13.5 Build the organization around goals rather than tasks.
Giving each department a clear focus and the appropriate resources to achieve its goals makes the diagnosis of resoure allocations more straightforward and reduces job slip. As an example of how this works, at Bridgewater we have a Marketing Department (goal: to market) that is separate from our Client Service Department (goal: to service clients), even though they do similar things and there would be advantages to having them work together. But marketing and servicing clients are two distinct goals; if they were merged, the department head, salespeople, client advisors, analysts, and others would be giving and receiving conflicting feedback. If asked why clients were receiving relatively poor attention, the answer might be: “We have incentives to raise sales.” If asked why they weren’t making sales, the merged department might explain that they need to take care of their clients.
a. Build your organization from the top down.
An organization is the opposite of a building: Its foundation is at the top, so make sure you hire managers before you hire their reports. Managers can help design the machine and choose the people who complement it. People overseeing departments need to be able to think strategically as well as run the day-to-day. If they don’t anticipate what’s coming up, they’ll run the day-to-day off a cliff.
b. Remember that everyone must be overseen by a believable person who has high standards.
Without strong oversight, there is potential for inadequate quality control, inadequate training, and inadequate appreciation of excellent work. Never just trust people to do their jobs well.
c. Make sure the people at the top of each pyramid have the skills and focus to manage their direct reports and a deep understanding of their jobs.
A few years ago, someone at Bridgewater proposed that our facilities group (the people who take care of the building and grounds, food service, office supplies, etc.) should begin to report to our head of technology because of the overlap in the two areas (computers are a facility too, they use electricity, and so on). But having the people who are responsible for janitorial services and meals report to a technology manager would be as inappropriate as having technology people report to the person taking care of facilities. These functions, even if they’re considered “facilities” in the broadest sense, are very different, as are the respective skill sets. Similarly, at another time, we talked about putting the folks who work on client agreements under the same manager as those who do counterparty agreements. But that would have been a mistake because the skills required to reach agreements with clients are very different from the skills required to reach agreements with counterparties. It would be wrong to conflate both departments under the general heading of “agreements,” because each calls for specific knowledge and skills.
d. In designing your organization, remember that the 5-Step Process is the path to success and that different people are good at different steps.
Assign specific people to do each of these steps based on their natural inclinations.
For example, 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 improvments, and the reliable taskmaster should make sure the plan gets executed. Of course, some people can do more than one of these things—generally people do two or three well. Virtually nobody can do them all well. A team should consist of people with all of these abilities and they should know who is responsible for which steps.
e. Don’t build the organizatio to fit the people.
Managers will often take the people who work in their organizaiton as a given and try to make the organizatio work well with them. That’s backward. Instead, they should imagine the best organizaiton and then make sure the right people are chosen for it. Jobs should be created based on the work that needs to be done, not what people want to do or which people are available. You can always search outside to find the people who click best for a particular role. First come up with the best workflow design, then sketch it out on an organization 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.
f. Keep scale in mind.
Your goals must be the right size to warrant the resources that you allocate to them. An organization might not be big enough to justify having both a sales and an analytics group, for example. Bridgewater successfully evolved from a one-cell organization, in which most people were involved in everything, to a multicellular organization because we retained our ability to focus efficiently as we grew.
Temporarily sharing or rotating resources is fine and is not the same as a merging of responsibilities. On the other hadn, the efficiency of an organization decreases as the number of people and/or its complexity increases, so keep things as simple as possible. And the larger the organization, the more important are information technology management and cross-departmental communication.
g. Organize departments and sub-departments around the most logical groupings based on “gravitational pull.”
Some groups naturally gravitate toward one another. That gravitational pull might be based on common goals, shared abilities and skills, workflow, physical locaiton, and so forth. Imposing your own structure without acknowledging these magnetic pulls will likely result in inefficiency.
h. 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.
i. Ensure that the ratios of senior managers to junior managers and of junior managers to their reports are limited to preserve quality communication and mutual understanding.
Generally, the ratio should not be more than 1:10, and preferably closer to 1:5. Of course, the appropriate ratio will vary depending on how many people your direct reports have reporting to them, the complexity of the jobs they’re doing, and a manager’s ability to handle several people or projects at once. The number of layers from top to bottom and the ratio of managers to their direct reports will limit the size of an effective organizaiton.
j. Consider sucession and training in your design.
This is a subject I wish I had thought about much earlier in my career. To ensure that your organization continues to deliver results, you need to build a perpetual motioni machine that can work well without you. This involves more than the mechanics of your own “stepping out,” but the selection and training and governance of the new leaders who “step up,” and most importantly, the preservation of the culture and its values.
The best approach I’ve seen for doing this is what companies and organizations like GE, 3G, and the Chinese Politburo do, which is to build a pyramid-like “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.
k. Don’t just pay attention to your job; pay attention to how your job will be done if you are no longer around.
I wrote about key-man risk earlier, which applies the most to those with the largest areas of responsibility, especially the head of an organization. If that’s you, then 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. These results should be documented in a manual that the appropriate people can go to if you should be hit by a bus. If all the key people in the organization do this, you will have a strong “farm team,” or at least a clear understanding of vulnerabilities and a plan to deal with them. Remember that a ninja manager is somebody who can sit back and watch beauty happen—i.e., an orchestractor. 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.
Beyond that, visualizing your replacement is an enlightening and productive experience. In addition to taking stock of what you are doing and coming up with both bad and good names, you will start to think about how to get your best people into slots that don’t yet exist. Knowing that you will have to test them by letting them do your job without interference, you will be motivated to train them properly before the test. And, of course, the stress-testing will help you learn and adapt, which will lead to better results.
l. Use “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. I use double-do’s in critical areas such as finance, where large amounts of money are at risk.
And because an audit is only as effective as the auditor is knowledgable, remember that a good double-check can only be done by someone capable of double-doing. If the person double-checking the work isn’t capable of doing the work himself, how could he possibley evaluate it accurately?
m. Use consultants wisely and watch out for onsultant addiction.
Sometimes hiring an external consultant is the best fit for your design. Doing so can get you precisely the amount of specialized expertise you need to tackle a problem. When you can outsource you don’t have to worry about managing, and that’s a real advantage. Ifa position is part-time and requires highly specialized knowledge, I would prefer to have it done by consultants or outsiders.
At the same time, you need to beware of the chronic use of consultants to do work that should be done by employees. This will cost you in the long run and erode your culture. Also make sure you are careful not to ask consultants to do things that they don’t normally do. They will almost certainly revert to doing things in their usual way; their own employers will demand that.
When evaluating whether to use a consultant, consider the following factors:
1. Quality Control. When someone doing work for you is an employee, you are responsible for the quality of their work. But when the person working for you works for another company, you’re operating by their standards, so it’s important to know whether their standards are as high or higher than yours.
2. Economics. If a full-time person is required, it is almost certainly more cost-effective to create a position. Consultants’ daily rates add up to considerably more than the annualized cost of a full-time person.
3. Institutionalization of Knowledge. Someone who is around your environment on an onging basis will gain knowledge and an appreciation of your culture that no outsider can.
4. Security. Having outsiders do the job substantially increases your security risks, especially if you can’t see them at work (and monitor whether they follow proper precautions, like not leaving sensitive documents on their desks).
You have to consider whether you should be outsourcing or developing capabilities in-house. Though temps and consultants are good for a quick fix, they won’t augment your capacities in the long term.
* Source: Principles by Ray Dalio