Answer these 6 questions before setting up a ‘nudge’ unit

April 1, 2019One insurer uses nudges to encourage customers to exercise and lead healthy lifestyles, thus reducing claims. A German utility company employs related techniques to combat irrational decision-making. Embracing behavioral science, organizations are increasingly adopting practices based on behavioral science and establishing behavioral science units (or nudge units as we will call them) to promote change and improve decision-making.

Organizations are increasingly adopting practices based on behavioral science and establishing behavioral science units (or nudge units as we will call them) to promote change and improve decision-making.

However, before setting up your own nudge unit, it’s essential to consider six tough questions. We gleaned them from best practices developed in working with companies and from conversations with 14 experts on strategic choices, organizational structure, team composition, measurement challenges and ethical considerations.

We found that no one-size-fits-all approach applies to creating an effective nudge unit. But most organizations do face some common challenges and trade-offs:

1. Where should the unit focus? On employees, dealing with motivation, better decision-making, healthier living and the like? On customers to, for instance, infuse behavioral science into marketing? Or a combination of the two? To cover customer and employee experiences, teams must pursue diverse initiatives from HR processes and digital operations to in-store service. Teams focused on customer behavior must also involve employees through training and secure their buy-in for experimenting with nudges.
2. Where should the unit reside? Its strategic purpose will likely determine its location as well as where the unit will find synergies and logical integration with other behavioral change methods. Some units are placed with R&D or marketing; others house their nudge and data science teams together to capture synergies. Some organizations create a global nudge operations hub with a cross-functional remit. One unit benefited when it moved away from the corporate center and closer to products and services for greater access to customers. Others, placed in the product management domain, test in an agile way.
3. How to populate the unit? Hiring the right people is critical for success, and most respondents preferred hiring externally, at least at the outset when foundational skills may be absent. Generally, units have 3-8 members. The best teams seem to mix behavioral scientists with specialists in other areas such as marketing and advanced data analytics. PhDs are often favored, as are those with practical experience in experimentation and those who are entrepreneurial, curious or possess problem-solving talents.
4. What’s being done to ensure the unit’s success? Cross-functional involvement is vital to create a shared language, and close collaboration of data scientists, researchers and designers is especially important. Articulate a clear vision and value proposition, and communicate them broadly. For one team too hasty in this regard, a bottleneck developed in approving and delivering projects. Do a soft launch in the first 90 days to ensure the right “scaffolding” for the team. Favor randomized controlled trials, nudges directly applied and “lean experiments” for simple proceed-or-stop decisions.
5. How to demonstrate impact? A nudge team must show its impact to gain trust and support. This takes time and requires translating behavioral changes into measurable value. Stressing financial benefit, though, is not the only way to formulate and communicate results - it is also possible to inspire people with news of a specific outcome or through an inspiring anecdote. An insurer, for example, benefitted from nudging to boost customer trust; it led some customers who felt they had received excessive claims reimbursement to send money back.
6. Are ethical challenges being faced head-on? Worried nudging may be perceived as a paternalistic practice or manipulative, some units establish an ethical code to cover their work. One such code explains the reason for the nudge unit, who it benefits and how any action is carried out. Communicating a unit’s work can benefit reputationally. A global bank generated positive press for a finance app that nudges users to follow healthy financial practices.

Any effective nudge unit also requires senior management to create the conditions for its success, including celebrating its impact and holding it to high ethical standards. This improves the likelihood the unit’s nudges will spark real movement within the organization and its performance.