In the Loop —Chapter 2: In the Loop Leadership

14 min read

If you are the CEO or senior executive of a company with big aspirations — whether startup or Fortune 500 — the job of transformation is on you. Only you can turn your company into a fit systems enterprise.

You know one when you see one. The fit systems enterprise exudes customer value. A steady stream of innovative new products (and improvements to existing ones) flows into the arms of happy customers. Rich feedback loops reach into the ecosystem like roots, drawing nourishment and insight from developments in the market, customers and technology. A digitally literate top team has moved digital technology to the center of the enterprise, transforming products and automating processes. Technology is used consistent with clearly identified ethical principles. Data access is democratized; teams have the data they need to track performance and drive improvement. The performance bar for talent is high. Top echelon architects, engineers and product managers are attracted to join the company. They leverage disciplined agile delivery methods, microservices architecture and efficient cloud based infrastructure to build great technology. The revenue engine hums like a Porsche. As change swirls, teams respond nimbly to seize advantage, create new value, cut out obsolete parts of the system, discard out-of-sync processes and rebalance investments.

Just consider the winners. Amazon. Salesforce. Netflix. Microsoft. Google. Read what their leaders say: Bezos, Benioff, Hastings, Natella, the Google founders. They aren’t hiding what it takes. Bezos explained his philosophy in an SEC filing, called “Day 1”. Benioff speaks to his “seven lessons”. Hastings released to the public his famous “Netflix Culture” deck. Natella has been open about his management philosophy. Books have been written by Googlers about the Google culture. Across all of these, the themes are remarkably consistent: build feedback loops everywhere, obsess about customers, drive constant digital innovation, set a high bar for talent, focus on teams, balance freedom and responsibility, focus on results not process, think systemically.

The bottom line is that there is just one way to create a fit systems enterprise: great leadership. To build the fit systems enterprise, you need to be an In The Loop leader, one that lives within the worldview I call The Loop Leadership Paradigm. This entire book is dedicated to advancing that paradigm. But at a high level, it is comprised of six aspects:

  • Readying yourself to lead
  • Setting strategy
  • Aligning people
  • Managing change
  • Driving execution
  • Building culture

Ready Yourself to Lead

As leader of a company with hopes, dreams and challenges, you hold destiny in your hands. Many have entrusted their futures to you. Your customers have. Your employees have. Your investors have. It’s an awesome responsibility. If you are not prepared to lead in today’s fast changing digitally driven world, your future and the future of all who count on you will be bleak.

This means that the first person you must fix is yourself. To be a teacher, you must be a student.

An In The Loop leader is a systems thinker. You conceive of your enterprise in its context and its abstractions. It lives in an ecosystem. It is itself a system. Inside it are operating systems and meta systems. Inside these are domains. Inside the domains are domain teams, supported by technology. All of these get work done through diverse interactions of stocks (or data states), flows and feedback loops. They all exhibit varying levels of threat and opportunity, health and maturity. Your job is to elevate them to counter threat and seize opportunity.

The ecosystem impacts the enterprise in diverse ways as competitors jostle, technology advances, customers change and markets roil. Change in the ecosystem must be sensed. Teams must be capable of reacting. Their response must be driven by a clear purpose. Purpose is acted on in the interactions between people, workflows, technology and money flows. These interactions improve when people make them improve. To perform, people need role clarity, competency, motivation, energy and the right staffing levels for the job.

All of these factors require that you see the dynamic, integrated nature of things. You need to look beyond symptoms to root causes and understand lags between intervention and effect. Only then can you conceive of system interventions that advance your purpose in the face of change. This requires you to be a systems thinker.

In today’s world, advantage goes to the enterprise with the greatest customer-centric digital leverage. So whether or not your background is in computer science, you and your fellow senior executives must all be digitally literate. It’s not surprising that the new CEO at Starbucks, Kevin Johnson, was previously CEO of Juniper Networks and held a senior role at Microsoft. A digitally literate leader understands what it takes to build and maintain sound technical infrastructure. She knows how to build great development teams. She appreciates that the difference between an average software architect and an excellent one is at least 10X. So too for all technical roles. Unlike procedural functions, where the difference between average and excellent might be 2X, the difference in key technical roles is orders of magnitude greater.

The digitally literate leader appreciates the danger of technical monoliths. Technical monoliths are brittle and difficult to change. To be managed, they require organizational monoliths and waterfall methods. For these reasons, the digitally literate leader supports the extra work it takes to build reactive systems leveraging microservices architecture.

The digitally literate leader is comfortable allowing self-organized teams to figure out what software must be built to advance a defined business purpose. She appreciates the value of disciplined agile delivery methods. She supports projects that are focused on increasing the resiliency of cloud infrastructure, even if it draws resources away from the quicker development of customer-facing features.

For instance, one leader might be responsible for an operational team that runs a domain. Its people are important to the company. But because she is digitally literate, she understands that a digital-at-the-center company must find digital leverage everywhere. As such, she supports creation of a sidecar development team, whose job it is to automate the work done by people on her operational team.

The digitally literate leader understands that big data, machine learning, AI and deep learning deliver potent capabilities to the enterprise. She understands enough about what these technologies require to support investments in them. She understands that cloud infrastructure is necessary to optimize their performance and efficiency.

The digitally-literate leader values user-centric design, and supports investments in mobile development. Where relevant, she understands that IoT enables sensors everywhere, creating streams of data that can be processed and analyzed in real time to drive predictive, prescriptive or perhaps even cognitive analysis and action.

But most of all, she appreciates that significant investments in talent, time and technology are required to unlock these capabilities. These investments may take years to pay off. The digitally literate leader joins fellow executives on the journey, approaching the task with relentless drive and determination.

The In The Loop leaders is also guided by a strong ethical core. You have thought through the ethical issues associated with leadership and the deployment of advanced technologies. You are sensitive to the legitimate interests and rights of all stakeholders within and outside of the company. You work to ensure these principles are brought to life in decisions and actions.

An In The Loop leader embraces ambiguity. Despite a rich array of feedback loops, there is rarely enough data to have certitude. You live with questions, poking and prodding at the edges of them to perceive possibilities. You balance advocacy with inquiry (“I believe this. What do you believe?”) But then you act. Action is critical in a fast changing environment. Time is your biggest competitor.

As an In The Loop leader, you are comfortable setting direction. You understand the power of culture, and work hard to bend it into a force for positive change. Your acts to clarify direction and define the culture are inspirational to followers because you tune in to how change impacts them, and what they can do to respond. You set direction and context, but you give them freedom to make it happen.

You demand high performance, but support people in getting there. Unless they can’t — and then you’re not afraid to cut. You coach and contextualize, while letting go of control.

In summary, you are ready to lead when you:

  • Are a systems thinker
  • Are digitally literate
  • Are ethically grounded
  • Can balance advocacy and inquiry
  • Can embrace ambiguity
  • Can think and act
  • Can set direction, lead culture and inspire
  • Can demand high performance
  • Can coach and contextualize
  • Can let go of control

Set Strategy

The top strategic priority is always to be generative. Value is in steady decline; you must replace it. You must put in place teams that are obsessed with customers, operate from an extreme outside in vantage point and work relentlessly to discover and build new value. Similarly, you need teams that are dedicated to optimizing existing value. For the In The Loop leader, the first investments must always be made to increase value — to be generative.

The second strategic priority is to be adaptive. Your enterprise needs to be built in a way that makes it capable of evolving as necessary to survive and thrive. The adaptive imperative has three components, in priority order: to become resilient, to become scalable and to become efficient.

Resilience grows in a system when you increase its feedback loops and increase self-organization. Feedback loops give teams the data to act. Self-organization gives them the freedom to act. You increase scalability when you remove the limits to growth. Some limits can be removed by individual teams. Other limits are overcome by actions at the operating system level. Still others may require actions across multiple or all operating systems. Strategy involves identifying these limits to growth and mobilizing steps to remove them.

Efficiency is the final priority in advancing the adaptive imperative. Efficiency is a good thing, because it saves money that can be reinvested elsewhere. But in a world of constant change, resiliency and scalability are much more important than efficiency. Never increase efficiency at the cost of resiliency or scalability.

Strategy is about prioritizing time, effort and money. First generative, then adaptive. In advancing your generative and adaptive imperatives, you must attract great people. Then you must build new feedback loops. You must embrace technical change and external trends. You must build digital capabilityand democratize data access.

How you leverage technology depends on what you do. If yours is a mining company, digital leverage will look different than if you are Nonetheless, seeking digital leverage is key.

In summary, smart strategy requires that you:

  • Obsess about customers
  • Adopt extreme outside in thinking
  • Embrace new technology and external trends
  • Build digital capability
  • Invest to chase new value breakthroughs and business model opportunities
  • Invest to continuously optimize and digitally leverage existing product value
  • Increase resiliency by adding feedback loops and increasing self-organization
  • Democratize data access
  • Identify and remove the limits to growth — points in the system encountering constraint

Align People

People are the key to everything. In a world of constant change you need great people, free to act, while keeping aligned with enterprise purpose. Self-organization increases resilience. This requires that you build an organization design that is tightly aligned but loosely coupled.

The same principle applies in technology. With reactive microservices architecture, small services are built to do one thing and one thing well. These services are joined together by APIs; this enables arms-length message passing between services. The web of interactions may be quite complex, but each component is simple and discrete. While loosely coupled, these services are also tightly aligned to the purpose of the overall technical system.

In the same way, the fit systems enterprise has a modular structure made up of domain teams. In The Loop leaders let go of the function-centric view of the enterprise, and move towards a systems-centric view. The enterprise is comprised of operating systems and meta systems. Within these systems are domains. These domains do one thing, and one thing well. They are run by domain teams. A single domain may be run by one team or two, depending on the context. For procedural domains that have automation potential, an operational team might manage the domain day by day, while an adjacent technical development team increases automation within the domain.

Self-organization increases speed and resiliency. Domain teams are assigned a purpose and expected business outcomes, but are given the freedom to figure out how they get there. The specific approach to self-organization depends on whether a team operates in a high variation or low variation domain, and whether the team is uni-functional or cross-functional.

Some domains are “high variation” environments. This means the nature of the work is constantly changing, or there is a “hypothesize / test / iterate” cycle that is required. High variation domains include product development teams, marketing campaign teams, sales opportunity teams, corporate development teams and the senior executive team. Such environments tend to be where change hits hardest, and creative problem solving and innovation needs are greatest. It is here that the 10X performer is most critical. Teams engage in agile methods to identify best practices and chart the way forward. Low variation domains include procedural areas such as accounts payable, payroll, HR on-boarding and so forth. Here, teams are focused on confirming that existing processes still serve domain and system purpose, and that these processes are continuously improving.

In The Loop leaders work to increase self-organization within all four types of domain teams:

  • High variation / cross-functional
  • High variation / uni-functional
  • Low variation / cross-functional
  • Low-variation uni-functional

Leaders provide these domain teams freedom but expect responsibility. The talent performance bar is high.

Domain teams are the dominant organizational form, but episodic teams (such as project teams, tiger teams and skunkworks teams) are also part of the organizational design. These teams are mobilized to address needs and opportunities that don’t fit neatly inside one domain team. The fit systems enterprise also boasts capability-based affiliations. A group may be formed to advance disciplined agile delivery best practices, or to advance the cultural value of data driven decision making, or to increase systems thinking skills. Domain teams, episodic teams and capability-based affiliations are the three organizational forms in the fit systems enterprise.

Since the demands for talent are constantly changing, workers and managers must set aside a certain amount of time, away from day-to-day work, for team-based initiatives. The fit systems enterprise keeps an inventory of its talent and capacity, both with employees and consultants. It can then match evolving skill requirements to episodic needs with greater efficiency and effectiveness.

The In The Loop leader understands that as a company scales, complexity rises. The only effective response to rising complexity is to increase the density of high performers in the enterprise. This requires that leaders hire carefully, develop aggressively assess clearly and cut smartly. The In The Loop leader works to create a virtuous cycle: 10Xers want to work with 10Xers.

Senior executives must own their personal development. Every senior executive must become digitally literate. Every senior executive must become a systems thinker. The role of leadership is different in the fit systems enterprise. Leaders are there to recruit, set context, to coach and to cut, but not to control.

In summary:

Adapt the organizational model

  • Move from function-centric to systems-centric thinking
  • Build modularly, defining domains at the right level of abstraction and then assigning domain teams (one-team and two-team)
  • Self-organization increases speed and resilience, so support teams to self-organize

Allow teams the freedom to deliver outsized performance

  • Define the business outcome objective and why, not the how
  • Domain teams are the primary organizational form, but they are augmented by episodic teams and capability-based affiliations
  • Give people time for team-based initiatives, stock certain parts of the company with talent that is “on the bench” ready for the next project, and build capability to match skill requirements to talent and availability with high efficiency and effectiveness

Nurture and develop a high performance team

  • Increase the density of high performance people
  • Recognize that in high variation roles (the ones most exposed to change most critical to success), top people perform 10X the level of average people
  • Hire carefully, develop aggressively, assess clearly, cut smartly
  • It’s a virtuous cycle: 10Xers want to work with 10Xers
  • In the enterprise, resiliency is more important than efficiency
  • Balance freedom and responsibility

Set the path and continue to evolve

  • Establish context (strategy, metrics, assumptions, objectives, roles, knowledge of the stakes, relative priority, level of precision required in a decision, decision-making transparency) and coach; don’t control
  • Continuously increase digital competency
  • Continuously increase systems thinking competency, especially in management

Manage Change

Change is the only constant. Your response to change requires that you create change. You must understand pressure points, interpret implications, decide direction and act. Make decisions quickly. Velocity is a critical success factor; time is your biggest competitor. If the cost of decision failure isn’t too high, it’s best to make decisions quickly and then fix if necessary. Get comfortable acting on just 70% of the information you might prefer to have; just be explicit about your assumptions as to the things you don’t yet know. You’ll learn more from the reaction to a decision than you will from up-front analysis. Jeff Bezos argues that to achieve decision velocity requires a “disagree and commit” culture. You can’t wait for every stakeholder to get fully comfortable. Sometimes you just have to decide, and ask others to disagree and commit.

It’s not just the decision — you have to mobilize the actual change quickly as well. Wherever possible, you let one person drive the change. This can occur whenever the interdependencies are low. If there are moderate interdependencies, expect the change leader to collaborate ad hoc. That’s much better than formal reviews and meetings. If the interdependencies are complex, you may need to spin up a quick, agile project. Challenge the leader to focus on results, not process. Get to “done” quickly. Sometimes projects are large and complicated. These are the monoliths of change. When such a project is unavoidable, best practice is to break it into a series of small, quick, agile projects.

As you scale, the systems inside your company that matter most will change. The larger you become, the more complexity will exist in all systems. As a leader, you will constantly need to rebalance your focus to ensure the most important change is properly prioritized and resourced. As to the rest, you’ll count on self-organized teams to make necessary change happen inside their bounded contexts.

In summary:

  • Make decisions quickly: velocity is critical success factor (time is your biggest competitor)
  • Determine cost of decision failure — if not too high, make decisions fast then fix
  • Some decisions (credit card handling, cyber security, financial reporting, etc.) must be made perfectly; for most, 70% of ideal information is sufficient
  • Disagree and commit
  • To make change happen, consider interdependencies: one actor acting alone if possible; ad hoc collaboration if necessary; a quick, agile project if required; a big project broken into small ones only if absolutely necessary
  • The company systems that matter most will evolve as you scale — requiring you to continuously rebalance your change management focus

Drive Execution

Results happen due to smart strategy, great people and strong execution. In The Loop leaders stock the enterprise with leaders proven at operational execution and driving results. These leaders tighten up role definition, sharpen workflows and leverage technology — but then they expect daily performance. Such leaders attack underperformance at the root. They seek to discover the limiting factor, and remove it. If the limiting factor is a person, they don’t hesitate to remove the person.

An In The Loop leader understands how easy it is to focus on process outputs as opposed to business outcomes. The head of HR may manage for procedural compliance in hiring; he ensures the multiple approvals are always signed off before allowing a hire to proceed. But if the result of that process is that 10X software architects are regularly poached before they can be secured and hired, the process is flawed. Business unit leaders may be incented to drive the profitability of their business units. But if multi-business unit collaboration is required to unlock certain types of market opportunities, the incentive can get in the way. In the fit systems enterprise, In The Loop leaders feel free to challenge and change processes whenever they get in the way of results. Processes exist to advance business purpose and drive business outcomes. Never allow anyone to value “outputs” over “outcomes”.

This does not mean that processes are bad. Process efficiency is good when it drives achievement of business outcomes. Six sigma and Kaizen only become negative when they cause leaders to elevate process over results. The first question in any process improvement meeting must be: “Does this process still serve business outcomes, or does it need to be redesigned?” Always start with purpose. Only once you know purpose and process are basically in sync can you turn to continuous incremental optimization or redesign.

In summary:

  • Stock the enterprise with leaders proven at operational execution and driving results — daily execution is fundamental
  • Expect daily performance from everyone; address underperformance immediately
  • Execution depends on continuously elevating the interactions of people, workflows, technology and money flows
  • But focus on results, not process
  • Process must serve purpose-aligned outcomes
  • Get the desired business outcomes figured out first, then challenge teams to create processes that serve the objective
  • Free everyone to challenge whether current process is continuing to serve purpose-aligned outcomes
  • If process has fallen out of sync with its purpose, it must be redesigned
  • The first step of any process improvement meeting must be to ask whether the process itself is continuing to serve purpose-driven outcomes
  • Only then can continuous improvement efforts proceed
  • Stock the enterprise with leaders proven at operational execution and driving results — daily execution is fundamental
  • Expect daily performance from everyone; address underperformance immediately
  • Execution depends on continuously elevating the interactions of people, workflows, technology and money flows
  • Get the desired business outcomes figured out first, then challenge teams to create processes that serve the objective — focus on results, not process
  • Free everyone to challenge whether current process is continuing to serve purpose-aligned outcomes, if not it must be redesigned
  • The first step of any process improvement meeting must be to ask whether the process itself is continuing to serve purpose-driven outcomes
  • Only then can continuous improvement efforts proceed

Build the Culture

All of this has profound cultural implications. It’s not enough for top leaders to think “generative first, adaptive next”, or “digital at the center”, or “self-organization with freedom and responsibility”. Everyone needs to think that way. Otherwise, a product manager might think it’s OK to avoid spending three weeks offsite living in a customer’s work environment. Why spend that much energy to understand customer pain points? An operational team might resent the technical development team working in their domain trying to automate their work. A functional mid-manager might try to impose her will on a self-organized, cross-functional team. A senior executive might resist reorganization into a more systems-centric structure. A CEO might fight a 360 degree pulse survey that enables every person in the company to evaluate her effectiveness.

In The Loop leaders evangelize the culture they seek. This aspirational culture becomes real through continuous reinforcing feedback loops — in what is said, and in what is done. In the fit systems enterprise, there are a series of cultural imperatives. They include:

  • Maniacal customer obsession
  • Always generative first, adaptive next
  • Systems centric view
  • Focus on results; create the process that drives results
  • Only high performers welcome
  • Transparent communications
  • Data driven decision making
  • Agile methods
  • Self-organization with freedom and responsibility


Think of yourself and your fellow leaders. Are you and they In The Loop?

This is the essence of The Loop Leadership Paradigm. On every dimension of leadership — from personal preparation, to strategy, to aligning people, to managing change, to execution, to building culture — it differs from the old paradigm from the prior era (the structural-functional paradigm). If you want to build your company into a fit systems enterprise, you will need to become an In The Loop leader. It’s the only way.

The rest of this book will help you get there.

.      .      .

To view all chapters go here.

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Tom Mohr

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