Ian Hendry: The emergence of behavioural economics reminds us of how our new understanding of neuroscience should be forcing us to re-assess the effectiveness of our human resources programs. Since our old mental models are our natural recall mechanism, the event featuring Julian House (research scientist at the Ontario government’s Behavioural Insights Unit and research fellow at the University of Toronto’s Behavioural Economics in Action Research Hub) awakened us to the fact that our ability, and willingness, to test their relevancy in a fast-changing world is too often overlooked. Why is that?
Jan van der Hoop: I think it’s because most of us are lazy (not critical) thinkers by nature. As Julian said, we are most often reacting to the world around us passively, seeing what we see, and believing what we believe through the filters of our reptilian brain — as if we are on autopilot.
System two thinking, where we disengage the autopilot so we can see and think clearly, is exhausting, and can be disruptive and hugely inconvenient.
I would say the same is true when it comes to organizations, where systems and structures — say compensation, for example — remain virtually unchanged from their industrial age roots, in spite of plenty of evidence to indicate they are not only ineffective at incentivizing the right behaviour, they are actually counterproductive.
But, then again, nobody ever got taken out back and shot for not challenging convention.
Christine Discola: Much of our tightly held human resources programs are based on extrinsic value and the expectation that employees will buy in if they believe there is some kind of short-term or long-term financial reward — whether it is a high-potential program or a performance rating, or even making pension selections for retirement. These are programs that incent people based on something that is tangible at the end.
This assumption has always seemed rational. But as we learned, we are not rational beings and we may need different motivations to get us engaged.
Testing and validating our human resources practices, then, will require an openness to change the way in which we have been doing things — how limiting is organizational culture in allowing this type of exploration?
Ian: So is this an opportunity for human resources to lead the charge and force conversations that challenge traditional thinking?
Paul Pittman: The implications of this work are clear and profound.
The application to public policy is obvious and desirable although I suspect we are seeing the tips of some complex considerations and numerous trial-and-error iterations.
The results of small, relatively low-cost changes to the way choices are proffered can have a significant positive impact on outcomes. Our system one decision-making is habitual and intuitive; for example, what to have for breakfast.
They are learned responses and this must also be true of decision-making in business when faced with choices encountered previously.
A popular definition of insanity is doing the same thing over and over and expecting different results.
Well, maybe it is also true when you get the same results without realizing that better outcomes could be achieved with minimal change.
Business decisions, however, require greater attention to risk and potential (planned and unintended) outcomes, along with the impact on limited shareholder resources.
Christine: I wonder if the data we have on our people can be leveraged in a different way to get to those different business outcomes. We certainly have amassed a lot of data but we usually read it as the “what” and not the “why.”
A lot of organizations are delving into the world of predictive analytics, which is a step in the right direction — the intention is to remove our biases and base decisions on past behaviour as derived from data. Suddenly, we are scientific!
How do we, as human resources practitioners, learn to gather, standardize and interpret the data and design the right innovative outcomes?
Paul: I agree Christine, this is far more powerful than the traditional human resources analytics discussions which are in danger of swamping human resources departments, often without a targeted purpose — big data at its most powerful.
I wanted more from this session; we have had the carrot dangled, now I want to discover how we can teach managers to think this way when making operational or process decisions.
While the costs of subtle changes are miniscule, unlike public policy, the consequences of being wrong could drain those two valuable business resources — time and cash — pretty quickly.
The dynamics that have intrigued me since our presentation are the impact for rapidly evolving team-based management and non-cash incentives to motivate personal behaviour; for example, the snooze-you-lose alarm clock.
Jan: There’s an interesting contrast here that we haven’t explored though: Julian’s examples from a public service setting are initiatives that are ostensibly “good for me” and, in theory, public policy/the public purse.
And the few corporate examples, mostly related to incentive compensation, were interesting (the risk of a loss being a more powerful motivator than the possibility of a gain).
Paul, you raise a very different question, though, about management techniques, where the collective paradigm is that gains in productivity and improvements in performance are to the benefit of the company and at the expense of the individual.
What kind of behavioural economics jujitsu will it take to overcome that, do you think?
Paul: I don’t think that they are mutually exclusive.
Presented here, potentially, is an opportunity for “new” gains in productivity with the benefit shared through an appropriate incentive to motivate behavioural change.
In the public sector, there is less at stake: “If we get it wrong, how much worse than currently can it be?” Industry doesn’t have the luxury of being able to work in that paradigm.
Ian: I agree it is key to find the win-wins. Otherwise, we run the risk of being accused of “spinning” information to get the desired results the company wants.
Given the examples within the public sector, I think the implications for behavioural economics to be applied within organizations is only just emerging and that’s where human resources can be the vanguard.
Jan: Maybe. Either way, it does mean that HR — and leaders in general — have some new tricks to learn.
Two themes are stuck in my mind:
One: Each person’s mental models determine what they see and hear, and the solutions they see possible, which means that in order to be effective, HR and leadership need to get really good at setting — and shifting — paradigms.
That’s not news, certainly, but it’s often one of the first things that is lost in the “transactions” involved in running a business, and an effort that requires slack in the system.
And two: Most initiatives are lost in the “Last Mile” — those moments of truth where people need to care enough to do something or finish something or expend effort.
Internet marketers are obsessive about reducing clicks, eliminating decision points and reducing friction in order to boost conversion stats; I believe we have a lot to learn from them.