Behavioural *Economics* in Organization Development and Change Management?

Why Organization Development and Change Management need a nudge

Behavioural economics emerged in response to the neoclassical economics assumption that people are self-interested and rational. For decades, it received little exposure beyond academia. But with the publication of Nudge in the spring of 2008, it landed straight in the mainstream.

They nudged the world

Tapping into more than 30 years of behavioural research, Richard Thaler and Cass Sunstein showed how complex our everyday behaviour is. We are subject to an array of heuristics, cognitive biases and logical fallacies. That means we don’t always act rationally. And it means that we often make choices that go against our ‘health, wealth and happiness’.

Alongside Nudge more books appeared that challenged conventional economic wisdom. Dan Ariely wrote Predictably Irrational and The Upside of Irrationality. Animal Spirits by George Akerlof and Robert Shiller looked at the behavioural origins of the financial crisis. Collectively they gently nudged the world towards acknowledging we really are quirky creatures. More and more people realize that simplistic assumptions are just not good enough to predict our behaviour.

Except in organizations, it seems.

We rely heavily on conventional instruments to guide people at work. Look around you in any organization and what do you see? Role and responsibility descriptions and hierarchical structures. Procedures to comply with, business processes to follow, and more. And all of them assume that people are always acting rationally and using all available information when they make decisions.

True, commercial and government organizations are increasingly using insights from behavioural science. But the emphasis is very much on their customers or citizens on the outside, not on their employees on the inside.

And that means they’re missing a trick. When things are not quite right in organizations, that is visible in people’s behaviour. So it’s no surprise that behavioural science can help diagnose and resolve organizational dysfunction. The same applies for organizational change. When you set out to change the way people behave, behavioural science can help manage change, both in the design and in the implementation.

But there is more.

What do people do within organizations?

  • They trade with each other (business process descriptions typically talk of suppliers and customers)
  • They bargain and negotiate with each other (“is it OK if I deliver that report next Friday?”)
  • They make explicit or implicit agreements (not just employment contracts, but also meeting minutes)

People also need to manage scarce resources and allocate them as best possible. Some examples:

  • Departmental budgets (“Can we afford to send two people to go to this training course?”)
  • Productive capacity (“Stop the line, it’s all hands to the pump for this customer problem!”)
  • Real estate (“How many staff can we realistically cram in this open office space?”)
  • Conference rooms (“Why can I never find a free meeting room when I need one?”)
  • Personal time and attention (“Oh no, not another meeting <sigh>”).

And people have likes and dislikes that influence their decisions. Consciously or unconsciously, they weigh up the costs and the benefits of the choices they face at work, much like they do when they buy a car or even washing powder.

All this means organizations are a lot like economies — which is not really that surprising, because we are all economists. But it does make a strong case for looking beyond behavioural science. We should also use for insights from behavioural economics in the domains of Organization Development and Change Management.

To understand, predict, guide and change people’s behaviour we need to understand the choices they make. And to understand their choices, we need to understand what their trade-offs are, and how they make them.

How do people decide when to schedule a maintenance intervention on the shop floor? Why do people fail to cancel a meeting room when the meeting is postponed? How come people pay lip service to important corporate programmes? What really motivates them to stay late?

Behavioural economics can help shed light on the trade-offs behind the answers to questions like these. It can help understand the rational and the not-so-rational forces that influence people’s behaviour at work. And it can help design robust ways to remedy organizational misbehaviour.

That is why Behavioural Economics belongs in the toolkits of Organization Development and Change Management.

(written by Koen Smets and Paul Thoresen)

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