Sunday, January 1, 2017

New Year's Resolutions, Managers and Nudge Strategy

About this time of the year, popular magazines are filled with articles about helping you make sure that your New Year’s resolutions stick this time. In their best-selling book Nudge, Professors Richard Thaler and Cass Sunstein show that an effective way to change people’s behavior is to “nudge” them, rather than say, demand big changes in attitudes or behavior. These nudges can be passive (e.g., placing your work-out clothes and bag right by your desk or bedside) or can be self-imposed (e.g., using a smaller-sized plate when having a meal). The effectiveness of this approach has been demonstrated time and again, even in the UK, where in 2010 then prime minister David Cameron created a Nudge Unit. One of its successes was dramatically increasing on-time tax payments by simply reminding taxpayers that many British citizens pay their taxes on time (an example of a nudge using social norms).

This is their description of what nudging is: “A nudge … is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.” (p. 6)

As summarized by Ann Cuddy in her book Presence, the underlying reasons for why nudging is effective are the following. First, nudges are small and require minimal psychological and physical commitment. Rather than promising yourself that you will never again be late for meetings, for example, you might make a resolution to not be late for the next meeting you will have with your boss. Second, nudges operate via psychological shortcuts; for example, using normative influence (showing what other people would do in a situation) rather than informational influence (giving all kinds of reasons why you should do something). Third, our attitudes follow from our behavior rather than vice-versa.

One of the underlying concepts behind nudging is that of choice architecture. Choice architecture refers to the design of an environment that can influence the choices that people make without necessarily intruding on their freedom of choice. A nudge is “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.” A nudge is not an order, nor is it forced compliance; it’s an attempt to make a better option more visible.

In their book, Thaler and Sunstein describe different types of nudges; many of these apply more to public policies than to organizational policies. However, as Thaler and Sunstein mention, employers are themselves choice architects. In implementing their policies, organizations do in fact nudge employees one way or the other towards certain choices, for example, when they opt in or out of certain benefits. I have not read many examples of how managers can apply nudging strategy in the work place, although managers do in fact nudge, whether they are conscious of this or not. My focus here is not so much on organizational or employer policies, but on what individual managers can do to become more effective choice architects.
In doing this, I am using as a framework Peter Drucker’s (1973) five critical responsibilities of a manager: setting objectives, organizing (e.g., analyzing activities, structuring, selecting people for jobs), motivating and communicating, measuring, and developing people. Sunstein (2014) has outlined ten types of nudges, which I list along with an example or two of what managers can do to utilize each of these types of nudges.

1.     Default rules. The common example here is when employees are automatically enrolled in retirement plans so that they don’t even have to choose actively. Per Sunstein, “…in many contexts, default rules are indispensable, because it is too burdensome and time-consuming to require people to choose.” In the work place, managers who want to set up regular interactions with their team can create schedules on their employees’ calendars so that weekly team meetings are blocked off.

2.     Simplification. Consultant William Scheimann has reported that in his surveys, only 14% of employees have a good understanding of their company’s strategy and direction. A recent HBR article found percentages in the same ballpark as Scheimann’s. There can of course be many reasons for this, but certainly one of them is that many strategies are complicated, and have not been simplified enough for employees. Managers can make these strategies understandable to employees by simplifying and explaining how the elements of the strategy align with team members’ own objectives. Jack Welch, former CEO of General Electric, once said: “The more simply your idea is defined, the better it is. You communicate, you communicate, and then you communicate some more. Consistency, simplicity, and repetition is what it’s all about.”

3.     Uses of social norms. Informing people what most others do in similar situations has a big influence on behavior, and is an effective nudge. For example, when working for a large financial services company, my team and I collaborated with several consultants and academics to identify the most effective management practices in this firm. We interviewed 60 of the managers nominated by their superiors as among the best managers in the company, and 60 so-called average managers (no one admitted to having poor managers in their divisions). We selected those practices that best differentiated the outstanding from the average managers, and used this to build a leadership development program for the company, including 360-degree surveys so managers could compare their results with the best. Google recently did something similar when they came up with eight critical management behaviors of their best managers (Garvin, 2013).

4.     Increases in ease and convenience. A nudge that makes it easy for people to choose is effective, other things being equal. To facilitate communication, for example, managers can make sure that employees’ work spaces are contiguous (much as what Apple is doing for its new corporate offices and Google did when it created “bullpens” or open spaces so that workers could interact more frequently with top managers). For virtual teams, managers can make sure that employees have access to social technology tools that make it easy for team members to communicate with one another.

5.     Disclosure. Explaining the hidden costs of some behaviors (e.g., the full cost of certain credit cards) is also an effective nudge. Leaders can encourage managers who are hiring potential employees on the importance of considering diverse candidates, and point to the benefits of diversity as well as the disadvantages (and legal implications) of not hiring diverse candidates.

6.     Warnings, graphic or otherwise. For Sunstein, such nudges should be used especially when serious risks are involved. Managers can explain clearly to employees the dangers of accepting bribes especially when doing business in countries that score relatively high in the Corruption Index, and provide examples of businesspersons from other companies who have been fired or worse, jailed, for these crimes.

7.     Precommitment strategies. This is a type of nudge where, if people precommit to engaging in certain actions, they are more likely to follow through. During project review meetings, for example managers can review action items with their team and ask specific team members to explain what they will do next about action items on project tasks for which they are responsible.

8.     Reminders. These are simple nudges to remind people to perform certain actions (e.g., the e-mail alerts we receive letting us know when to pay our credit card bills). Managers can set alerts to schedule specific times when they can check in with specific employees, either personally or through e-mail, and inquire about certain follow-up items.

9.     Eliciting implementation intentions. In this nudge, one asks a question about a future conduct to draw out their intention (e.g., do you plan to fill out the employee survey?). With an employee who might be hesitant to collaborate with others, a manager may have a conversation with an employee about finding out when and how the employee might reach out to colleagues.

10.  Informing people of the nature and consequences of their past choices. Through data about past behavior (e.g., people’s expenditures on car insurance), people can be nudged into either continuing or increasing their commitment to that behavior. Harkin et al. (2016) conducted a meta-analysis of the relationship between monitoring goal progress and goal attainment and found overwhelming evidence for such a relationship. In fact, they report that “… progress monitoring had larger effects on goal attainment when the outcomes were reported or made public, and when the information was physically recorded.” For example, during their weekly updates with direct reports, managers could review progress on specific task milestones and reinforce how making progress in these milestones can make a difference not only to the team but also to the department.

While use of these different types of nudges might not seem very unusual or unique, I have found this checklist helpful in reminding managers of the different types of nudges at their disposal, especially keeping in mind Drucker’s five managerial responsibilities. As managers think through the appropriate nudges for their direct reports, they also need to consider the following four questions. Ly et al. (2013) refer to these as bottlenecks; I’ve adapted their four questions, which I think are an excellent starting point for managers as they consider the most effective nudges to use for their direct reports:
1.     Are your direct reports aware of what they need to do but are unable to perform the behavior, or does the desired behavior need to be activated? This is the classic “skill” versus “will” question that managers inevitably need to answer.
2.     Are they motivated enough to impose a nudge on themselves?
3.     How much cognitive or information overload is there? A nudge that relies on providing more information may not work at certain times (e.g., when there are a significant number of change initiatives or there are pressing deadlines that need to be met urgently).
4.     Are there competing actions or is inertia involved? If the former, then the manager might want to focus on discouraging those other actions first.

A key takeaway here is that changing behavior and influencing others do not have to require herculean efforts; through effectively using nudges, managers (as well as individuals) can make strides in achieving their goals – and our New Year’s resolutions. Furthermore, since managers are already choice architects, they should be aware of and make use of these different types of nudges to motivate their employees and build a high-performance team.

Cuddy, A. (2015). Presence: Bringing Your Boldest Self to Your Biggest Challenges. New York: Little, Brown and Company.

Drucker, P. (1974). Management: Tasks, Responsibilities, Practices. New York: Harper & Row.

Garvin, D. (2013). How Google Sold Its Engineers on Management. Harvard Business Review, December.

Harkin, B. et al. (2016). Does Monitoring Goal Progress Promote Goal Attainment? A Meta-Analysis of the Experimental Evidence. Psychological Bulletin, 142 (2), 198-229.

Ly, K. et al. (2013). A Practitioner’s Guide to Nudging. Rotman School of Management: Research Report Series.

Sunstein, C. (2014). Nudging: A Very Short Guide. Journal of Consumer Policy, 37.

Thaler, R. and Sunstein, C. (2008). Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press.