Page 430 - Ray Dalio - Principles

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 improvements, 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 organization to fit the people. Managers will often take the people who work in their
organization as a given and try to make the organization work well with them. That’s backward.
Instead, they should imagine the best organization 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
organizational 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 multi-cellular 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 hand, 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 location, 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
organization.
j. Consider succession 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 motion machine that can work well without you. This involves more than the mechanics