Simple RulesHow To Thrive In A Complex World

By Donald Sull & Kathleen M. Eisenhardt

Frontline army medics, faced with a barrage of injuries and scarce resources, have to make tough decisions about which wounded soldiers to treat first. Using a set of simple rules to make treatment choices has turned out to be the most effective way to allocate care – and save the most lives.

Called triage, this set of simple guidelines is used to quickly assess patients (by checking things like pulse, breathing rate and ability to follow instructions), and assign a priority category, which determines the order in which patients are treated. Wounded soldiers with stable vital signs are assigned green tags, which indicate that they can safely wait for treatment. Those with un-survivable injuries get black tags, and receive palliative care. Yellow or red tags are used to flag the patients whose injuries are severe but treatable, and they receive treatment first.

Authors Donald Sull and Kathleen M. Eisenhardt,

www.thebusinesssource.com All Rights Reserved ©

both experts in strategy and execution, use the example of army medics to illustrate the power of simple rules. Introduced during the Second World War, the triage system ensures that limited medical resources are strategically deployed to treat the most patients possible and save a maximum number of lives.

Simple rules are powerful because they give us “shortcut strategies” to react to complex situations quickly and decisively, without having to pause and think every time we have to make a decision. And simple rules are found widely beyond the medical setting: they’re used to guide government policy; in the application of laws; and even by animals in choosing mates and migrating.

They work well for several reasons:

• They offer the flexibility to pursue new options or ideas while maintaining some consistency.

• They make it easier to make good decisions

when information or time is short.

• They are superior to complicated decision-making models in many circumstances.

• They enable groups to synchronize their activities with minimal communication.

Our world is becoming increasingly complex. The big issues that we grapple with – climate change, the global ecosystem, international terrorism, the subprime mortgage crisis, population growth, world hunger – are shaped by a multitude of forces, most of which are unpredictable.

Simple rules can help us combat this complexity. In this summary, we’ll look at what simple rules are, the reasons they work, and the six types of rules that Sull and Eisenhardt have identified. We’ll also look at how you can apply simple rules to bottlenecks in your personal life, and close with an exploration of the times when it’s appropriate to break or change the rules, and set a new path

forward.

Simple Rules: Why They Work Michael Pollan, author of The Omnivore’s Dilemma, reduced his eating philosophy to three rules: “Eat food. Not too much. Mostly plants.” Simple, easy to understand, and perfect for posting on the fridge, Pollan’s rules illustrate the four traits that are central to simple rules.

1. Keep the number of rules to a minimum. This keeps the rules focused and easy to remember. Often, a few variables are very important, while many peripheral factors can be ignored.

2. Customize rules to the situation or activity at hand. The rules need to be specific, and apply to the people who will be guided by them, rather than a “one-size-fits-all” approach. The director of sports performance for Stanford University’s football

team offers a very different set of eating rules for players, compared to Pollan’s: “Eat breakfast. Stay hydrated. Eat as much as you want of anything you can pick, pluck, or kill.”

3. Apply rules to a single decision or activity. Rules that guide choices on what to eat, or what patients to treat first are more effective than rules that attempt to guide multi-faceted activities. When the topic is too broad, the rules tend to devolve into platitudes, instead of directives.

4. Don’t make them too specific. Pollan’s rules don’t spell out what specific foods to eat, but are clear on what types of foods to consume. This opens up opportunities to be creative, and pursue new avenues, while still following the rules.

Of course, there are plenty of situations where complex rules are necessary. Surgery, airplane

operation and maintenance, or, in the case of McDonald’s, corporate consistency, are all safeguarded with extremely detailed manuals, checklists and operational guidelines.

But in situations where flexibility is important, simple rules minimize the rigidity that complex rules impose. And when information and time are limited, simple rules can actually result in better decisions. When we take into account all of the factors that play into a decision, we often give too much weight to variables that are really irrelevant.

Simple rules focus on the key variables only, eliminating the “noise” from other, unimportant variables, resulting in stronger, more meaningful choices and actions. The authors say that no matter the subject or framework, there are only six categories of simple rules: boundary rules, prioritizing rules, stopping rules, how-to rules, coordination rules, and timing rules. The first three

can help us to make better decisions, and the latter three can help us to do things better.

Let’s look at each of the six types of rules in turn.

Rules That Help You Make Better Decisions

Boundary rules are the simplest of the decision rules. They can help us choose between two mutually-exclusive options, or determine which path to follow when faced with multiple choices.

Judges, for example, rely on simple rules in deciding whether or not defendants should be released on bail. According to a recent study, judges made 95% of bail decisions based on three factors: Had a previous court kept the defendant in custody? Had a judge imposed bail conditions earlier in the process? Did the prosecution request bail or bail conditions? When the answer was yes to any of these questions, judges tended to deny bail altogether or set stringent conditions.

They used these three factors to make yes/no decisions quickly, rather than considering all sorts of other variables like employment, mental health, community ties, previous offences, or a history of violence. In many justice systems, judges are supposed to consider all of these other variables. But in reality they often default to a set of simple rules to guide their bail decisions.

Boundary rules are good at reducing an overwhelming number of options down to a manageable amount. They offer a quick way to select the most promising choices, based on available information. The U.S. Department of Defense runs a research lab, called DARPA (Defense Advanced Research Projects Agency), to develop combat technology like robot horses that can carry 400 pounds of equipment, or rifle scopes that allow snipers to hit targets that are as far as a mile away.

In choosing projects (and allocating its $3 billion budget), DARPA is guided by two simple boundary rules: projects must advance “fundamental scientific understanding,” and have a practical use. This helps DARPA weed through thousands of potential projects to choose the 200 or so it has running at any given time.

As you see from this example, boundary rules can be used to guide decision-making without needing a lot of information, analysis or time. They work very well for yes/no decisions, and when timing or funding is tight.

Prioritizing rules offer a way to rank different options, so that you can decide how to strategically apply resources and time. Sales teams use them to decide which customer types or markets they’ll pursue. Companies use them to decide where to allocate funds when budgets are tight. Investors use them to decide where and how

to invest.

Stopping rules tell us when to stop, or reverse course. Some insects use stopping rules to help choose a mate. When they find a mate who meets their “quality threshold,” they stop searching. If the pool of available mates is low, they simply lower the threshold.

In a business setting, stopping rules can show us when to stop work on a project, or pull out of an investment. They can prevent situations where, instead of withdrawing when faced with failure, people engage with even greater fervor. This is often exacerbated when a task is almost completed, or there’s a concern about losing face or living with the consequences of failure.

A tragic climb to the summit of Mount Everest in 1996 illustrates the dangers of ignoring your own stopping rule. Leader Scott Fischer told his group that they would turn around at 2 pm, regardless

of whether or not they had reached the top. This would ensure that they had enough time to descend safely, before dark. But their ascent was delayed, and they opted to ignore the 2 pm rule in favor of pushing on. When they did start to descend, hours after their planned turnaround time, the weather turned, and temperatures dropped to 100 degrees below zero. Five climbers died in the storm, including Fischer and another leader.

Rules That Help You Do Things BetterHow-to rules guide us on everything from how to play a sport to how to design a dress. Rather than repress creativity, how-to rules often open up a space in which creativity thrives. Monet, for example, painted dozens of pictures of water lilies. He chose to restrict himself to this subject matter, and was free to explore the different aspects of light.

Finding the right balance between too many rules and too few is key for companies that want to grow, say the authors, who describe this as balancing novelty with consistency. Too many rules will hamstring an organization, while too few will create chaos.

Executives at Google, for example, felt that it was important to operate close to the edge of chaos. But when faced with a bottleneck in hiring computer scientists, they developed a few simple how-to rules to guide recruitment. These included acquiring small companies (for the talent), hiring people referred by current Google employees, and not hiring people who had any mistakes at all on their resumes (believing that it showed a degree of carelessness). These how-to rules helped Google to hire the right talent and smash through a bottleneck to growth.

The best how-to rules outline the basics of what

needs to be done, without spelling out every detail. They’re useful when things can’t be predicted, when time’s in short supply, or to give shape to an approach when not every variable is known.

Flocks of starlings fly in close formation, swooping, darting and dodging together. They’re using coordination rules to maintain such impressive uniformity. For years, scientists have offered all kinds of theories as to how the birds are able to fly so closely together, with suggestions ranging from the existence of a lead bird who all the others follow, to thought transference.

Software engineer Craig Reynolds finally figured it out. He created a software program that simulated the coordinated activity of the birds (featuring bird avatars, called “boids”). He based it on three coordination rules:

1. Avoid collisions.

2. Head in the same direction as your nearest

neighbors.

3. Stay close to your nearest neighbors.

Biologists tested Reynolds’ coordination rules, and found that they applied in the wild, whether to shoals of fish or flocks of birds, and even to pedestrians in a city.

Coordination rules work well for situations where coordination needs to take place across time and space, and when no one person can see the “big picture.” They can be tweaked to fit local circumstances, but remain focused on group objectives. Napoleon directed his soldiers to always “march toward the sound of gunfire,” which helped his men to coordinate their actions without full knowledge of a situation.

Timing rules spell out when to act. They can be tied to an event, or a time or date. Pixar uses timing rules to direct its schedule of movie-making. When the company was starting out and planning

its business model, they decided to release one movie per year, at Thanksgiving. Since it took four years to produce Toy Story, Pixar knew that it had to develop a pipeline and have multiple projects running at once in order to meet this deadline. Building up this model took years, but once it was in place, Pixar was able to produce a slew of successful movies, right on schedule. The timing rule keeps both creative and business types on track.

Strategy And Simple RulesBusiness executives often view the creation of a business strategy, and the execution of it, as two separate activities. But this approach creates a gap between the goals of a company, and what employees actually do in their day-to-day jobs. The authors believe that strategy and execution are intertwined, and that adopting a “strategy of simple rules” is the best way to join company

objectives and day-to-day activities together.

By this they mean developing and applying a few simple guidelines to important business activities or decisions. This strategy offers three main benefits:

1. The flexibility to pursue new or changing opportunities.

2. The ability to make sound decisions, even when resources or time are in short supply.

3. The opportunity for different departments and geographies to coordinate activities in working towards shared goals.

And don’t assume that everyone at the top understands your company’s goals. The authors’ research shows that at many companies, even the top executives have differing views on the organization’s ultimate goal. So it’s important to make sure everyone understands and agrees on the main objective.

To develop a strategy of simple rules for your company, here are the steps you can take.

1. Determine what will “move the needle.”

2. Select a bottleneck.

3. Develop the rules.

A typical corporate goal is to “create economic value over time and capture it as profits.” So using this example, first determine the changes that you’ll need to make to increase profits, and also the changes you’ll need to make to sustain the increase over the long term.

Second, isolate the bottlenecks that are preventing your organization from its desired profitability. You may want to evaluate how much your customers will pay for what you produce. Then review all of your costs of production. What changes can you make that will reduce your costs, or convince your customers to pay more for your product? This is where you’ll find the bottlenecks that are

preventing your organization from achieving its desired level of profitability.

Third, develop a set of simple rules to fix the bottleneck, and increase your profitability.

Looking at your business from this perspective will help you to find the tactical actions that cause the needle to move in a meaningful long-term way.

Choosing Your BottlenecksThe best bottlenecks to tackle using simple rules share three important characteristics:

1. They directly impact value creation.

2. They represent recurring decisions (rather than one-time choices).

3. They arise from situations where opportunities exceed resources.

Good places to look for bottlenecks might be situations where managers have too much autonomy; or when customized approaches are

offered to too many customers.

A company that managed multiple cafeterias, for example, found its chefs’ budgets were going through the roof. The chefs were developing menus without regard to ingredient cost or season, or buying in bulk in collaboration with other chefs. The implementation of a few simple rules (choose ingredients in season, plan a set number of meals in concert with other chefs, put best-selling meals on the menu three times per day) quickly brought costs under control.

In this process, it’s also important to only address one bottleneck at a time. If you try to develop rules that cover more than one specific bottleneck, your rules will be too general to be of much help.

Developing Your Own Simple RulesDon’t try to dictate your rules from the top. Instead, bring together a team of four to eight people, both executives and “users” – employees who will

actually use the rules on a day-to-day basis. Users bring a valuable perspective – they understand the process or system in question, they know the language and level of guidance that will ring true for other users, and they can serve as ambassadors to help introduce the new rules to other employees.

Test your rules. Once you’ve come up with your set of rules, test them thoroughly. It may be that the criteria you’ve chosen to qualify sales leads is too high, or too low. Perhaps a marker of customer type (has a website, or buys a particular kind of product) isn’t as accurate as you initially thought. Get your teams to try the rules out and provide feedback, and tweak your rules as necessary.

A dental supply company, for example, developed a set of simple rules to identify “the ideal dentist,” who sales teams would then target. They started out with five rules (identifying dentists who owned

their own practices, who were between 35 and 55, paid bills on time, spent more than $10,000 per year on products from that dental supply company, and had also attended training sessions from that company).

Then they refined the rules against a sample from their customer database. They found that it was too hard to find data for some of the rules (dentist’s age and who owned the dental practice), so they dropped them. Others they tweaked (reducing spending to $5,000, for example). And they came up with a new rule, since they found that dentists with a website tended to do cosmetic dentistry, making them an attractive sales target.

Using these rules to identify which dentists the sales reps should target, the dental supply company switched from pursuing many dentists to pursuing only those identified as likely prospects. The result: sales went up 42%, and the number of

sales reps was reduced from 12 to 2.

Improve your rules. Don’t carve your rules in stone, and expect to use them forever. You’ll need to improve them, in line with new information, alternative perspectives or changing situations, on an ongoing basis. Just like your business strategy, your simple rules should not be relegated to a dusty shelf once you’ve created them. But sometimes, the situation can change so dramatically that improving the rules is not enough. That’s when you need to break and re-make them.

Putting Simple Rules To Work In Your Personal Life

You can apply the principles of simple rules to your personal life too. To develop rules for a particular aspect of your life (like dating, improving health or spending more time with your children), start by asking yourself these questions:

• What are the top three things in your life you’d like to improve?

• What activities make you happiest?

• Which parts of your life cause you the most stress, anxiety or fear?

• Five years from now, what will you wish you had changed?

• How would a friend, or spouse, answer these questions on your behalf?

The answers will help you identify an aspect of your life you’d like to improve. Then, zero in on the bottleneck that is preventing you from doing so. Once you choose the bottleneck, you can follow the same process outlined earlier: develop, test and refine your rules.

The authors share the example of a man who wanted to lose weight, but had plateaued. He thought his exercise regimen was the bottleneck,

but it turned out it was actually late-night eating. He came up with simple rules to manage this very specific, time-limited activity, and was able to stop eating at night and continue losing weight.

Breaking The RulesSometimes you have to re-think your rules. Whether you’ve just been diagnosed with a new health condition, a new competitor has entered your market, or your industry has just changed dramatically (for example, the taxi industry with Uber), you may need to develop a new approach. Here are some steps you can take to manage change, by breaking your old rules and switching to a new set:

1. Be alert and recognize when a major change is happening – or when the time is right to cause disruption with your new rules.

2. Learn everything you can about the new situation, in as much detail as possible.

3. Be prepared to throw the old rules away and move to new rules quickly.

Netflix has disrupted traditional television rules and expectations, and succeeded tremendously in the process. Execs at Netflix zeroed in on three bottlenecks that weren’t really a key focus for other TV organizations: hiring, directing and programming.

With House of Cards, Netflix reached new levels of quality by hiring “star” directors and actors. David Fincher, renowned movie director, was given the freedom to direct House of Cards episodes as he pleased, following movie-making principles rather than television.

Netflix changed the way that programming was handled as well. Releasing all episodes of a season at once, rather than week by week, went against all past TV experience. But Netflix already knew that its customers enjoyed binge-watching its

shows. Releasing all episodes of House of Cards at once made the series stand out even more. And instead of buying and testing a single episode of a new show, Netflix used its customer data to guide content purchase decisions, committing to entire seasons of shows, getting the jump on other, more hesitant buyers.

Companies like Netflix and Uber have truly disrupted their industries. But less dramatic changes can also be the impetus to introduce a new set of simple rules. Keeping a keen eye on changes and new developments in your workplace, industry or profession, is the key to keeping your rules effective and current.

In Conclusion You’d think that the Federal Reserve Board, responsible for making sure the U.S. economy stays healthy, would be too complex to be managed with simple rules. But when Janet

Yellen took over as chair in 2014, she introduced a simple timing rule that restricts increases in interest rates unless targeted levels of employment and inflation are achieved.

Complex rules often don’t work, because they dictate every step and reduce people to robots. And we tend to think that complex problems require complex solutions. The Federal Reserve Board has thousands of directives and policies that outline how it works with U.S. banks, government agencies, companies, and citizens. Yet Janet Yellen’s simple timing rule works.

Simple rules succeed because they offer structure without spelling out how to respond to every contingency. People want to use their creativity, and judgment – and allowing them to do so leads to better decisions and outcomes.