Part 3 of Ray Dalio's Principles....
To Perceive, Diagnose, and Solve Problems…
133) Know How to Perceive Problems Effectively
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134) Keep in mind the 5-Step Process explained in Part 2.
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135) Recognize that perceiving problems is the first essential step toward great management.
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136) Understand that problems are the fuel for improvement.
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137) You need to be able to perceive if things are above the bar (i.e., good enough) or below the bar (i.e., not good
enough), and you need to make sure your people can as well.
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138) Don’t tolerate badness.
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139) “Taste the soup.”
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140) Have as many eyes looking for problems as possible.
a) “Pop the cork.”
b) Hold people accountable for raising their complaints.
c) The leader must encourage disagreement and be either impartial or open-minded.
d) The people closest to certain jobs probably know them best, or at least have perspectives you need to
understand, so those people are essential for creating improvement....
141) To perceive problems, compare how the movie is unfolding relative to your script.
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142) Don’t use the anonymous “we” and “they,” because that masks personal responsibility—use specific names.
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143) Be very specific about problems; don’t start with generalizations.
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144) Tool: Use the following tools to catch problems: issues logs, metrics, surveys, checklists, outside consultants,
and internal auditors.
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145) The most common reason problems aren’t perceived is what I call the “frog in the boiling water” problem.
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146) In some cases, people accept unacceptable problems because they are perceived as being too difficult to fix.
Yet fixing unacceptable problems is actually a lot easier than not fixing them, because not fixing them will
make you miserable.
a) Problems that have good, planned solutions are completely different from those that don’t.
147) Diagnose to Understand What the Problems Are Symptomatic Of
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148) Recognize that all problems are just manifestations of their root causes, so diagnose to understand what the
problems are symptomatic of.
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149) Understand that diagnosis is foundational both to progress and quality relationships.
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150) Ask the following questions when diagnosing.
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151) Remember that a root cause is not an action but a reason.
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152) Identify at which step failure occurred in the 5-Step Process.
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153) Remember that a proper diagnosis requires a quality, collaborative, and honest discussion to get at the truth.
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154) Keep in mind that diagnoses should produce outcomes.
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155) Don’t make too much out of one “dot”—synthesize a richer picture by squeezing lots of “dots” quickly and
triangulating with others.
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156) Maintain an emerging synthesis by diagnosing continuously.
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157) To distinguish between a capacity issue and a capability issue, imagine how the person would perform at that
particular function if they had ample capacity.
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158) The most common reasons managers fail to produce excellent results or escalate are
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159) Avoid “Monday morning quarterbacking.”
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160) Identify the principles that were violated.
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161) Remember that if you have the same people doing the same things, you should expect the same results.
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162) Use the following “drill-down” technique to gain an 80/20 understanding of a department or sub-department
that is having problems......
163) Put Things in Perspective
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164) Go back before going forward.
a) Tool: Have all new employees listen to tapes of “the story” to bring them up to date.
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165) Understand “above the line” and “below the line” thinking and how to navigate between the two.
166) Design Your Machine to Achieve Your Goals
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167) Remember: You are designing a “machine” or system that will produce outcomes.
a) A short-term goal probably won’t require you to build a machine.
b) Beware of paying too much attention to what is coming at you and not enough attention to what your
responsibilities are or how your machine should work to achieve your goals.
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168) Don’t act before thinking. Take the time to come up with a game plan.
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169) The organizational design you draw up should minimize problems and maximize capitalization on opportunities.
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170) Put yourself in the “position of pain” for a while so that you gain a richer understanding of what you’re
designing for.
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171) Recognize that design is an iterative process; between a bad “now” and a good “then” is a “working through
it” period.
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172) Visualize alternative machines and their outcomes, and then choose.
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173) Think about second- and third-order consequences as well as first-order consequences.
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174) Most importantly, build the organization around goals rather than tasks.
a) First come up with the best workflow design, sketch it out in an organizational chart, visualize how the
parts interact, specify what qualities are required for each job, and, only after that is done, choose the
right people to fill the jobs.
b) Organize departments and sub-departments around the most logical groupings.
c) Make departments as self-sufficient as possible so that they have control over the resources they need to
achieve the goals.
d) The efficiency of an organization decreases and the bureaucracy of an organization increases in direct
relation to the increase in the number of people and/or the complexity of the organization.
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175) Build your organization from the top down.
a) Everyone must be overseen by a believable person who has high standards.
b) The people at the top of each pyramid should have the skills and focus to manage their direct reports and
a deep understanding of their jobs.
c) The ratio of senior managers to junior managers and to the number of people who work two levels below
should be limited, to preserve quality communication and mutual understanding.
d) The number of layers from top to bottom and the ratio of managers to their direct reports will limit the
size of an effective organization.
e) The larger the organization, the more important are 1) information technology expertise in management
and 2) cross-department communication (more on these later).
f) Do not build the organization to fit the people.
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176) Have the clearest possible delineation of responsibilities and reporting lines.
a) Create an organizational chart to look like a pyramid, with straight lines down that don’t cross.
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177) Constantly think about how to produce leverage.
a) You should be able to delegate the details away.
b) It is far better to find a few smart people and give them the best technology than to have a greater
number of ordinary and less well-equipped people.
c) Use “leveragers.”
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178) Understand the clover-leaf design.
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179) Don’t do work for people in another department or grab people from another department to do work for you
unless you speak to the boss.
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180) Watch out for “department slip.”
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181) Assign responsibilities based on workflow design and people’s abilities, not job titles.
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182) Watch out for consultant addiction.
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183) Tool: Maintain a procedures manual.
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184) Tool: Use checklists. a) Don’t confuse checklists with personal responsibility.
b) Remember that “systematic” doesn’t necessarily mean computerized.
c) Use “double-do” rather than “double-check” to make sure mission-critical tasks are done correctly.
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185) Watch out for “job slip.”
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186) Think clearly how things should go, and when they aren’t going that way, acknowledge it and investigate.
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187) Have good controls so that you are not exposed to the dishonesty of others and trust is never an issue.
a) People doing auditing should report to people outside the department being audited, and auditing
procedures should not be made known to those being audited.
b) Remember: There is no sense in having laws unless you have policemen (auditors).
188) Do What You Set Out to Do
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189) Push through!
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