On simple rules

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This article appeared in January 2020, in Romanian, in BIZ magazine

Managers and companies learn mostly from failure. Both management studies and famous CEOs have shown that learning from failure is often done by distilling some principles, some simple decision rules that prevent us from making the same mistake again and again.

Ray Dalio, the famous founder and president of Bridgewater, one of the most successful investment firms in the world, published in 2017 the bestseller Principles, in which he reveals the rules he has learned in more than 40 years of activity. His learning method is simple and consists in two types of categorizing negative situations: “one of those” and “another one of those”. Every time he faces a new negative situation and finds a solution, Dalio finds the class of problems to put it in – “one of those” and generalize the solution as a rule for the entire class. Consequently, when another similar situation occurs, he no longer has to search for the solution, but recognizes it as “another one of those” and applies the rule.

The science of management and organizations paid special attention in the last decade to simple rules as decision tools. Bingham and Haleblian (2012) showed that what managers and organizations learn from failure are, in fact, portfolios of simple rules. Other studies have shown the positive connection between simple managerial rules and strategy (Eisenhardt and Sull, 2001), capturing opportunities (Bingham et al., 2007), and even the survival of family businesses (Pieper et al., 2015).

This made me talk with a few dozen Romanian CEOs to find out how do they create simple rules and how do they use those rules. I talked to 31 Romanian CEOs this year and I’ve learned a lot of practices that I will briefly present below.

In the discussions with the CEOs, I brought this unfamiliar concept, simple rules, through a scenario. And I invite you, the readers, to do this exercise of imagination as well: imagine that you have won the grand prize in the lottery and take a sabbatical year to explore Patagonia, to go on the Camino or for anything else you have ever dreamed of. You already found one capable person to replace you in the company, you trained him/her and when you give him/her the key to the office, you say: “Look, since I’ve been CEO (replace here with any managerial or professional position) I’ve learned these three rules that you can’t find in any book”. How would you continue this sentence?

One interesting thing I discovered is that absolutely every CEO I spoke to has a personal set of simple rules, which he considers crucial to their role as CEO, rules that help him and the organization grow. I have compiled a list of 126 such rules. Some of them manage the relationship with clients, others the business strategy, but most of them are related to people management.

Here is a short guide full of Romanian managerial wisdom:

• “the leading position is one of support, not authority”
• “don’t make someone’s else decisions your decisions”
• “those who come to me with a problem must also come up with three possible alternative solutions”
• ”an expert with a high salary does the work of 3 professionals that have half of an expert’s salary”
• “I hire people who complete my skill set”
• ”the shareholder role shouldn’t be mixed with the manager role”
• “integrating a new employee into the team is more important than his skills”
• “there must be a continuous alignment process for the top management team”
• ”my managers need to share their knowledge with the teams; if they don’t do it naturally, I create the context for this”
• “all those affected by a decision must take part in the discussion”
• “for a good relationship, the ratio between praise and criticism must be 3 to 1”
• “when something goes wrong, I’m not looking for who’s to blame because that’s me”.

All these managerial proverbs were born out of an unexpected problem. The process of finding a solution is usually perceived as a tension, something the manager thinks about non-stop. Usually, the solution is catalyzed by a clarifying element: a later observation, another event, a conversation or something read in a book. The insight is accompanied by a feeling of release and has three stages that give answers to three questions: what’s the cause? What do I learn from here? How do I operationalize this? Or, like in school, a triple alliance: unlearning, learning and application.

For example, we have here three stories that illustrate how simple rules were born. I can’t give any names of the companies or CEOs involved in the stories below because I promised anonymity.

1. The young CEO of a large marketing company could not explain how the strategic projects, which were established at the beginning of the year and communicated to the entire organization, are far behind schedule (the unexpected problem). Then she observed (clarifying element) that employees were working on these projects only at the end of the day and only if they had completed their daily tasks. She realized that people don’t work on those projects just because they are called “strategic” (unlearning). It’s much more important to pay attention to them daily (learning). How? The strategic projects must be integrated into processes (application); this is the simple rule that dictates the new agreement.
   
2. The CEO and the main shareholder of one of the Romanian companies that have successfully internationalized recognizes that the turning point in business was when he distilled such a simple rule. At the beginning, like many managers, he tried to hire a few people with little experience and had to take on most of the tasks, including sales. After a while, he realized that sales were going badly (the unexpected problem).
   
   The “aha moment” happened during a conversation when he heard a quote from Gandhi: “I have to follow my people because I am their leader”. He was amazed how well it suited his situation (clarifying element). He understood that he can’t be good at absolutely everything (unlearning).
   
   He understood that he needs to hire experts for what he can’t do, even if the experts have a higher salary (learning). He distilled a simple rule that sounds like a proverb: an expert with a high salary does the work of 3 professionals that have half of an expert’s salary (application). The first contract of the new sales director, hired after this triple agreement, was 30 times bigger than the biggest one he had until then.
   
3. By hiring exclusively people with very good skills, the general manager and founder of a technological company, tried for a while to make one employee (a very good professional) get along with the team he was part of. With no success (the unexpected problem). Incompatibilities were, as in divorce, irreconcilable.
   
   In this context, the employee had to be fired. For the CEO, the understanding of the situation was catalyzed by the fact that, obviously, the dismissal had to be accompanied by an explanation (clarifying element). “What do I say to this man?”. That’s when the manager realized that skills aren’t everything (unlearning). The attitude and team integration are more important than skills (learning). How do we operationalize this? The recruitment is made together with the team (application).

While the process described so far has an important intuitive component, the next phase involves testing, articulating and refining simple rules and is done more rationally. One of the main methods of refining is proverbializing.

Managers find concise, memorable forms for their rules that they can easily remember and share. It often happened, during the interviews, that the rule was told to me in English, a language that managers find more assertive. One example is the rule: “the cool factor does not pay the salaries”, distilled to guide the choice of projects based on business plan, not successful public image (PR).

The rules are then shared within the organization. As one of the respondents confessed: “the role of a CEO is to create systems that work and to find the metaphor that helps the team to vibrate, to understand and apply it every day”.

However, the problem with sharing in the organization is, in the words of one of the respondents, that “these rules are easy to hear and hard to implement”. Another executive found a simple rule for sharing simple rules: never tell them the rule without telling them the story behind it as well. This wrapping with the story of the original mistake makes the rule easier to remember and adopt.

The personal set of simple rules is far from being a cold tool of productivity. This set is very valuable and strongly connected with the identity of the one who discovered the rules. One of the interlocutors likened it to the photo that soldiers keep in their breast pockets. The directors of the companies I spoke to consider that having one set of rules is vital in their role as CEOs because it’s a tool through which they develop themselves and develop the organization.

Many of those interviewed said they are on a self-development path and the rules they develop help them not only think more strategically, but also to better understand themselves and to behave when necessary. When identifying a weakness, such as micromanagement tendency, managers fight it by distilling a simple rule that is easy to remember and apply. The CEO of a retail company highlighted how important this unlearning stage is: “these rules help me in the strategic struggles: with the context, but especially with myself”.

At the organizational level, those simple rules contribute to both unlearning and growing. One example of organizational unlearning is the rule: “my managers need to share their knowledge with the teams; if they don’t do it naturally, I create the context for this”. Before having this rule, the CEO faced an unusual situation: several department managers went on leave at the same time and the business suffered because most of the practical knowledge, kept exclusively by the managers, was also on leave.

An example of organizational growth by applying a simple rule is the rule developed by the founder and CEO of a company with several lines of business who realized that the best way to motivate the top management line is to have them as business partners. Consequently, she reorganized the company in smaller companies according to the business lines, each having a minority partner.

I am sure that some rules I mentioned here will arouse a lot of practical interest in the managers who read this article. I also adopted the principle mentioned above, sharing the rules together with their stories. Can we think of any way through which we generalize this concept (“simple rules”) into good practices? I have two proposals:

1. The first proposal is based on the fact that many of the managers I spoke to didn’t initially think they had such rules. Gradually, during the discussion, they identified them, sometimes verbalizing them for the first time, although they had been applying those for years. Others have realized that they have rules that work, but have not yet shared them in the organization. Everyone found the discussion very useful. The first proposal is, therefore, a practical guide for managers through which they can distill their experience into a set of simple rules, easy to remember, apply and share. We are about to develop such a guide.
   
2. Often, the lessons-learned processes are missing or not working properly, failing to document, communicate and archive what has been learned during a project. I believe that if, at the end of a lessons-learned meeting, the team is led by the project manager to refine these lessons in simple rules, the information would be better documented, easier to remember and communicate, especially if these new proverbs are the result of a team effort.