Kathleen is currently the Co direct of Stanford technology Ventures Program, and wrote a book titled: Simple Rules For How To Survive In A complex World. Her book focuses on the argument that too much structure and too many rules just don’t get things done efficiently or produce winning solutions.
I was instantly intrigued, as soon as I realized I wasn’t alone in realizing that simple rules seem to save time, frustration, and produce better outcomes, then highly complex models or solutions. Like me she first came to this observation in a business context. In the late 90s she was studying computer companies and trying to decipher why some software companies could consistently churn out awesome products that were selling hot and others were churning out flops. What she noticed was that the companies producing flops had either a complex structure with many rules, or were flying by the seat of their pants with no rules. The companies producing bread winners, were in a middle ground which had a few simple rules to guide their innovation, but not enough to tie everything up in corporate bureaucracy. She quickly noticed that simple rules worked, and complex models flopped outside of computer companies as well. The simple rules phenomenon existed in top executives, top firms, and successful people in regular life who were able to distill what they were doing into simple rules and remain focused on them. In a 1912 race to the south pole, Amundsen, a less experience experienced British explorer trumped the very experienced Norwegian explorer Scott with a simple rules based approach. Scott had every advantage; more experience, more funding, ponies, dogs, some type of motorized sleds, and relied on his intuition to make decisions. In the end most of his crew lost their lived and he ended up pulling his own sled out. Amundsen on the other hand, made simple rules to govern his expedition consistently. He used dog sleds as his only transportation source and lived by a checklist. He successfully & made it to the South Pole that year.
So what are exactly are simple rules. Simple rules are essentially rules of thumb that save on effort, and thought in decision making. In her words: Simple rules are simple. Simple rules are unique to the situation. Simple rules are focused on a particular activity.
For some reason ‘complexity’ is alluring. Perhaps we feel comforted by having something so well thought out. Or perhaps we are just tricking ourselves into believing we are smarter than we really are. Eisenhardt tells us that people who are risk adverse and want to plan for everything and have it covered tend to embrace complexity. This fails them when something happens outside of their plan happens. The other people that like complexity are those who make a living out of being complicated. Lawyers, accountants, lobbyists all make a living out of ‘complicated’, and would be out of business if things got simpler. Regardless of why everyone is attracted to complexity, it doesn’t deliver the results we need. Just look at the Fed, who employs many brilliant people, develops the most genius econometric models and didn’t foresee the market crash of 08/09. Or look at the countless quantitative investment funds that have astounding backtested returns, and Sharpe ratios, but flop after going live.
I’m A Born Again Simple Rules Person
I once was extremely risk adverse. I’d plan. And make a plan B. And a plan C. But somehow something would come up outside of my illustrious plan, and just fuck things up. Early on in my business career, I realized simple rules for being reactive worked better. You can read about it in my recent post. I also loved long contracts and policies that covered all the details — everything that could come up. Somehow though, seemingly the more details were added to be covered, the more ways around them and exceptions there were.
Just the same, General Motors CEO Mary Barra recently took the general motors 10 page dress code, ripped it up and rewrote it with 2 words: ‘dress appropriately’. Besides dress codes, I think HR policis could you a good cut too. The HR policy at my company is 60 pages of bullshit that I don’t even know… its just some verbiage some lawyer or accountant told us we need to avoid problems. Quite frankly I feel like all the pages just cause more problems. Everytime a situation comes up where we need to consult the HR policy, the situation is seemingly ‘between the lines’. In some grey that isn’t specifically addressed. Barra beat me to the HR simplification as well; as VP of Global HR she shrank requirement for HR reports by 90%.
Back to Kathleen Eisenhardt; she recently did podcast with Michael Covel, which provides a further look into her simple rules research.