A decade ago, in the course of studying why certain high-tech companies thrived during the internet boom, we discovered something that surprised us: To shape their high-level strategies, companies like Intel and Cisco relied not on complicated frameworks but on simple rules of thumb. This was true even though they were in extraordinarily complex, challenging, and fast-moving industries. The rules were not only simple, we found, but quite specific. Typically, managers had identified one critical process—making acquisitions, for example, or allocating capital—where a bottleneck impeded growth, and then crafted a handful of guidelines to manage that process. This approach helped companies to bridge the gap between strategy and execution—to make on-the-spot decisions and adapt to rapidly changing circumstances, while keeping the big picture in mind. We reported our findings in HBR (“Strategy as Simple Rules,” January 2001). At the time, we knew that simple rules worked in practice, but now—as a result of subsequent research that we and others have done—we have a much richer understanding of why they are effective and how to construct them. Simple Rules in Action The story of América Latina Logística (ALL) illustrates how simple rules can help companies shape strategy in an uncertain environment. It also demonstrates that this approach can be useful in a setting beyond the technology sector—such as a dilapidated freight railway in southern Brazil. In the late 1990s the government of Brazil privatized the country’s freight lines. After decades of neglect, the nation’s freight-rail infrastructure was run-down: Half the bridges needed repair; a fifth were on the verge of collapse. Twenty steam locomotives that were decades out-of-date were still in use. Rail accounted for only 20% of long-haul shipments in Brazil, compared with 80% in most countries. ALL was spun off from the Brazilian railway authority in 1997 to manage one of the country’s eight freight lines. Its new management team took over an organization that was bureaucratic, overstaffed, and bleeding cash. Transport on the line was so unreliable that crops in the areas it served were routinely left to rot in the fields during the harvest season. Middle managers were confused about what to do, and many pushed their local agendas at the expense of the company’s overall best interests. The team decided to adopt a simple-rules approach to the work ahead. Let’s look at how that approach helped ALL’s executives achieve alignment, adapt to local circumstances, foster coordination across units, and make better decisions. Donald Sull on how to simplify your strategy. Aligning activities with corporate objectives. To set a clear direction, the senior managers decided on four companywide priorities: cut costs, expand services to existing customers to grow revenues, invest selectively to improve infrastructure, and build an aggressive corporate culture. The company had only $15 million available for capital spending—less than a tenth of the total funding requested by managers—but it desperately needed to upgrade the infrastructure and trains so that it could expand services. Accordingly, the management team identified capital budgeting as a critical bottleneck keeping the company from achieving its objectives. Next, ALL’s CEO assembled a cross-functional team to develop simple rules for prioritizing capital spending. Any proposal, the rules said, should: remove obstacles to growing revenues, minimize up-front expenditure, provide benefits immediately (rather than paying off in the long term), and reuse existing resources. The simple rules aligned key decisions with corporate objectives. In addition, they translated the broad priorities “expand services to existing customers” and “cut costs” into clear guidelines that managers and employees understood and could act upon. The rules helped people avoid the paralysis that often strikes when they’re confronted with too many alternatives. (See the sidebar “The Science: How Simple Rules Make It Easier to Act.”) The Science How Simple Rules Make It Easier to Act Complex situations create many possible courses of action, which can confound employees on the front line. A recent body of research by psychologists demonstrates that when faced with a superabundance of alternatives, people are afraid of making the wrong choice. As a result they delay decisions, default to the safest option, or avoid choosing altogether. In one experiment by Sheena Iyengar and Mark Lepper, shoppers were presented with free samples of six types of jam. Forty percent of passersby approached the table, and 30% bought a jar of jam. However, when 24 types of jam were offered, 60% of shoppers approached the booth, but only 3% bought a jar. Another study found that three-quarters of eligible employees participated in 401(k) plans that offered only two funds, but participation d