Simple rules are a practical tool to guide choices, balance flexibility with structure, and improve coordination in organizations. To implement the tool, managers create a set of rules to guide a key process. Simple in principle, but tricky in practice. Over the past decade I have worked with dozens of companies which adopted simple rules, and identified recurrent mistakes that derail simple rules. Managers who recognize these common pitfalls can avoid them.

• Too broad. Managers often confuse a company’s guiding principles with simple rules. HP’s core
  Continue reading: “Five mistakes to avoid with simple rules”

Simple rules can improve decision making, balance structure with flexibility, and foster coordination in organizations.  Implementing simple rules consists of three steps: select a critical process, craft the rules, and avoid common mistakes. This post discusses how to formulate effective rules, and the next describes how to avoid common mistakes.

Where do simple rules come from? Gerd Gigerenzer, whose research is summarized in an earlier post,

My previous post illustrated how simple rules can structure organizational processes, such as capital budgeting or new product development, while leaving flexibility for employees to exercise initiative and creativity. Simple rules can also mitigate a fundamental challenge facing large, complex organizations–breakdowns in coordination across silos.

When coordination breaks down in companies, employees often attribute the failure to incompetence or bad faith on the part of colleagues in other departments–”those bozos in headquarters/marketing/finance/etc. screw everything up.”  But breakdowns in coordination are inevitable in large corporations. In Organization

My last post summarized research showing that simple rules work as well or better than sophisticated analyses, using less time and data. To date, this research has focused on individuals decision-making. Making choices in organizations is rarely a solo sport.  Employees of large corporations face myriad considerations that research subjects can safely ignore in a laboratory experiment. These issues include fragmented information, office politics, the need to coordinate choices with others, and balancing discipline with flexibility. Simple rules can help employees navigate the social and political aspects of making choices. My next few posts will discuss the organizational benefits of simple rules.

Simple rules can help firms strike a balance between too much structure and too little. In their book

In the boom, abundant resources allowed managers to avoid hard choices–they could spread cash evenly over alternatives like peanut butter on a slice of bread. In the current downturn, scarcity of cash forces hard choices on what to do, what not to do, and what to stop doing. How can managers make these difficult choices?

Many believe that complex choices demand complicated analysis. Economic theory holds that decision