How to nudge your way to better performance
This
year, Richard Thaler won the Nobel Prize for his influential research in behavioral economics.
His ideas helped to chip
away at the dominant concept of homo economicus —a
hypothetical decision maker featured in most economic models, who, as Thaler
jokingly puts it, “can think like Albert Einstein, store as much memory as
IBM’s Big Blue, and exercise the willpower of Mahatma Gandhi” and acts in a
purely rational way to maximize his utility.
Thaler and other
behavioral economists show that, in reality, people make decisions quickly
under pressure, based largely on intuition, and unconsciously guided by biases
and psychological fallacies.
So if people face so
many pitfalls on their path to making reasonable decisions—whether they’re a
consumer making a purchase or an employee meeting performance goals—how do you
make it more likely that they’ll land on the most beneficial decision for
them and for your organization?
The key, says Thaler,
is to responsibly use “nudges”—subtle interventions that guide choices without
restricting them. Over the years, insights from behavioral economics,
psychology, and neuroscience have shown that strategically designed nudges can
effectively influence behavior and drive results in solving some of the most
pressing issues for today’s companies, from talent management to customer
retention.
A recent initiative at
Virgin Atlantic illustrates how one such set of applied behavioral insights can
have an outsized effect. The airline partnered with leading economists to
devise a program to reduce fuel use by influencing the behavior of its 335
flight captains.
Over a series of
exercises, a control group was simply alerted that their fuel usage would be
monitored; a second group received monthly reports of their usage; a third
received both monthly reports and specific targets to achieve, garnering praise
after success or encouragement after failure; and the last group received
reports, targets, and were told that a charitable donation would be made for
every target they hit.
The three experimental
groups saved fuel beyond the control group and the two groups that received
targeted goals, performed the best of all.
The exercise led to
savings of 6,828 metric tons of fuel, which at the time amounted to more than
3.3 million pounds, with very little cost to the airline. (You can read more
details about the program in an article by the Washington Post here.)
Some leaders might find
the prospect of running a similar program within their own organizations rather
daunting. How do you decide which nudges to use and the best way to implement
them? We helped a global insurance company face these very questions when our
group of behavioral science experts worked side by side with the company’s team
to build an in-house team of experts in behavioral science. At the end of the
unit’s pilot exercise, the company not only saw significant improvements in its
targeted area, but also observed an increase in satisfaction among the unit’s
frontline employees – a full department involved in the pilot.
Rather than being seen
as a tool on its own, behavioral science is rather a turbo-charger for efforts
on cultural change and corporate transformation, or a support tool for more
effective processes. And if there’s one thing we know, it’s that no matter
whether an initiative is internal- or external-facing, it must, by its design,
thoughtfully engage the active participation of employees. In doing so, a nudge
pilot program can often be the first spark that fuels a broader transformation
in the way an organization drives continuous improvement at all levels.
Many companies are
already building robust nudge units to rapidly tackle various organizational
and strategic challenges. Prominent examples are Swiss Re and AIG.
In a world where
organizational agility is key to long-term performance, an entrepreneurial
approach to problem solving—where teams rapidly and systematically test the
impact of behavioral insights on their organization’s performance—will be
increasingly crucial for maintaining competitiveness in the future
by Anna Güntner and Julia Sperlinghttps://www.mckinsey.com/business-functions/organization/our-insights/the-organization-blog/how-to-nudge-your-way-to-better-performance?cid=other-eml-alt-mip-mck-oth-1804&hlkid=af6dd7c5b5a3497f9e4d01759c051924&hctky=1627601&hdpid=99cb12f4-139e-4997-8020-a6b489420c59
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