How simple management rules are born
Managers learn from their failures and distill these lessons into proverb-like simple rules; Here is how.
Written by
Radu Atanasiu
ago
Est. Reading: 4 minutes

Managers learn mainly from failure (Bingham and Haleblian, 2012) and often they distill their learned lessons into simple rules that are easy to remember and share. These simple rules (Eisenhardt and Sull, 2001; Bingham and Eisenhardt, 2011) often take the form of catchy managerial proverbs. Jeff Bezos, for example, uses his famous two-pizza-rule for organizing Amazon’s workforce: “Every internal team should be small enough that it can be fed with two pizza.

Financial investors approach market uncertainty with proverb-like simple rules like “sell in May and go away” that sometimes prove more accurate than complex algorithms. And, in his best-seller Principles, billionaire-hedge-fund-manager-and-philanthropist-turned-management-guru Ray Dalio reveals the many simple rules (principles) he devised for life and work.

While the usage and outcome of simple rules has been well studied, little attention has been paid to how managers distill them, urging us to research this process. After interviewing a few dozen CEOs, the first interesting thing we discovered is that, despite an initial doubt, all CEOs realized that they actually have a personal set of such learned lessons distilled into simple rules: “I don’t have such simple rules. I always envied leaders who have them. For me, reality was always too complex to be simplified in clear rules, but I appreciated their value when I saw them in others.” (respondent, who, during the interview, discovered she however had a clear set of simple rules).

Not only this, but they consider these rules crucial to their role, to their growth, and to the growth of their organizations. We have compiled a list of 202 such rules, some guiding the relationship with clients, others dealing with strategy, but most of them related to managing people and teams. The three examples below (which all make use of the number three) make for a short guide of distilled managerial wisdom.

“If you come to me with a problem, you must also bring three alternative solutions” Click To Tweet

”A good expert with a big salary is worth more than three average employees with half that salary” Click To Tweet

“For a good relationship with the team, the ratio between praise and criticism must be 3 to 1” Click To Tweet

 

How do managers learn their lessons and distill their simple rules?

We found that simple rules are born out of an unexpected problem which induces a tension, making the manager search continuously for a solution. Eventually, an external cue (a later observation, a conversation, something read in a book) acts as a clarifier and catalyzes the finding of a solution in an insight accompanied by a feeling of relief, like an epiphany. The insight is a triple one and consists of identifying and unlearning a flawed assumption, learning a new lesson, and then generalizing a simple rule to be applied in all similar situations, as illustrated in the example below:

The CEO of a marketing company was confronted with a puzzling problem: strategic projects, agreed and communicated at the beginning of the year, were lagging behind (unexpected problem). She investigated the matter and observed (clarifier) that the team was only working on these projects at the end of the day, and only if current daily tasks were completed. This led to her triple insight: first, she identified and unlearned the flawed assumption that just labeling projects as “strategic” does not make people prioritize them; then, after reflecting on a solution, the CEO learned the lesson that strategic projects need daily attention; she then distilled it into a simple rule to be applied in the future - “Strategic projects need to be integrated into processes, so that everybody can contribute daily.”

While the process described so far has an important intuitive component, the next, more analytical phase involves testing, articulating, and refining the simple rules. When appropriate, personal rules are shared within the organization. Some of our respondents identified this sharing as a key role for a leader: “The role of the CEO is to create systems that work and to communicate them in ways that make people vibrate, understand, and apply them daily.” Many studies have positively linked simple rules shared at organizational level, with various aspects of management, such as strategy (Bingham and Eisenhardt, 2011), innovation (Manimala, 1992), organizational learning (Bingham and Haleblian, 2012), monitoring, and even the survival of family firms (Pieper et al., 2015). However, the problem with sharing is, in the words of another interviewee, that “such rules are easy to hear and hard to implement.” A recipe to bypass this problem is to share the simple rule along with its whole narrative, making it easier to adopt and remember: This principle was discovered (and even turned into a simple rule for sharing simple rules) by another respondent: "When I share a rule, I also share its story, especially the mistakes I made. If shared without its story, the rule would be ignored, but when the team finds out how I discovered it and how I bumped my head, they pay more attention and remember better".

So, how can managers use our research? First, by acknowledging that there is value in clearly articulating the simple rules they learned from experience. Managers can start identifying and writing down their personal portfolios of managerial proverbs. A method for doing so is to imagine they have been promoted and are telling their successor “listen, my years on this job taught me a few rules that you can never find in any book. They are:…“ and fill in the sentence. Second, at the end of their lessons-learned debriefs, teams can articulate these lessons into catchy, easy to remember simple rules. Click To Tweet And third, managers can use these rules as coordination tools in their teams and organizations, by sharing them, always together with the story behind.

 

 

(A version of this article appeared in Executives in Science, Business and Society)

Radu can be contacted at radu@msmromania.org.

 

References:

Bingham, C. B., & Eisenhardt, K. M. (2011). Rational heuristics: The ‘simple rules’ that strategists learn from process experience. Strategic Management Journal, 32(13), 1437-1464.

Bingham, C. B., & Haleblian, J. (2012). How firms learn heuristics: Uncovering missing components of organizational learning. Strategic Entrepreneurship Journal, 6(2), 152-177.

Eisenhardt, K.M., & Sull, D.N. (2001): Strategy as simple rules. Harvard Business Review, 79 (1), 100–116.

Manimala, M. J. (1992). Entrepreneurial heuristics: A comparison between high PI (pioneering‐innovative) and low PI ventures. Journal of Business Venturing, 7, 477–504.

Pieper, T. M., Smith, A. D., Kudlats, J. and Astrachan, J. H. (2015), The Persistence of Multifamily Firms: Founder Imprinting, Simple Rules, and Monitoring Processes. Entrepreneurship Theory and Practice, 39: 1313-1337.

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