Effective people think simply

Effective people think simply

• Kathleen M Eisenhardt,

Professor, Stanford School of Engineering, Stanford Graduate School of Business, PhD 1982

Stanford Graduate School Of Business

What is the benefit of simplifying?

All of us have way too much complexity in our lives, too many devices, our kids going a million different places, at work - we have all kinds of things we are supposed to be doing. And realizing, is there a way to be simple? And then noticing that some of the most effective people actually are simple. And so that kind of lead us to start exploring what’s the value of simple rules and simplicity?

We started studying companies and their product development processes and we realized that there were companies that had these very complicated product development processes. And what would happen was they would do the wrong product really efficiently. And conversely, we would see these other companies where there were no rules at all, and they were having a great time getting nothing done. And we saw that then again, there was this intermediate - a few simple rules, who is in charge of what, what kind of a product do we do. But just maybe four or five rules that constrained what people did but yet gave them some flexibility to innovate.

How do I create my own simple rules?

There’s really three steps to coming up with simple rules.

One of them is what’s the objective. What are we really trying to achieve here? Is it revenue, is it growth? Is it noteriety? So what’s the underlying business objective we’re trying to achieve? And so profitability and growth, for example, would be two different things. So what are we trying to achieve and that’s usually fairly straightforward with business people to come up with.

What’s harder to figure out is what’s the bottleneck process, what’s the repeated thing that we do often that really keeps us from achieving that objective? So an interesting example is actually Google, back in the day, there were some problems at Google early on, where they weren’t getting enough product improvement in their search engine, and some of their other products. So their product development wasn’t as good as they wanted it to be. So they thought a bit about, do we reorganize product development? What do we do? Well then as they thought about it more, the real bottleneck that was keeping them from being successful was the quality of their computer scientists. And so they realized the real bottleneck was the hiring process. And what we need to do is get top-flight computer scientists because top-flight computer scientists are substantially better than the average computer scientist. And then they developed some simple rules that were things you might not expect. Things like look for people who are eccentric because they are more creative. So people who ride a unicycle, climb the Himalayas, do something strange. And look for people, always prefer referrals from other Googlers. Because the idea there was Googlers know what good Googlers look like, and they want to work with them.

And then the third one was stop the hiring process if you see anything phony or fake on the resume because we want high integrity people.

So the point here is that the objective was not what they first thought it was going to be. Its actually the bottleneck was not what they first thought it was going to be, it ultimately became something around computer science hires. And then finally developing the rules.

Thats the third step is what are the rules? And that is usually a combination of looking back at your own data. So for example, I worked with a company in biotech where partnerships were very important, and they looked back at their data trying to figure out when were we successful and when weren’t we. So trying to understand from your own data. Another strategy is bringing outside experts. You come up with rules by thinking about what your objective is, trying to figure out what the bottleneck is, which is probably the hardest thing to do. And then developing rules, partly from your experience, partly working with outsiders to come up with them.

How does simplifying make me more effective?

You can make faster decisions when you are simple because you only have to think of a few factors. The second reason is that there are certain situations that simplicity actually is not only faster but it’s actually better that using complicated formulas and lots of data. Because, if you use too much, if you use a lot of data on a formula, what you tend to do is overfit the past, which is a poor predictor of future. So it’s actually, because what you’re trying to do is predict the future. And given lets say you have a set of data and there are multiple ways you can fit that data. The simplest fitting of that data is the most likely to be predictive of the future. And then it’s better because people actually do it. So, for example, if I give you three rules to remember for partnerships, or three rules to remember for investing or dieting, you are more likely to remember and do it, even if you’re stressed out, you’re busy, you got a zillion things to do, you can say, wait a minute, I am supposed to think about hiring people and I remember these three rules. And that’s all I have to remember. So it’s particularly effective when you’re just stressed out with too much to do.

What’s the best way to get a team to buy in?

It works best when you involve the people in your organization. So nut just you at the top deciding what the rules are, but getting the talent below you thinking about it and participating in the process of coming up with the rules, looking at the data, testing them out.

Why is the most important rule also the hardest to learn?

The stopping rules are the hardest to learn. When do I back-off? We’re trying to sell to a client and when is it time to say no? We’re developing a product, when is it time to stop? We have an investment, when do we sell it? Those stopping rules are the hardest for people to learn. And I think maybe ironically, they’re also related to higher performance. So, probably one of the biggest mistakes business people make is they stay in something too long. And a stopping rule helps you get out of that. People are really good at starting and are really bad at stopping. And so a rule that says I’m done with this partner, I’m done with the sales call, I’m done with this product, I’m done with this person, I’m not hiring them. Whatever the process is that you have a rule that says I stop.

When is it time to change the rules?

When it’s time to change is when they don’t seem to be working anymore, or the situation has somehow changed. One of the examples, I think is pretty obvious and people would know well is the Moneyball. The Oakland A’s Moneyball, which was focused on, among other things, getting players with high on-base percentage. Well once everybody else in the major leagues figures that out, they’re doing it too. They’re paying more than you are, and the Boston Red Sox are winning the pennant, and you’re not. And so, when your rules are starting to be copied by competitors, or when the situations change, as it did for the A’s, you have to change up the rules.