Framework 97 Bridgewater Way

Introduction

In 1975 Ray Dalio started his own brokerage firm (Bridgewater) in the USA.

In February 2020, Dalio was named in the top 100 wealthiest people in the world.

Despite many setbacks (including losing everything in the 1980s market crash), Bridgwater is now the largest hedge fund in the world. As a result of his experiences (especially his mistakes), he has documented his learnings.

"...Dalio stop running Bridgwater top down as the sole expert and authority, and shifted to an ideal meritocracy where the wisdom of every person in the organisation can be harnessed. He sought to deepen/widen his perspectives, understand how humans think and behave, and how to leverage strengths toward specific goals..."

Readingraphics, 2020

From this, he has developed a set of principles that explain his success and they could be used as a basis for organisational change. These principles are divided into 2 parts, ie life and work. He presents more than 500 principles in his book (Principles) which are consolidated and summarised below.

1. Life Principles (10)

1.1 Think for yourself (decide what you want; what is the truth; what you should do)

1.2 Embrace reality (understand all aspects of reality including how to deal with it; don't insist on how things 'should be'; different levels have different perspectives, ie what might be good at one level, can be bad at another

"...The more people can see what is happening - the good, the bad, and the ugly - the more effective they are deciding the appropriate ways of handling things..."

Ray Dalio as quoted by Readingraphics, 2020)

1.3 Dream big (choose your goals wisely and take the necessary actions to realise them; support the larger good; push the limits, ie no pain, no gain.

"...it is more important to do big things well than do the small things perfectly..."

Ray Dalio as quoted by Readingraphics, 2020)

1.4 Learn from Nature (nature operates at a systemic level, ie balancing self-preservation with complexity so that everything can coexist and thrive, ie align yourself with the group's goals; optimise for the whole (not yourself); improve through rapid experimentation, ie trial and error; evolve or perish, ie nothing stays constant)

1.5 Seek new perspectives (find new insights and solutions; understand the bigger picture; understand your weaknesses and convert them into strengths and/or work around them, ie link with someone whose strengths and weaknesses complements yours; focus more on long-term consequences or outcomes and less on short term or immediate ones.)

1.6 Improve through reflection (learn from past experiences, especially mistakes)

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NB Everybody encounters setbacks in life. What is important is how you respond to them.

"...the most important thing you can do is to gather the lessons these failures provide and gain humility and radical open-mindedness in order to increase your chances of success..."

Ray Dalio as quoted by Readingraphics, 2020

"...everyone makes mistakes. The main difference is that successful people learn from them and unsuccessful people don't..."

Ray Dalio as quoted by Readingraphics, 2020

NB Perfectionism is an impossible dream. It is better to have a never-ending process of adaptation and seeking better alternatives.)

1.7 Use 5 step, looped process, (ie

    i) Goals (set clear, audacious goals; privatise them based on your values; don't confuse trappings of success like money, status, etc that would not give you true, long-term happiness; be willing to push yourself)

    ii) Problems (acknowledge them and treat them as opportunities for improvement; be precise in identifying the problems, so that you can apply the right solutions; focus on issues that will create the biggest impact)

    iii) Diagnose (look for the root causes rather than proximate ones)

    iv) Design (review and evaluate what happened; look ahead to forecast what's required to reach your goals; understand the big picture and linkages; start broadly, then focus on specific tasks, timelines, issues, etc; document the plan including what to do and how to measure progress)

    v) Executive (check that your goals and tasks are aligned; develop good work habits; use metrics to track your progress)

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NB steps 1 to 3 show that you know what's happening and where you are heading; steps 4 to 5, shape the outcome by designing and implementing solutions; as no one is equally good at all steps, identify your weaknesses and find people or solutions to handle them.)

1.8 Be open-minded (overcome your ego and blind spots; be open to opposing views; temporarily suspend your judgement to see others' perspectives; realise that you don't know everything; is it better to know the truth than appear to be right or smart; seek the best possible answer, not just your best answer.

NB

"...the subconscious, primal part of our brain (amygdala) is constantly fighting with the conscious, rational part of our brain (pre-frontal cortex). Our ego leads us to reject our mistakes and weaknesses. We also tend to react defensively when others point out our blind spots. When your emotions hijack your logic, you act irrationally..."

Readingraphics, 2020

Signs of closed v open mindedness

Signs of closed-mindedness
Signs of open-mindedness
get upset or angry when challenged curious about reasons for disagreement, thinking differently
making statements asking genuine questions
focus on being understood focus on understanding others' views
stop others from talking encourage others to share their views
only hold one view at a time can consider multi-conflicting ideas

Ways to develop open-mindedness include

    i) thoughtful disagreement (all parties agree to understand the situation; the calm and reasonable; focus on the facts and the big picture; demonstrate that you are actively considering others' views)

    ii) triangulate with smart, believable people (work with people who have proven track records of success in the area you are exploring; interview experts

Remember: "...listening to uninformed people is worse than having no answer at all..."

Ray Dalio as quoted by Readingraphics, 2020

    iii) use meditation and quiet reflection to calm yourself down

    iv) check that your decision is supported by robust facts

"...to be effective you must not let your need to be right be more important than your need to find out what's true..."

Ray Dalio as quoted by Readingraphics, 2020

NB Mental pain is a sign that you're too attached to an idea!!!)

1.9 Understand that people think and see the world differently (we are all different; get a balance composition on diverse people, eg planners, implementers, task orientated, big picture focus, etc; all attributes can help or do harm; brains can be trained for better performance, ie the neural connections are strengthened each time you do/learn something; understand

    i) workings of conscious and unconscious mind, ie learn to control your subconscious impulses like fear, defensiveness, etc

    ii) your feelings versus rational thought, ie reflect on uncontrolled emotional outbursts

    iii) explore and develop good habits

    iv) tap into the strengths of both left-brain (linear analysis, eg facts, planning, etc) and right-brain (lateral thinking, eg creativity, stories, etc)

NB use psychometric testing (for more details see other parts of the knowledge base) to help people understand themselves and others so that people are placed in the right roles.)

1.10 Learn to make decisions effectively (learn 'what is' before deciding 'what to do'; need to have best available facts/information/knowledge/people to make good decisions, ie

     i) analysing the current situation, ie differentiate fact from opinion, etc

    ii) synthesise situation over time, ie plot data points over time for a more complete picture; consider the rate of change, the levels involved and relationships between elements; member the 80:20 rule, ie 20% of causes/effort that generate 80% of value; navigate reality.

Making good decisions involves

    i) using logic and evidence (not emotions or animal instincts)

    ii) calculating the expected value of each option, ie assess the probability and impacts

    iii) calculating cost of waiting, ie delaying implementation

    iv) recording your decision-making criteria and process (translate principles into algorithms so that you can use computers to test and check your decisions.

"...in order to have the best life possible, you have to: (i) know what the best decisions are and (ii) have the courage to make them..."

Ray Dalio as quoted by Readingraphics, 2020)

2. Work Principles (16)

Introduction

The 2 key elements of an organisation are culture and people.

"...great organisations have great people (with character and capabilities) and a great culture (where problems and disagreements are surfaced/resolved and new solutions are created). Ideally, align your work with your passions, and work with people you want to build a future with..."

Readingraphics, 2020

There are 6 principles around culture; 3 around people; 7 around your organisation.

2.1 Adopt truth and transformation (in meritocracy, everyone has a responsibility to ask questions, etc to uncover the truth and the best solutions, ie expressing your thoughts, etc honestly without filtration; encourage people to see and think differently, and have open discussions; never condone deceit nor complain about people behind their backs; if done correctly, it can lead to improved trust and learning with better decisions; discourage gossip, speculation, office politics and bad behaviour, eg all meetings are recorded and available to the whole organisation, ie transparency)

2.2 Nurture meaningful work and relationships

("...when people trust and care for each other, enjoying being together, and they push each other to excel, they thrive as a community..."

Readingraphics, 2020

This involves establishing clear, non-negotiable values/standards like

"...Give more consideration to others than you demand from them. Respect others' ways of doing things so long as they are consistent with the principles and mission. Focus more on others' merits, not your own..."

Readingraphics, 2020

Build loyalty to the organisation, not to individuals.

Meaningful work is more than just about the money, ie

"...For most people, being part of a great community on a shared mission is even more rewarding than money..."

Readingraphics, 2020)

2.3 Learn from mistakes (build a culture based around analysing and learning from mistakes, ie it is unacceptable not to learn from them; don't penalise mistakes, use them as learning experiences to reduce the chance of these being repeated; document learnings from your mistakes; encourage self-reflection; overcome biases and blind spots through honest feedback and open-mindedness; focus on achieving your goals and outcomes, not on looking good; emphasise accuracy and results, not credit nor blame)

Build measures to prevent unacceptable mistakes happening.)

2.4 Get people in sync (document areas of agreement and disagreement - with the latter being tackled in order of priority, ie importance; can use conflict to bring people closer together by 'tabling and resolving' differences;

"...use thoughtful disagreement to resolve conflict and uncover the truth. To do this, people must be open-minded and assertive, ie express their views clearly, the others' viewpoints, learn and adapt. If you're misunderstood, assume that you have been unclear..."

Readingraphics, 2020)

2.5 Using believability-weighted decision-making (be able to evaluate each idea on its merit; pay attention to the data and reasoning behind ideas, concepts, conclusions, etc; rank ideas, etc on probability of being right, ie reasons for holding the opinions; develop a way of calculating people's believability, eg Bridgeway uses baseball cards and an app; manage differences efficiently.

"...when you want the best answers, involve the most relevant people......but when you want to educate or unite, involve a wider range of people regardless of their believability..."

Readingraphics, 2020

"...dealing with raw opinions will get you and everyone else confused; understanding where they come from will help you get to the truth..."

Ray Dalio as quoted by Readingraphics, 2020

Despite using tools, techniques, etc to help decision-makers, they still have accountability, responsibility, etc for the decisions.)

2.6 Have an agreed resolution process (be willing to use an acceptable, independent party to facilitate any conflict; follow a process strictly; once an issue is debated and decided, everyone must stand behind the final decision; decision-making must focus on organisational interests above self-interest)

2.7 Who comes before what (initially ensure the right person is on the job; then

"...Define the goal, give the goal to people who can achieve it, hold them accountable..."

Readingraphics, 2020

Align incentives with responsibility and outcomes.)

2.8 Hire right (develop job description and then hire on

    - attitude (values, beliefs, behaviours, personality, character, etc to achieve apt fit with the organisational culture)

    - capability (how they think and act, abilities, etc)

    - skills (expertise, experience, knowledge,  etc)

NB Focus on attitude and capabilities, less on skills as hiring is for beyond the current job.

Document the best interview questions and non-verbal cues to watch for; use personal assessments; choose interviewer carefully, ie can relate to interviewee; use reference checks.)

2.9 Train, test, evaluate and sort people continuously (discover people's preferences, their strengths and weaknesses, etc in specific roles as part of career planning; it takes up to 12 months evaluate a new hire and 18 months to integrate into the culture; hands-on experience more important than book learning; providing constant feedback what works and doesn't work, ie look at both successes and failures; stress that feedback to facilitate learning doesn't impact performance rating; more important than compliments and rewards is constructive, regular feedback and chance to learn from mistakes; use metrics to track performance so that people are placed in the right jobs; it is easier to train people with skills than to change their values and capabilities.

"...Don't treat everyone the same - treat them appropriately..."

Ray Dalio as quoted by Readingraphics, 2020)

2.10 Focus above operational tasks (as high level focus on setting goals and creating systems to achieve them; don't get lost in daily tasks; understand how the parts are connected, measure their performance and improve the overall design; diagnose gaps in performance, ie process or people issues; study repeated problems, find root causes; build metrics to measure performance at all levels; manage for results; delegate to right people; people know their accountabilities, responsibilities, etc, ie set clear expectations; try to anticipate problems before they occur; get regular updates on activities, issues, etc

"...Great leadership is about (i) uncovering the best decisions/answers and (ii) bringing people along on the discovery process..."

Readingraphics, 2020

Don't micromanage; individualise your approach to everyone.)

2.11 Handle problems (small issues can become bigger, ie be aware of the 'creep' problem; probe deeply into the issues; involve everyone to identify problems; use 'what-who-when' approach, ie

"...what's the problem, who is responsible, and when you should discuss it..."

Readingraphics, 2020

"...it is one thing to point out a problem; it's another to have an accurate diagnosis and quality solution..."

Ray Dalio as quoted by Readingraphics, 2020)

2.12 Diagnose root causes of problems (determine if need to do things differently; consider what was known, or unknown, at the time the decision was made; continue ongoing analysis to see patterns/trends over time; drill down to identify the root causes by

"...using the 80/20 rule. List down the key problems, list down the causes of each problem, keep asking 'why' to identify root causes, create a plan and execute it..."

Readingraphics, 2020)

2.13 Keep improving your operations (design as an iterative process, ie continually test people and processes, and then modify as required

"...Translate criteria to principles to algorithms so that you can apply principles consistently. Make tactical adjustments without losing your strategic goals..."

Readingraphics, 2020

Focus on goals, not tasks; provide strong oversight; keep ratio of managers to direct reports under 1:10; make departments self-sufficient; work on succession planning and training; have backups, ie least 2 people can do the same task; keep the organisational chart simple, ie minimum layers and no criss-crossing of lines plus clear reporting lines and responsibilities, both within and between departments; place people in roles where they naturally excel; pair with somebody to cover their blindspots.

"...an organisation is the opposite of a building: its foundation is at the top, so make sure you hire managers before you hire reports..."

Ray Dalio as quoted by Readingraphics, 2020

Install controls against dishonesty.)

2.14 Execute your plan (connect tasks to goals; manage and motivate people to progress together; plan before you act; be prepared to step back, triangulate and look for creative solutions; work smarter rateher than harder, ie understand big picture, prioritise, delegate, improve productivity, etc; use checklists to ensure you complete your charts; allocate time to rest and rejuvenate; celebrate your successes.)

2.15 Use tools and protocols to shape habits (the best way to change behaviour practice so that you form habits; use tools, techniques, etc to collect, process and present data that facilitates learning, decision-making and action)

2.16 Pay attention to governance (governance is a

"...system of oversight, checks and balances to safeguard an organisation's interests and principles..."

Readingraphics, 2020

It involves assigning responsibility and authority, ie

"...clearly lay out the reporting lines, decision-making rights, and the layers of oversight. People responsible for oversight must have (i) full info on the people they're checking on, (ii) the ability to make sound assessments, and (iii) no conflicts of interest. Decision-makers must be trustworthy..."

Readingraphics, 2020

NB No one should be above the law or irreplaceable

 

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