MALE SPEAKER: Today
we’re thrilled to have to turn the page
back to the Stanford Department of Management,
Science, and Engineering. Dr. Kathleen Eisenhardt has
a long history with Google, from the early days
to the present. And she in fact wrote
the book on strategy as structured chaos. And so her course is one
of the more popular ones in the department. Hopefully there’s some
veterans here in the audience. And she’s here to
talk to us today about her new book, which is
the attention to simple rules. And it gives us the tools
to cope with complexity, tells us when to
get things done, and when to change course. Dr. Eisenhardt is also the
co-director of the Stanford Technology Ventures program. And so if you have any questions
during the presentation, we have a microphone right here. And otherwise please join me in
welcoming Dr. Eisenhardt back to Google. Thank you. KATHY EISENHARDT:
Thanks everybody. Thanks for coming. Anyway, Thanks a lot for
taking the time this afternoon to join me. What I’m going to
be talking about is obviously the
book “Simple Rules– How to Thrive in
a Complex World.” I want to start
out by a scenario. And this is the story of
Sergeant Edward Montoya. At the time of the story
he’s stationed in Mosul. He’s a member of the US Army. He’s in line around Christmas
time getting some dessert. And as he’s standing
there, suddenly somebody blows themselves
up, a terrorist. And there’s carnage
throughout the mess hall. Sergeant Montoya is quick
enough to get under a table. But when he emerges,
it’s a mess. And he’s a medic. And he has to decide what is
he going to do in this very complex, very uncertain time. Who does he treat? Who doesn’t he treat? Who gets the priority. And the theme of the day, as
you know, is simple rules. And what he actually
falls back on is the medical rules of triage–
who Really needs treatment now versus who can wait
versus who it’s really never going to work for. And the story is the same
for that grandmother looking woman, which I’m sure you
all know, Janet Yellen. Janet Yellen runs the
US economy at least in part on simple rules. Although she may be
changing her rule, but she has been
usefully pointing out that she won’t raise interest
rates until unemployment is below 5% and inflation
is over 2%, which was useful for a long
time for the markets to get a sense of stability
and businesses as well. I think she’s started to think
about changing that rule. Mark Zuckerberg as
well at Facebook, and crickets– crickets
has simple rules too because even though
their world isn’t complex, their brain isn’t either. So what are simple rules? Simple rules are
short-cut strategies that save time and effort
by focusing your attention and simplifying how you think. So that’s basically
rules of thumb. You can think of it as that. Couple key features of
what’s a simple rules. Simple rules are simple,
meaning two, three, four, five, maybe six. Secondly, simple rules depend
on the person and the situation. Your rules aren’t
necessarily my rules. And then finally, simple rules
relate to a defined activity. They’re not platitudes like
always be nice to your mother. Rather their focused on a
particular process or activity that you do. Let me give you some examples
to bring this down out of hyperspace. The simple rules of Michael
Pollan– Michael Pollan is the UC Berkeley
professor of journalism and the author of “Omnivore’s
Dilemma,” “Botany of Desire,” and some other books. I don’t know whether these
rules are on your refrigerator, but they are on a lot of
people’s refrigerators. And his rules are, eat real
food that your grandmother would recognize, number one. Number two, eat small portions. Number three, eat mostly plants. Within that, you
do what you want. You have blueberries. You have kale. You have squash. You have the occasional
fish or chicken. But do what you want to do. But you have to follow
those three simple rules. So simple rules. Second point, simple
rules depend on the person and the situation. So it turns out the
Stanford football team also has simple rules for eating. But as you might imagine,
they aren’t the same as middle aged Michael Pollan. The Stanford
football teams rules are, always eat
breakfast, because they’re college kids who stay
up late, get up late, and often skip breakfast. Their second rule
is stay hydrated, because they’re busy
boys, very athletic. It’s easy to get to dehydrated
and not good for you. And then they’re third rule
is eat as much as you want and anything you want
as long as you can pick it, pluck it, or kill it. Now if you think
about those rules, there’s some similarity
with Michael Pollan– keep it nonprocessed food. But other than that,
20-year-old Stanford guys are eating a lot of protein,
and they’re eating a lot. And so there’s some overlap
with Michael Pollan, but it’s a different situation
of a 20-year-old football player versus a middle aged man. To make it more
business-y, simple rules depend on the person and
the situation– Indiegogo versus Kickstarter. At least initially they
had different rules. In fact I think
they still do have different rules, simple rules
for what kind of project could be on their site. The Indiegogo rules
were, anything goes as long as it’s legal. You want to fund your European
vacation, your dental work, your startup, your movie, your
Jamaican bobsled team, whatever you want to fund, as
long as it’s legal, you can give it a
try at Indiegogo. In contrast at
Kickstarter, Kickstarter is a little bit more rule bound. Basically they want
your product to fit into one of 13 categories. And there are curators
at Kickstarter to ensure that that’s the case. Indiegogo takes
almost everything. Kickstarter kicks out
about 25% of the projects that are actually trying
to go on the site. Why are the
situations different? I think the difference
in the rules is reflected by who the
founders are, at least in part. The Indiegogo founders
are UC Berkeley folks who think that the
internet is for everybody, and everybody deserves
a shot at a rich uncle to give them the
money they need. It’s a very egalitarian
point of view. In contrast,
Kickstarter is funded– it was started at least
in part by a founder who saw Kickstarter as a way
to publicly fund the arts. And art finding is
often a curation model. So they have much more
of a curation model. Third point–
simple roles relate to a well defined activity. Picking crowdfunded projects
in the case of Indiegogo and Kickstarter,
or choosing food in the case of Stanford
football and Michael Pollan. So it doesn’t apply
to your decision to get married, which is
hopefully a one or maybe two time decision. And it doesn’t apply to
solving massive problems. Like there aren’t simple rules
for solving world hunger. It’s rather a well
defined activity like product development,
acquisition decisions, hiring decisions, that sort of thing. That simple rules 1.0. Simple rules 2.0 is that there
are different kinds of rules. And it turns out that it matters
that there are different kinds, because some of them are
harder to learn than others, and because the harder
to learn ones actually tend to have more payoff. So I’ll tell you a little
bit easier and harder. Also a more complete
variety of roles tends to be more
effective as well. So I’m not going to tell you
about all the kinds of rules, but let me tell you
about a couple kinds so you get a flavor for it. First of all there’s
boundary rules. Boundary rules are
rules for picking what to do, yes or no, which
alternative should I choose. So for example, the
Weinstein Company has some boundary rules
for movie picking. The Weinstein Company
did “The Artist,” “The King’s Speech,” back
in the day “Chocolat”, “Pulp Fiction,” whole bunch
of movies over the years. And when you think about
the range of movies– they did “The Imitation Game.” They did “Silver
Linings Playbook.” So what unites those? Because that’s
really quite a lot of, at least on the
surface, different kinds of thematic content. And turns out there’s
a couple simple rules. One, a Weinstein movie is always
about a flawed but sympathetic main character. So in this picture, “The
Imitation Game,” which is Alan Turing, Alan Turing is
portrayed as kind of a jerk, but you like him. I’m told in real life he
actually wasn’t a jerk, but it worked for the movie
role that he was a jerk, so they actually made him more
jerk-like than he really was. Secondly– or “Silver Linings
Playbook,” the protagonist in “Silver Linings
Playbook” again struggles with
mental illness and is annoying in a number of ways,
but you still like that person. So it’s flawed but
sympathetic main character. “The King’s Speech” was
the king of England. Again, he was a flawed person,
but you tended to like it. So flawed but sympathetic main
character is the first point. Second point is
it’s always related to a basic human condition. In the case of “The
Imitation Game,” it’s being gay when being
gay is illegal in England. “Silver Linings Playbook” is
obviously about mental illness. And then there are a couple
of rules that are around cost and how much. Basically there’s a cost max,
at which point they share, and a couple other things. But those are the basic ones. There’s also a rule
about every move should have a beginning, a
middle, and an end, which seems kind of obvious. Although if you think
back to “Pulp Fiction,” it actually begins at the end. So you have to have the
parts, but it doesn’t have to be in the right order. So now you’re
saying to yourself, wasn’t that every adult movie? Well actually it’s not. First of all,
“Mission Impossible” tends to be constant action
with no story, at least my take on it. So it wouldn’t be
a Weinstein movie. And then if you think of a movie
like “Gone Girl” or “The Bird Man,” there are no sympathetic
characters in those movies. Everybody’s annoying
in those movies. And so it wouldn’t
fit that bill either. So within a small
number of rules you get a lot of
artistic creativity, and one of the most also
financially successful Hollywood movie studios. Now to make it a
company, you probably don’t know anything
about, this is a company called Frontier Dental. And their problems– they’re
a relatively small company. They’re an innovative
company that does– their innovations
are around crowns, veneers, and inlays of teeth. And they were trying
to sell their products, and they were getting
about a 3% hit rate as they call on dentists,
which as you might guess was not real effective when
you’re a small company. So they looked over
their experience and thought about who
was the ideal dentist. And they came up with a
couple of simple rules. One was that they thought
the ideal dentist was between the ages of 35
and 55– or 50, 35 and 50, because established a practice
but not ready to retire. But the problem
with that rule was it’s actually hard to
tell how old a dentist is. So they went to a
different rule which was, does the dentist have
an innovative website? So first rule was, they
actually started using, does the dentist have
an innovative website. The second rule was
to look at the finance history of the dentist
and did the dentist have no more than two finance
charges in a year. So innovative dentists
who pay their bills, and went from
essentially a 3% hit rate to something like a
67%, 2/3% hit rate by just changing to a few
simple rules that really focused their sales calls,
and then developing a relationship on the dentists
who really likely to buy. Let me just say– I won’t
say too much about DARPA– but DARPA also has simple
rules about picking projects that they work on, as well
as crowdsourcing innovation. A couple of their rules on
crowdsourcing competition is asking themselves questions. Do we know who has the solution,
or do we know where to look? If the answer’s no,
they crowdsource. They also have
some decision rules around the kind of project. They’re typically around
being in Pasteur’s quadrant. That is, commercially relevant
and scientifically hard, a place that actually
most people don’t play. So that’s boundary rules. Let me tell you a little bit
about how two rules– let me see how our time is– yeah,
how two rules are guiding what it is you’re going to do. Let me do a rock band for you. This is The White Stripes. The White Stripes produced
“The White Blood Cells” album, which is one of the massive
albums of the 2000s. They created that
album in 10 days. They did 18 songs in 10 days. How did they do it? These are not real
rule bound guys, but they did have a couple
of rules for their album. No covers, meaning
they didn’t do anybody else’s song, no
guitar solos, no slide guitar, no bass. Within those rules,
creating creative songs. And I think one of the
surprises, particular of innovation is it turns
out no rules is actually difficult to innovate
with no rules. In fact rules actually
create constraints and make you think harder about
what it is you need to do, and give you a place to start. So where the
creativity is really coming in, or a part
of the creativity, is coming in and choosing
your own rules, which is what The White Stripes did. Couple simple rules, a company
you probably know pretty well is Airbnb. Airbnb started, as you may
know the story of Airbnb, they stumble around
for quite a while trying to figure out how to
make the business model work, trying to make Airbnb work. Finally end up at Y Combinator. Y Combinator folks tell
them to go to New York, and they kind of figure it out. And what they figure out, what
becomes a key process for them, is hosts. And if you think about
the problem, how do you have host rules
for people who may be hosting in their
apartment, in their Tuscany villa, in their tree
house, in their campsite, in their regular home,
all kinds of places. And it turns out, at
least at the start, there were a couple
of simple rules that gave Airbnb some edge. And these were the
rules for their hosts. One was always get
professional photographs. And professional photographs
gave an Airbnb property a slightly better look that,
let’s say, HomeAway or VBO. I forget what the
letters are for that. But essentially give
them a little bit better look, a little
bit of an edge, and started to tip
into a positive cycle. Another rule was
around for hosts, always give local tips–
Where’s the farmer’s market? Where’s the nearest
subway stop– stuff like that, local things. And the idea there
was to give it more of a personal feel that
would distinguish Airbnb from a hotel. Then the third one was, I think,
kind of an interesting one. It was always have fresh soap. It turns out it’s real
obvious that you’re supposed to vacuum and dust. But people were often not
freshening up the soap, because you just sort
of forget about it. And yet that has a huge ick
factor for a lot of guests. And so by just that one little
rule, it reminded oh yeah, we got to really cleanup. And of by the way, fresh soap. And then finally
another how to rule, this is actually some of
the executives at Twitter. They were finding they
were spending too much time in useless meetings, possibly
something you’re familiar with. But in any event, a
couple of the executives came up with some rules, which
we’ll see if they’re working or not, but they’re
trying them out. One is no PowerPoints, because
it takes people too much time to make them. And when people have
PowerPoints they talk too long. The second thing is, you
can’t cancel out of meeting. Because a meeting usually
is three, four, five people. And if one person
cancels out, it screws up the meeting
for everybody. So once you’ve committed
to be at a meeting, you’ve got to actually be there. You can’t cancel out
at the last minute. So those how to tools and
boundary rules are pretty easy rules to learn. People usually get
those pretty fast. Timing rules are harder. And they’re really
about, when are you going to do something-
deadlines, rhythms, so on. And what they do is they’re
useful for getting things done– once timing
matters obviously– but also getting things
going and keeping momentum. Let me give you a couple rules. This is actually an
example from Pixar. Pixar’s original
movie was “Toy Story.” And it took the Pixar
folks about four years to develop “Toy Story.” Well it turns out that if you
can only do a movie every four years, it’s not really
very commercially viable. And creative people
really don’t want only have a product
once every four years, at least creative
artists don’t want to do that. And so that was a problem. And so to maintain
the quality level that they wanted, but
the commercial value, they had to do
something different. And so they actually went
to a timing rule, which took them several years
to actually implement it, but was basically
introduce one movie a year, and introduce it
at November, which is when the start of the big
holiday season for kids movies is. And so it took them
a while to figure out how to essentially divide their
process into year one, year two, year three,
year four, and so on. But essentially they
created a factory of movies where they’d be a year one
movie, a year two movie, a year three movie, and a year
movie, and roll it out. What that did was
obviously let them synchronize around November. It let them synchronize the
processes and the hands off among the people. Again, it took them
a while to do it. And sometimes they miss it. For example, they
missed it lately because they didn’t think–
I forget which movie it is, but a recent movie was up
to their quality standards, so they actually
slipped on that. They also sometimes will do
us a spring release as well, now that they’re
a bigger company. Another example of the timing
rules comes from a company, you probably don’t know in
an industry you probably don’t know. But this is a concrete company. It’s a construction company. You may know this. You may know that cement, which
is an ingredient of concrete, is one of the biggest polluting
sources of CO2 in the world. I think it’s number
two or number three. It’s a massive polluter,
both in the production of it. And what these guys did
was develop a concrete that was less polluting to make,
and also lasted longer because you could use
less of it because it didn’t crack as much, and
you could use less of it. So it was really an important
environmental product. Well actually interestingly,
they figured out this product by first of all going back
to the ancient Egyptians, who were the originators
of concrete, and then looking at Romans. The ancient Romans also
used a lot of concrete. And they found out that
horse hair and blood is particularly useful for
getting better concrete. So they sort of tried to
think, what’s the 21st century equivalent of those,
and essentially engineering a new concrete. They went to Las Vegas
with their new concrete to some trade show, and a lot
of people around the world were very interested
in this product. And so they were sort of left
with this problem of well, there’s hundreds of contractors
who want to work with us. How do we decide? And so they actually came
up with some simple rules to figure out how to do that. One, they wanted no
geographic overlap. So each person had
their own territory. The second one was, how
do we figure out who’s a good contractor to work with. And they came up
with a rule that was a lot like the dentist example. If the contractor has
a laser screed machine, we want to work with them. And I don’t know what a
laser screed machine is, and you probably
don’t know either. But apparently it
signals that this is an innovative, high
quality, and relatively large company that’s likely
to be a good partner. And then the third rule
was around the number of partners they would get. They were a small company. They felt they could onboard
a partner every three months. So every three months a new
partner, every three months a new partner. Basically they quadrupled
their revenue a year, and had a roughly,
they figured, about 80% hit rate on successful partners. Finally just one last kind
of rule is a stopping rule. These are the hardest
kind of rules to learn. When do you sell a stock? It’s easy to buy a stock. It’s really hard to sell one. It’s maybe easy to start
a dating relationship. It’s really hard to end one. So sort of simple
rules for ending things turn out to be hard to
do, and yet important– in fact, particularly important. So Primekss, our
concrete guys, they also had a simple
rule for stopping. And that was, if
our partner’s not using our products
within three months, it’s time to end
the relationship. So three month window, our
party uses our product, they don’t use it,
we’re out of there. Stopping rules– I don’t know
if you all know Steve Blank. Steve Blank, he’s a sort
of a self-styled guru. He is involved with what’s
known as the lean launchpad, the lean startup movement,
that sort of thing. He teaches at Stanford,
Berkeley, Columbia, couple different places. Anyway, he has some
advice for startups, or starting up of any business. His first set of
rules are around more how to rules, which are
around talk to 100 people, do it outside the
building, and talk to face to face
about the product, your product, wherever you think
your product’s going to be. But he also has
some importantly, and I think maybe
more importantly, some stopping rules. After you’ve talked
to a bunch of people, the stopping rules are
around, do customers see that they have a problem? Do they see that your product
will solve that problem? Will they pay for your product? Can you actually
make your product? If your answer is what– yes,
all four, then you go ahead. If it’s no to any one,
it’s time to stop, pivot, go to a new product. So does the customer
see a problem? Will they pay it? Will they pay you? And can you actually do it? Finally another stopping rule,
to go to a different genre. Maybe many of you have read
the “Into Thin Air” book, the Jon Krakauer book
on the Everest climb that resulted in
the largest tragedy on Everest ever, at
least at the time. This was in 1996. It was 16 clients, two world
class climbers, and a lot of very skilled sherpas. They were trying to
summit Mount Everest. And the simple rule
of Scott Fischer, who was the expedition
leader and the company owner, was if you’re not on top by
two o’clock, you turn back. Wherever you are at two
o’clock, turn around. You’re done. Well that day they didn’t. That day one of the clients had
tried before, come very close, hadn’t made it, really
wanted to get there. Couple of other clients
were pressuring. And they were up at the top at
4:00 in the afternoon, not two. On the way down they
were hit with avalanches, and eight people died. So I wouldn’t say that
all stopping rules are this important,
but certainly this was an important
and critical rule. Simple rule that was,
in the dead zone, you could remember it, but
they got tempted and ignore it. So that’s kind of some
ideas around different kinds of rules. There are a couple
other kinds of rules, but that probably
gives you a flavor of different sorts of rules. Now you’re probably wondering,
which is what this is about, is how do you actually think
about creating simple rules? Simple rules– and by the
way, simple rules for raising your kids, for dieting,
for hiring people, for making acquisitions, for
doing product development. You can have simple rules
for all sorts of things. So I though I’d spend
just a couple minutes and talk a little
bit about that. There are really three steps,
which is obviously here, determine the objective,
find the bottleneck, craft the rules. Determine the objective is, what
are you trying to accomplish? What do you want
more of or less of? Do you want to be
more physically fit? Do you want your child
to behave better? Do you want to have
better employees? Do you want more revenue? Do you want lower costs? What is it that you’re
trying to achieve is really the first step. The second step is
finding the bottleneck. What’s really keeping
you from that? And then the third step is
to come up with the rules. So let me walk you through
a couple of examples to give you the
idea of what’s up. Let me give you an example
of “House of Cards.” “House of Cards” I would guess
most of you are familiar with, the Netflix show. The Netflix problem
at the time was that content was becoming
enormously expensive for them. They were basically using
somebody else’s content and streaming it, and it was
becoming extremely expensive to get that content. And so they decided to go into
their own created content. And the challenge was not
just to have a good show, but have a show that would
stand out and be way out there in terms of press and visibility
and engagement of audiences. So not another show, not
just a Sopranos quality show, but in fact a show that
would create enormous buzz so they could stand out from
HBO and from the other creators of top quality content. And so they had to
do something unusual. And it wasn’t going to
be just great writing, because those other shows
all have great writing– you know, “Mad Men.” I mean, there are lots of
shows– not lots of shows– but there are a number of
shows with great writing. So what do you do if you’re
trying to be really different? And what they did– and so
what’s different about– I’m getting into the story. Let me step back and
what the point is. The point was, for
them, was how do we do something striking
unusual that will stand out. Not just more revenue,
not just lower cost, but really stand out. I’ll tell you a little bit
about then how they did it, but the key point here is
you’re on the objective. They had great writing. And that was certainly
important to them. But they also decided to
look for different ways to really be different
from everyone else. And the bottleneck
they chose– and I’ll talk a little bit
about bottlenecks next– but the bottleneck
they picked on was directing. In other words, lots of shows
have good content and good writing, but they
don’t necessarily have great, unusually
good directing. And so the original
director of “House of Cards” was David Fincher who did
“The Social Network,” “Girl with the Dragon Tattoo,”
basically an A-list movie director directing
for television. The second thing that
they did was then he was allowed to bring on
board other A-list directors like Charles McDougall,
Allen Coulter, who did “The Sopranos,” who
did “The Office,” those two guys, other top A-list
directors, and then just gave them a
couple simple rules. They all had to do two episodes. Those two episodes
had to be in a row. They had to do it
in a 20 day shoot. They could get their
own day players. So they couldn’t change Kevin
Spacey and Robin Wright. But they could
change the players that were being introduced
in their part of the show. And they had final
cut opportunity. So they did that. And then finally
they encouraged them but didn’t require them to
use a stationary camera. And what the point
here is that they chose a different bottleneck,
which was directing, and got A-list people to do it. One of things that makes
“House of Cards” unique is the cinematic quality. And so they created
a differentiator around the cinematic quality. They also created
a differentiator, a different way of standing
out, by their programming, the binge watching. They did the binge watching
as I’m sure you all- they really originated that. The second thing that they
did that you may not know was they also bought
“House of Cards” episodes for two years, which is
kind of unheard of in the media industry. Most the time there’s
a trial and then you buy the whole thing. They bought two years,
what’s locked up the content at a less expensive price. Why could Netflix do that by the
way, both buy “House of Cards” for two years and
do binge watching? Because as they said,
we knew before you knew that you were going
to like “House of Cards.” And we knew before you knew
that you’d binge watch. And they knew that because they
had it from their own data. They knew that
Netflix subscribers liked David Fincher. They liked “House of Cards,”
and that they were already binge watching. And so what was a big
risk for a media company was not a big risk for Netflix. And then the final way they
tried to change the game and stand out was in
their choice of talent. So having Kevin
Spacey on television, having an A-list actor on
television, was unusual. And that’s characteristic
of both behind the camera as well as on camera
stars, which is again consistent with what Netflix
often does– top talent, pay top dollar, and let
them do their thing. So that first example
is about– actually it’s about a lot of things, but
it certainly started out by being about objectives. Thought maybe I’d say something
about Google, a little Google picture here. I don’t know if you know Shona
Brown, who Shona Brown was. She was the senior
VP of operations when Google went public. And she was also my PhD student. So I’ve known Google for
a long time through Shona. But she, among other
things, ran HR. And this is about bottlenecks. Because I told you there’s
three steps– what’s your objective, what’s
your bottleneck, when are your roles? The bottleneck is the
hardest one to figure out. And that’s because it’s
hard to tell– for example, let’s say you want to
be more physically fit. Well does that mean you
should improve your diet? Does that mean you
should exercise? What should you do? There are lots of things. Your sales aren’t working. Is it your product? Is it your sales force? What is it? What’s the bottleneck? In the case of
Google, there were challenges with a number
of potential rivals, which in retrospect don’t look so
powerful, but at the time did– Yahoo, Microsoft,
for example– in search. And so what was the bottleneck? The bottleneck wasn’t products. The bottleneck was
computer science talent. And so Google had
several simple rules about getting top
computer science talent beyond the obvious of
good grades from good schools. It was around
things like, always hire people who are a little
eccentric, because they tend to be more creative. So look for somebody who’s
done something weird. Look for people who are
referred to by other Googlers, because other Googlers will
get what Google is looking for. And never hire anybody who’s
fudged on their resume, because we don’t want
low integrity people. There were some other rules too,
but some fairly simple rules that were beyond the
obvious of, let’s hire somebody from Carnegie
Mellon who was smart. There were also some rules
around acquisitions– because that was the other
way to get computer science talent– and the size
of the acquisition and how to integrate it. So for example, do acquisitions
between 10 and 15 employees. You sort of get a
package of people. So the point is that
bottlenecks are important. Bottlenecks were
important here at Google around hiring computer
science people. Bottlenecks were important
at “House of Cards” around creating new bottlenecks
around directing, programming, and talent. How do you create rules? Well there are a couple
ways to create rules. What you’re typically looking
for is analyzing your own past experience, what’s worked
for you and what hasn’t. The second thing is getting
expert advice from a book, from a consultant. And then third is
usually something about getting some advice
from peers or friends. So in the book we have an
example about internet dating, about how to do
better internet dating where the guy in the story
uses those three tactics. But I’ll do more of a business
example, which is Zatisi. Zatisi is a food
caterer in Prague. And they were fine dining,
owned a number of restaurants in Prague, and decided
to go into catering for Western companies like
Google, like Facebook, like Cisco, who wanted to give
their employees better quality food. And so they got contracts
with some of these companies and started running
cafeterias, company cafeterias. And they were losing
a ton of money. And so what did they do? How are we going to
start making money? Everybody loves our food. Everybody’s going
to our cafeteria. But we’re not making
any money on it. And so what they did is
they started analyzing their own experience– and
had the chefs do it, not just the bureaucrats, but
the chefs as well, the people who were
actually doing it. And they started to realize
that what they were doing was the chefs were enjoying
doing novel cooking. And they did probably a thousand
different menus in a year. So it was very creative, but
it was not very standardized. They also were not
particularly paying attention to local sourcing and
seasonal ingredients, and they were not doing
some other things. So they looked over
what they were up to and came up with a
couple of simple rules about how to manage their
cafeterias more effectively and pick their menu
more effectively. So they decided their
problem– to go back to the steps– their
objective was more profit. Their bottleneck was menu
selection they decided. And their rules
were around things like, fix the menu by noon
on Wednesday the week before. Do five dishes every day. Three have to be best sellers. Do two dishes every day
that are the same across all the cafeterias. And 90% of your food
should be locally sourced or seasonally appropriate. And within a few months
they raised their revenue. But more importantly they
doubled their profit, and then they started to
be able to scale and grow. So the example here
is about going back to your own experience, seeing
what’s working and what’s not. They didn’t particularly
ask outside experts, but you certainly could
do that kind of thing, and come up with the rules. So overall that’s
the basic idea. Lead with a little picture
of Leonardo da Vinci. The pitch here is, in a
complex, uncertain world, whether you’re Edward Montoya
getting bombed in Iraq, or you’re trying to run
food service in Prague, or you’re trying to run
product development at Google, simplicity’s the
ultimate sophistication. But why do simple rules work? They work for three reasons. One is, if you have too many
rules, it’s bureaucratic and you’re kind
of constrained in. And if you have no rules,
it’s really too crazy. You can’t get anything done if
there’s no rules because you can’t get any efficiencies. And so it’s that in between. I don’t know if you all
follow complexity theory, edge of chaos. Essentially edge of chaos,
complexity theory stuff. So that’s the first
reason is it puts you between chaos and efficiency. Actually I’ll give
you an example because the pope’s in town,
or he’s sort of in town. He’s in the country anyway. One of the great
entrepreneurial success stories of the 17th
century is the Jesuits. And Pope Francis is a Jesuit. And they broke away from what
all the other priestly orders were doing. All the other orders would
have these big rule books like when you were
supposed to wear slippers, and which spoon to use,
and when you could talk and when you
couldn’t, this stuff. The Jesuits had only
a couple rules– get out of the monastery, get
out of Europe, save souls, your priority is education. And they became, by far,
the most successful order in the Catholic Church. And they run what, 40
schools in India for example? So amazingly, entrepreneurial
story of the 16th century. So simple rules are
very entrepreneurial. Second reason why they
work is because you make better decisions,
partly because you save effort and time, which
is the classic rule of thumb. But there are also
certain situations when you have a
relatively small n and when you have
highly correlated data, if you’re just running
data analytics on it, you’ll actually overfit. And so what you’re actually
trying to do is not overfit. And so you’re
actually backing down the number of rules that
you could actually create. So for example,
college students were asked to use rules to decide
which courses they would take. And the students
that were primed to have many rules– like
had to have 10 rules– were less satisfied
than the ones that just used a simple rule like,
take the courses my friends say are good. That made them more
happy because what happens is if you
have too many rules, people aren’t good at
correctly weighting. So we tend to, if
you have 10 criteria, we overweight things that are
really not important to us. And so it’s actually
better to cut the number. Plus it fits if you have
issues with overfitting. And the other
reason they’re good is because you can do
them when you’re tired. When you’re tired, you’re
stressed out, you’re hungry, whatever, you just
have to remember one thing, or two things. Then the third
reason why they work is actually they’re better for
coordination in big companies or big organizations. Because if you have
a whole lot of people who have to coordinate,
they’re only a few things. They’re easy to communicate. They’re easy to remember. A lot of people can do them. So for example, the
original Wikipedia rules were, everything has to
have two factual sources. You can’t give your opinion. And then don’t follow
any other rules. And those were the
rules that Wikipedia had when Wikipedia grew. Now Wikipedia, if you’ve
tried to post on Wikipedia, it’s a zillion rules. And it’s basically a bunch of
Wikipedian guys running it, which is why there’s hardly
any women’s content on there. And they can’t
breakthrough the rules. AUDIENCE: To what extent
is awareness of biases, like implicit and explicit,
how does that factor into the creation of rules
when you sit down to make them? KATHY EISENHARDT: OK, well
usually when people start out, they don’t make very good rules. And I don’t know if you all know
heuristics and biases and Danny Kahneman, if you’ve read that
book, “Thinking Fast and Slow.” It’s a negative
take on heuristics. And it is true that when people
initially come up with rules, they often aren’t very good. So we were working with
some Finnish entrepreneurs and looking at their
internationalization process. And they all were starting out
with rules like, always sell in the Baltics. Which was largely, well
we know the Baltics. We know the Baltics. We know Sweden. In fact they all
went to Sweden first because we all know Sweden. Sweden is also a language
in Finland, and so on. So people usually come out
with fairly lousy rules. It’s when they start
to think about it and improve them that
you get better rules. So initially they are
kind of bias bound. But if you work at it you
can get more strategic rules. And then if you actually
track your progress over time, which is what some
of the companies we were working with did, you can then start to
actually make the rules better and more strategic. AUDIENCE: So I’m thinking
about my own job here. I work in sales. And I was wondering if–
everything feels a bottleneck. And I was wondering if you
could talk a little bit more about how to identify what
the true bottleneck is, if you cold talk about
that process [INAUDIBLE]. KATHY EISENHARDT: Yeah,
that’s probably the hardest. Because if you’re in sales,
you’re probably saying, well is it not selling
because my product’s not good, my sales force isn’t good. There are probably
10 different reasons why something isn’t working. That’s the one that’s probably
the hardest to figure out. You don’t have time to
tackle– although “House of Cards” to some extent
did multiple bottlenecks. But you don’t have
time to tackle one. One of the tricks I have seen is
that if you ask, not people who work with you, but maybe
somebody slightly outside– somebody in product
development, somebody in HR, somebody in some
other part of Google– to look at your
function, they may be able to come at your function
with a fresher perspective. They may give you lousy
ideas, but I’ve often seen their able to
give you good ideas. In fact i was working
with an R&D group, and they were having
issues around what projects should we actually focus on. And they realized that if they
asked some other people around the company, they’d actually get
really good insight into where they were doing well
and where they weren’t. So you might try asking friends. AUDIENCE: If I were
to try to apply some of these simple rules
to my own career development during this season
of perf, as it were, what are some ways
that I might be able to apply some
of these rules, not necessarily
externally, but internally? KATHY EISENHARDT: Yeah, I
think what you’d want to do is, what are you trying to
achieve with your career. Do you want to have
a managerial role? Would you like more free
time for family and fun? Do you want to have
more engagement in some sort of social mission? What is it that you
really want to achieve is probably the first step. And then secondly,
you’d think about well, what’s keeping you from that. Is it because you’re
in– I don’t know what would be keeping you from that. Is it that you’re in
the wrong jobs now, you don’t work effectively
in some way, or whatever. And then you might start
thinking of some rules that would help you do that. So I would think
hard about what it is you’re trying to actually
accomplish for yourself, and then think about
what’s the bottleneck. And maybe also look back again. Looking back at your own
experience is very valuable, and saying when were you
really jazzed about your job, and when were you
saying, you know, this isn’t really
working for me. You’d try and decode that. And as I just said
to this guy in sales, maybe ask some
people who know you, your friends and family,
or friends here at Google who are maybe a little outside
of your work space, who can take a bit more
of an objective view on what you’re good at, what
you’re not, what you want. Sometimes other people
can surprise you in how perceptive
they are about you. AUDIENCE: Would you ever
correlate simple rules to goals? Because I think there
are certain things that you’re saying that
sounds like simple– KATHY EISENHARDT: Goals. AUDIENCE: –goals in terms of
defining rules and defining goals. And do people, in reading
this, apply it to that as well? Or do you find them
distinctly separate? KATHY EISENHARDT: One can make a
distinction between objective– this is the goal I’m
trying to achieve– and then a goal that might be
some behavior, like I’m only going to eat plants. That would be my goal. Goal is a less precise term. Nobody ever asked
me that before. MALE SPEAKER: And I encourage
you all to check out the book. It is the nerdy business book
of the summer by Bloomberg. KATHY EISENHARDT: Yeah,
Bloomberg Business called it the nerd
book of the summer. It’s been pretty amazing
the kind of results that we’ve been getting by just
getting people to think about, what are the two or three
or four things I really have to do, and focus on those,
and forget all the other stuff. But simple rules work
because they put you between efficiency and chaos. Efficiency and
flexibility is probably a better way to put it. They work because you
make better decisions, and they work because you
can coordinate people. Well thanks a lot for spending
a Friday afternoon with me. And I hope you keep it simple. [APPLAUSE]