Getting it right: Solving the decision-making conundrum

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Sep 24, 2016 - to a decision-making scenario regarding tourism to Spain's Balearic Islands, this process offers .... A look at the list of identified variables reveals that none of them ... or “decreasing number of hotel rooms needed,” it is far more.
DOI: 10.1002/joe.21786

F E AT U R E

Getting it right: Solving the decision-making conundrum James B. Rieley Each day, the leaders of private businesses, nonprofit institutions, and government agencies must make decisions, both simple and complex, that can determine the ­future of their organization. The most e­ ffective decision-making is based on a logical argument derived from a careful examination of available information. A three-step process that identifies the variables to be assessed and culminates with the construction of a causal loop diagram offers an illuminating framework for both examining and testing the key relationships between each variable. As shown when applied to a decision-making scenario regarding tourism to Spain’s Balearic Islands, this process offers the possibility of uncovering any unintended and potential devastating consequences before key decisions are implemented. Thus, this technique can save enterprises of any size and in any sector from wasting time, money, and other valuable resources.

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|   INT ROD U C T IO N

Whether we are sorting through a group of choices, carrying out a strategy, implementing tactical choices, or trying to minimize short- and long-term risks to an organization, decision-making is challenging. It can be hard to know what to do, when to do it, and why something makes sense to do. In some cases, organizational decision-making can be compared to driving at night, in the fog, on a winding road, through a forest, with no headlights on, in a car that is going faster and faster. While some might argue that there are differences in the decision-making that occurs in organizational environments from different sectors or in organizations of varying sizes, decision-making is decision-making, and its consequences will be broadly felt. If a wrong choice is made, a strategy will not realize its potential, tactics will not generate positive results, and risks will multiply, often exponentially. Too often, decisions made in business and government prove to be shortsighted and inappropriate. Sadly, these discoveries typically are made only after the decisions have been or are in the process of being implemented. At that point, the ability to avoid wasting time, money, and human resources on a doomed initiative is long past. To make more effective Global Business and Organizational Excellence. 2017;36(4):17–23.

decisions, decision-makers need to find ways to test the validity of their decisions before implementation.

2  |   DECISION TIM E FOR THE TOURISM INDUSTRY IN SPA I N ’ S BALEARIC ISLANDS Like any structural entity, Spain has its upsides and its downsides. Depending on one’s perspective, however, what one person might consider a positive might be viewed by another as a negative. For instance, many of the nation’s 50 provinces, which more or less adhere to the territorial bounders set in 1833, have their own unique culture. Thus, they each pride themselves on being special, and many of them are politically autonomous. This can make government decision-making particularly complicated. And in the case of the province of the Balearic Islands, the challenge of balancing the potential positive and negative effects of tourism has been plaguing decision-makers for more than half a century. Tourist first discovered the sleepy Balearics—composed of the islands of Mallorca, Menorca, Ibiza, and F ­ ormentera— in the late 1950s. For many years, the flow of tourism was seen to be a good thing, as the money spent by travellers boosted the local economy. It soon became clear, however,

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E XH IB IT 1   Structural tension of tourism in the Balearic Islands

that the inflow of visitors and their cash would lead to change. For instance, it did not take long for British and German tourists to begin to invest in holiday properties on the islands. The good news was that some native-born residents of the islands now had the ability to sell their property to an eager foreigner for a great deal of money. In addition, as more visitors flocked to the sun-soaked islands, more money was available to spend on infrastructure and other locally developed programs. The bad news was that the influx of foreigners buying up properties drove up real-estate prices so much that locals could not afford to buy something to live in after selling their own home or land. One of the biggest challenges for government decisionmakers on the Balearic Islands has been, and continues to be, balancing the pressure to bring in increasing numbers of tourists to inject money into the local economy, and the desire to keep the islands from becoming pseudo-provinces of Germany or the United Kingdom. These options boil down to a basic structural tension: Bring in tourists to gain income, or reduce tourism to retain culture. The problem with structural tension is that one option precludes the other (see Exhibit 1). In this case, a decision to increase revenues through tourism will make it difficult, if not impossible, to preserve the Balearic Islands’ long-standing culture. In the same manner, a decision to retain the existing culture by decreasing or limiting the number of tourists will certainly diminish revenues from tourism. As can be expected, the proponents of each strategy are equally passionate about their position.

The bad news was that the influx of foreigners buying up properties drove up real-estate prices so much that locals could not afford to buy something to live in after selling their own home or land.









Having the ability to ensure that a decision is sound and will accomplish what it sets out to accomplish with minimal risk clearly makes sense. The following three steps outline an effective process for making logically based decisions.

3.1  |  Step 1: Identify the story on which the decision is to be based There has to be a reason why organizational leaders need to make a decision, and that reason can often be represented by a story. For instance: • •

3   |   H OW TO MA K E T H E RIGHT D E C IS ION AT T HE R IG H T TIM E In any organizational environment, whether a business, a notfor-profit enterprise, or a government entity, decisions typically result from one of the following scenarios: •

They are made to placate the loudest group. This group is typically composed of those who lobby the strongest

and/or scream the loudest about their option being the best. Their rationale may or may not make sense to anyone else. They are based on data. As first glance, this seems like a good way to make a decision. In reality, however, the data used to support a particular position can be slanted and even manipulated. Focusing solely on data is usually not enough. They are driven by politics. This method applies to all organizations and surfaces when key decision-makers or influencers believe that they owe someone else in the organizational decision-making group a favor. In these cases, decisions typically are not driven by what is best or most appropriate but, rather, by who holds the most chits. They are guided by intuition. Many key decision-makers would like their followers to believe that their intuition provides them with insights that few others have. This method usually is credited only when the decision has proved to be sound over time. They are an outgrowth of a logical argument. In these instances, a particular decision is viewed as making the most amount of sense given the information available at the time. Decisions based on logic require a method for testing possible outcomes before the implementation process begins. This will help ensure that any unintended consequences of the decision are identified before they surface.

We need to increase our market share because we are losing out to our competitors. We need to develop a new strategy because the government’s new regulations are making it difficult for us to compete.

Both these examples can be considered short stories that express the need for decision-makers to do something differently than they have previously. In each instance, there is another entire set of stories that could be used to help the decision-makers do what they are paid to do. This is because each person in the organization affected by the decision will have his or her own perceptions as to what is going on.

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An article by Matthew Elliott, published on September 24, 2016, in Euro Weekly News, a daily English language newspaper distributed free of charge in the Balearic Islands, summarized the two views underlying the dilemma facing the Balearic Islands. One is based on the belief that growing tourism is good, and that the income that will flow into the island from tourists will outweigh any potential risks. According to this line of reasoning, increases in tourism and accompanying revenues will enable growth in business and employment and help finance any necessary infrastructure improvements. The other view maintains that while the income from tourism is good, the costs associated with tourism far outweigh the benefits. The costs of increased tourism include the need to continually upgrade and invest in infrastructure, the potential for further dilution of the local culture, and additional pressure on both the housing market and the level of employment benefits. According to the Euro Weekly News, the government decision-makers opted not to limit tourism. Though entirely possible that this decision is sound and will lead to positive results over time, how do we know that this decision is the best one? If that decision is implemented, what else might happen? Those are important questions that merit attention.

The costs of increased tourism include the need to continually upgrade and invest in infrastructure, the potential for further ­dilution of the local culture, and additional pressure on both the housing market and the level of employment benefits. 3.2  |  Step 2: Identify the variables that affect or are affected by the information in the story Variables are things that can change over time. Some of them will be directly stated in the story, and some may merely be implied. It is important to note that identifying a variable does not necessarily mean that what the variable represents will be part of the story. For example, the variable of “profit level” could be identified as part of a particular story, but that does not mean that the company in question will necessarily earn profits. Another thing to recognize when identifying variables is that many of them appear in pairs. If “revenue level” is identified as a variable, more times than not the variable of “profit level” is worth identifying as well, even if it was not explicitly mentioned in the story. Some variables will be easier to identify than others. The more time spent working with variables, the simpler it will be to recognize them. Some variables may be more relevant than others. Nonetheless, it is important to identify as many as

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E X HI B I T 2  List of possible variables in Balearic Island tourism decision-making

Number of visitors Pressure on infrastructure Demand for hotel rooms Pressure on local transportation system Pressure on airport Income from landing fees Hotel/lodging revenue Opportunity to levy taxes Restaurant income Level of seasonal employment Impact on property market Potential for unlicensed operators Potential for black money circulation Influx of temporary workers Potential for crime Attractiveness of island Ability to invest Tax revenues Risk of international terrorism Impact on environment Impact on budget Potential for tighter legislation

possible. Brainstorming with several people who listen to or read the story is a good strategy. The result of such a meeting should be a list like the one shown in Exhibit 2. A look at the list of identified variables reveals that none of them shows direction. None of the entries contains any other word that denotes direction, such as increase, less of, or greater. Variables need to be identified in neutral terms—not as good or bad, big or small, or better or worse. For instance, instead of citing “increasing number of hotel rooms needed” or “decreasing number of hotel rooms needed,” it is far more useful to simply note “demand for hotel rooms.” ­Direction— what happens to that variable—will be determined by its relationship with the variable that precedes it. Connected through their relationships with each other, the variables ultimately will represent a structure for formulating a decision.

3.3  |  Step 3: Identify cause-and-effect relationships between variables Identifying the cause-and-effect relationships between the variables of a story requires an understanding of how to graphically show cause-and-effect in a causal loop diagram (CLD). The simple example given in Exhibit 3 depicts the three variables from a story about an organization’s finances: profits, ability to reinvest, and expenses. According to this

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E XH IB IT 3   Sample causal loop diagram ‌Note. The letter o indicates opposite direction; s indicates same direction. B indicates a balancing effect.

organization’s story, when the organization makes profits, its ability to reinvest in its future increases. As investments in the organization are made, expenses increase and these expenses decrease profits. As can be seen in the graphic, an arrow points from “profits” to “ability to reinvest.” At the head end of the arrow is a small letter S. This means that the cause-and-effect relationship between the two variables is the same. As the organization makes more money, its ability to reinvest increases. Both these variables are moving in the same direction, hence the “s” notation. Another arrow points from “ability to reinvest” to “expenses.” This relationship also is noted as “same,” for the more reinvestments that are made, the greater the expenses will be. The last arrow shows a relationship between “expenses” and “profits.” This arrow is labeled with a small letter O for “opposite.” In this instance, as one variable moves in one direction, the other variable moves in the opposite direction: The greater the organization’s expenses, the lower its profits. Using cause-and-effect diagramming enables organizational leaders to not only uncover the dynamics of what is visibly apparent in any given situation, but also to reveal what else could happen. This level of detail is crucial when making decisions. Too often, decision-makers focus on the challenge of how to get from point A to point B. Typically, when a plan is devised to do that, the decision-makers believe their work is done. In reality, when an organization tries to go from point A to point B (regardless of what those points represent), other things will happen as well. These unanticipated, and perhaps unintended, consequences can actually detract from the organization’s ability to get from point A to point B. Therefore, an effective decision can be made only if the question of what else could happen is raised and addressed.

4   |   A NA LY Z ING T H E IMPACT O F TO U R ISM TO T H E BA L EARIC IS LA N D S The elements of the story of how best to handle tourism to the Balearic Islands are easy to understand. Each summer, tourists come to the islands seeking the sun and sea, as well as

the multicultural attractions that the region has to offer. This influx of tourists is the mainstay of the local island economy, but as tourist numbers increase, the island’s infrastructure is being taxed. Although the sun and sea remain, ineffective and decaying infrastructure is an unintended consequence of the region’s popularity. This can lead visitors to question their choice of the island as a vacation destination and cause yearround distress for the local residents. Over time the influx of tourist spending, once considered good news, will be viewed as bad news. The CLD in Exhibit 4 illustrates how these dynamics interact. The loop on the left (labeled with an “R” to indicate a reinforcing effect) shows that as the number of tourists increases, their presence on the island makes a positive economic impact. This impact results in more tourists coming, causing a favorable reinforcing dynamic: More of one leads to more of the other, with both of them considered as good news.

Although the sun and sea remain, ineffective and decaying infrastructure is an unintended consequence of the region’s popularity. The loop on the right (labeled with a “B” to indicate a balancing effect) shows that as this dynamic continues, the number of tourists begins to put pressure on the capacity of the islands’ infrastructure. This will lead decision-makers to think that the islands cannot cope with the number of tourists, which will make the island a less attractive travel destination. At some point, this perception will result in fewer tourists coming to the islands. As the number of tourists visiting the islands begins to fall, the local economy will suffer, turning the good news in the reinforcing loop into bad news. This dynamic—one positive reinforcing loop that often represents a growth or success cycle, connected to another balancing loop that slows down or stops progress—is known as a Limits to Success or a Limits to Growth Systems Archetype. Found

E X HI B I T 4  Interaction of the dynamics of tourism to the Balearic Islands

Note. The letter o indicates opposite direction; s indicates same direction. R indicates a reinforcing effect; B indicates a balancing effect.

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in private and public organizations of all types, it provides a high-level view of the dynamics at play in any decisionmaking situation. When the various relationships have been identified, it is important to walk through the story to ensure that it makes sense and that the diagram that reflects it is correct. An analysis of the cause-and-effect relationships between the variables regarding tourism in the Balearic Islands that were identified in Step 2 (listed in Exhibit 2) yields the graphic shown in Exhibit 5. (Numbering of the loops is solely for ease of reference and does not indicate value.) A cause-and-effect diagram represents structure. Not structure in the sense of a building, but structure in the sense of how people interact with each other, for structure drives behavior. In the case of tourism in the Balearic Islands, the behaviors mainly focus on the islands’ ability to enable tourists to visit and bring revenue into the Balearic economy while not crippling the government’s ability to ensure that the future of the islands is not sacrificed for short-term gains.

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Conducting this structure-drives-behavior check requires reading the diagram in two ways. First, begin with the variables that make up loop R1: As the number of visitors to the island increases, business revenues will also increase, which will increase tax revenues. This will result in a greater ability to reinvest in the islands, making them a more attractive place to invest in and visit, and this will bring more tourists. All this makes sense, which is good. Next, reading the same section of the graphic backwards will show whether the structure has been correctly identified. Doing so indicates that as the number of visitors to the island decreases, this will cause business revenues to fall, which will decrease tax revenues. This will result in a lesser ability to invest in the island, preventing efforts to make them a more attractive place to invest in and visit, which means fewer tourists will come. In both readings—one positive and the other negative—the structure represents the behaviors that are likely to be manifested. Therefore, the structure has been validated.

E XH IB IT 5   Relationships between variables: Tourism in the Balearic Islands (Color figure can be viewed at wileyonlinelibrary.com) Note. The letter o indicates opposite direction; s indicates same direction. R indicates a reinforcing effect; B indicates a balancing effect.

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A next step would be to use the diagram to identify points of leverage for ensuring that the structure continues to deliver the desired results. Leveraging variables are strategically important and should be the focus of any plans going forward. Another thing to look for is areas in which it is possible to game the system. Gaming the system, which happens in almost every organization in varying degrees, can shift positive organizational dynamics into negative ones. In the case of the Balearic Islands, seasonal oscillation and the attractiveness of the islands are key strategic risk areas, and the variable of potential for black money in circulation is an area that would be ripe for gaming the system. At this point, it is appropriate to look for areas where more leverage could be created. One of the principal reasons for using CLDs to improve decision-making is that they allow options to be tested before implementation. To test an option, identify a new variable and see what would happen to the overall dynamics of the CLD when the new variable becomes part of the structure. Do the overall dynamics improve? Does the new variable contribute positive or negative unanticipated consequences? What else would need to be done to make the new variable part of the system you have identified? There is no doubt that identifying variables to a story may take some time. Using the variables to identify the various cause-and-effect relationships will take some time as well. Testing how to change the outcomes of a structure that has been identified will take some time, too. But in the big scheme of things, taking part of a day or even an entire day to ensure that a decision that is about to be made is the right one is a miniscule investment compared to the time, money, and effort that will be required to make up for a flawed decision.

Another thing to look for is areas in which it is possible to game the system. Gaming the system, which happens in almost every organization in varying degrees, can shift positive organizational dynamics into negative ones. 5   |   T H E VA LU E OF ID EN T IF Y ING CAU SE -A N D- EFFECT R ELATION SHIP S CLD is a powerful and illuminating way to identify organizational cause and effect in action. An examination of some of the key relationships between the variables of the story of tourism in the Balearics, which are mapped out in Exhibit 5, reveals that: •

The challenge that the government of the Balearics faces is far more complex than what appears on the surface





of the story. Yes, of course, more tourists will increase revenues (which typically would be thought of as a good thing), but the amount of pressure that will hit both the direct and indirect infrastructure could be massive, and it could outweigh any financial gains that the government might see. The seasonal oscillations that the Balearic Islands currently experience (high tourist numbers in summer, but low tourist numbers in winter) reinforce the mistaken belief that Mallorca and the other islands are nice places to visit only in the summer months. This o­ scillation— something that the government would like to see ­mitigated—has a very high impact on current budget constraints. The solution here is a trade-off, as it would require serious investments in marketing and infrastructure to create an environment in which tourists would consider the Balearics a year-round destination. The current level of black money in circulation most likely will increase as tourism increases. This will result in a negative impact on tax revenues, which will shift the current growth engine shown in loop R1 from good news to bad news. Because the culture of black money has been in existence for many years, it will take a significant cultural shift to reverse its negative impact.

To determine what else might happen in the example of tourism in the Balearic Islands, it would be important to ask what would happen if the number of tourists who visit the islands increased. What would happen to the key variables if that shift were to occur? Revenues from taxes would increase (a good thing). Income from additional landing fees from the increase in airlines bringing tourists would increase, too (another good thing). The overall perception that the Balearics are a good place to spend time would increase, bringing additional investments (both good things). But at the same time, the level of pressure on the islands’ infrastructure would increase, putting pressure on hotels, transportation facilities, and dining options (bad things). Increased tourism most likely would also stimulate the level of seasonal employment (a good thing, but a bad thing if the employees are paid in black money). The impact on the environment would be negative, as would be the impact on the government’s budget. Each of these negative outcomes of increased tourist numbers would decrease the islands’ overall attractiveness, which would shift the overall good news of the R1 growth engine to bad news, rippling throughout the Balearic economy. What would happen if new variables were added to the story? These might include external investments, the ability to win EU grants, large-scale marketing of the islands, and enforcement of existing regulations and laws. Which existing variables would be directly affected by the addition of one or some of these variables? If injected into the existing dynamics, would any of these variables result in more desirable

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outcomes? Would the outcomes be worse? By testing the validity of a decision by looking at the cause-and-effect dynamics before the decision is implemented, it is possible to achieve greater, more sustainable outcomes.

By using the process described here, the ­person responsible for making a crucial decision can do so in a way that is based on understanding not only what can be achieved, but also what else will most likely happen after the decision is made. When do decision-makers have enough variables to make an effective decision? There is no simple answer to that question. Having the “right” number of variables usually means having enough variables to capture the essence of the story. If a particular variable that has been identified has no visible relationship with any other variable, it probably is not essential to the matter under consideration. Regarding the issue of how best to address tourism to the Balearic Islands, someone ultimately will have to decide whether the government will encourage tourism or discourage tourism. This is no different than any complex decision regarding any other subject made in any organization, of any size, and from any sector. By using the process described here, the person responsible for making a crucial decision can do so in a way that is based on understanding not only what can be achieved, but also what else will most likely happen after the decision is made. Without this ability, organizational decision-making ends up being about as effective as flipping a coin. Decisions made in public and private institutions around the world result in significant investments of time, money, personnel, and other resources. Implementing a decision

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without testing it to uncover unexpected and, especially, unintended consequences—to answer the question, If we do this, what else will happen?—is simply folly. REFERENCES Elliot, M. (2016). No limit on tourist numbers. Euro Weekly News, September 24. Retrieved from https://www.euroweekly news.com/3.0.15/news/on-euro-weekly-news/mallorca/141149no-limit-on-tourist-numbers

AUTHOR BIOGRAPHY James B. Rieley, PhD, is an advisor to CEOs and senior leadership teams from all sectors. Previously, he was the CEO of a successful manufacturing company for more than 20 years. Holding a doctoral degree in organizational effectiveness, he has written extensively on the personal and collective aspects of that subject. The author of Gaming the System (FT/Prentice Hall), Leadership (Hodder), Strategy and Performance (Hodder), and Change and Crisis Management (Hodder), and numerous articles, Dr. Rieley writes a weekly column for The Daily Telegraph of London and the Plain Talk About Business Performance newsletter. His work also has been cited in Fast Company, Making It Happen: Stories From Inside the New Workplace, A Fieldguide for Focused Planning and Breakthrough Leadership. Dr. Rieley lives in Mallorca, Spain, and can be reached at [email protected].

How to cite this article: Rieley JB. Getting it right: Solving the decision-making conundrum. Global Business and Organizational Excellence. 2017;36:17–23. https://doi.org/10.1002/joe.21786.