Simple Rules for a Complex World

How do successful companies shape their high-level strategies? A decade ago, London Business School's Sull and Stanford's Eisenhardt looked for the answer by studying the era's leading high-tech firms. They discovered that such firms relied not on complicated frameworks but on simple rules of thumb. Managers translated corporate objectives into a few straightforward guidelines that helped employees make on-the-spot decisions and adapt to constantly shifting environments, while keeping the big picture in mind. This article describes the authors' subsequent research into why simple rules work and how firms develop them. Typically, after setting its priorities, a company will identify a bottleneck preventing it from making progress toward them and then create rules for managing that bottleneck. At America Latina Logistica, for instance, the problem was capital spending: The railway had only a tenth of the funds it needed to invest in growth and infrastructure. So a cross-functional team came up with rules to guide spending: Any proposal had to remove obstacles to growth, minimize up-front costs, provide immediate benefits, and reuse existing resources. The rules allowed employees across departments to make difficult trade-offs and quickly innovate solutions that put the firm on the fast track. Effective rules, the authors say, are specific, not broad; draw from historical experience; and are made by their users, not the CEO. Moreover, as a company evolves, they evolve with it.

• Decision making
• Strategy formulation
• Organizational goals
• Problem solving
• Systems theory