Context

Keywords

Summary

1. Embrace reality and deal with it: Don't confuse what you wish were true vs what is actually true. Pain + Reflection = progress. Go to the pain rather than avoid it

2. Design, Plan, and Execute well: View problems as potential improvements that are screaming at you. Then, observe the problems well and get to their root causes before deciding on how to fix the problem. Always keep track of your expected outcomes against actual outcomes, and iterate to "fix" the deviances

3. Be Radically Open Minded: Sincerely believe that you might not know the best possible answer and recognise that your ability to deal with not knowing is more important than what it is that you do know. Don't worry about looking good. Worry about achieving your goal.

4. Understand that people are wired very differently

5. Learn how to make decisions effectively: a) Knowing when not to bet is as important as knowing what bets are probably worth making. b) The best choices advance are the ones that have more pros than cons. Not those than don't have any cons at all

Highlights

Part 1: Context/overview

1. Think for yourself to decide 1) what you want, 2) what is true, and 3) what you should do to achieve 1) in light of 2). Do that with humility and open-mindedness so that you can consider the best thinking available to you

2. Make believability-weighted decisions (learn how to weigh people's inputs so you choose the best ones)

3. Operate by principles that are so clearly laid out that their logic can be easily assessed by you and others can see if you walk the talk

4. Systemize your decision making

Part 2: Life Principles

1. Embrace reality and deal with it

2. Design, Plan, and Execute well

3. Be Radically Open Minded

4. Understand that people are wired very differently

5. Learn how to make decisions effectively

1. Don't confuse what you wish were true vs what is actually true

2. Don't worry about looking good, worry about achieving your goals

3. Don't overweigh first-order consequences relative to second and third order consequences

4. Don't let pain stand in the way of progress

5. Don't blame bad outcomes on anyone but yourself

1. Be a hyper-realist. Dreams + Reality + Determination = A Successful Life

2. Truth, or more precisely – an accurate understanding of reality – is the foundation for a good outcome

3. Be radially open-minded and radically transparent
1. Seek out the smartest people who disagree with you so you can try to understand their reasoning
2. Know when to not have an opinion
3. Develop, test, and systemize timeless & universal principles
4. Balance risk in ways that keep upside while reducing downside
5. Don't let fear of what others think of you stand in your way

4. Embrace the world as it is
1. Don't get hung up on your views or how things "should" be because you will miss out how they really are
2. To be "good", something must operate consistently with the laws of reality and contribute to the evolution of the whole. That is what is most rewarded. If you have come up with something that the world values, you almost can't help but be rewarded
3. Evolve or die

5. Evolution optimises for the collective
1. individual's incentives must be aligned with the groups goals
2. reality optimises for the whole, not for you
3. Adoption through rapid trial and error is invaluable

6. Maximise your evolution
1. no pain, no gain
2. in order to gain strength one has to push one's limits. this is painful.

7. Pain + Reflection = progress. Go to the pain rather than avoid it

8. Weigh second and third order consequences

9. Own your outcomes

10. Look at the machine from a higher level
1. think of yourself as a machine operating within a machine know that you have the ability to alter your machines to produce better outcomes
2. by comparing outcomes with goals you can determine how to modify your machine

1. Have clear goals
1. Prioritise: you can have anything you want, but not everything you want
2. Don't confuse goals with desires. Reconcile them
3. Remember the great expectations create great capabilities

2. Identify and don't tolerate problems
1. View problems as potential improvements that are screaming at you
2. Don't avoid confronting problems because they are rooted in harsh reality is that unpleasant to look at
3. Be specific in identifying problems
4. Once you identify a problem do not tolerated

3. Diagnose problems to get to know the root causes
1. Focus on the "what is" before deciding "what to do about it"
2. Distinguish proximate causes from root causes

4. Design a path
1. Go back before going forward: back propagation (learning from diagnosis) before forward propagation (executing)
2. Think about your goal as a set of outcomes produced by a machine
3. Remember there are probably many parts to achieving your goal you only need to find one that works

5. Push through to completion
1. Establish clear metrics to make certain that you are following your plan

6. Remember that weaknesses don't matter if you find solutions
1. Look at the pattern of your mistakes and identify very in the five-step process you typically fail

1. Practice radical open-mindedness
1. Sincerely believe that you might not know the best possible answer and recognise that your ability to deal with not knowing is more important than what it is that you do know
2. Recognise that decision-making is a two step process. First, take in all the information. Then decide
3. Don't worry about looking good. Worry about achieving your goal
4. Realise that you cannot have output (decisions) without input (learning). Garbage In, Garbage Out
5. Recognise that to gain perspective that comes from seeing things from someone else's perspective that you must suspend judgement for some time
6. Remember that you are looking for the best answer, not choose the best answer you come up with yourself
7. Be clear on whether you are arguing or seeking to understand, and think about which is more appropriate based on yours and others believability

2. Appreciate the art of thoughtful disagreement
1. Your goal is not to convince the other party that you are right. It is to find out which view is true
2. Most disagreements are not threats as much as opportunities for learning

3. Triangulate your view with believable people who are willing to disagree

4. Understand how you can become radically open minded
1. Regularly use pain as your guide towards quality reflection
2. Make being open minded habit
3. Get to know your blind spots
4. If a number of believable people think you are wrong, assume that you are probably biased
5. Be evidence-based and encourage others to do the same

1. Recognise that 1) the biggest threat to good decision-making is harmful emotions, and 2) decision-making is a two-step process (first learning and then deciding)

2. Synthesize the situation at hand and through time

3. Navigate levels effectively be able to zoom in and zoom out

4. Make your decisions as expected value calculations
1. Raising the probability of being right is valuable no matter what your ability of being right already is
2. Knowing when not to bet is as important as knowing what bets are probably worth making
3. The best choices advance are the ones that have more pros than cons. Not those than don't have any cons at all

5. Prioritise by weighing the value of additional information against the cause of not deciding
1. Do your must-dos before your like-to-dos
2. Don't mistake possibilities for probabilities

6. Simplify

7. Use principles
1. Slow down your thinking so you can note the criteria using to make the decision
2. Write criteria down as principles
3. Think about the criteria when you have an outcome to assess against, and relive them before the next "another one-of-those" comes along

8. Believability rate your decision-making

9. Convert your principles into algorithms and have the computer to make decisions alongside you

Part 3: Work Principles

• to have a great company you have to make two things great —the culture and the people.

• By comparing the outcomes to the goals, those running the machine can see how well the machine is working. This is the feedback loop that those who are responsible for the machine need to run well in order to improve the machine. Based on the feedback, the machine can be adjusted to improve.

• If the outcomes are inconsistent with the goals, something must be wrong with the machine, which means that something must be wrong with the culture and/or the people

• The more frequently and effectively those in the machine go through this process, the more rapidly they and the machine will evolve. An effective evolutionary process looks like this—i.e., lots of quality feedback loops produces a steep upward trajectory.

• if there are too few and/or bad quality feedback loops, there will be a decline because you won’t identify and deal with the problems that will kill you.

• TO GET THE CULTURE RIGHT... 1) Trust in Truth

• 8) Create a Culture in Which It Is OK to Make Mistakes but Unacceptable Not to Identify, Analyze, and Learn From Them

• Constantly Get in Synch 21) Constantly get in synch about what is true and what to do about it. 22) Talk about “Is it true?” and “Does it make sense?”

• a) Ask yourself whether you have earned the right to have an opinion. b) Recognize that you always have the right to have and ask questions.

• 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.

• Know when to stop debating and move on to agreeing about what should be done.

• Evaluate whether an issue calls for debate, discussion, or teaching.

• To avoid confusion, make clear which kind of conversation (debate, discussion, or teaching) you are having

• If it is your meeting to run, manage the conversation.

• 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. e) 1+1=3.

• Recognize the Most Important Decisions You Make Are Who You Choose to Be Your Responsible Party 38) Remember that almost everything good comes from having great people operating in a great culture.

• Recognize that the inevitable responsible party is the person who bears the consequences of what is done.

• Recognize that People Are Built Very Differently 45) Think about their very different values, abilities, and skills 46) Understand what each person who works for you is like so that you know what to expect from them.

• 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 profile of the person you are looking for into the job description.

• Remember that people tend to pick people like themselves, so pick interviewers who can identify what you are looking for.

• Don’t hire people just to fit the first job they will do at Bridgewater; hire people you want to share your life with.

• Pay for the person, not for the job.

• Constantly compare your outcomes to your goals.

• 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.

• 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.

• Manage as Someone Who Is Designing and Operating a Machine to Achieve the Goal

• 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.

• Don’t worry if your people like you; worry about whether you are helping your people and Bridgewater to be great.

• Probe Deep and Hard to Learn What to Expect from Your “Machine”

• 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. 0 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. - Maintain “baseball cards” and/or “believability matrixes” for your people.

• Evaluate employees with the same rigor as you evaluate job candidates.

• Provide constant, clear, and honest feedback, and encourage discussion of this feedback. a) Put your compliments and criticisms into perspective.

• 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

• Recognize that behavior modification typically takes about 18 months of constant reinforcement.

• 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 figure out what your people are like), think carefully about “what to do about it.”

• TO PERCEIVE, DIAGNOSE, AND SOLVE PROBLEMS... 133) Know How to Perceive Problems Effectively - 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.

• 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 specific names. 143) Be very specific about problems; don’t start with generalizations.

• 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 difficult to fix. Yet fixing unacceptable problems is actually a lot easier than not fixing them, because not fixing them will make you miserable.

• Recognize that all problems are just manifestations of their root causes, so diagnose to understand what the problems are symptomatic of. 149)

• 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.

• 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.

• 172) Visualize alternative machines and their outcomes, and then choose

• 174) Most importantly, build the organization around goals rather than tasks. a) First come up with the best workflow 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 fill the jobs b) Organize departments and sub-departments around the most logical groupings.

• c) Make departments as self-sufficient as possible so that they have control over the resources they need to achieve the goals. d) The efficiency 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.

• The larger the organization, the more important are 1) information technology expertise in management and 2) cross-department communication

• Constantly think about how to produce leverage. a) You should be able to delegate the details away. b) It is far better to find 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

• 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)

• 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 confident that you do have it unless you have other believable people test you.

• 196) Make All Decisions Logically, as Expected Value Calculations 197) Considering both the probabilities and the payoffs 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.

• 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 first. a) Don’t be a perfectionist b) Since 80% of the juice can be gotten with the first 20% of the squeezing, there are relatively few (typically less than five) important things to consider in making a decision. c) Watch out for “detail anxiety,”

1. By and large, you will get what you deserve over time. The results that you end up with will reflect 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.

2. 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.

1. 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 effort is put into hiring a person, and substantial time and resources are invested in new employees’ development before finding out whether they are succeeding. Getting rid of employees who aren’t succeeding is also difficult, so it pays to be as sure as possible in hiring.

2. Weigh values and abilities more heavily than skills in deciding whom to hire. Avoid the temptation to think narrowly about filling a job with a specific skill.[62] 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.

3. 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.”

4. 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.

1. 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.

2. 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.

1. 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,

2. Force yourself and the people who work for you to do difficult things. It’s usually easy to make things go well if you’re willing to do difficult things. We must act as trainers in gyms act in order to keep each other fit. That’s what’s required to produce the excellence that benefits everyone.

1. Involve the person who is the point of the pyramid when encountering material cross-departmental or cross sub-departmental issues. Imagine an organizational chart as a pyramid that consists of numerous pyramids, so: When issues involve parties that are not in the same part of the pyramid, it is generally desirable to involve the person who is at the point of the pyramid.

2. Probe so that you have a good enough understanding of whether problems are likely to occur before they actually do. If problems take you by surprise, it is probably because you are either too far removed from your people and processes or you haven’t adequately thought through how the people and processes might lead to various outcomes.

3. Don’t “pick your battles.” Fight them all. If you see something wrong, even something small, deal with it. Because 1) small badnesses can be symptomatic of serious underlying problems; 2) resolving small differences of perception may prevent more serious divergences of views; and 3) in trying to help to train people, constant reinforcement of desired behavior is helpful.

4. Don’t let people off the hook. Ask the important, difficult questions, and independently audit.

5. EVALUATE PEOPLE ACCURATELY, NOT “KINDLY” So... ... 101) Make accurate assessments. Since truth is the foundation of excellence and people are your most important resource, make the most precise personnel evaluations possible. This accuracy takes time and considerable back-and-forth. Your assessment of how responsible parties are performing should be based not on whether they’re doing it your way but on whether they’re doing it in a good way.

1. Know what makes your people tick, because people are your most important resource. Develop a full profile of each person’s values, abilities, and skills. These qualities are the real drivers of behavior, and knowing them in detail will tell you which jobs a person can and cannot do well, which ones they should avoid, and how the person should be trained.

2. Recognize that while most people prefer compliments over criticisms, there is nothing more valuable than accurate criticisms.

1. Understand that you and the people you manage will go through a process of personal evolution. Personal evolution occurs first by identifying your strengths and weaknesses, and then by changing your weaknesses (e.g., through training) or changing jobs to play to strengths and preferences. This process, while generally difficult for both managers and their subordinates, has made people happier and Bridgewater more successful.

2. 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. Your career path isn’t planned because the evolutionary process is about discovering your likes and dislikes as well as your strengths and weaknesses. The best career path for anyone is based on this information.

1. Help people through the pain that comes with exploring their weaknesses. Emotions tend to heat up during most disagreements, especially about someone’s possible weaknesses. Speak in a calm, slow, and analytical manner to facilitate communication. If you are calm and open to others’ views, they are less likely to shut down logical exchanges than if you behave emotionally.

2. Recognize that when you are really in synch with people about weaknesses, whether yours or theirs, they are probably true. Getting to this point is a great achievement. When you reach an agreement, it’s a good sign you’re there. This is one of the main reasons why the person being evaluated needs to be an equal participant in the process of finding truth. So when you do agree, write it down on the relevant baseball card.

3. Remember that you don’t need to get to the point of “beyond a shadow of a doubt” when judging people. Instead, work toward developing a mutually agreed “by-and-large” understanding of someone that has a high level of confidence behind it.

4. 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 first year. You should be able to roughly assess someone’s abilities after six to 12 months of close contact and numerous tests and getting in synch about them.

5. 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. However, since the connections between cause and effect can be misunderstood, providing feedback for these people is essential to the learning process.

1. Train people; don’t rehabilitate them. Training is part of the plan to develop people’s skills and to help them evolve. Rehabilitation is the process of trying to create significant change in people’s values and/or abilities. Since values and abilities are difficult to change, rehabilitation typically takes too long and is too improbable to do at Bridgewater.

1. After you decide “what’s true” (i.e., after you figure out what your people are like), think carefully about “what to do about it.”As

2. When you find that someone is not a good “click” for a job, get them out of it ASAP. If you are expecting/wishing people to be much better in the near future than they have been in the past, you are making a serious mistake—instead, sort the people. People who repeatedly operated in a certain way probably will continue to operate that way because that behavior reflects what they’re like.

3. Do not lower the bar. If a person can’t operate consistently with our requirements of excellence and radical truth and can’t get to the bar in an acceptable time frame, they have to to be fired

4. Recognize that perceiving problems is the first essential step toward great management. As in nature, if you can’t see what’s happening around you, you will deteriorate and eventually die off. People who can 1) perceive problems; 2) decide what to do about them; and 3) get these things done can be great managers.

5. Don’t tolerate badness. Too often I observe people who observe badness and tolerate it. Sometimes it is because they don’t have the courage to make the needed changes, and sometimes it is because they don’t know how to fix it. Both are very bad. If they’re stuck, they need to seek the advice of believable people to make the needed changes, and if that doesn’t work, they need to escalate. ...

6. “Taste the soup.” A good restaurateur constantly tastes the food that is coming out of his kitchen and judges it against his vision of what is excellent. A good manager needs to do the same.

7. To perceive problems, compare how the movie is unfolding relative to your script—i.e., compare the actual operating of the machine and the outcomes it is producing to your visualization of how it should operate and the outcomes you expected.

1. Be very specific about problems; don’t start with generalizations. For example, don’t say, “Client advisors aren’t communicating well with the analysts.” Be specific: name which client advisors aren’t doing this well and in which ways. Start with the specifics and then observe patterns.

2. Tool: Use the following tools to catch problems: issues logs, metrics, surveys, checklists, outside consultants, and internal auditors.

3. Issues log: A problem or “issue” that should be logged is easy to identify: anything that went wrong. The issues log acts like a water filter that catches garbage. By examining the garbage and determining where it came from, you can determine how to eliminate it at the source. You diagnose root causes for the issues log the same way as for a drilldown (explained below) in that the log must include a frank assessment of individual contributions to the problems alongside their strengths and weaknesses.

4. Metrics: Detailed metrics measure individual, group, and system performance. Make sure these metrics aren’t being “gamed” so that they cease to convey a real picture.

1. The most common reason problems aren’t perceived is what I call the “frog in the boiling water” problem. Supposedly, if you throw a frog in a pot of boiling water it will immediately jump out. But if you put a frog in room-temperature water and gradually bring the water to a boil, the frog will stay in place and boil to death.

1. DIAGNOSE TO UNDERSTAND WHAT THE PROBLEMS ARE SYMPTOMATIC OF So... ... 148) Recognize that all problems are just manifestations of their root causes, so diagnose to understand what the problems are symptomatic of. Don’t deal with your problems as one-offs. They are outcomes produced by your machine, which consists of design and people. If the design is excellent and the people are excellent, the outcomes will be excellent (though not perfect). So when you have problems, your diagnosis should look at the design and the people to determine what failed you and why.

2. Understand that diagnosis is foundational both to progress and quality relationships. An honest and collaborative exploration of problems with the people around you will give you a better understanding of why these problems occur so that they can be fixed.

3. Problem discovery process: 1) Ask the person who experienced the problem: What suboptimality did you experience? 2) Ask the manager of the area: Is there a clear responsible party for the machine as a whole who can describe the machine to you and answer your questions about how the machine performed compared with expectations? Who owns this responsibility? • Do not mask personal responsibility—use specific names. 3) Ask the responsible party: What is the “mental map” of how it was supposed to work? • A “mental map” is essentially the visualization of what should have happened. • To be practical, “mental maps” (i.e., the designs that you would have expected would have worked well) should account for the fact that people are imperfect. They should lead to success anyway.

4. Ask the owner of the responsibility: What, if anything, broke in this situation? Were there problems with the design (i.e., who is supposed to do what) or with how the people in the design behaved? • Compare the mental map of “what should have happened” to “what did happen” in order to identify the gap. • If the machine steps were followed, ask, “Is the machine designed well?” If not, what’s wrong with the machine?

5. Ask the people involved why they handled the issue the way they did. What are the proximate causes of the problem (e.g., “Did not do XYZ”)? They will be described using verbs—for example, “Harry did XYZ.” What are the root causes? They will be descriptions. For example: inadequate training/experience, lack of vision, lack of ability, lack of judgment, etc. In other words, root cause is not an action or a reaction—it is a reason. • Be willing to touch the nerve.

6. Ask the people involved: Is this broadly consistent with prior patterns (yes/no/unsure)? What is the systematic solution? How should the people / machines / responsibilities evolve as a result of this issue? • Confirm that the short-term resolution of the issue has been addressed. • Determine the steps to be taken for long-term solutions and who is responsible for those steps. Specifically: a. Are there responsibilities that need either assigning or greater clarification? b. Are there machine designs that need to be reworked? c. Are there people whose fit for their roles needs to be evaluated?

• “Why was there bad programming?”

• “Because Harry programmed it badly.”

• “Why did Harry program it badly?”

• “Because he wasn’t well trained and because he was in a rush.”

• “Why wasn’t he well trained? Did his manager know that he wasn’t well trained and let him do the job anyway, or did he not know?”

1. Remember that a proper diagnosis requires a quality, collaborative, and honest discussion to get at the truth.

1. Don’t make too much out of one “dot”—synthesize a richer picture by squeezing lots of “dots” quickly and triangulating with others.

2. The most common reasons managers fail to produce excellent results or escalate are: a. They are too removed. b. They have problems discerning quality differences. c. They have lost sight of how bad things have become because they have gradually gotten used to their badness (the “frog in the boiling water problem”). d. They have such high pride in their work that they can’t bear to admit they are unable to solve their own problems. e. They fear adverse consequences from admitting failure.

3. Identify the principles that were violated. Identify which of these principles apply to the case at hand, review them, and see if they would have helped. Think for yourself what principles are best for handling cases like this. This will help solve not only this problem but it will also help you solve other problems like it.

1. PUT THINGS IN PERSPECTIVE So… ... 164) Go back before going forward. Before moving forward, take the time to reflect on how the machine worked. By diagnosing what went right and what went wrong (especially what went wrong), you can see how the machine is operating and how it should be improved.

2. Put yourself in the “position of pain” for a while so that you gain a richer understanding of what you’re designing for. Temporarily insert yourself into the flow to gain a real understanding of what you are dealing with (the process flow, the type of people needed, the potential problems, etc.) and to visualize a clear picture of what will work. You can accomplish this in a number of ways (reviewing work, doing work at different stages in the process, etc.).

3. Recognize that design is an iterative process; between a bad “now” and a good “then” is a “working through it” period. That “working through it” period involves trying processes and people out, seeing what goes well or poorly, learning from the iterations, and moving toward having the right people in the ideal systematic design.

4. Most importantly, build the organization around goals rather than tasks.

1. Constantly think about how to produce leverage. For example, to make training as easy to leverage as possible, document the most common questions and answers through audio, video, or written guidelines and then assign someone to regularly organize them into a manual.

1. Understand the clover-leaf design. Find two or three responsible parties who have overlapping believabilities and responsibilities and who are willing to challenge and check each other. If you do this, and those people are willing to fight for what they believe is best by being open-minded and assertive at the same time, and if they escalate their disagreements and failures to you, this process will have a high probability of sorting issues that they can probably handle well from issues

2. Tool: Maintain a procedures manual. This is the document in which you describe how all of the pieces of your machine work. There needs to be enough specificity so that operators of the different pieces of the machine can refer to the manual to help them do their job. The manual should be a living document that includes output from the issues log so that mistakes already identified and diagnosed aren’t repeated. It prevents forgetting previous learning and facilitates communication.

3. Tool: Use checklists. When people are assigned tasks, it is generally desirable to have these captured on checklists so they can check off each item as it is done.

1. Think clearly how things should go, and when they aren’t going that way, acknowledge it and investigate. First decide which issue to address first: finding the reason the machine isn’t working well or executing the tasks required to get past the problem (in which case you need to come back to the reasons later).

2. DO WHAT YOU SET OUT TO DO So… ... 189) Push through! You can make great things happen, but you must MAKE great things happen. Times will come when the choice will be to plod along normally or to push through to achieve the goal. The choice should be obvious.

1. Remember that your goal is to find the best answer, not to give the best one you have. The answer doesn’t have to be in your head; you can look outside of you. In life the goal is for you to do the right thing, considering the probability that you might be wrong. So it is invaluable to know what you don’t know so that you can figure out a way to find out and/or to get help from others.

1. MAKE ALL DECISIONS LOGICALLY, AS EXPECTED VALUE CALCULATIONS So... ... 197) Considering both the probabilities and the payoffs of the consequences, make sure that the probability of the unacceptable (i.e., the risk of ruin) is nil.

1. REMEMBER THE 80/20 RULE, AND KNOW WHAT THE KEY 20% IS So... ... 199) Distinguish the important things from the unimportant things and deal with the important things first.

1. Watch out for unproductively identifying possibilities without assigning them probabilities, because it screws up prioritization.

2. SYNTHESIZE So… ... 206) Understand and connect the dots. To do this well, you have to synthesize what is going on. Usually it takes diagnosing a few (e.g., five or so) dots of the same type to get at the true root cause so that you can see how the machine should be modified to produce better outcomes.

3. Understand what an acceptable rate of improvement is, and that it is the level and not the rate of change that matters most. I often hear people say, “It’s getting better,” as though that is good enough when “it” is both below that bar and improving at an inadequate rate. That isn’t good enough.

4. Avoid the temptation to compromise on that which is uncompromisable. You must have and achieve high standards. This is particularly difficult when two uncompromisable things are at odds. At such times, there is a tendency to let one of them go.