ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Your organization is lavishing time and money on ambitious corporate transformation programs. Yet none of them have made a dent in employee behaviors, which will need to change for the organizational transformation to succeed. To effect visible change, leaders may want to take a closer look at behavioral science (also known as behavioral economics or behavioral insights), which applies findings from psychology, economics, sociology, and other disciplines to understand how people behave and make decisions in real life. An aspect of behavioral science called “nudging”—using subtle interventions to steer people in a specific direction without limiting their options—has been successfully applied in both public- and private-sector settings. Here are some perspectives on the subject for leaders to think about.

AN IDEA

Turn information into action

Most companies today have access to a wealth of data about their people and organizations but struggle to use it effectively. Metrics alone don’t tell the whole story: research led by McKinsey partner Davis Carlin and colleagues shows that a three-pronged behavioral-insights approach, which takes patterns of human behavior into account when analyzing raw data, may yield more tangible behavioral changes over time. An important aspect of this strategy is to formulate “end statements”—the questions that you want the data to answer—that are specific, exhaustive, and actionable. A company found that employees appreciated and valued its capability-building programs but were not necessarily changing their day-to-day behaviors as a result. Once the company formulated a clear end statement, it was able to gather information that enabled leaders to make better decisions about which obstacles they needed to remove to make the programs more effective.

A BIG NUMBER

6

That’s the number of questions that any leader should ask before setting up a behavioral-science team—colloquially known as a “nudge unit”—to help people make better decisions, according to our research. A key issue to consider is whether the nudge team will focus on employees, customers, or both. It’s also critical to set up the unit for success—for example, by launching projects on a smaller scale before rolling them out across the entire company. “We grossly underestimated the challenge of implementing even seemingly simple innovations in large organizations,” a team leader told us. “We initially went after quite ambitious innovations, and then had to abandon them.”

A QUOTE

“Individuals’ desire for excessive coherence . . . prompts them to draw conclusions faster than they should.”

That’s McKinsey partner Tim Koller and coauthors on one of the many cognitive biases that skew corporate decision making. “Important personal and professional choices are often subject to the halo effect, which is the tendency for individuals to make specific judgments based on overall impressions,” they say. They cite the case of a company that picked a favored candidate for CEO based on initial impressions of his good performance—only to be disappointed when the candidate did not fulfill expectations. Making conscious efforts to recognize and avoid biases can go a long way toward countering ingrained behaviors. And machines are just as prone to biases as humans—research shows a high prevalence of gender and racial stereotypes in AI algorithms.

A SPOTLIGHT INTERVIEW

More than a decade after academics Cass Sunstein and Richard Thaler introduced the concept of nudging to the corporate world, they have updated the idea in a revised version of their book, Nudge: The Final Edition (Penguin Books, August 2021). “The basic theory is similar, though I think we understand it better now than we did then,” says Sunstein in this conversation with McKinsey partner Julia Sperling-Magro. “We know that good nudges still make the chooser’s life better, and bad nudges don’t.” Technology enables good nudges: connectivity devices such as fitness bands and smartwatches “allow people to nudge more efficiently and effectively,” says Thaler. But look out for the increasing spread of “sludge,” which may be defined as “frictions or burdens or barriers that make it hard for you to get where you want to go,” Sunstein says. “It’s like a wall between people and something that can make their lives much better.”

— Edited by Rama Ramaswami, senior editor, New York

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