• Lars Christensen

Simple Rules by Donald Sull and Kathleen M. Eisenhardt

I finished this book in September 2022. I recommend this book 6/10.

We struggle to manage complexity; it is everywhere, yet, simple rules can help. This book has many great examples of simple rules driving easy decision-making. The book is missing a good recipe for you as the reader to break down complexity into simple rules yourself.

You can get your copy here.

My notes and thoughts:

  • The injured are then assigned a color-coded tag that categorizes them according to the severity of their injuries. Those with stable vital signs are tagged with the color green—treatment can safely be delayed for these "walking wounded." At the other extreme, patients who are unlikely to survive even with heroic intervention are tagged with black and provided palliative care. The remaining patients are first in line for care, with more badly injured given a red priority tag and the others a yellow tag denoting "urgent." Sorting patients using these simple rules ensures that scarce medical resources are brought to bear where they can do the most good.

  • Meeting complexity with complexity can create more confusion than it resolves. The policies governing U.S. income taxes totaled 3.8 million words as of 2010. Imagine a book that is seven times as long as War and Peace but without any characters, plot, points, or insights into the human condition. That book is the U.S. tax code. Such an exhaustive tome should leave nothing to choice. And yet, when forty-five tax professionals were given identical data to calculate one fictional family's tax bill, they came up with forty-five different estimates of the couple's tax liability.

  • To illustrate how quickly complexity escalates out of control, consider an apparently simple question: How many ways can you combine six Lego blocks? For one block, the answer is trivial: 1. With some work, most people can calculate that two blocks combine in 24 ways, but for three blocks, the calculation becomes tricky (the correct answer is 1,560). When you get six blocks, the number of possible combinations is daunting. For years, the commonly accepted answer was 103 million combinations, but recently, two mathematicians using supercomputers finally figured out the answer = 193 million possibilities.

  • Simple rules also make it more likely that people will act on their decisions because they are easy to remember and less cumbersome to follow than complex guidelines for action. In an accounting study, one group studied accounting the way it is taught in most universities, as a complicated body of knowledge to be mastered. A second group studied accounting as simple rules like "Keep personal and business money in different drawers" and "Only transfer money from one drawer to the other with a written IOU." The third group received no accounting instruction. The entrepreneurs who learned the simple rules were more likely to translate their knowledge into action. They improved their bookkeeping and cash management and also increased sales by 25%. In contrast, the entrepreneurs who were exposed to accounting as a complicated body of knowledge were no better off than those who were not taught any accounting at all.

  • One of our favorite studies demonstrates this point further—dieters who followed just one simple rule ("Use ten-inch plates for dinner") Lost about two pounds per month. In contrast, people with no rules had no weight loss at all.

  • Boundary rules can help you decide between two mutually exclusive alternatives, like whether bail should be granted or denied. Boundary rules also help you to pick which opportunities to pursue and which to reject when faced with a large number of alternatives. The other types of decision rules — prioritizing and stopping rules — are less common and typically harder to learn than boundary rules. Prioritizing rules ranks options to decide which alternatives will receive limited resources, such as medical care during battle or cash in a startup. Prioritizing rules are particularly useful when you lack sufficient resources or time to do everything or when people hold conflicting views about what to do. Stopping rules dictate when to reverse a decision. They provide guidance, for example, on when to sell a stock, end the search for a mate, or descend from a treacherous mountaintop.

  • Although they live on the wrong side of the law, professional burglars, like judges, also rely on boundary rules. The choice of which house to enter is a high-stakes decision for burglars. If they break into an occupied home, they risk capture, prison, or worse, if the homeowner is also a gun owner. In a study, Texas burglars were asked what kind of residence they would attempt to rob. A full 90 % said they would never deliberately enter an occupied residence. A parked car in the driveway could be better than a security system.

  • Diagnostic tool for depression relies on four simple rules, expressed as questions that can be asked in under a minute: Have you cried more than usual within the last week? Have you been disappointed in yourself or hated yourself within the last week? Have you felt discouraged about the future within the last week? Have you felt that you failed in your life within the last week? Patients who answer yes to all four questions are likely to be clinically depressed, and the rules correctly classify depressed patients over 97% of the time.

  • The team came up with a handful of prioritizing rules, ranking projects according to whether they 1) removed bottlenecks to growing revenues, 2) provided benefits immediately (rather than paying off in the long term), 3) minimized up-front expenditures, and 4) reused existing resources.

  • The secret weapon of Loeb's investing strategy was a simple but powerful stopping rule: "If an investment loses 10 percent of its value, sell it." This rule ensures the investor does not stick with a loser over the long term. While it may be tempting to wait for a pet stock to regain its value, Loeb's 10 percent rule recognizes that it is often best to cut your losses and move your money elsewhere. "It is a great mistake to think that what comes down must come back up," he wrote. "The most important single thing I learned is that accepting losses promptly is the first key to success."

  • The most widely used process rule is the how-to rule. How-to rules guide the basics of executing tasks, from playing golf to designing new products. The other process rules, coordination, and timing are special cases of how-to rules that apply in particular situations. Coordination rules center on getting something done when multiple actors —people, organizations, or nations — have to work together. These rules orchestrate the behaviors of, for example, schooling fish, Zipcar members, and content contributors at Wikipedia. In contrast, timing rules center on getting things done in a situation where temporal factors such as rhythms, sequences, and deadlines are relevant. These rules set the timing of, for example, when to get up every day and when dragonflies migrate.

  • For Cisco, a key bottleneck process was new technical ideas, and the form focused on simple rules for how to acquire those ideas from small and often local firms. With Yahoo, growth depended on adding new services, and the bottleneck process was alliance formation, shaped with only a few how-to rules like "no exclusive deals" and "basic service is always free." With Amazon, the rules shaped how to add product categories. More recently, Airbnb began using simple rules like "focus on hosts" to decide which cities to add.

  • Napoleon is reputed to have issued a standing order to "march toward the sound of gunfire," a simple rule that enabled his officers to coordinate their activities without knowing exactly what was happening. Generals and soldiers could locally adapt to the facts on the ground, such as deteriorating weather, a gap in enemy defenses, or unexpectedly intense resistance, which were impossible to anticipate. But the rule also helped ensure that the fighting force would arrive where it was most needed and would have the most impact.

  • Insomniacs can get a good night's rest by following four simple rules for when to sleep. The first is "Get up the same time every morning," which turns out to be more crucial than a regular bedtime for establishing a restful sleep pattern. The second is "Avoid going to bed until you feel sleepy," even if this means hitting the hay later than you would ideally like. The third rule is "Do not stay in bed if you are not sleeping," and the final rule, which follows from the others, is "Reduce the time spent in bed." Following these rules keep troubled sleepers from spending ten or twelve hours in bed in order to snag a few hours of sleep—a common pattern in older adults.

  • The key to moving past the political impasse was shifting the debate from "Which programs should we run?" to " What simple rules should we use to decide which programs to run?" The Executive Education team met with faculty members, explaining the financial situation and drop in rankings, and asked the professors what guidelines they would suggest to manage the program portfolio. The team emphasized that they were aiming for a general set of rules that would apply to every program. The professors argued with one another but ultimately converged on a handful of robust rules that would work across many situations: A program had to: 1) meet an annual profit threshold, 2) fill two weeklong programs per year, 3) achieve a target level of participant satisfaction, and 4) avoid overlap with other programs in the portfolio.

  • Strategy and execution, in our view, cannot be separated because they represent two sides of the same coin. Our 2001 Harvard Business Review article "Strategy as simple rules" argued that companies can close the gap between strategic intent and day-to-day action by adopting a strategy of simple rules and applying a handful of guidelines to a critical activity or decision within the organization. A strategy of simple rules provides the flexibility to seize opportunities, produce good decisions when data and time are scarce, and help the various parts of an organization coordinate their activities to achieve common objectives.

  • With each successive cohort of YPO members. Don learned more about what worked and what did not when it comes to putting a strategy of simple rules in place, and he codified these insights into a process that consists of three steps:

  • Figure out what will move the needle.

  • Choose a bottleneck.

  • Craft the rules.

  • Through the first four years of the simple rules program, Don experimented with various ways to help the YPO companies figure out what would move the needles. One exercise proved particularly productive. He had the company's management team work as a group to answer three questions that are fundamental to any company's ability to create economic value:

  • Who will we target as customers?

  • What products or services will we offer?

  • How will we provide this product at a profit?

  • Once you know the game you are playing, you still need a strategy to win. This is where simple rules come in. Simple rules applied to a critical bottleneck embed insights about value creation into the heart of the organization and shape the company's most important activities on a day-to-day basis.

  • The choice of bottleneck may seem obvious after the fact, but selecting one activity among many is a daunting task for most managers. The how from a who, what, how analysis is a good place to start and often points in the right direction.

  • It is critical to test your first-cut rules in a rigorous fashion and refine them in light of your findings. Unfortunately, many managers shortchange this critical step.

  • The process you use to develop simple rules matters as much as the rules themselves. Involving a broad cross-section of employees, for example, injects more points of view into the discussion, produces a shared understanding of what matters for value creation, and increases buy-in to the simple rules. Investing the time upfront to clarify what will move the needles dramatically increases the odds that simple rules will be applied where they can have the greatest impact.

  • The process of developing personal rules, like its professional counterpart, consists of three steps: 1) decide what will move your personal needles and increase the gap between what energizes you and what stresses you out, 2) identify a bottleneck that keeps you from creating personal value, and 3) develop simple rules that work for you. We developed a set of questions to guide people through the process and looked at common challenges and practical tips for overcoming them.

  • The questions below can help you decide where to start:

  • What aspect of your life do you most want to improve? What are the first three things that come to mind?

  • What activities bring you the greatest happiness and sense of well-being? How could you spend more time on these?

  • Which aspects of your life cause you the most fear, stress, and anxiety? How could you decrease these?

  • If you look back on five years, what will you regret not changing? What will you regret if you look back from your deathbed?

  • How might a trusted friend, spouse, or loved one answer these questions for you? (It would be useful to ask them.)

  • Willpower is a reservoir, not a river, and when it runs out (as it often does at the end of a long day), rules can be effective tools for imposing limits on behavior.

  • A hallmark of experts is their efficient cognitive organization of relevant information into larger patterns or chunks than novices perceive. Organizations of information into patterns enable experts to handle more information at once and link different pieces of information together faster than novices can.

  • In essence, Netflix attacked critical bottlenecks that others had accepted as the status quo. For example, rather than focusing primarily on writing as the key bottleneck, Netflix and its partner, Media Rights Capital, made the strategic bet that world-class directing could help House of Cards stand out among the vast array of choices available to viewers. To stand out, House of Cards did something very rare in television: the show recruited an A-list Hollywood director.

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