on the big things should bind you.
    • Don’t get stuck in disagreement – escalate or vote!
  4. Once a diction is made, everyone should get behind it even though individuals my still disagree.
    • See things from the higher level.
    • Never allow the idea meritocracy to slip into anarchy.
    • Don’t allow lynch mobs or mob rule.
  5. Remember that if the idea meritocracy comes into conflict with the well-being of the organization, it will inevitably suffer.
    • 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.”

Principles: Table of Work Principles 1 – 4 (part 10 of 14)

Summary and Table of Work Principles

  • An organization is a machine consisting of two major parts: culture and people
    • A great organization has both great people and a great culture.
    • Great people have both great character and great capabilities.
    • 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.
  • Tough love is effective for achieving both great work and great relationships
    • In order to be great, one can’t compromise the uncompromisable.
  • A believably-weighted idea meritocracy is the best system for making effective decisions.
  • Make your passion and your work one and the same and o it with people you want to be with. 

TO GET THE CULTURE RIGHT …

  1. Trust in Radical Truth and Radical Transparency
    1. Realize that you have nothing to fear from knowing the truth
    2. Have integrity and demand it from others
      • Never say anything about someone that you wouldn’t say to them directly and don’t try people without accusing them to their faces.
      • Don’t let loyalty to people stand in the way of truth and the well-being of the organization.
    3. Create an environment in which everyone has the right to understand what makes sense and no one has the right to hold a critical opinion without speaking up.
      • Speak up, own it, or get out.
      • Be extremely open.
      • Don’t be naive about dishonesty.
    4. Be radically transparent
      • Use transparency to help enforce justice.
      • Share the things that are hardest to share.
      • Keep exceptions to radical transparency very rare.
      • Make sure those who are given radical transparency recognize their responsibilities to handle it well and to weigh all things intelligently.
      • Provide transparency to people who handle it well and either deny it to people who don’t handle it well or remove those people from the organization.
      • Don’t share sensitive information with the organization’s enemies.
    5. Meaningful relationships and meaningful work are mutually reinforcing, especially when supported by radical truth and radical transparency.
  2. Cultivate Meaningful Work and Meaningful Relationships
    1. Be loyal to the common mission and not to anyone who is not operating consistently with it. 
    2. Be crystal clear on what the deal is.
      • Make sure people give more consideration to others than they demand for themselves.
      • Make sure that people understand the difference between fairness and generosity.
      • Know where the line is and be on the far side of fair.
      • Pay for work.
    3. Recognize that the size of the organization can pose a threat to meaningful relationships.
    4. Remember that most people will pretend to operate in your interest while operating in their own.
    5. Treasure honorable people who are capable and will treat you well even wen you’re not looking. 
  3. Create a Culture in Which It Is Okay to Make Mistakes and Unacceptable Not to Learn from Them
    1. Recognize that mistakes are a natural part of the evolutionary process.
      • Fail well.
      • Don’t feel bad about your mistakes or those of others. Love them!
    2. Don’t worry about looking good – worry about achieving your goals.
      • Get over “blame” and “credit” and get on with “accurate” and “inaccurate”.
    3. Observe the patters of mistakes to see if they are products of weaknesses.
    4. Remember to reflect when you experience pain.
      • Be self-reflective and make sure your people are self-reflective.
      • Know that nobody can see themselves objectively.
      • Teach and reinforce the merits of mistake-based learning.
    5. 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. 
  4. Get and Stay in Sync
    1. 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.
    2. Know how to get in sync and disagree well.
      • Surface areas of possible out-of-syncness.
      • Distinguish between idle complaints and complaints mean too lead to improvement.
      • Remember that every story has another side.
    3. Be open-minded and assertive at the same time.
      • Distinguish open-minded people from close-minded people.
      • Don’t have anything to do with close-minded people.
      • Watch out for people who think it’s embarrassing not to know.
      • Make sure that those in charge are open-minded about the questions and comments of others.
      • Recognize that getting in sync is a two-way responsibility.
      • Worry more about substance than style.
      • Be reasonable and expect others to be reasonable.
      • Making suggestions and questioning are not the same as criticizing, so don’t treat them as if they are.
    4. If it is your meeting to run, manage the conversation.
      • Make it clear who is directing the meeting and whom it is meant to serve.
      • Be precise in what you’re talking about to avoid confusion.
      • Make clear what type of communication you are going to have in light of the objectives and priorities.
      • Lead the discussion by being assertive and open-minded.
      • Navigate between the different levels of the conversation.
      • Watch out for “topic slip.”
      • Enforce the logic of conversations.
      • Be careful not to lose personal responsibility via group decision making.
      • Utilize the “two-minute rule” to avoid persistent interruptions.
      • Watch out for assertive “fast talkers.”
      • Achieve completion in conversations.
      • Leverage your communication.
    5. Great collaboration feels like playing jazz.
      • 1+1=3.
      • 3 to 5 is more than 20.
    6. When you have alignment, cherish it.
    7. If you find you can’t reconcile major differences – especially in values – consider whether the relationship is worth preserving. 

Principles: Work Principles 5 (part 9 of 14)

WHY I WROTE THIS BOOK AND HOW YOU CAN GET THE MOST OUT OF IT

If you are inside Bridgewater, I am passing these principles on in my own words so that you can see the dream and the approach through my eyes. Bridgwater will evolve from where it si now based on what you and others in the next generation of leadership want and how you go about getting it. This book is intended to help you. How you use it is up to you. Whether or not this culture continues is up to you and those who succeed me in the leadership role. it is my responsibility to not be attached to Bridgewater being the way I would want it to be. It is most important that you and others who succeed me make your own independent choices. Like a parent with adult children, I want you all to be strong, independent thinkers who will do well without me. I have done my best to bring you to this point; now is the time for you to step up and for me to fade away.

If you are outside Bridgewater and thinking about how these principles might apply to your organization, this book is meant to prompt your thinking, not give you an exact formula to follow. You don’t have to adopt all or any of these principles, thought I do recommend that you consider them all. Many people who run other organizations have adopted some of these principles, modified others, and rejected many. Whatever you want to do with them is fine with me. These principles provide a framework you can modify to suit your needs. Maybe you will pursue the same goal and maybe you won’t; chances are that, in either case, you will collect some valuable stuff. If you share my goal of having your organization be a real idea meritocracy, I believe this book will be invaluable for you because I’m told that no organization has thought through or pushed the concepts of how to make a real idea meritocracy as far as Bridgwater. If doing that is important to you and you pursue it with unwavering determination you will encounter your own barriers, you will find your own ways around them, and you will get there, even if imperfectly.

While these principles are good general rules, it’s important to remember that every run has exceptions and that no set of rules can ever substitute for common sense. Think of these principles as being like a GPS. A GPS helps you get where you’re going, but if you follow it blindly off a bridge – well, that would be your fault, not the GPS’s. And just as a GPS that gives bad directions can be fixed by updating its software, it’s important to raise and discuss exceptions to the principles as they occur so they can evolve and improve over time.

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.

This dynamic is so important that I’ve organized Work Principles around three sections: To Get the Culture Right, To Get the People Right, and To Build and Evolve Your Machine. Each chapter within these sections begins with a higher-level principle. Reading these will give you a good sense of the main concepts of each chapter.

Under these higher-level principles there are a number of supporting principles built around the many different types of decisions that need to be made. These principles are meant for reference. Though you might want to skim through them, I recommend using them as one would use an encyclopedia or search engine to answer a specific question. For example, if you have to fire (or transfer) someone, you should use the Table of Principles and go to the section of principles about that. To make this easier, at Bridgewater we created a tool called the “Coach” that allows people to type in their particular issue and find the appropriate principles to help them with it. I will soon be making that available to the public, along with many of the other management tools you’ll read about in the final section of the book.

My main objective is not to sell you on these principles but to share the most valuable lessons I’ve learned over my more than forty-year journey. My goal is to get you to think hard about the tough tradeoffs that you will face in many types of situations. By thinking about the tradeoffs behind the principles, you will be able to decide for yourself which principles are best for you.

This brings me to my find work principle:

Make your passion and your work one and the same and do it with people you want to be with.

Work is either 1) a job you do to earn the money to pay for the life you wan to have or 2) what you do to achieve your mission, or some mix of the two. I urge you to make it as much 2) as possible, recognizing the value of 1). If you do that, most everything will go better than if you don’t.

Work Principles is written for those for whom work is primarily the game that you play to follow your passion and achieve your mission.

Principles: Work Principles 4 (part 8 of 14)

Here are the forces behind Bridgewater’s self-reinforcing evolutionary spiral:

  1. We went from one independent thinker who wanted to achieve audacious goals to a group of independent thinkers who wanted to achieve audacious goals.
  2. To enable these independent thinkers to have effective collective decision making, we created an idea meritocracy based on principles that ensured we would be radically honest and transparent with each other, have thoughtful disagreements, and have idea-meritocratic ways of getting past our disagreements to make decisions.
  3. We recorded these decision-making principles on paper and later encoded them into computers and made our decisions based on them.
  4. This produced our successes and failures, which produced more leanings, which were written into more principles that were systemized and acted upon.
  5. This process resulted in excellent work and excellent relationships that led us to having well-rewarded and happy employees and clients.
  6. That led us to be able to bring in more audacious independent thinkers with more audacious goals to strengthen this self-reinforcing upward spiral.

We did that over and over again, which produced the evolutionary looping behind Bridgewater’s forty-plus years of success. It’s shown in [a] diagram.

This really works! You don’t have to take my word for it. There are two ways you can evaluate the likelihood that this approach and the principles that follow from it are as powerful as I believe they are. You can 1) look at the results they produced and 2) look at the logic behind them.

As for the results, like Lombardi’s and the Packers’, our track record speaks for itself. We consistently got better over forty years, going tom my two-bedroom apartment to become the fifth most important private company in the U.S., according to Fortune, and the world’s largest hedge fund, making more total money for our clients than any other hedge fund in history. We have received over one hundred industry awards and I’ve earned three lifetime achievement awards – not to mention remarkable financial and psychological rewards, and most importantly, amazing relationships.

But even more important than these results is the underlying cause-effect logic behind these principles, which came before the results. Over forty years ago, this way of being was a controversial, untested theory that nevertheless seemed logical to me. I will explain this logic to you in the pages that follow. That way, you can assess it for yourself.

There’s no doubt that our approach is very different. Some people have even described Bridgwater as a cult. The truths is that Bridgwater succeeds because it is the opposite of a cult. The essential difference between a culture of people with shared values (which is a great thing) and a cult (which is a terrible thing) is the extent to which there is independent thinking. Cults demand unquestioning obedience. Thinking for yourself and challenging each other’s ideas is anti-cult behavior, and that is the essence of what we do at Bridgwater.

WHO’S CRAZY?

Some people say that our approach is crazy, but think about it: Which approach do you think is crazy and which one is sensible?

  • One were people are truthful and transparent, or one in which most people keep their real thoughts hidden?
  • One where problems, mistakes, weaknesses, and disagreements are brought to the surface and thoughtfully discussed, or one in which they are not forthrightly brought to the surface and discussed?
  • One in which the right to criticize is nonhierarchical, or one in which it primarily comes from the top down?
  • One in which objective pictures of what people are like are derived through lots of data and broad triangulations of people, or one in which evaluations of people are more arbitrary?
  • One in which the organization pursues very high standards for achieving both meaningful work and meaningful relationships, or one in which work quality and relationship quality are not equally valued and/or the standards aren’t as high?

Which kind of organization do you think will enable better development for the people who work there, foster deeper relationships between them, and produce better results? Which approach would you prefer to see the leaders and organizations that you deal with follow? Which way of being would you prefer the people who run our government to follow?

My bet is that after reading this book, you will agree that our way of operating is far more sensible than conventional ways of operating. But remember that my most fundamental principle is that you have to think for yourself.

Principles: Work Principles 3 (part 7 of 14)

A believably-weighted idea meritocracy is the best system for making effective decisions.

Unlike Lombardi, whose success depended on having his players follow his instructions, I need my players to be independent thinkers who could bang around their different points of view and reach better conclusions than any one of us could come up with on our own. I needed to create an environment in which everyone had the right and the responsibility to make sense of things for themselves and to fight openly for what they think is best – and where the best thinking won out. I need a real idea meritocracy, not some theoretical version of one. That’s because an idea meritocracy – i.e., a system that brings together smart, independent thinkers and has them productively disagree to come up with the best possible collective thinking and resolve their disagreements in a believably-weighted way – will outperform any other decision-making system.

Our idea-meritocratic system evolved over the decades. At first, we just argued like hell with each other about what was best and by thrashing through our disagreements came up with better paths than if we had made our decisions individually. But as Bridgwater grew and our range of disagreements and needs to resolve them changed, we became more explicit in how this idea meritocracy would work. We needed as system that could both effectively weigh the believability of different people to come to the best decisions and do that in a way that was so obviously fair everyone would recognize it as such. 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.

For all this work, I believe and still believe that we need to be radically truthful and radically transparent with each other.

Radical Truth and Radical Transparency

By radical truth, I mean not filtering one’s thoughts and one’s questions, especially the critical ones. If we don’t talk openly about our issues and have paths for working through them, we won’t have partners who collectively own our outcomes.

By radical transparency, I mean giving most everyone the ability to see most everything. To give people anything less than total transparency would make them vulnerable to others’ spin and deny them the ability to figure things out for themselves. Radical transparency reduces harmful office politics and the risks of bad behavior because bad behavior is more likely to take place behind closed doors than out in the open.

Some people have called this way of operating radical straightforwardness.

I knew that if radical truth and radical transparency didn’t apply across the board, we would develop two classes of people at the company – those with power who are in the know, and those who aren’t – so I pushed them both to their limits. To me, a pervasive Idea Meritocracy = Radical Truth + Radical Transparency + Believability-Weighted Decision Making.

From a small group of people arguing informally about what’s true and what to do about it, we developed approaches, technologies, and tools over the last forty years that have ten us to a whole other level, which has been eye-opening and invaluable in ways that yo can read about in the tools chapter at the end of this book. We have always been unwavering in providing this environment, and we let the people who didn’t like it self-select themselves out of the company.

By being radically truthful and radically transparent, we could see that we all have terribly incomplete and/or distorted perspectives. This isn’t unique to Bridgwater – you would recognize the same thing if you could see into the heads of the people around you. As explained in Understand That People Are Wired Very Differently, people tend to see the same situations in dramatically different ways, depending on how their brains are wired.

Seeing this will help you evolve. At first most people remain stuck in their own heads, stubbornly clinging to the idea that their views are best and that something is wrong with other people who don’t see things their way. But when they repeatedly face the questions “How do you know that you’re not the wrong one?” and “What Process would you use to draw upon these different perspectives to make the best decisions?” they are forced to confront their own believability and see things through others’ eyes as well as their own. This shift in perspective is what produces great collective decision making. Ideally, this takes place in an “open-source” way, with the best ideas flowing freely, living, dying, and producing rapid evolution based on their merits.

Most people initially find this process very uncomfortable. While most appreciate it intellectually, they typically are challenged by it emotionally because it requires them to separate themselves from their ego’s attachment to being right and try to see what they have a hard time seeing. A small minority get it and love it from the start, and a slightly larger minority can’t stand it and leave the company, and the majority stick with it, get better at it with time, and eventually wouldn’t want to operate any other way.

While operating this way might sound difficult and inefficient, it is actually extremely efficient. In fact, it is much harder and much less efficient to work in an organization in which most opal don’t know what their colleagues are really thinking. Also, when people can’t be totally open, they can’t be themselves. As Harvard developmental psychologist Bob Kegan, who has studied Bridgwater, likes to say, 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. For us, that’s terrible. 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.

Principles: Work Principles 2 (part 6 of 14)

As I mentioned earlier, nothing is more important or more difficult than to get the culture and the people right. Whatever successes we’ve had at Bridgwater were the result of doing that well – and whatever failures were due to our not doing it adequately. That might seem odd because, as a global macroeconomic investor, one might think that, above all else, I had to get the economics and investments right, which is true. But to do that, I needed to get the people and culture right first. And, to inspire me to do what I did, I needed to have meaningful work and meaningful relationships.

As the entrepreneur/builder of Bridgewater, I naturally shaped the organization to be consistent with my values and principles. I went after what I wanted most, in the way that seemed most natural to me with the people I chose to be with, and we and Bridgewater evolved together.

If you had asked me what my objective was when I started out, I would’ve said it was to have fun working with people I like. Work was a game I played with passion and I wanted to have a blast playing it with people I enjoyed and respected. I started Bridgewater out of my apartment with a pal I played rugby with who had no experience in the markets and a friend we hired as our assistant. I certainly wasn’t thinking about management at the time. Management seemed to me like something people in gray suits with slide presentations did. I never set out to manage, let alone to have principles about work and management.

From reading Life Principles, you know that I liked to imagine and build out new, practical concepts that never existed before. I especially loved doing these things with people who were on the same mission with me. I treasured thoughtful disagreement with them as a way of learning and raising our odds of making good decisions, and I wanted all the people I worked with to by my “partners” rather than my “employees.” In a nutshell, I was looking for meaningful work and meaningful relationships. I quickly learned that the best way to do that was to have great partnerships with great people. 

To me, great partnerships come from sharing common values and interests, having similar approaches to pursuing them, and being reasonable with, and having consideration for, each other. At the same time, partners must be willing to hold each other to high standards and work through their disagreements. The main test of a great partnership is not whether the partners every disagree – people in all healthy relationships disagree – but whether they can bring their disagreements to the surface and get through them well. Having clear processes for resolving disagreements efficiently and clearly is essential for business partnerships, marriages, and all other forms of partnerships.

My wanting these things attracted others who wanted the same things, which drove how we shaped Bridgewater together. When there were five of us it was totally different than when there were fifty of us, which was totally different than it was when we were five hundred, a thousand, and so on. As we grew, most everything changed beyond recognition, except for our core values and principles. 

When Bridgewater was still a small company, the principles by which we operated were more implicit than explicit. But as more and more new people came in, I couldn’t take for granted that they would understand and preserve them. I realized that I need to write our principles out explicitly and explain the logic behind them. I remember the precise moment when the shift occurred – it was when the number of people at Bridgwater passed sixty-seven. Up until then, I had personally chosen each employee’s holiday gift and written them a lengthy personalized card, but trying to do it that year broke my back. From that point on, an increasing number of people came in who didn’t work closely with me, so I couldn’t assume they would understand where I was coming from or what I was striving to create, which was an idea meritocracy built on tough love.

Tough love is effective for achieving both great work and great relationships.

To give you an idea of what I mean by tough love, think of Vince Lombardi, who for me personified it. From when I was ten years old until I was eighteen, Lombardi was head coach of the Green Bay Packers. With limited resources, he led his team to five NFL championships. He won two NFL Coach of the Year awards and many still call him the best coach of all time. Lombardi loved his players and he pushed them to be great. I admired, and still admire, how uncompromising his standards were. His players, their fans, and he himself all benefited from his approach. I was Lombardi had written out his principles for me to read.

a. In order to be great, one can’t compromise the uncompromisable. Yet I see people doing it all the time, usually to avoid making other or themselves feel uncomfortable, which in not just backward but counterproductive. Putting comfort ahead of success produces worse results for everyone. I both loved the people I worked with and pushed them to be great, and I expected them to do the same with me.

From the very beginning, I felt that people I work with at Bridgewater were part of my extended family. When they or members of their families got sick, I put them in touch with my personal doctor to make sure they were well taken care of. I invited all of them to stay at my house in Vermont on weekends and loved it when they took me up on it. I celebrated their marriages and the births of their children with them and mourned the losses of their loved ones.

But to be clear, this was no loveliest. We were tough on each other too, so we could all be as great as we could be. I learned that the more caring we gave each other, the tougher we could be on each other, and the tougher we were on each other, the better we performed and the more rewards there were for us to share. This cycle was self-reinforcing. I found that operating this way made the lows less low and the highs higher. It even made the bad times better than the good ones in some important ways.

Think about some of your toughest experiences in life. I bet it is as true for you as it has been for me that going through them with people you cared about, who cared about you, and who were working as hard as you were for the same mission, was incredibly rewarding. As hard as they were, we look back on some of these challenging times as our finest moments. For most people, being part of a great community on a shared mission is even more rewarding than money. Numerous studies have shown there is little to no correlation between one’s happiness and the amount of money one accumulates, yet there is a strong correlation between one’s happiness and the quality of one’s relationships.

I laid this out in a memo to Bridgewater in 1996:

Bridgwater is not about plodding along at some kind of moderate standard, it is about working like hell to achieve a standard that is extraordinarily high, and then getting the satisfaction that comes along with that sort of super-achievement. 

Our overriding objective is excellence, or more precisely, constant improvement, a superb and constantly improving company in all respects.

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. 

Criticism (by oneself and by others) is an essential ingredient in the improvement process, yet, if handled incorrectly, can be destructive. It should be handled objectively. There should be no hierarchy in the giving or receiving of criticism. 

Teamwork and team spirit are essential, including intolerance of substandard performance. This is referring to 1) one’s recognition of the responsibilities on has to help the team achieve its common goals and 2) the willingness to help others (work within a group) toward these common goals. Our fates are intertwined. One should know that others can be relied upon to help. As a corollary, substandard performance cannot be tolerated anywhere because its would hurt everyone.

Long-term relationships are both a) intrinsically gratifying and b) efficient, and should be intentionally built. Turnover requires retraining and therefore creates setbacks. 

Money is a byproduct of excellence, not a goal. Our overriding objective is excellence and constant improvement at Bridgewater. To be clear, it is not to make lots of money. The natural extension of this is not the you should be happy with little money. On the contrary – you should expect to make a lot. If we operate consistently with this philosophy we should be productive and the company should do well financially. There is comparatively little age- and seniority-based hierarchy. 

Each person at Bridgewater should act like an owner, responsible for operating in this way and for holding others accountable to operate in this way. 

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.