What can Freakonomics teach us about delivering better organisational change?
Is your change program stuck in a rut? Do you feel you’re not making any progress or that your team isn’t engaged and committed? You’re not alone. Many change leaders struggle to make their programs a success. Yet in his book Think Like a Freak, Steven Levitt provides an inspirational way for Organisational Change Managers to think about delivering better organisational change outcomes.
In the first chapter of Think Like a Freak, Levitt talks about incentives. Incentives are an essential way to get people to do what you want them to do. Or stop doing things they shouldn’t be doing. Thinking about incentives paints employee motivational drivers. Knowing how to tweak incentives may help engage employees involved in your organisational change.
Levitt also talks about using “hidden persuaders” when communicating with others. As he puts it: “The hidden persuaders are usually elements other than spoken words that send messages that influence us.”
Freakonomics teaches us to think critically about changes in behaviour rather than taking things at face value.
Worried about your change program being derailed? Consider these questions:
What are your employees incentivised to do? Are there aspects of your change initiative which reward “bad behaviour?”
Can you measure employee actions against any incentives to adjust to new working methods?
You may have read Freakonomics or Super Freakonomics books or listened to the Freakonomics radio show. While they are fascinating (and sometimes controversial) to absorb, they also teach us a valuable lesson about human behaviour: incentives are not always what they seem.
Could it be that your organisation's incentives promote behaviours that go against your change? Can you change or tweak incentives, which may address most — if not all — of the problem?
In one of the more famous stories from Freakonomics, economist Steven Levitt demonstrates how real estate agents can be their own worst enemies. Real estate agents have every incentive to sell their client’s homes for as much money as possible. They’re paid a commission on each sale, so higher prices mean more lucrative paydays.
And yet, Levitt found that most sellers’ agents encouraged their clients to set unrealistic asking prices when they first put their homes on the market. The reason? Sooner or later — usually sooner — the sellers had to drop their asking price and sell at a lower amount than they could’ve in the first place. But by then, the agent had earned his commission and moved onto another client’s home. It was in the agent’s interest to raise prices high at first and hope for a quick sale — even if it meant selling below market value in the end.
The hidden persuaders (and the power of default settings)
Default settings are preselected choices or options. Defaults apply to all consumers (or employees in your change). Employees or consumers have to go to the trouble to intentionally change defaults. For many, it’s too hard or not worth the trouble. For example, if you sign up for a new service provider, you might need to consciously opt in for an extra feature. Caller identification or voicemail are examples. Your mobile phone will not have these features as default settings. If you do nothing and do not opt-in, these features won’t be included in your monthly bill.
Most of us are familiar with default settings from our interactions with computers and software programs. For example, when you download Microsoft Word onto your computer, it defaults to 12 pt Arial font size. What percentage of users would change this default?
“I don’t need to change my behaviour for the better. I’m above average already.”
The book gets into more complex territory once you get past the first two chapters. The problem that Freakonomics tackles next is cognitive bias. I found an excellent depiction of 180 different cognitive biases. You may find it useful to refer to when planning and evaluating your organisational change initiatives.
One form of cognitive bias? Our tendency is to overestimate our abilities and to assume we’re better than we are. One example of this is the Lake Wobegon effect. It’s named after a fictional town in Garrison Keillor’s radio show Prairie Home Companion. It’s remembered by the quote: “all the women are strong, all the men are good looking, and all the children are above average.”
Another bias is the Dunning-Kruger effect: we all like to think we’re above average. For instance, a health system in New York had doctors fill out an annual questionnaire asking them: “How would you rate your performance this year?” They then compared these responses to actual data on outcomes for patients treated by those physicians. It turned out that only 10% of doctors rated themselves below average. Yet 40% were actually below average performers (and only 30% were above average). The “so what?”: about two-thirds of doctors thought they were better than they were!
Now I’m picking on doctors again, but even in the 21st-century, doctor’s hand-washing when at work should be high, right? In Superfreakonomics, our intrepid authors studied the drivers behind low levels of handwashing behaviours in hospitals. Dubner and Levitt cleverly frame the problem — which is half the battle. Problem framing — then solving — brings us to how their way of thinking can help anyone involved in leading organisational change.
What does it all mean for organisational change management (OCM)?
Some of the biggest problems identified in large change projects are not completely technical. Instead, they relate to people and culture and the capacity of individuals to adapt to the new system. If successful change management can improve this aspect, this will lead to more effective change.
Effective organisational change practices can draw on behavioural economics principles. Understanding how people make decisions can help you better design your communications, training and support initiatives.
OCM is often seen as a “fluffy” addition to change projects which are not grounded in any solid body of academic research. Yet there are several relevant branches of research we can use in our change practice, including behavioural economics. Done well, OCM can be a heady mix of systems thinking, psychology, behavioural design, and leadership principles.
Organisational Change Management is still growing as a discipline. The second edition of The Effective Change Manager: The Change Management Body of Knowledge was published in April 2022. I’m keen to see how this book evolves OCM practice and incorporates useful ideas from sister disciplines.
Behavioural science (and cool ways of thinking posed by our Freakonomics authors) nudge our thinking. What other useful concepts help influence better organisational change?