Kathleen Eisenhardt explains how simple rules coordinate large groups in complex systems. She uses Zipcar, Wikipedia, and Janet Yellen's Federal Reserve approach to show how a few clear rules guide behavior and decisions across organizations.
Shared economy is all about coordination of large numbers of people doing something. Zipcar, great example of how do you coordinate however many customers Zipcar has, hundreds, hundreds of thousands, some crazy number of people. How do they start out at least before they were bought by Avis? Couple of simple rules around coordinating behavior. And why does it work, by the way, for coordinating behavior? Because when you keep just a small handful of rules or a handful of precepts, people can remember it, people can communicate it, and you can enforce it. Zipcar, what are the things you had to do? Return the car on time, report damage, fill up the gas tank, keep pets in carriers, don't smoke. Pretty simple set of things that coordinated hundreds of thousands of people doing things. True of Wikipedia, at least when Wikipedia started. Wikipedia started with a couple of rules: neutral, so that was facts not opinions, you always have to have a source, and then their third rule which I actually love is, and don't follow any other rules. They of course have changed that if you've been to Wikipedia lately, but if you think about what Wikipedia accomplished in terms of crowdsourcing encyclopedia and the knowledge of the world, it's an incredible— it's an incredible achievement. And most of that growth was when they had simple rules. How about superior coordination from Janet Yellen? Janet Yellen, Federal Reserve Chair. Janet Yellen has a hard job. The U.S. economy is not a simple economy, is it? There's a lot going on in the U.S. economy. And part of her job is communicating what the Fed is going to do so that business people and investors have a sense of where the economy is going and have the confidence to invest. What does she do? She has a rule called mind the gap, and the gap refers to the difference between the ideal unemployment rate and the actual unemployment rate, and it refers to the ideal inflation rate and what's the intolerable inflation rate. And she's monitoring those two, essentially those two gaps, and setting interest rates. She and the Board of Governors, obviously. But what that's doing is not only does it appear to be pretty good monetary policy, It also is giving people an understanding, people in the investment community and the business community, a sense of what's going on with interest rates so that they can plan however they want to plan. So it's not just that there are good rules, it's that she's able to communicate a very difficult set of choices, in fact, in a very simple way.
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