Principles: Life and Work

by Ray Dalio

Make your metrics clear and impartial. To help you build your perpetual motion machine, have a clear set of rules and a clear set of metrics to track how people are performing against those rules—

predetermined consequences that are determined formulaically based on the output of those metrics.

Having metrics that allow everyone to see everyone else’s track record will make evaluation more objective and fair.

If there are performance issues, it is either because of design problems (perhaps the person has too many responsibilities) or fit/abilities problems. If the problems are due to the person’s inabilities, these inabilities are either because of the person’s innate weaknesses in doing that job (e.g., someone who’s five foot two probably shouldn’t be a center on the basketball team) or because of inadequate training.

What matters most is not just outcomes but how responsibilities were handled.

j. Help people through the pain that comes with exploring their weaknesses. Emotions tend to heat up during most disagreements, especially when the subject is someone’s weaknesses. Speak in a calm, slow, and analytical manner to facilitate communication. Put things in perspective by reminding them that their pain is the pain that comes with learning and personal evolution—and that knowing the truth will put them on the path to a much better place. Consider asking them to go away and reflect when they are calm, and have a follow-up conversation a few days later.

Ultimately, to help people succeed you have to do two things: First let them see their failures so clearly that they are motivated to change them, and then show them how to either change what they are doing or rely on others who are strong where they are weak.

a. If someone is doing their job poorly, consider whether it is due to inadequate learning or inadequate ability. Think of people’s performance as being made up of two things: learning and ability, as shown on page 437. A weakness that is due to a lack of experience or training can be fixed, while a weakness that is due to a lack of ability can’t be.

Failing to distinguish between these causes is a common mistake among managers, because managers are often reluctant to appear unkind or judgmental. Also, they know that people assessed this way tend to push back.

Training and testing a poor performer to see if he or she can acquire the required skills without simultaneously trying to assess their abilities is a common mistake. Skills are readily testable, so they should be easy to determine. Abilities, especially right-brained abilities, are more difficult to assess. When thinking about why someone is a poor performer, openly consider whether it is a problem with their abilities.

Since people with inappropriate values and inadequate abilities can have a devastating impact on the organization, they should be fired.

Remember that if you are expecting people to be much better in the near future than they have been in the past, you are probably making a serious mistake. People who repeatedly operate in a certain way will probably continue to operate that way because that behavior reflects what they’re like.

Since changing the design to accommodate people’s weaknesses is generally a bad idea, it is better to sort the people. Sometimes good people “lose their boxes” (they get fired from their role) because they can’t evolve into Responsible Parties soon enough. Some of them might be good in another position, in which case they should be reassigned within the company; some of them will not and should leave.

if you learn that they don’t have the potential to move up, don’t let them occupy the seat of someone who can.

Remember that you’re trying to select people with whom you want to share your life.

We do this through the 5-Step Process I described as 1) identifying our goals, 2) encountering our problems; 3) diagnosing those problems to get at their root causes; 4) designing changes to get around the problems; and 5) doing what is needed. Think of any organization you know and you will see that they go through this evolutionary process with varying degrees of success.

Think of it as looking at a photo of yourself and the world around you from outer space. From that vantage, you can see the relationships between the continents, countries, and seas. Then you can get more granular, by zooming into a closer-up view of your country, your city, your neighborhood, and finally your immediate environment. Having that macro perspective gives you much more insight than you’d get if you simply looked around your house through your own eyes.

Constantly compare your outcomes to your goals.

all outcomes are reflections of how the machine is running.

Understand that a great manager is essentially an organizational engineer. Great managers are not philosophers, entertainers, doers, or artists. They are engineers. They see their organizations as machines and work assiduously to maintain and improve them. They create process-flow diagrams to show how the machine works and to evaluate its design. They build metrics to light up how well each of the individual parts of the machine (most importantly, the people) and the machine as a whole are working. And they tinker constantly with its designs and its people to make both better.

They don’t do this randomly. They do it systematically, always keeping the cause-and-effect relationships in mind. And while they care deeply about the people involved, they cannot allow their feelings for them or their desire to spare them discomfort to stand in the way of the machine’s constant improvement. To do otherwise wouldn’t be good for either the individuals on the team or the team that the individuals are a part of.

Of course, the higher up you are in an organization, the more important vision and creativity become, but you still must have the skills required to manage/orchestrate well. Some young entrepreneurs start with the vision and creativity and then develop their management skills as they scale their companies; others start with management skills and develop vision as they climb the ladder. But like great musicians, all great managers have both creativity and t...

In constructing your metrics, imagine the most important questions you need answered in order to

know how things are going and imagine what numbers will give you the answers to them. Don’t look at the numbers that you have and try to adapt them to your purposes, because you won’t get what you need. Instead start with the most important questions and imagine the metrics that will answer them.

e. Don’t get distracted by shiny objects. No matter how complete any project or plan, there will always be things that come out of nowhere and look like the most important or urgent or attractive thing to focus on. These shiny objects may be traps that will distract you from thinking in a machinelike way, so be on your guard for them and don’t let yourself be seduced.

When a problem occurs, conduct the discussion at two levels: 1) the machine level (why that outcome was produced) and 2) the case-at-hand level (what to do about it). Don’t make the mistake of just having the case-at-hand discussion, because then you are micromanaging (i.e., you are doing your managee’s thinking and your managee will mistakenly think that’s okay).

They strive to hire, train, and oversee in a way in which others can superbly handle as much as possible on their own.

Know what your people are like and what makes them tick, because your 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, so 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. These profiles should change as the people change.

Regularly take the temperature of each person who is important to you and to the organization. Probe your key people and urge them to bring up anything that might be bothering them. These problems might be ones you are unaware of, or they may be misunderstood by the person raising them. Whatever the case, it is essential that they be brought out into the open.

At Bridgewater a host of tools (Issue Logs, metrics, daily updates, checklists) produce objective performance-related data. Managers should review and spot-check them regularly.

10.5 Clearly assign responsibilities.

Eliminate any confusion about expectations and ensure that people view their failures to complete their tasks and achieve...

The most important person on a team is the one who is given the overall responsibility for accomplishing the mission. This person must have both the vision to see what should be done ...

Remember who has what responsibilities. While that might sound obvious, people often fail to stick to their own responsibilities.

Constantly probe the people who report to you while making sure they understand that it’s good for them and everyone else to surface their problems and mistakes.

Probing shouldn’t just come from the top down. The people who work for you should constantly challenge you, so that you can become as good as you can be.

Probe to the level below the people who report to you. You can’t understand how the person who reports to you manages others unless you know their direct reports and can observe how they behave.

Have the people who report to the people who report to you feel free to escalate their problems to you. This is a great and useful form of upward accountability.

Recognize that there are many 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.

If you are a manager, make sure you structure incentives and penalties that encourage people to take full ownership of what they do and not just coast by.

This includes straightforward things such as spending money like it’s their own and making sure their responsibilities aren’t neglected when they’re out of the office.

Every key person should have at least one person who can replace him or her.

It is more practical to be honest about one’s uncertainties, mistakes, and weaknesses than to pretend they don’t exist. It is also more important to have good challengers than good followers.

Thoughtful discussion and disagreement is practical because it stress-tests leaders and brings what they are missing to their attention.

One thing that leaders should not do, in my opinion, i...

A truly great leader is appropriately uncertain but well equipped to deal with that uncertainty through open-minded exploration.

But people can resent being held accountable, and you don’t want to have to tell them what to do all the time. Reason with them so that they understand the value of what you’re doing, but never let them off the hook.

Avoid getting sucked down. This occurs when a manager is pulled down to doing 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.

Watch out for people who confuse goals and tasks, because if they can’t make that distinction, you can’t trust them with responsibilities.