Principles P2 PDF

bears the consequences of what is done. 41) By and large, you will get what you deserve over time. 42) The most important responsible parties are those who are most responsible for the goals, outcomes, and machines (they are those higher in the pyramid). 43) Choose...

bears the consequences of what is done. 41) By and large, you will get what you deserve over time. 42) The most important responsible parties are those who are most responsible for the goals, outcomes, and machines (they are those higher in the pyramid). 43) Choose those who understand the di erence between goals and tasks to run things. 44) Recognize that People Are Built Very Di erently 45) Think about their very di erent values, abilities, and skills 46) Understand what each person who works for you is like so that you know what to expect from them. 47) Recognize that the type of person you t in the job must match the requirements for that job. 48) Use personality assessment tests and quality re ections on experiences to help you identify these di erences. 49) Understand that di erent ways of seeing and thinking make people suitable for di erent jobs. a) People are best at the jobs that require what they do well. b) If you’re not naturally good at one type of thinking, it doesn’t mean you’re precluded from paths that require that type of thinking 50) Don’t hide these di erences. Explore them openly with the goal of guring out how you and your people are built so you can put the right people in the right jobs and clearly assign responsibilities. 51) Remember that people who see things and think one way often have di culty communicating and relating to people who see things and think another way. 52) Hire Right, Because the Penalties of Hiring Wrong Are Huge 53) Think through what values, abilities, and skills you are looking for. 54) Weigh values and abilities more heavily than skills in deciding whom to hire. 55) Write the pro le of the person you are looking for into the job description. 56) Select the appropriate people and tests for assessing each of these qualities and compare the results of those assessments to what you’ve decided is needed for the job. a) Remember that people tend to pick people like themselves, so pick interviewers who can identify what you are looking for. b) Understand how to use and interpret personality assessments. c) Pay attention to people’s track records. d) Dig deeply to discover why people did what they did. e) Recognize that performance in school, while of some value in making assessments, doesn’t tell you much about whether the person has the values and abilities you are looking for. f) Ask for past reviews. g) Check references. 57) Look for people who have lots of great questions. 58) Make sure candidates interview you and Bridgewater. 59) Don’t hire people just to t the rst job they will do at Bridgewater; hire people you want to share your life with. 60) Look for people who sparkle, not just “another one of those.” 61) Hear the click: Find the right t between the role and the person. 62) Pay for the person, not for the job. 63) Recognize that no matter how good you are at hiring, there is a  high probability that the person you hire will not be the great person you need for the job. 64) Manage as Someone Who Is Designing and Operating a Machine to Achieve the Goal 65) Understand the di erences between managing, micromanaging, and not managing. a) Managing the people who report to you should feel like “skiing together.” b) An excellent skier is probably going to be more critical and a better critic of another skier than a novice skier. 66) Constantly compare your outcomes to your goals. 67) Look down on your machine and yourself within it from the higher level. 68) Connect the case at hand to your principles for handling cases of that type. 69) Conduct the discussion at two levels when a problem occurs: 1) the “machine” level discussion of why the machine produced that outcome and 2) the “case at hand” discussion of what to do now about the problem. 70) Don’t try to be followed; try to be understood and to understand others. a) Don’t try to control people by giving them orders. b) Communicate the logic and welcome feedback.... 71) 71) Clearly assign responsibilities. 72) Hold people accountable and appreciate them holding you accountable a) Distinguish between failures where someone broke their  “contract” from ones where there was no contract to begin with. 73) Avoid the “sucked down” phenomenon. a) Watch out for people who confuse goals and tasks, because you can’t trust people with responsibilities if they don’t understand the goals. 74) Think like an owner, and expect the people you work with to do the same. 75) Force yourself and the people who work for you to do di cult things. a) Hold yourself and others accountable. 76) Don’t worry if your people like you; worry about whether you are helping your people and Bridgewater to be great. 77) Know what you want and stick to it if you believe it’s right, even if others want to take you in another direction. 78) Communicate the plan clearly. a) Have agreed-upon goals and tasks that everyone knows (from the people in the departments to the people outside the departments who oversee them). b) Watch out for the unfocused and unproductive “we should... (do something).” 79) Constantly get in synch with your people. 80) Get a “threshold level of understanding” 81) Avoid staying too distant. a) Tool: Use daily updates as a tool for staying on top of what your people are doing and thinking. 82) Learn con dence in your people—don’t presume it. 83) Vary your involvement based on your con dence.  84) Avoid the “theoretical should.” 85) Care about the people who work for you. 86) Logic, reason, and common sense must trump everything else in decision- making. 87) While logic drives our decisions, feelings are very relevant. 88) Escalate when you can’t adequately handle your responsibilities, and make sure that the people who work for you do the same. a) Make sure your people know to be proactive. b) Tool: An escalation button. 89) Involve the person who is the point of the pyramid when encountering material cross-departmental or cross sub-departmental issues. 90) Probe Deep and Hard to Learn What to Expect from Your “Machine” 91) Know what your people are like, and make sure they do their jobs excellently. 92) Constantly probe the people who report to you, and encourage them to probe you. a) Remind the people you are probing that problems and mistakes are fuel for improvement. 93) Probe to the level below the people who work for you. 94) Remember that few people see themselves objectively, so it’s important to welcome probing and to probe others. 95) Probe so that you have a good enough understanding of whether problems are likely to occur before they actually do. a) When a crisis appears to be brewing, contact should be so close that it’s extremely unlikely that there will be any surprises.  b) Investigate and let people know you are going to investigate so there are no surprises and they don’t take it personally. 96) Don’t “pick your battles.” Fight them all. 97) Don’t let people o the hook. 98) Don’t assume that people’s answers are correct. 99) Make the probing transparent rather than private. 100) Evaluate People Accurately, Not “Kindly” 101) Make accurate assessments. a) Use evaluation tools such as performance surveys, metrics, and formal reviews to document all aspects of a person’s performance. These will help clarify assessments and communication surrounding them. b) Maintain “baseball cards” and/or “believability matrixes” for your people. 102) Evaluate employees with the same rigor as you evaluate job candidates. 103) Know what makes your people tick, because people are your most important resource. 104) Recognize that while most people prefer compliments over criticisms, there is nothing more valuable than accurate criticisms. 105) Make this discovery process open, evolutionary, and iterative. 106) Provide constant, clear, and honest feedback, and encourage discussion of this feedback. a) Put your compliments and criticisms into perspective. b) Remember that convincing people of their strengths is generally much easier than convincing them of their weaknesses. c) Encourage objective re ection  d) Employee reviews: 107) Understand that you and the people you manage will go through a process of personal evolution. 108) Recognize that your evolution at Bridgewater should be relatively rapid and a natural consequence of discovering your strengths and weaknesses; as a result, your career path is not planned at the outset 109) Remember that the only purpose of looking at what people did is to learn what they are like. a) Look at patterns of behaviors and don’t read too much into any one event. b) Don’t believe that being good or bad at some things means that the person is good or bad at everything. 110) If someone is doing their job poorly, consider whether this is due to inadequate learning (i.e., training/experience) or inadequate ability 111) Remember that when it comes to assessing people, the two biggest mistakes are being overcon dent in your assessment and failing to get in synch on that assessment. Don’t make those mistakes. a) Get in synch in a non-hierarchical way regarding assessments. b) Learn about your people and have them learn about you with very frank conversations about mistakes and their root causes. 112) Help people through the pain that comes with exploring their weaknesses. 113) Recognize that when you are really in synch with people about weaknesses, whether yours or theirs, they are probably true. 114) Remember that you don’t need to get to the point of “beyond a shadow of a doubt” when judging people. 115) Understand that you should be able to learn the most about what  a person is like and whether they are a “click” for the job in their rst year. 116) Continue assessing people throughout their time at Bridgewater. 117) Train and Test People Through Experiences 118) Understand that training is really guiding the process of personal evolution. 119) Know that experience creates internalization 120) Provide constant feedback to put the learning in perspective 121) Remember that everything is a case study. 122) Teach your people to sh rather than give them sh. 123) Recognize that sometimes it is better to let people make mistakes so that they can learn from them rather than tell them the better decision. a) When criticizing, try to make helpful suggestions. b) Learn from success as well as from failure. 124) Know what types of mistakes are acceptable and unacceptable, and don’t allow the people who work for you to make the unacceptable ones. 125) Recognize that behavior modi cation typically takes about 18 months of constant reinforcement. 126) Train people; don’t rehabilitate them. a) A common mistake: training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to assess their abilities. 127) After you decide “what’s true” (i.e., after you gure out what your people are like), think carefully about “what to do about it.” 128) Sort People into Other Jobs at Bridgewater, or Remove Them from Bridgewater  129) When you nd that someone is not a good “click” for a job, get them out of it ASAP. 130) Know that it is much worse to keep someone in a job who is not suited for it than it is to re someone. 131) When people are “without a box,” consider whether there is an open box at Bridgewater that would be a better t. If not, re them. 132) Do not lower the bar. TO PERCEIVE, DIAGNOSE, AND SOLVE PROBLEMS... 133) Know How to Perceive Problems E ectively 134) Keep in mind the 5-Step Process explained in Part 2. 135) Recognize that perceiving problems is the rst essential step toward great management. 136) Understand that problems are the fuel for improvement. 137) You need to be able to perceive if things are above the bar (i.e., good enough) or below the bar (i.e., not good enough), and you need to make sure your people can as well 138) Don’t tolerate badness. 139) “Taste the soup.” 140) Have as many eyes looking for problems as possible. a) “Pop the cork.” b) Hold people accountable for raising their complaints. c) The leader must encourage disagreement and be either impartial or open-minded. d) The people closest to certain jobs probably know them best, or at least have perspectives you need to understand, so those people are essential for creating improvement.  141) To perceive problems, compare how the movie is unfolding relative to your script 142) Don’t use the anonymous “we” and “they,” because that masks personal responsibility—use speci c names. 143) Be very speci c about problems; don’t start with generalizations. 144) Tool: Use the following tools to catch problems: issues logs, metrics, surveys, checklists, outside consultants, and internal auditors. 145) The most common reason problems aren’t perceived is what I call the “frog in the boiling water” problem. 146) In some cases, people accept unacceptable problems because they are perceived as being too di cult to x. Yet xing unacceptable problems is actually a lot easier than not xing them, because not xing them will make you miserable. a) Problems that have good, planned solutions are completely di erent from those that don’t. 147) Diagnose to Understand What the Problems Are Symptomatic Of 148) Recognize that all problems are just manifestations of their root causes, so diagnose to understand what the problems are symptomatic of. 149) Understand that diagnosis is foundational both to progress and quality relationships. 150) Ask the following questions when diagnosing. 151) Remember that a root cause is not an action but a reason. 152) Identify at which step failure occurred in the 5-Step Process. 153) Remember that a proper diagnosis requires a quality, collaborative, and honest discussion to get at the truth.  154) Keep in mind that diagnoses should produce outcomes. 155) Don’t make too much out of one “dot”—synthesize a richer picture by squeezing lots of “dots” quickly and triangulating with others. 156) Maintain an emerging synthesis by diagnosing continuously 157) 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. 158) The most common reasons managers fail to produce excellent results or escalate are... 159) Avoid “Monday morning quarterbacking.” 160) Identify the principles that were violated. 161) Remember that if you have the same people doing the same things, you should expect the same results. 162) Use the following “drilldown” technique to gain an 80/20 understanding of a department or sub-department that is having problems. 163) Put Things in Perspective 164) Go back before going forward. a) Tool: Have all new employees listen to tapes of “the story” to bring them up to date. 165) Understand “above the line” and “below the line” thinking and how to navigate between the two. 166) Design Your Machine to Achieve Your Goals 167) Remember: You are designing a “machine” or system that will produce outcomes. a) A short-term goal probably won’t require you to build a machine  b) Beware of paying too much attention to what is coming at you and not enough attention to what your responsibilities are or how your machine should work to achieve your goals. 168) Don’t act before thinking. Take the time to come up with a game plan 169) The organizational design you draw up should minimize problems and maximize capitalization on opportunities. 170) Put yourself in the “position of pain” for a while so that you gain a richer understanding of what you’re designing for 171) Recognize that design is an iterative process; between a bad “now” and a good “then” is a “working through it” period. 172) Visualize alternative machines and their outcomes, and then choose 173) Think about second- and third-order consequences as well as rst- order consequences. 174) Most importantly, build the organization around goals rather than tasks. a) First come up with the best work ow design, sketch it out in an organizational chart, visualize how the parts interact, specify what qualities are required for each job, and, only after that is done, choose the right people to ll the jobs b) Organize departments and sub-departments around the most logical groupings. c) Make departments as self-su cient as possible so that they have control over the resources they need to achieve the goals. d) The e ciency of an organization decreases and the bureaucracy of an organization increases in direct relation to the increase in the  number of people and/or the complexity of the organization. 175) Build your organization from the top down. a) Everyone must be overseen by a believable person who has high standards. b) The people at the top of each pyramid should have the skills and focus to manage their direct reports and a deep understanding of their jobs. c) The ratio of senior managers to junior managers and to the number of people who work two levels below should be limited, to preserve quality communication and mutual understanding. d) The number of layers from top to bottom and the ratio of managers to their direct reports will limit the size of an e ective organization. e) The larger the organization, the more important are 1) information technology expertise in management and 2) cross- department communication (more on these later). f) Do not build the organization to t the people. 176) Have the clearest possible delineation of responsibilities and reporting lines. a) Create an organizational chart to look like a pyramid, with straight lines down that don’t cross. 177) Constantly think about how to produce leverage. a) You should be able to delegate the details away. b) It is far better to nd a few smart people and give them the best technology than to have a greater number of ordinary and less well- equipped people. c) Use “leveragers.”  178) Understand the clover-leaf design. 179) 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 boss. 180) Watch out for “department slip.” 181) Assign responsibilities based on work ow design and people’s abilities, not job titles. 182) Watch out for consultant addiction. 183) Tool: Maintain a procedures manual. 184) Tool: Use checklists. a) Don’t confuse checklists with personal responsibility. b) Remember that “systematic” doesn’t necessarily mean computerized. c) Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly. 185) Watch out for “job slip.” 186) Think clearly how things should go, and when they aren’t going that way, acknowledge it and investigate 187) Have good controls so that you are not exposed to the dishonesty of others and trust is never an issue. a) People doing auditing should report to people outside the department being audited, and auditing procedures should not be made known to those being audited. b) Remember: There is no sense in having laws unless you have policemen (auditors). 188) Do What You Set Out to Do 189) Push through! TO MAKE DECISIONS EFFECTIVELY... 190) Recognize the Power of Knowing How to Deal with Not Knowing 191) Recognize that your goal is to come up with the best answer, that the probability of your having it is small, and that even if you have it, you can’t be con dent that you do have it unless you have other believable people test you. 192) Understand that the ability to deal with not knowing is far more powerful than knowing a) Embrace the power of asking: “What don’t I know, and what should I do about it?” b) Finding the path to success is at least as dependent on coming up with the right questions as coming up with answers. 193) Remember that your goal is to nd the best answer, not to give the best one you have. 194) While everyone has the right to have questions and theories, only believable people have the right to have opinions 195) Constantly worry about what you are missing. a) Successful people ask for the criticism of others and consider its merit. b) Triangulate your view. 196) Make All Decisions Logically, as Expected Value Calculations 197) Considering both the probabilities and the payo s of the consequences, make sure that the probability of the unacceptable (i.e., the risk of ruin) is nil. a) The cost of a bad decision is equal to or greater than the reward of a good decision, so knowing what you don’t know is at least as  valuable as knowing. b) Recognize opportunities where there isn’t much to lose and a lot to gain, even if the probability of the gain happening is low. c) Understand how valuable it is to raise the probability that your decision will be right by accurately assessing the probability of your being right. d) Don’t bet too much on anything. Make 15 or more good, uncorrelated bets. 198) Remember the 80/20 Rule, and Know What the Key 20% Is 199) Distinguish the important things from the unimportant things and deal with the important things rst. a) Don’t be a perfectionist b) Since 80% of the juice can be gotten with the rst 20% of the squeezing, there are relatively few (typically less than ve) important things to consider in making a decision. c) Watch out for “detail anxiety,” d) Don’t mistake small things for unimportant things, because some small things can be very important 200) Think about the appropriate time to make a decision in light of the marginal gains made by acquiring additional information versus the marginal costs of postponing the decision. 201) Make sure all the “must do’s” are above the bar before you do anything else. 202) Remember that the best choices are the ones with more pros than cons, not those that don’t have any cons. Watch out for people who tend to argue against something because they can nd something wrong with it without properly weighing all the pros against the cons.  203) Watch out for unproductively identifying possibilities without assigning them probabilities, because it screws up prioritization. 204) Understand the concept and use the phrase “by and large.” a) When you ask someone whether something is true and they tell you that “It’s not totally true,” it’s probably true enough. 205) Synthesize 206) Understand and connect the dots. 207) Understand what an acceptable rate of improvement is, and that it is the level and not the rate of change that matters most. 208) If your best solution isn’t good enough, think harder or escalate that you can’t produce a solution that is good enough. 209) Avoid the temptation to compromise on that which is uncompromisable. 210) Don’t try to please everyone What Follows is the Meat... TO GET THE CULTURE RIGHT... 1) TRUST IN TRUTH So... … 2) Realize that you have nothing to fear from truth. Understanding, accepting, and knowing how to e ectively deal with reality are crucial for achieving success. Having truth on your side is extremely powerful. While the truth itself may be scary—you have a weakness, you have a deadly disease, etc. —knowing the truth will allow you to deal with your situation better. Being truthful, and letting others be truthful with you, allows you to explore your own thoughts and exposes you to the feedback that is essential for your learning. Being truthful is an extension of your freedom to be you; people who are one way on the inside and another on the outside become con icted and often lose touch with their own values. It’s di cult for them to be happy, and almost impossible for them to be at their best. While the rst-order e ects of being radically truthful might not be desirable, the second- and third-order e ects are great. Do you agree with this? … 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 about it. … 4) Be extremely open. Openness leads to truth and trust. Being open about what you dislike is especially important, because things you don’t like need to be changed or resolved. Discuss your issues until you are in synch or until you understand each other’s positions and can determine what should be done. As someone I worked with once explained, “It’s simple - just don’t lter.” The main reason Bridgewater performs well is that all people here have the power to speak openly and equally and because their views are judged on the merits of what they are saying. Through that extreme openness and a meritocracy of thought, we identify and solve problems better. Since we know we can rely on honesty, we succeed more and we ultimately become closer, and since we succeed and are close, we are more committed to this mission and to each other. It is a self- reinforcing, virtuous cycle. Do you agree with this? 5) Have integrity and demand it from others. Integrity comes from the Latin word integer, meaning “one.” People who are one way on the inside and another way outside lack integrity; they have duality. The second- and third-order e ects of having integrity and avoiding duality are great. Thinking solely about what’s accurate instead of how it is perceived helps you to be more focused on important things. It helps you sort the people you are around and the environments you are in. It improves the organization’s e ciency and camaraderie because the secret things that people think and don't say to each other drive resentment and key issues underground and don’t lead to improvement. Having nothing to hide relieves stress. It also builds trust. For these reasons: 5a) Never say anything about a person you wouldn’t say to them directly, and don’t try people without accusing them to their face. Badmouthing people behind their backs shows a serious lack of integrity and is counterproductive. It doesn’t yield any bene cial change, and it subverts both the people you are badmouthing and the environment as a whole. Next to being dishonest, it is the worst thing you can do at Bridgewater. Criticism is both welcomed and encouraged at Bridgewater, so there is no good reason to talk behind people’s backs. You need to follow this policy to an extreme degree. For example, managers should not talk about people who work for them without those people being in the room. If you talk behind people’s backs at Bridgewater you are called a slimy weasel. 5b) Don’t let “loyalty” stand in the way of truth and openness. In some companies, employees hide their employer’s mistakes, and employers do the same in return. In these places, openly expressing your concerns is considered disloyal, and discouraged. Because it prevents people from bringing their mistakes and weaknesses to the surface and because it encourages deception and eliminates the subordinates’ right of appeal, unhealthy loyalty stands in the way of improvement. I believe in a truer, healthier form of loyalty, which does the opposite. Healthy loyalty fosters improvement through openly addressing mistakes and weaknesses. The more people are open about their challenges, the more helpful others can be. In an environment in which mistakes and weaknesses are dealt with frankly, those who face their challenges have the most admirable character. By contrast, when mistakes and weaknesses are hidden, unhealthy character is legitimized.... 6) Be radically transparent. Provide people with as much exposure as possible to what’s going on around them. Allowing people direct access lets them form their own views and greatly enhances accuracy and the pursuit of truth. Winston Churchill said, “There is no worse course in leadership than to hold out false hopes soon to be swept away.” The candid question-and- answer process allows people to probe your thinking. You can then modify your thinking to get at the best possible answer, reinforcing your con dence that you’re on the best possible path. 6a) Record almost all meetings and share them with all relevant people. Provide tapes of all meetings that don’t contain con dential information to enhance transparency. Of course, there are some times when privacy is required. If someone gives you con dential information, keep it con dential until you have permission to disclose it.... 7) Don’t tolerate dishonesty. People typically aren’t totally honest, which stands in the way of progress, so don’t tolerate this. There’s an adjustment process at Bridgewater in which one learns to be completely honest and expect the same from others. Increasingly you engage in logical, unemotional discussions in pursuit of truth in which criticisms are not viewed as attacks, but as explorations of possible sources of problems. 7a) Don’t believe it when someone caught being dishonest says they have seen the light and will never do that sort of thing again. Chances are they will. The cost of keeping someone around who has been dishonest is likely to be higher than any bene ts. 8) CREATE CULTURE IN WHICH IT IS OK TO MAKE MISTAKES A BUT UNACCEPTABLE NOT TO IDENTIFY, ANALYZE, AND LEARN FROM THEM So...... 9) Recognize that effective, innovative thinkers are going to make mistakes and learn from them because it is a natural part of the innovation process. For every mistake that you learn from you will save thousands of similar mistakes in the future, so if you treat mistakes as learning opportunities that yield rapid improvements you should be excited by them. But if you treat them as bad things, you will make yourself and others miserable, and you won’t grow. Your work environment will be marked by petty back-biting and malevolent barbs rather than by a healthy, honest search for truth that leads to evolution and improvement. Because of this, the more mistakes you make and the more quality, honest diagnoses you have, the more rapid your progress will be. That’s not B.S. or just talk. That’s the reality of learning.... 10) Do not feel bad about your mistakes or those of others. Love them! Remember that 1) they are to be expected, 2) they’re the rst and most essential part of the learning process, and 3) feeling bad about them will prevent you from getting better. People typically feel bad about mistakes because they think in a short-sighted way that mistakes re ect their badness or because they’re worried about being punished (or not being rewarded). People also tend to get angry at those who make mistakes because in a short- sighted way they focus on the bad outcome rather than the educational, evolutionary process they’re a part of. That’s a real tragedy. I once had a ski instructor who had taught Michael Jordan, the greatest basketball player of all time, how to ski. He explained that Jordan enjoyed his mistakes and got the most out of them. At the start of high school, Jordan was an unimpressive basketball player; he became a champion because he loved using his mistakes to improve. Yet despite Jordan’s example and the example of countless other successful people, it is far more common for people to allow ego to stand in the way of learning. Perhaps it’s because school learning overemphasizes the value of having the right answers and punishes wrong answers. Good school learners are often bad mistake-based learners because they are bothered by their mistakes. I particularly see this problem in recent graduates from the best colleges, who frequently shy away from exploring their own weaknesses. Remember that intelligent people who are open to recognizing and learning from their weaknesses substantially outperform people with the same abilities who aren’t similarly open.... 11) Observe the patterns of mistakes to see if they are a product of weaknesses. Connect the dots without ego barriers. If there is a pattern of mistakes, it probably signi es a weakness. Everyone has weaknesses. The fastest path to success is to know what they are and how to deal with them so that they don’t stand in your way. Weaknesses are due to de ciencies in learning or de ciencies in abilities. De ciencies in learning can be recti ed over time, though usually not quickly, while de ciencies in abilities are virtually impossible to change. Neither is a meaningful impediment to getting what you want if you accept it as a problem that can be designed around.... 12) Do not feel bad about your weaknesses or those of others. They are opportunities to improve. If you can solve the puzzle of what is causing them, you will get a gem - i.e., the ability to stop making them in the future. Everyone has weaknesses and can bene t from knowing about them. Don’t view explorations of weaknesses as attacks. A person who receives criticism - particularly if he tries to objectively consider if it’s true - is someone to be admired.... 13) Don’t worry about looking good - worry about achieving your goals. Put your insecurities away and get on with achieving your goals. To test if you are worrying too much about looking good, observe how you feel when you nd out you’ve made a mistake or don’t know something. If you nd yourself feeling bad, re ect - remind yourself that the most valuable comments are accurate criticisms. Imagine how silly and unproductive it would be if you thought your ski instructor was blaming you when he told you that you fell because you didn’t shift your weight properly. If a criticism is accurate, it is a good thing. You should appreciate it and try to learn from it.... 14) Get over “blame” and “credit” and get on with “accurate” and “inaccurate.” When people hear, “You did XYZ wrong,” they have an instinctual reaction to gure out possible consequences or punishments rather than to try to understand how to improve. Remember that what has happened lies in the past and no longer matters, except as a method for learning how to be better in the future. Create an environment in which people understand that remarks such as “You handled that badly” are meant to be helpful (for the future) rather than punitive (for the past). While people typically feel unhappy about blame and good about credit, that attitude gets everything backwards and can cause major problems. Worrying about “blame” and “credit” or “positive” and “negative” feedback impedes the iterative process essential to learning.... 15) Don’t depersonalize mistakes. Identifying who made mistakes is essential to learning. It is also a test of whether a person will put improvement ahead of ego and whether he will t into the Bridgewater culture. A common error is to say, “We didn’t handle this well” rather than “Harry didn’t handle this well.” This occurs when people are uncomfortable connecting speci c mistakes to speci c people because of ego sensitivities. This creates dysfunctional and dishonest organizations. Since individuals are the most important building blocks of any organization and since individuals are responsible for the ways things are done, the diagnosis must connect the mistake to the speci c individual by name. Someone created the procedure that went wrong, or decided we should act according to that procedure, and ignoring that fact will slow our progress toward successfully dealing with the problem.... 16) Write down your weaknesses and the weaknesses of others to help remember and acknowledge them. It’s unhealthy to hide them because if you hide them, it will slow your progress towards successfully dealing with them. Conversely, if you don’t want them and you stare at them, you will inevitably evolve past them.... 17) When you experience pain, remember to reflect. You can convert the “pain” of seeing your mistakes and weaknesses into pleasure. If there is only one piece of advice I can get you to remember it is this one. Calm yourself down and think about what is causing your psychological pain. Ask other objective, believable parties for their help to gure it out. Find out what is true. Don’t let ego barriers stand in your way. Remember that pains that come from seeing mistakes and weaknesses are “growing pains” that you learn from. Don’t rush through them. Stay in them and explore them because that will help build the foundation for improvement. It is widely recognized that 1) changing your deep-seated, harmful behavior is very di cult yet necessary for improvement and 2) doing this generally requires a deeply felt recognition of the connection between your harmful behavior and the pain it causes. Psychologists call this “hitting bottom.” Embracing your failures is the rst step toward genuine improvement; it is also why “confession” precedes forgiveness in many societies. If you keep doing this you will learn to improve and feel the pleasures of it.... 18) Be self-reflective and make sure your people are self-reflective. This quality di erentiates those who evolve fast from those who don’t. When there is pain, the animal instinct is ‘ ght or ight’ (i.e., to either strike back or run away) - re ect instead. When you can calm yourself down, thinking about the dilemma that is causing you pain will bring you to a higher level and enlighten you, leading to progress. That is because the pain you are feeling is due to something being at odds - maybe it’s you encountering reality, such as the death of a friend, and not being able to accept it. If when you are calm, you can think clearly about what things are at odds, you will learn more about what reality is like and how to better deal with it. It really will produce progress. If, on the other hand, the pain causes you to tense-up, not think, feel sorry for yourself, and blame others, it will be a very bad experience. So, when you are in pain, try to remember: Pain + Re ection = Progress. It’s pretty easy to determine whether a person is re ective or de ective: self-re ective people openly and objectively look at themselves while de ective people don’t.... 19) Teach and reinforce the merits of mistake-based learning. We must bring mistakes into the open and analyze them objectively, so managers need to foster a culture that makes this normal and penalizes suppressing or covering up mistakes. Probably the worst mistake anyone can make at Bridgewater is not facing up to mistakes - i.e., hiding rather than highlighting them. Highlighting them, diagnosing them, thinking about what should be done di erently in the future, and then adding that new knowledge to the procedures manual are all essential to our improvement. 19a) The most valuable tool we have for this is the issues log (explained fully later), which is aimed at identifying and learning from mistakes. Using this tool is mandatory because we believe that enforcing this behavior is far better than leaving it optional. 20) CONSTANTLY GET IN SYNCH So…... 21) Constantly get in synch about what is true and what to do about it. Getting in synch helps you achieve better answers through considering alternative viewpoints. It can take the forms of asking, debating, discussing, and teaching how things should be done. Sometimes it is to make our views on our strengths, weaknesses, and values transparent in order to reach the understanding that helps us move forward. Sometimes it is to be clear about who will do what and the game plan for handling responsibilities. So this process can be both a means of nding the best answers and pushing them ahead. Quality conversations about what is true and what should be done will produce better outcomes and many fewer misunderstandings in the future.... 22) Talk about “Is it true?” and “Does it make sense?” In a culture that values both independent thinking and innovation, each individual has both the right and the obligation to ensure that what they do, and what we collectively do, in pursuit of excellence, makes sense to them. So, get in synch about these things.... 23) Fight for right. Discuss or debate important issues with the right relevant parties in an open- minded way until the best answers are determined. This process will maximize learning and mutual understanding. Thrash it out to get to the best answer.... 24) Be assertive and open-minded at the same time. Just try to nd out what is true. Don’t try to ‘win’ the argument. Finding out that you are wrong is even more valuable than being right, because you are learning. 24a) Ask yourself whether you have earned the right to have an opinion. Opinions are easy to produce, so bad ones abound. Knowing that you don’t know something is nearly as valuable as knowing it. The worst situation is thinking you know something when you don’t. 24b) Recognize that you always have the right to have and ask questions. 24c) Distinguish open-minded people from closed-minded people. Open-minded people seek to learn by asking questions; they realize that what they know is little in relation to what there is to know and recognize that they might be wrong. Closed-minded people always tell you what they know, even if they know hardly anything about the subject being discussed. They are typically made uncomfortable by being around those who know a lot more about a subject, unlike open-minded people who are thrilled by such company. 24d) Don’t have anything to do with closed-minded, inexperienced people. They won’t do you any good and there’s no helping them until they open their minds, so they will waste your time in the meantime. If you must deal with them, the rst thing you have to do is open their minds. Being open- minded is far more important than being bright or smart. 24e) Be wary of the arrogant intellectual who comments from the stands without having played on the field. And avoid that trap yourself. 24f) Watch out for people who think it’s embarrassing not to know. They’re dangerous.... 25) Make sure responsible parties are open-minded about the questions and comments of others. They are required to explain the thinking behind a decision openly and transparently so that all can understand and assess it. Further, in the event of disagreement, an appeal should be made to either the manager’s boss or an agreed-upon, knowledgeable group of others, generally including people more believable than and senior to the decision-maker. The person(s) resolving the dispute must do this objectively and fairly; otherwise our system will fail at maintaining its meritocracy of ideas.... 26) Recognize that conflicts are essential for great relationships because they are the means by which people determine whether their principles are aligned and resolve their differences. I believe that in all relationships, including the most treasured ones, 1) there are principles and values each person has that must be in synch for the relationship to be successful and 2) there must be give and take. I believe there is always a kind of negotiation or debate between people based on principles and mutual consideration. What you learn about each other via that “negotiation” either draws you together or drives you apart. If your principles are aligned and you can work out your di erences via a process of give and take, you will draw closer together. If not, you will move apart. It is through such open discussion, especially when it comes to contentious issues, that people can make sure there are no misunderstandings. If that open discussion of di erences doesn’t happen on an ongoing basis, the gaps in perspectives will widen until inevitably there is a major clash. Ironically, people who suppress the mini-confrontations for fear of con ict tend to have huge con icts later, which can lead to separation, precisely because they let minor problems fester. On the other hand, people who address the mini-con icts head-on in order to straighten things out tend to have the great, long-lasting relationships. That’s why I believe people should feel free to say whatever they really think. 26a) Expect more open-minded disagreements at Bridgewater than at most other firms. They fuel the learning that helps us be at our best. Sometimes when there are disagreements, people get angry. But you should remind them that the management at most other companies doesn’t welcome disagreement or encourage open debate. As a result, there is less of both. So instead of getting angry, they should welcome the fact that disagreements and open debate are encouraged here. 26b) There is giant untapped potential in disagreement, especially if the disagreement is between two or more thoughtful people - yet most people either avoid it or they make it an unproductive ght. That’s tragic.... 27) Know when to stop debating and move on to agreeing about what should be done. I have seen people who agree on the major issues waste hours arguing over details. It’s more important to do big things well than to do small things perfectly. Be wary of bogging down amid minor issues at the expense of time devoted to solidifying important agreements. 27a) However, when people disagree on the importance of debating something, it should be debated. Operating otherwise would essentially give someone (typically the boss) a de facto veto right. 27b) Recognize that “there are many good 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. 27c) For disagreements to have a positive effect, people evaluating an individual decision or decision-maker must view the issue within a broader context. For example, if the responsible party being challenged has a vision, and the decision under disagreement involves a small detail, evaluate the decision within the context of the broader vision. The ensuing discussion resulting from challenging someone’s decision will help people understand all the considerations behind it. 27d) Distinguish between 1) idle complaints and 2) complaints that are meant to lead to improvement.... 28) Appreciate that open debate is not meant to create rule by referendum. It is meant to provide the decision-maker with alternative perspectives in anticipation of a better answer. It can also be used to enhance understanding of others’ views and abilities and, over time, assess whether someone should be assigned a responsibility. It doesn’t mean there can’t be some designs in which a group oversees a person. But that’s designed and embedded in the organizational structure, specifying the people responsible for oversight who are chosen because of their knowledge and judgment.... 29) Evaluate whether an issue calls for debate, discussion, or teaching. Debate, discussion, and teaching are all ways of getting in synch, but they work di erently and the approach you choose should re ect your goal and the relative believability of the people involved. Debate is generally among approximate equals; discussion is open-minded exploration among people of various levels of understanding; and teaching is between people of di erent levels of understanding. 29a) To avoid confusion, make clear which kind of conversation (debate, discussion, or teaching) you are having and recognize that the purpose is ultimately to get at truth, not to prove that someone is right or wrong. 29b) Communication aimed at getting the best answer should involve the most relevant people. Not everyone should randomly probe everyone else, because that’s an unproductive waste of time. People should consider their own levels of believability and understanding to assess if the probing makes sense. As a guide, the most relevant people are your managers, direct reports, and/or agreed experts. They are the most impacted by and most informed about the issues under discussion, and so they are the most important parties to be in synch with. If you can’t get in synch, you should escalate the disagreement. 29c) Communication aimed at educating or boosting cohesion should involve a broader set of people than would be needed if the aim were just getting the best answer. Less experienced, less believable people will be included. They may not be necessary to decide an issue, but if you aren’t in synch with them, that lack of understanding will likely undermine morale and the organization’s e ciency. In cases where you have people who are both not believable and highly opinionated (the worst combination), you will drive their uninformed opinions underground if you don’t get in synch. Conversely, if you are willing to be challenged, and others behave the same way, you can demand that all critical communication be done openly. Imagine if a group of us were trying to learn how to play golf with Tiger Woods, and he and a new golfer were debating how to swing the club. Would it be helpful or harmful to our progress to ignore their di erent track records and experience? Of course it would be harmful and plain silly to treat their points of view equally, because they have di erent levels of believability. It is better to listen to what Tiger Woods has to say, without constant interruptions by some know-nothing arguing with him. While I believe this is true, it would be most productive if Tiger Woods gave his instructions and then answered questions. However, because I’m pretty extreme in believing that it is important to obtain understanding rather than accepting doctrine at face value, I also think the new golfer shouldn’t accept what Tiger Woods has to say as right only because he has won loads of tournaments and has years of experience playing golf. In other words, I believe the new golfer shouldn’t stop questioning Tiger until he is con dent he has found truth. At the same time, I also think the new golfer would be pretty dumb and arrogant to believe he’s probably right and the champion golfer is wrong. So he should approach his questioning with that perspective rather than overblown con dence. It would be really bad for the group’s learning if all the people in the group treated what the new golfer and Tiger Woods had to say as equally valuable. I feel exactly the same way about getting at truth at Bridgewater. While it’s good to be open-minded and questioning, it’s dumb to treat the views of people with great track records and experience the same as those without track records and experience. 29d) Leverage your communication. While open communication is very important, the challenge is guring out how to do it in a time-e cient way. It is helpful to use leveraging techniques like open e-mails posted on a FAQ board. If the reporting ratios are organized as described in the principles on organizational design, there should be ample time for this. The challenges become greater the higher you go in the reporting hierarchy because the number of people a ected by your actions and who have opinions and/or questions grows larger than just two reporting levels down. In such cases, you will need even greater leverage and prioritization (e.g., having some of the questions answered by a well-equipped party who works for you, asking people to prioritize their questions by urgency or importance, etc).... 30) Don’t treat all opinions as equally valuable. Almost everyone has an opinion, but many are worthless or harmful. The views of people without track records are not equal to the views of people with strong track records. Treating all people equally is more likely to lead away from truth than toward it. People without records of success who are nonetheless con dent about how things should be done are either naïve or arrogant. In either case, they’re potentially dangerous to themselves and others. However, all views should be considered in an open-minded way, albeit placed in the proper context of experience and track record. Ultimately, the proof is in the pudding: can you handle your responsibilities well? As a general rule, if you can, then you can have an opinion of how to do it—if you can’t, you can’t. 30a) A hierarchy of merit is not only consistent with a meritocracy of ideas but essential for it. Not only is better decision-making enhanced, so is time management. It’s not possible for everyone to debate everything all the time and still get work done e ectively.... 31) Consider your own and others’ “believabilities.” By believability, I mean the probability that a person’s view will be right. While we can never know this precisely, we can roughly assess it according to the quality of a person’s reasoning and their track record. Of course, di erent people will have di erent views of their own and other’s believability, which is ne. Just recognize that this is a reality that is relevant in a number of ways. Ask, “Why should I believe you?” and “Why should I believe myself?” 31a) Ask yourself whether you have earned the right to have an opinion. As a general rule, if you have a demonstrated track record, then you can have an opinion of how to do it—if you don’t, you can’t, though you can have theories and questions. 31b) People who have repeatedly and successfully accomplished the thing in question and have great explanations when probed are most believable. Those with one of those two qualities are somewhat believable; people with neither are least believable. At the same time, people’s ideas should always be assessed on their merit in order to encourage them to always think in an open-minded way. I have seen that inexperienced people can have great ideas, sometimes far better than more experienced people, though often much worse. So we must be attuned to both the good and the bad and allow people to build their own track records and their own level of believability. Because of Bridgewater’s radical openness, you can see how we make our assessments of that. Someone new who doesn’t know much, has little believability, or isn’t con dent in his views should ask questions. On the other hand, a highly believable person with experience and a good track record who is highly con dent in his views should be assertive. Everyone should be upfront in expressing how con dent they are in their thoughts. A suggestion should be called a suggestion; a rmly held conviction should be presented as such. Don’t make the mistake of being a dumb shit with a con dent opinion. 31c) If someone asks you a question, think first whether you’re the responsible party/right person to be answering the question.... 32) Spend lavishly on the time and energy you devote to “getting in synch” because it’s the best investment you can make. You will inevitably need to prioritize because of time constraints, but beware of the tremendous price of skimping on quality communication.... 33) If it is your meeting to run, manage the conversation. There are many reasons why meetings go poorly, but frequently it is because of a lack of clarity about the topic or the level at which things are being discussed (e.g., the principle/machine level, the case at hand level, or the speci c fact level). To manage the meetings well: 33a) Make it clear who the meeting is meant to serve and who is directing the meeting. Every meeting is for the purpose of meeting someone’s goals; that person is the responsible party for the meeting and decides what s/he wants to get out of it and how s/he will do so. Meetings without a clear responsible party run a high risk of being directionless and unproductive. 33b) Make clear what type of communication you are going to have in light of the objectives and priorities. For example, if the goal of the meeting is to have people with di erent opinions work through their di erences to try to get closer to what is true and what to do about it (i.e., open-minded debate), you will run it di erently than if the meeting is meant to educate. Debating issues takes time. That time increases geometrically depending on the number of people participating in the discussion, so you have to carefully choose the right people in the right numbers to suit the decision that needs to be made. In any discussion try to limit the participation to those whom you value most in light of your objectives. The worst way to pick people is based on whether their conclusions align with yours. 33c) Lead the discussion by being assertive and open-minded. Group- think and solo-think are both dangerous. 33d) A small group (3 to 5) of smart, conceptual people seeking the right answers in an open-minded way will generally lead to the best answer. Next best is to have decisions made by a single smart, conceptual decision-maker, but this is a much worse choice than the former. The worst way to make decisions is via large groups without a smart, conceptual leader. Almost everyone thinks they’re smart and conceptual, but only a small percentage of any group really is. Even when there is a large number of smart, conceptual leaders, more than ve trying to make a decision is very ine cient and di cult. This is especially the case when people think they need to satisfy everyone. 33e) 1+1=3. Two people who collaborate well will be about three times as e ective as the two of them operating independently because they will see what the other might miss, they can leverage each other, and they can hold each other to higher standards. This symbiotic relationship of adding people to a group will have incremental bene ts (2+1=4.25) up to a point at which there are no incremental gains and beyond which adding people produces incremental losses in e ectiveness. That is because 1) the marginal bene ts diminish as the group gets larger—e.g. 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 e cient than smaller group interactions. Of course, what's best in practice is a function of 1) the quality of the people and the di erences of the perspectives that they bring and 2) how well the group is managed. As noted before, each group should have someone who is responsible for managing the ow to get out of the meeting the most possible. 33f) Navigate the levels of the conversation clearly. When considering an issue or situation, there should be two levels of discussion: the case at hand and the relevant principles that help you decide how the machine should work. Since the case at hand is a manifestation of one or more relevant principles, you need to clearly navigate between these levels in order to 1) handle the case well, 2) improve the machine so that future cases like this will be handled better in the future, and 3) test the e ectiveness of your principles. 33g) Watch out for “topic slip.” Topic slip is the random and inconclusive drifting from topic to topic without achieving completion. Tip: Avoid topic slip by tracking the conversation on a whiteboard so everyone can see where you are. 33h) Enforce the logic of conversations. There is a tendency for people’s emotions to heat up when there is a disagreement, so focusing on the logic of your exchange will facilitate communication. If you are calm and analytical in listening to others’ points of view, it is more di cult for them to shut down a logical exchange than if you get emotional or allow them to get emotional. 33i) Worry about substance more than style. This is not to say that some styles aren’t more e ective than others with di erent people and in di erent circumstances, but don’t let style or tone prevent you from getting in synch. I often see people complain about the delivery of a criticism in order to de ect from its substance. If you think someone’s style is an issue, box it as a separate issue to get in synch about (start by asking whether it’s true and whether it’s important). 33j) Achieve completion in conversations. The main purpose of discussion is to achieve completion and get in synch, which leads to decisions and or actions. Conversations often fail to reach completion. This amounts to a waste of time because they don’t result in conclusions or productive actions. When there is an exchange of ideas, especially if there is a disagreement, it is important to end it by stating the conclusions. If there is agreement, say it; if not, say that. Where further action has been decided, get those tasks on a to- do list, assign people to do them, and specify due dates. Write down your conclusions, working theories, and to-do’s in places that will lead to their being used as foundations for continued progress. 33k) Have someone assigned to maintain notes in meetings and make sure follow-through happens. Generally speaking, to avoid distraction during the discussion itself, prioritizing follow-ups and assignments should be done afterwards. 33l) 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 do what. Be clear in assigning personal responsibilities.... 34) Make sure people don’t confuse their right to complain, give advice, and debate with the right to make decisions. Discussion does not mean rule by referendum. While our culture is marked by extreme openness, some people mistakenly assume we have group decision-making in which all views are treated equally and consensus rules. Since not all views are equally valuable, I don’t believe in consensus decision-making or referendums. We operate not only by open debate but also by clearly assigning personal responsibility to speci c people. While these two values might seem at odds, personal responsibility and open debate work together to synthesize e ective decision-making at Bridgewater. Everyone does not report to everyone here. Instead, responsibility and authority are assigned to individuals based on our assessment of their ability to handle them. I want the most capable individuals assigned to each job. We hold them accountable for their outcomes, but we also give them the authority to achieve those outcomes. It is perfectly okay for a responsible party to carry through a decision he thinks is best even when others who are knowledgeable disagree, although this disagreement should be considered and weighed seriously. We have, and should have, an explicit decision-making hierarchy, ideally based on merit.... 35) Recognize that getting in synch is a two-way responsibility. In any conversation there is a responsibility to transmit and a responsibility to receive. Misinterpretations are going to take place. Often, di culty in communication is due to people having di erent ways of thinking (e.g., left- brained thinkers talking to right-brained thinkers). The parties involved should 1) realize that what they might be transmitting or receiving might not be what was meant, 2) consider multiple possibilities, and 3) do a back and forth so that they can get in synch. People do the opposite — con dently thinking that they’ve communicated their intent clearly, not considering multiple possibilities and then blaming the other parties for the misunderstanding. Learn lessons from your problems in communications to improve.... 36) Escalate if you can’t get in synch. If you can’t understand or reconcile points of view with someone else, agree on a third party to provide guidance. This person could be your manager or another agreed-upon, believable person or group who can resolve the con ict objectively, fairly, and sensibly. This mechanism is a key element of our culture and crucial for maintaining a meritocracy of ideas. TO GET THE PEOPLE RIGHT... 37) RECOGNIZE THE MOST IMPORTANT DECISIONS YOU MAKE ARE WHO YOU CHOOSE TO BE YOUR RESPONSIBLE PARTY So...... 38) Remember that almost everything good comes from having great people operating in a great culture. I cannot emphasize strongly enough how important the selection, training, testing, evaluation, and sorting out of people is. If you put the goals and the tasks in the hands of people who can do them well, and if you make crystal clear that they are personally responsible for achieving the goals and doing the tasks, they should produce excellent results. This section is about the people part of the feedback loop process, diagramed below.... 39) First, match the person to the design. Understand what attributes matter most for a job, and then ascertain whether an individual has them. This matching process requires 1) visualizing the job and the qualities needed to do it well and then 2) ascertaining if the individual has those qualities. Look for believable responsible parties who love producing great results. Remember that values are most important—e.g., if “work” is what people have to do to make money, I don’t want people to “work” here. I only want people at Bridgewater who are joining us on an important, shared mission to do great things. 39a) Most importantly, find people who share your values. At Bridgewater, those key values are a drive for excellence, truth at all costs, a high sense of ownership, and strong character (by character, I mean the willingness to do the good but di cult things). 39b) Look for people who are willing to look at themselves objectively and have character. These are not natural talents—they are qualities that anyone can acquire. They are also the qualities that have the biggest in uence on whether or not I respect someone. They are essential for success. 39c) Conceptual thinking and common sense are required in order to assign someone the responsibility for achieving goals (as distinct from tasks).... 40) Recognize that the inevitable responsible party is the person who bears the consequences of what is done. Because of this, the RP must choose wisely when delegating responsibilities to others, and he must incentivize and manage them appropriately. There is no escaping that. For example, you are the inevitable RP for taking care of your health because you’re the one who inevitably bears the consequences. If you’re sick, you might choose to delegate the responsibility of guring out what do to about it to a doctor. However, it is your responsibility to pick the right doctor because you will bear the consequences of that decision. While it is, of course, also the doctor’s responsibility to handle the responsibilities that you delegate to him, you still need to make sure that his incentives are aligned with his responsibilities and that he is doing his job well. The inevitable responsible party can’t delegate all his responsibilities away and expect good outcomes, even in cases in which he has no expertise. So you can’t escape hiring and managing properly.... 41) By and large, you will get what you deserve over time. The results that you end up with will re ect how you and your people learn to handle things. So take control of your situation and hold yourself and others accountable for producing great results. People who wish for a great result but are unwilling to do what it takes to get there will fail.... 42) The most important responsible parties are those who are most responsible for the goals, outcomes, and machines (they are those higher in the pyramid). Give me someone who can e ectively be responsible for an area—i.e., who can design, hire, and sort to achieve the goal, and I can be comfortable about all that is in that area. Therefore, they are the most important people to choose and manage well.... 43) Choose those who understand the difference between goals and tasks to run things. Otherwise you will have to do their jobs for them. The ability to see and value goals is largely innate, though it improves with experience. It can be tested for, though no tests are perfect. 44) RECOGNIZE THAT PEOPLE ARE BUILT VERY DIFFERENTLY So...... 45) Think about their very different values, abilities, and skills. Values are the deep- seated beliefs that motivate behaviors; people will ght for their values, and values determine people’s compatibility with others. Abilities are ways of thinking and behaving. Some people are great learners and fast processors; others possess common sense; still others think creatively or logically or with supreme organization, etc. Skills are learned tools, such as being able to speak a foreign language or write computer code. While values and abilities are unlikely to change much, most skills can be acquired in a limited amount of time (e.g., most master’s degrees can be acquired in two years) and often change in worth (e.g., today’s best programming language can be obsolete in a few years). It is important for you to know what mix of qualities is important to t each role and, more broadly, with whom you can have successful relationships. In picking people for long-term relationships, values are most important, abilities come next, and skills are the least important.... 46) Understand what each person who works for you is like so that you know what to expect from them.... 47) Recognize that the type of person you fit in the job must match the requirements for that job. How People’s Thinking Abilities Di er In my many years of running Bridgewater I have learned that people’s thinking abilities di er and that it is important to understand these di erences so that they are appropriately considered when assigning people to roles. I have tried to nd experts who understood these di erences to help me better understand and test for them. I have found a few truly insightful people amid a mass of mediocrity. I have also found that there are all sorts of theories from all sorts of people about how people think and why, so very little should be treated as fact. It seems that “political correctness” and the reluctance to objectively discuss di erences in innate abilities have stood in the way of forthright and thoughtful research on this important subject. While the search for good advice and tests has been challenging, it has also been invaluable. What follows is a mix of my theories based on my personal observations and a collection of valuable things I have learned from others. I know I have only scratched the surface of learning about how people think, why they think di erently, and how to test for these di erent thinking abilities, so I am excited about the potential of learning more. I believe, but am not certain about, the following: There are two big di erences in how people think that are due to the brain’s coming in two big halves and di erent people relying di erently on them. This was explained by Caltech Professor Roger Sperry, who won a Nobel Prize in medicine for attributing these two ways of thinking to di erent reliances on the two hemispheres. As a result of this discovery, these two ways of thinking are called “left-brained” and “right-brained.” Professor Sperry helped us understand that: o The left hemisphere reasons sequentially, analyzes details, and excels at linear analysis. Left-brained thinkers do these things well. They are also called linear thinkers. When they excel at this type of thinking they are called “bright.” o The right hemisphere reasons holistically, recognizes themes, and synthesizes the big picture. Right-brained thinkers do these things well. People who think this way are also called lateral thinkers. Those who excel at this kind of thinking are called “smart.” Long before I knew that there was a Professor Sperry I saw these di erences. I bet you’ve seen them too. On a scale of -5 to +5 – left-brained to right-brained – where do you think you fall? How confident are you that your self-assessment is right? Some people see details (trees), and others see big pictures (forests). Those who “see trees” see the parts most vividly and don’t readily relate the parts to each other in order to see the big picture—e.g., they might prefer more literal, precise paintings. They are typically left- brained. Others connect the dots to pictures. In fact, they typically don’t even see the dots; they just see the pictures. They are typically right- brained. You can detect which type people are by observing what they focus on. Detailed thinkers can lose sight of the big picture and are more likely to focus in on a part than to go to the higher level and see the relationship between parts. For example, a person who focuses on details can be thrown o by word mistakes like “there“ instead of “their,” while big-picture thinkers won’t even notice the mistake. Similarly, big-picture thinkers can often understand the meaning of sentences even when key words are reversed—e.g., when “up” is mistakenly used instead of “down,” they understand that the person speaking couldn’t have meant “up” in that context. That is because their attention is focused on the context rst and the details second. When describing the same meeting, these two di erent types will frequently focus on completely di erent things and disagree on their interpretations. In discussions, they can frustrate each other and discount what the other is saying. Similarly, a person of one type interviewing another type will usually yield an unsatisfactory result. On a scale of -5 to +5 – “detailed” to “big picture” – where do you think you fall? How confident are you that your self-assessment is right? Some people rely more on remembering what they were taught when making decisions, and others rely more on their independent reasoning. Let’s call the rst group memory-based learners and the second group reasoning-based thinkers. When using the word “learning” I intend to convey “acquiring knowledge by being taught,” and when using the word “thinking” I mean “ guring it out for oneself.” Memory-based learners approach decision-making by remembering what they were taught. They draw on their memory banks and follow the instructions stored there. They are typically left-brained. Reasoning-based thinkers pay more attention to the principles behind what happens. They are typically right-brained. You can tell the di erence when what is learned (e.g., CAPM) con icts with what is logical (e.g., All Weather). People who rely on memory-based learning will typically be more skeptical of unconventional ideas because their process is to more readily accept what they have been told and because they are less able to assess it for themselves. Those who rely on more on reasoning won’t care much about convention and will assess ideas on their merits. Those who rely on memory-based learning also tend to align themselves with the consensus more than people who rely on reasoning. Memory- based learners are more willing to accept the status quo, while reasoning-based thinkers are less biased by it. They are more likely to be innovative, while those who rely on learning are likelier to be cautious. Performance in school will correlate well with the quality of one’s learning-based thinking, but will not reliably correlate with one’s reasoning-based thinking. The most able learners are easily found, since they are, or were, the best students from the best schools. The best thinkers are tougher to nd, as there are no obvious funnels through which they pass, especially before they develop track records in the “real world.” On a scale of -5 to +5 –“learning” to “thinking” – where do you think you fall? How confident are you that your self-assessment is right? Some people are focused on daily tasks, and others are focused on their goals and how to achieve them. Those who “visualize” best can see the pictures (rather than the dots) over time. They have a strong capacity to visualize and will be more likely to make meaningful changes and anticipate future events. They are the most suitable for creating new things (organizations, projects, etc.) and managing organizations that have lots of change. We call them “creators.” They are typically right- brained thinkers. By contrast, those who are focused on the daily tasks are better at managing things that don’t change much or require repetitive processes done reliably, and are typically best at doing clearly speci ed tasks. They see things much more literally and tend to make incremental changes that reference what already exists. They are slower to depart from the status quo and more likely to be blindsided by sudden events. They are typically left-brained thinkers. On a scale of -5 to +5 – “tasks” to “goals” – where do you think you fall? How confident are you that your self-assessment is right? Some people are “planners,” and others are “perceivers.” Planners like to focus on a plan and stick with it, while perceivers are prone to focus on what’s happening around them and more readily adapt to it. Perceivers see things happening and work backward to understand the cause and how to respond; they work from the outside in; they also see many more possibilities that they compare and choose from; often they see so many that they are confused by them. In contrast, planners work from the inside out, guring out rst what they want to achieve and then how things should unfold. Planners and perceivers have trouble appreciating each other. While a perceiver likes to see new things and change directions often, this is discomforting to planners, who prefer to stick to a plan. Planners weigh precedent much more heavily in their decision- making, and assume that if it was done before in a certain way, it should be done again in the same way, while perceivers tend to optimize on the spot. Planners are typically left-brained, and perceivers are typically right-brained. On a scale of -5 to +5 – “planner” to “perceiver” – where do you think you fall? How confident are you that your self-assessment is right? Some people are driven more by their emotions, and others are driven more by their intellect. We all have emotions and intellect. When they con ict, some people will give in to their emotions, while others maintain control of their emotions and are driven by their intellect. I am told this is more due to relative reliance on the amygdala and the prefrontal cortex, but I’m not sure. Once again, these two di erent types typically can’t understand and typically frustrate each other. On a scale of -5 to +5 –“driven by emotion” to “driven by intellect” – where do you think you fall? How confident are you that your self-assessment is right? Some people are risk-takers, and others are risk-averse. On a scale of -5 to +5 – “risk-averse” to “risk-takers” – where do you think you fall?  How confident are you that your self-assessment is right? Some people are introverts, and others are extroverts. The most important di erence between them is their willingness to ght for truth. Introverts tend to nd the necessary con icts more di cult. There are lots of important ways in which people think di erently that I won’t continue on about. On a scale of -5 to +5 – “introvert” to “extrovert” – where do you think you fall? How confident are you that your self-assessment is right?... 48) Use personality assessment tests and quality reflections on experiences to help you identify these differences. These should be done openly so that these important di erences are embraced and considered in our interactions.... 49) Understand that different ways of seeing and thinking make people suitable for different jobs. Since nature created di erent ways of thinking and since nature never creates anything without a purpose, each way of thinking has purposes. Often, thinking well for some purposes necessitates thinking poorly for others. It is highly desirable to understand one’s own ways, and others’ ways, of thinking, and their best applications. While there is no best quality, there are certainly some qualities that are more suitable for some jobs (e.g., being a math wiz is important for a job that requires a math wiz). So don’t treat everyone the same. Sometimes I see people dealing with each other, especially in groups, without regard for these di erences. This is nonsensical. Both people expressing their own views and those considering others’ views need to take into account their di erences. These di erences are real, so it’s dumb to pretend they don’t exist. 49a) People are best at the jobs that require what they do well. 49b) If you’re not naturally good at one type of thinking, it doesn’t mean you’re precluded from paths that require that type of thinking, but it does require that you either work with someone who has that required way of thinking (which works best) or learn to think di erently (which is very di cult and sometimes impossible).... 50) Don’t hide these differences. Explore them openly with the goal of figuring out how you and your people are built so you can put the right people in the right jobs and clearly assign responsibilities. This is good for both your team and for Bridgewater as a whole.... 51) Remember that people who see things and think one way often have difficulty communicating and relating to people who see things and think another way. Keep in mind how di cult it is to convey what it means to think in an alternative way for the same reason it would be di cult to convey what the sense of smell is to someone who doesn’t have the ability to smell. 52) HIRE RIGHT, BECAUSE THE PENALTIES OF HIRING WRONG ARE HUGE So...... 53) Think through what values, abilities, and skills you are looking for. A lot of time and e ort is put into hiring a person, and substantial time and resources are invested in new employees’ development before nding out whether they are succeeding. Getting rid of employees who aren’t succeeding is also di cult, so it pays to be as sure as possible in hiring. Refer to our diagram that shows how to achieve your goals by comparing them with the outcomes you’re getting, and think of the people part as shown below. By constantly comparing the picture of what the people are like with the qualities needed, you will hire better and evolve faster.... 54) Weigh values and abilities more heavily than skills in deciding whom to hire. Avoid the temptation to think narrowly about lling a job with a speci c skill. While having that skill might be important, what’s most important is determining whether you and they are working toward the same goals and can work in the same ways and share the same values.... 55) Write the profile of the person you are looking for into the job description.... 56) Select the appropriate people and tests for assessing each of these qualities and compare the results of those assessments to what you’ve decided is needed for the job. Synthesize the results of those tests to see if there is a “click.” 56a) Remember that people tend to pick people like themselves, so pick interviewers who can identify what you are looking for. For example, if you’re looking for a visionary, pick a visionary to do the interview where you test for vision. If there is a mix of qualities you’re looking for, put together a group of interviewers who embody all of these qualities collectively. Don’t choose interviewers whose judgment you don’t trust (in other words, choose believable interviewers). 56b) Understand how to use and interpret personality assessments. These can be a fantastic tool in your arsenal for quickly getting a picture of what people are like—abilities, preferences, and style. They are often much more objective and reliable than interviews. 56c) Pay attention to people’s track records. 56d) Dig deeply to discover why people did what they did. Knowing what they did is valuable only in helping you gure out what they are like. Understanding the “why” behind people’s actions will tell you about their qualities and as a result, what you can probably expect from them. 56e) Recognize that performance in school, while of some value in making assessments, doesn’t tell you much about whether the person has the values and abilities you are looking for. Memory and processing speed tend to be the abilities that determine success in school (largely because they’re easier to measure and grade) and are most valued, so school performance is an excellent gauge of these. School performance is also a good gauge for measuring willingness and ability to follow directions as well as determination. However, school is of limited value for teaching and testing common sense, vision, creativity, or decision-making. Since those traits all outweigh memory, processing speed, and the ability to follow directions in most jobs, you must look beyond school to ascertain whether the applicant has the qualities you’re looking for. 56f) Ask for past reviews. Don’t rely exclusively on the candidate for information about their track record; instead, talk to people who know them (believable people are best), and look for documented evidence. 56g) Check references.... 57) Look for people who have lots of great questions. These are even more important than great answers.... 58) Make sure candidates interview you and Bridgewater. Show them the real picture. For example, share these principles with them to show how we operate and why. Have them listen to the tapes to see the reality.... 59) Don’t hire people just to fit the first job they will do at Bridgewater; hire people you want to share your life with. The best relationships are long term and based on shared missions and values. Also, turnover is generally ine cient because of the long time it requires for people to get to know each other and Bridgewater. 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 be with on this long-term mission.... 60) Look for people who sparkle, not just “another one of those.” I have too often seen people hired who don’t sparkle, just because they have clearly demonstrated they were “one of those.” If you’re looking for a plumber you might be inclined to ll the job with someone who has years of experience, without con rming whether he has demonstrated the qualities of an outstanding plumber. Yet the di erence between hiring an ordinary versus an extraordinary plumber (or any other expert) is huge. So when reviewing a candidate’s background, you must identify how this person has demonstrated himself to be outstanding. 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.... 61) 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, then what qualities are needed to ful ll them excellently, and then ascertain whether an individual has them. This matching process requires 1) visualizing the job and the qualities needed to do it well and 2) ascertaining if the individual has those qualities. I describe this process as “hearing the click,” because that’s the sound of nding the right t between the role and the individual.... 62) Pay for the person, not for the job. Look at what they were paid before and what people with comparable credentials get paid and pay some premium to that, but don’t pay based on the job title.... 63) Recognize that no matter how good you are at hiring, there is a high probability that the person you hire will not be the great person you need for the job. Continue the “interviewing” process as intensely after they are on the job as before, and don’t settle. 64) MANAGE AS SOMEONE WHO IS DESIGNING AND OPERATING A MACHINE TO ACHIEVE THE GOAL So...... 65) Understand the differences between managing, micromanaging, and not managing. Micromanaging is telling the people who work for you exactly what tasks to do and/or doing their tasks for them. Not managing is having them do their jobs without your oversight and involvement. Managing means: 1) understanding how well your people and designs are operating to achieve your goals and 2) constantly improving them. To be successful, you need to manage. 65a) Managing the people who report to you should feel like “skiing together.” Like a ski instructor, you need to have close contact with your people on the slopes so that you can assess their strengths and weaknesses as they are doing their jobs. There should be a good back and forth with trial and error. With time you will be able to decide what they can and can’t e ectively handle on their own. 65b) An excellent skier is probably going to be more critical and a better critic of another skier than a novice skier. A student probably thinks his ski instructor is fabulous, while an Olympic skier looking at the same ski instructor would assess him to be at a much lower level.... 66) Constantly compare your outcomes to your goals. Identify problems and diagnose whether the problems are with the way the organization is designed or with the way the people are handling their responsibilities. So remember how the following feedback loop to rapid improvement works. And remember to do this constantly so you have a large sample size. You want to have a large sample size because 1) any one problem can either be a one-o imperfection or symptomatic of root causes that will show up as problems repeatedly; and 2) looking at a large sample size of problems will make clear which it is. Also, the larger your sample size, the clearer the root causes of your problems, and the more obvious your solutions, will be. If you do this constantly in this way, your evolutionary process should look like this:... 67) Look down on your machine and yourself within it from the higher level. Higher-level thinking doesn’t mean the thinking done by higher-level beings. It means seeing things from a top-down perspective—like looking at a photo of Earth from outer space, which shows you the relationships between the continents, counties, and seas, and then going down to a photo of your country, then down to your neighborhood, then down to your family. If you just saw your family without the perspective of seeing that there are millions of other families, and there have been many millions of other families over thousands of years, and observing how your family compares and how families evolve, you would just be dealing with the items that are coming at you as they transpire without the perspective.... 68) Connect the case at hand to your principles for handling cases of that type. Remember that every problem and task is just another “one of those”—i.e., another one of a certain type. Figuring out what type it is and re ecting on principles for handling that type of issue will help you do a better job. Whether or not you use the principles written here, you still must decide on a course of action and what guiding principles will be e ective. Through this process you will improve your principles as well as handle your issues better.... 69) Conduct the discussion at two levels when a problem occurs: 1) the “machine” level discussion of why the machine produced that outcome and 2) the “case at hand” discussion of what to do now about the problem. Don’t make the mistake of just having the task-level discussion, because then you are micromanaging—i.e., you are doing your managee’s thinking for him and your managee will mistake your doing this as being OK, when that’s not OK (because you will be micromanaging). When having the machine-level discussion, think clearly how things should have gone and explore why they didn’t go that way. If you are in a rush to determine what to do and you have to tell the person who works for you what to do, point out that you are having to do this, make clear that you are having to do this and that is what you are doing, and make it a training experience—i.e., explain what you are doing and why.... 70) Don’t try to be followed; try to be understood and to understand others. Your goal is to understand what is true and improve together. If you want to be followed, either for an egotistical reason or because you believe it more expedient to operate that way, you will pay a heavy price in the long run. If you are the only one thinking, the results will su er. 70a) Don’t try to control people by giving them orders. They will likely resent the orders, and when you aren’t looking, defy them. An authoritarian approach also means you aren’t developing your employees, and over time they will become increasingly dependent on you, which damages all parties. Instead, the greatest power you have over intelligent people—and the greatest in uence they will have on you—comes from constantly getting in synch about what is true and what is best so that they and you want the same things. People must desire to do the right things, and this desire must come from them. You can, however, show them the connection between ful lling their responsibilities and their own well-being. Reaching agreement will come only from radically open discussions in which you are fair, reasonable, and open- minded. 70b) Communicate the logic and welcome feedback. When making rules or changes, explain the principles behind the decision. We want reasonable thinkers to operate sensibly. We achieve this through principles that are sound and well understood, applied and tested through open discussion. It is each person’s job to 1) evaluate whether he agrees with a decision, and if not, explain why; and 2) hold each other accountable for operating consistently within the organization’s principles. We want people who understand the principles that allow our community to succeed and possess strong ethics that motivate them to work by our rules, rather than to sneak around them. We want people who know that if the community works well, it will be good for them. We don’t want people who need to be ordered and threatened. We don’t want people who just follow orders.... 71) Clearly assign responsibilities. Eliminate any confusion about expectations and ensure that people view the failure to achieve their goals and do their tasks as personal failures. The most important person is the one who is given the overall responsibility for accomplishing the mission and has both the vision to see what should be done and the discipline to make sure it’s accomplished by the people who do the tasks.... 72) Hold people accountable and appreciate them holding you accountable. It’s better for them, for you, and for the community. Slacker standards don’t do anyone any good. People can resent being held accountable, however, and you don’t want to have to tell them what to do all the time. Instead, reason with them, so that they understand the value and importance of being held accountable. Hold them accountable on a daily basis. Constant examination of problems builds a sample size that helps point the way to a resolution and is a good way to detect problems early on before they become critical. Avoiding these daily con icts produces huge costs in the end. 72a) Distinguish between failures where someone broke their “contract” from ones where there was no contract to begin with. If you didn’t make the expectation clear, you generally can’t hold people accountable for it being ful lled (with the exception of common sense—which isn’t all that common). If you nd that a responsibility fell through the cracks because there was no contract, think about whether you need to edit the design of your machine.... 73) Avoid the “sucked down” phenomenon. This occurs when a manager is pulled down to do the tasks of a subordinate without acknowledging the problem. The sucked down phenomenon bears some resemblance to job slip, since it involves the manager’s responsibilities slipping into areas that should be left to others. Both situations represent the reality of a job diverging from the ideal of that job. However, the sucked down phenomenon is typically the manager’s response to subordinates’ inabilities to do certain tasks or the manager’s failure to properly redesign how the responsibilities should be handled in light of changed circumstances. You can tell this problem exists when the manager focuses more on getting tasks done than on operating his machine. 73a) Watch out for people who confuse goals and tasks, because you can’t trust people with responsibilities if they don’t understand the goals. 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 upfront (of how XYZ is in fact going overall), and then support that assessment with the tasks done to achieve the goal. People who see