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Loop Dee Loo

I first learned about cause-effect diagrams from one of Jerry Weinberg’s books. I can’t remember which one because I have so many of them and I’m too lazy to browse through them all to find the exact source. Cause-effect diagrams are useful two dimensional tools that can be used to understand cyclical loops of relationships in a system of interacting components.

In the RWEP loop example below, revenue leads to work, which leads to execution, which leads to profit, which leads to more revenue. If a profit seeking organization is well run, the org leaders vigilantly keep track of the “whole” RWEP loop and influence each malleable component so that the loop is positively reinforced and the org prospers. Neglecting one or more of the dominant RWEP loop components can lead to an unstable system that breaks the loop and collapses the system.

Let’s investigate the ways the loop can break down so we can appreciate what good leaders actually do. The first obvious system buster is a halt to the revenue stream. This single point of failure can bring the whole shebang to a screeching halt in an instant. Since the importance of revenue  to institutional viability is so patently obvious and measuring it is ridiculously easy, both good and bad leaders watch revenue closely and act (hopefully) accordingly to keep revenues rising.

The less scrutinized and harder-to-directly-measure system element, “efficient execution”, is a more subtle system buster. Crappy BMs who don’t (cuz they’re lazy or apathetic)) or can’t (because they’re incompetent) directly recognize efficient execution as a system buster take the easy way out by solely measuring profit as an indicator of execution performance. When profit declines, BMs thrash about because they’re at least one level of indirection away from where the rubber meets the road – execution. Since they’re out of touch, BMs make “suboptimal” decisions and issue ineffective mandates that actually accelerate the downward spiral in profits. Good leaders either directly evaluate execution efficiency according to their previous experience or they rely on frequently solicited feedback from those directly executing the work.

So there you have it in simple, maybe simplistic terms. Great leaders watch and positively influence both the (obvious) revenue and (subtle) execution contributors in the RWEP system loop.

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