Guru Speak - Donald Sull, MIT
Sloan School of Management Keep it Simple, Silly!
Simple rules can help guide critical policy
decisions, produce bestsellers and even save lives.
Tina Fey used simple rules to produce the hit comedy 30 Rock and
The White Stripes used them to record one of the most acclaimed rock albums of
the past twenty years in only ten days. Donald Sull, senior lecturer at the MIT
Sloan School of Management swears by simple rules, whether in his personal life
or in helping companies he consults with take better decisions. His latest
book, Simple Rules: How to Thrive in a Complex World, co-authored with Stanford
University's Kathleen Eisenhardt aims to help more people put these simple
rules in practise. He spoke to Corporate Dossier on why simple rules are
relevant and how to come up with your own. Edited excerpts:
How did your new book, Simple Rules, come about?
In an early study, Kathy (Kathleen Eisenhardt) and I learned that
successful technology companies like Cisco used simple rules to thrive despite
the complexity of the dotcom boom. This raised a series of questions. Why are
simple rules so effective? Where else can they work? For me, simple rules are
also personal. I can't stand unnecessary complexity. It drives me crazy to
juggle four remotes to watch ESPN or waste an hour trying to figure out how to
recover an auto-saved file in Word.
What are simple rules?
Simple rules consist of a handful of guidelines applied to a
specific activity or decision, such as deciding what to eat. They're intended
to offer a limited amount of guidance, so there's no need for a lot of
them.Keeping the number of rules to a handful forces you to focus on what
matters most.Second, simple rules are tailored to the situations of the
particular people who will use them, versus one-size-fits-all rules that apply
to everyone. Simple rules are applied to a single well-defined activity or
decision, such as choosing what to eat or prioritising injured soldiers for
medical care. Simple rules are most effective when they are applied to critical
activities or decisions that represent bottlenecks to accomplishing an
important goal.
Any examples of how this works?
Steel magnate Lakshmi Mittal's first few deals in Indonesia,
Trinidad and Mexico provided the basis for developing the rules he used to
guide later acquisitions, including “scour the globe for acquisition
candidates,“ even in countries such as Kazakhstan and Trinidad, which established
steel producers ignored or actively avoided. This rule allowed him to spot
great deals in emerging markets at a time when established steel makers focused
on winning in the developed markets of the USA, Japan, and Western Europe.
Early negotiations with governments showed that many
state-controlled steel companies were keen to unload money-losing operations,
not because the plants were bad but because they were poorly managed.This
experience led to the rule “look for owners keen to sell.“ The Mexican government,
for example, built a state-of-the-art steel mill for $2.2 billion dollars, sold
it to Mittal for $220 million, and financed $195 million of the purchase price
with government bonds. Mittal, in short, paid pennies on the dollar. However,
when rules are based on limited experience, one must be willing to revisit them
as circumstances change. Early on, Mittal favored a specific type of production
technology that used an electric furnace to produce molten steel out of iron
pellets. As Mittal Steel expanded its global footprint, it relaxed this rule to
acquire steel operations that employed other technologies.
Why are simple rules relevant in the current complex environment
that most businesses operate in?
Simple rules work, it turns out, because they do three things very
well. First, they confer the flexibility to pursue new opportunities while
maintaining some consistency. Second, they can produce better decisions. When
information is limited and time is short, simple rules make it fast and easy
for people, organisations, and governments to make sound choices. They can even
outperform complicated decisionmaking approaches in some situations.Finally,
simple rules allow the members of a community to synchronise their activities
with one another on the fly. As a result, communities can do things that would
be impossible for their individual members to achieve on their own. Car sharing
company Zipcar relied on simple rules to share cars across thousands of users.
Any simple rules to follow to create your own set of simple rules?
Identify a bottleneck that is both specific and strategic: The
first step is to single out a place in the organisation where opportunities or
investments exceed resources and, as a result, keep the organisation from
achieving its major objectives.
Let data trump opinion: Before developing simple rules, we ask
managers to write down what they think the rules will be.They are almost always
wrong. Shootfrom-the-hip rules typically overweigh recent experience, reflect
personal biases and ignore anomalous data. The best rules, in contrast, draw on
a thoughtful analysis of historical experience.
Users make the rules: Managers' first instinct is often to draft a
set of rules to send down the chain of command. Big mistake.The people who will
apply the rules are best able to craft them. They also can test the rules in
real time to evaluate whether they are too vague, limiting, or cumbersome.
The rules should be concrete: Rules may be developed using
sophisticated statistical models or thorough analysis, but they shouldn't be
difficult to grasp.
The rules should evolve: Simple rules should change with the
company and the market and as managers gain a richer understanding of what
their strategy means in practice. Managers can foster that evolution in a few
ways. First, they can build in periodic checkpoints. Capping the total number
of rules at a handful is another way to force ongoing discussion. As teams
learn, they will want to add rules to capture their new knowledge, which means
they must drop less important rules.
How can people use simple rules in their personal lives?
When I was looking for a bottleneck to lose 15 pounds, for
example, I tracked my eating for a week and found that the real problem was not
exercise or big lunches, but afterdinner snacks when willpower was at its
lowest and a glass of Cabernet and a bag of chocolate chip cookies called my
name. I developed some simple rules, like “don't stockpile snacks“ and “no
dessert on weekdays,“ and dropped the weight in a few months.
by Priyanka Sangani CDET29MAY15
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