Bridgewater’s Secret Sauce – Organisational Learning?

Bridgewater Associates has been called the “world’s largest macro hedge fund” and has an award-winning track record of financial performance. In a recent TED talk, the company CEO Ray Dalio shared the secret sauce to which he attributes the success of his organisation – a philosophy of radical truthfulness and transparency. What he described looked a lot like a learning organisation. This post provides some context so you can judge for yourself….

There is considerable controversy about how we learn as individuals. Things get a lot murkier when we consider how we learn as groups. We know even less about the relationship between individual and organisational learning. A good place to start learning about learning is to consider its different forms. One framework categorises learning into three types, using the metaphor of ‘loops’ to distinguish between them.

Single-loop learning is the acquisition by an individual of knowledge and skills. We engage in this form of learning when we develop a deep understanding of a topic. A popular rule of thumb about such learning is that one can become an expert on a topic or in a skill by investing 10,000 hours of practice. Originally intended to dispel the myth that one has to be born with a certain ability to succeed, Malcolm Gladwell’s proposal has been the subject of much heated debate amongst both academics and practitioners. It is now accepted that just practice is not enough. What one needs is deliberate practice, which involves real-time and consistent feedback about performance.

Double-loop learning is about understanding our motivations and biases, particularly the ones of which we are unaware of those we don’t acknowledge. This form of learning goes beyond single-loop learning in two ways. First, single-loop learning is about how to do things better whereas double-loop learning requires us to question the ‘why’ and not just the ‘how’, i.e. to critically reflect on our goals, on why we think we must do something. Second, double-loop learning is not just about our performance as individuals, but about how our motivations and the way we interpret what we see influences the way in which we communicate and work with others. It is in this second sense that double-loop learning can be a powerful tool to improve performance.

Each of us looks at the world around us through a set of filters that is unique, i.e., in any given situation, what we see is different from what others see. We build and adjust these filters as we go through life experiences, but much of this process is unconscious, i.e., we are unaware of much of the filtering that happens. When asked to articulate how we would behave in a particular situation, we may well describe a behaviour that is very different from the way we actually behave in that situation. When presented with evidence of this difference, we react with surprise and sometimes with anger. Chris Argyris called the way in which we believe we act, our ‘espoused theory’, and the way in which we actually behave, our ‘theory-in-use’. Clearly, the bigger the difference between our espoused theory and our theory in use, the less effective we are likely to be. Double-loop learning involves developing the ability to see the distinction and acting in a more integrated and authentic manner.

Triple-loop learning is the understanding and dismantling of systems of power and meaning that suppress diversity and open communication. This form of learning involves understanding how in groups we build and maintain ways of thinking and acting that suppress criticism, even when valid and necessary. A good example is group-think, where everyone in a group thinks in a certain way, regardless of the validity of that way of thinking. Here, our perceptual filters are based not just on our personal life experiences but on our deep-seated desire to belong. Where membership in a group is conditional on us adopting a certain perspective, the motivation for us to think and act in a way that is aligned with the rest of the group can be very strong.

Groups can develop practices designed to reinforce these ways of thinking and acting, and to resist anything that threatens them. These practices can take the form of structures such as hierarchies, which concentrate power in individuals or subgroups, as we see with leaders of cults. Other forms of resistance to change can come from a shared language, e.g. a tacit agreement that certain ideas are taboo. These practices can of course be a problem when the accepted culture within the group is at odds with society at large. But in milder forms, groupthink can lead to suboptimal performance when the external environment changes but the shared group perspective doesn’t keep pace. Ross Ashby coined the phrase ‘variety consumes variety’ i.e. the need for a system to be smarter than its environment in order to thrive in a dynamic environment. Triple-loop learning involves the recognition and harnessing of the forces of diversity, not as a nice-to-have, but to maintain flexibility and thus increase the likelihood of survival.

As interpersonal behaviour, single-loop learning operates at the level of the individual, double-loop learning operates at the level of an individual interacting with other individuals and triple-loop learning operates at the level of groups of individuals, such as organisations.

With this background let’s review some of the information Ray Dalio shared in his TED talk.

Dalio attributes the success of Bridgewater to a secret sauce – collective decision-making, the polar opposite of the situation in which people arrogantly, and naively, act on strongly-held, untested opinions (think autocratic CEO!). In his talk he offers a glimpse of how the company has implemented this capability.

One of the tools he presents, the ‘Dot-Collector’, is an automated mechanism that tracks how every individual scores a topic or a person on a few key criteria using a ten-point scale. Everyone uses the tool and so each individual can see how they evaluated the topic or person as compared to everyone else. This allows each person to calibrate their evaluation within the context of everyone else’s evaluation, thus forcing reflection on the validity of one’s own perspective. Individuals presented with this information begin to consider the possibility that in making their evaluation they may have been biased in some way. This opens up their thinking for a critical looks at their biases, particularly unconscious ones. And this, of course, is an example of double-loop learning.

Dalio also presents an example of someone expressing a view that was critical of a presentation he once made, emphasising that this forthrightness is the norm, the expectation, rather than the exception. Every individual, regardless of their position in the organisation, is empowered to express their appreciation or criticism in an open and constructive way. This is triple-loop learning in action. Dalio doesn’t go into the detail of how this culture was implemented, but he does say that it was not easy and that it was not quick. He also says that radical truthfulness and transparency is not for everyone. It is said that thirty percent of recruits leave or are fired within two years. If this difficulty is spread evenly across organisational hierarchies, it is not difficult to see why organisations that act in this way are rare – even weird, as the New York Times suggested.

Dalio ends asking his audience to reflect on what it might be like if each of them knew exactly what others were thinking and if others knew exactly what the that person was thinking. Imagine…!

Watch the video here and let me know what you think.


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