Principles: Life and Work

by Ray Dalio

celebrate finding out what is not going well so you can make it go better.

Assign people the job of perceiving problems, give them time to investigate, and make sure they have independent reporting lines so that they can convey problems without any fear of recrimination.Without these things in place, you can’t rely on people raising all the problems you need to hear about.

People have a strong tendency to slowly get used to unacceptable things that would shock them if they saw them with fresh eyes.

The fact that no one seems concerned doesn’t mean nothing is wrong. If you see something that seems unacceptable to you, don’t assume that the fact that others also know about it and aren’t screaming means it’s not a problem.

compare how the outcomes are lining up with your goals.

When you encounter problems, your objective is to specifically identify the root causes of those problems—the specific people or designs that caused them—and to see if these people or designs have a pattern of causing problems. What are the most common reasons for failing to diagnose well? The most common mistake I see people make is dealing with their problems as one-offs rather than using them to diagnose how their machine is working so that they can improve it. They move on to fix problems without getting at their root causes, which is a recipe for continued failure.

The second most common mistake people make is to depersonalize the diagnosis. Not connecting problems to the people who failed and not examining what it is about them that caused the failure will not lead to improvements of the individuals or the machines.

12.1 To diagnose well, ask the following questions: 1. Is the outcome good or bad? 2. Who is responsible for the outcome? 3. If the outcome is bad, is the Responsible Party incapable and/or is the design bad?

For example, if you’ve determined that 1) it’s a pattern, 2) the RP is missing an attribute that’s required for the role, and 3) the attribute is missing due to the RP’s ability (not their training)—then you’ve likely been able to determine the answer to your most important question: the person is not capable and needs to be sorted from the role.

A root cause discovery process might proceed like this: The problem was due to bad programming. 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?

managers usually fail or fall short of their goals for one (or more) of five reasons. 1. They are too distant. 2. They have problems perceiving bad quality. 3. They have lost sight of how bad things have become because they have gotten used to it. 4. They have such high pride in their work (or such large egos) that they can’t bear to admit they are unable to solve their own problems. 5. They fear adverse consequences from admitting failure.

Drill-downs are not diagnoses, but a form of broad and deep probing. They’re not intended to uncover the causes of every problem: only the 20 or so percent of causes that produce 80 percent of the suboptimal effects.

Most problems happen for one of two reasons: 1) It isn’t clear who the Responsible Party is, or 2) The Responsible Party isn’t handling his/her responsibilities well.

the important thing is how all the details and plans extended from a high-level visualization of what was required. Only when you have such a sketch can you begin to fill it in with specifics. Those specifics will be your tasks; write them down so you don’t forget them.

If you have good principles that guide you from your values to your day-to-day decisions but you don’t have a systematic way of making sure they’re regularly applied, they’re not of much use. It’s essential to build your most important principles into habits and help others do so as well.

Put yourself in the position of pain for a while so that you gain a richer understanding of what you’re designing for. Either literally or vicariously (through reading reports, job descriptions, etc.), temporarily insert yourself into the workflow of the area you’re looking at to gain a better understanding of what it is that you are dealing with.

Regularly scheduled meetings add to overall efficiency by ensuring that important interactions and to-do’s aren’t overlooked,

ask the same feedback questions in each meeting (such as how effective the meeting was)

Understand the power of the “cleansing storm.” In nature, cleansing storms are big infrequent events that clear out all the overgrowth that’s accumulated during good times. Forests need these storms to be healthy—without them, there would be more weak trees and a buildup of overgrowth that stifles other growth. The same is true for companies. Bad times that force cutbacks so only the strongest and most essential employees (or companies) survive are inevitable and can be great, even though they seem terrible at the time.

Build the organization around goals rather than tasks.

make sure you hire managers before you hire their reports.

Remember that everyone must be overseen by a believable person who has high standards.

the big-picture visionary should be responsible for goal setting, the taste tester should be assigned the job of identifying and not tolerating problems, the logical detective who doesn’t mind probing people should be the diagnoser, the imaginative designer should craft the plan to make the improvements, and the reliable taskmaster should make sure the plan gets executed.

Don’t build the organization to fit the people.

Jobs should be created based on the work that needs to be done, not what people want to do or which people are available.

First come up with the best workflow design, then sketch it out on an organizational chart, visualize how the parts interact, and specify what qualities are required for each job. Only after all that is done should you choose the people to fill the slots.

Make departments as self-sufficient as possible so that they have control over the resources they need to achieve their goals. We do this because we don’t want to create a bureaucracy that forces departments to requisition resources from a pool that lacks the focus to do the job.

“succession pipeline” in which the next generation of leaders is exposed to the thinking and decision making of the current leaders so they can both learn and be tested.

you should designate the people who could replace you and have them do your job for a while so they can be vetted and tested.

a ninja manager is somebody who can sit back and watch beauty happen—i.e., an orchestrator. If you are always trying to hire somebody who is as good as or better than you at your job, that will both free you up to go on to other things and build your succession pipeline.

“double-do” rather than “double-check” to make sure mission-critical tasks are done correctly. Double-checking has a much higher rate of errors than double-doing, which is having two different people do the same task so that they produce two independent answers. This not only ensures better answers but will allow you to see the differences in people’s performance and abilities.

a good double-check can only be done by someone capable of double-doing.

If a position is part-time and requires highly specialized knowledge, I would prefer to have it done by consultants or outsiders.

make sure you are careful not to ask consultants to do things that they don’t normally do.

guardrailing is meant to help people who can by and large do their jobs well—it’s intended to help good people perform better, not to help failing people reach the bar.

Don’t bet on people to save themselves; proactively guardrail them or, better yet, put them in roles in which it’s impossible for them to make the types of decisions they shouldn’t make.

Remember that there is no sense in having laws unless you have policemen (auditors). The people doing the auditing should report to people outside the department being audited, and auditing procedures should not be made known to those being audited.

Dual reporting causes confusion, complicates prioritization, diminishes focus on clear goals, and muddies the lines of supervision and accountability—especially when the supervisors are in two different departments. When situations require dual reporting, managers need to be informed. Asking someone from another department to do a task without consulting with his or her manager is strictly prohibited (unless the request will take less than an hour or so).

Assign responsibilities based on workflow design and people’s abilities, not job titles. Just because someone is responsible for “Human Resources,” “Recruiting,” “Legal,” “Programming,” and so forth, doesn’t necessarily mean they are the appropriate person to do everything associated with those functions.

When people are facing thorny problems or have too much to do, they often think that they need to work harder. But if something seems hard, time-consuming, and frustrating, take some time to step back and triangulate with others on whether there might be a better way to handle it.

Other than working harder for longer hours, there are three ways to fix the problem: 1) having fewer things to do by prioritizing and saying no, 2) finding the right people to delegate to, and 3) improving your productivity.

14.3 Use checklists.

a. Don’t confuse checklists with personal responsibility. People should be expected to do their whole job well, not just the tasks on their checklists.

Assuming people will do what they intellectually want to do is like assuming that people will lose weight simply because they understand why it’s beneficial for them to do it. It won’t happen until the proper habits are developed. In organizations, that happens with the help of tools and protocols.

Governance is the oversight system that removes the people and the processes if they aren’t working well. It is the process that checks and balances power to assure that the principles and interests of the community as a whole are always placed above the interests and power of any individual or faction.

Make sure that no one is more powerful than the system or so important that they are irreplaceable. For an idea meritocracy, it is especially important that its governance system is more powerful than any individual—and that it directs and constrains its leaders rather than the other way around.

they are mutually supportive. If you want to accomplish your mission, you will be better off having quality relationships with people committed to that mission and financial resources to put behind it. Similarly, if you want to have a great work community, you will need a shared mission and financial resources to support you, and if you want to make the most money possible, you will need clear goals and tight relationships to achieve them.

an idea meritocracy in which meaningful work and meaningful relationships are the goals and radical truth and radical transparency are the ways of achieving them—so

An idea meritocracy requires people to do three things: 1) Put their honest thoughts on the table for everyone to see, 2) Have thoughtful disagreements where there are quality back-and-forths in which people evolve their thinking to come up with the best collective answers possible, and 3) Abide by idea-meritocratic ways of getting past the remaining disagreements (such as believability-weighted decision making).