Page 396 - Ray Dalio - Principles

Once you understand how to build and run your machine,
your next objective is to figure out how to improve it. We do
this through the 5-Step Process I described as 1) identifying
our goals, 2) encountering our problems; 3) diagnosing those

problems to get at their root causes; 4) designing changes to
get around the problems; and 5) doing what is needed. Think
of any organization you know and you will see that they go
through this evolutionary process with varying degrees of
success. The world is littered with once-great organizations
that deteriorated because the initial waves of excellence faded

and the leadership failed to adequately adapt by changing the
people and the designs. There are also a few organizations that
keep reinventing themselves to go on to new heights of
greatness.

The subsequent chapters of this section explain how the 5-
Step Process works within an organization, and what you need
to do to make sure you get the most out of it. To be effective,

you must look down upon your machines as would an
organizational engineer, comparing the outputs with the goals,
and constantly modifying the people and the designs to make
the outputs better. Most importantly, you must orchestrate your
people. How well you do this will determine your success.

Finally, you’ll read two chapters on making sure the idea

meritocracy runs as designed, both at the day-to-day and the
strategic level. Chapter Fifteen, Use Tools and Protocols to
Shape How Work Is Done, describes the importance of
systemization and tools to ensure the idea meritocracy
functions as intended. And in Chapter Sixteen, And for
Heaven’s Sake, Don’t Overlook Governance! I explain that
while, at first, I underestimated the importance of governance
to ensuring that an organization operates effectively over time,

as I’ve transitioned myself out of running Bridgewater day to
day, I’ve learned a number of important principles for how
governance should function in an idea meritocracy.

39 We did this at Bridgewater and the figure came out to 301 percent.