Keep it simple: How to succeed at business transformation using behavioral economics

Business leaders often think it’s impossible to predict the outcome of a transformation effort—whether employees will embrace a new process, for example, or how customers will react to a new service. They’re missing out on a secret of change management, says IBM Global Managing Partner Jesus Mantas: “You really can predict, for the most part, why people do what they do.” The answers, he says, come from ​​behavioral economics.

In his role overseeing Business Transformation Services for​​ IBM Consulting, Mantas guides organizations toward success as they redesign their businesses. Mantas has spent years combing through findings from behavioral economics and incorporating them into his consulting work. The principles of human behavior can seem simple and even obvious, he says, but time and again, companies ignore them, then wonder what went wrong. Here are a few essential—but often overlooked—guidelines for any leader aiming to influence people’s decisions and drive change.

​​Realize it’s less about the data—and more about the presentation

“In a business environment, we tend to think everybody makes rational decisions,” Mantas says. But emotion plays a much larger role than leaders think. Case in point: Take the same facts and present them differently, and you get a different reaction from customers. A pair of headphones selling for 50% off $60 feels more compelling than the same item selling for $30. Ground beef that’s labeled “85% lean” seems more appealing than an identical product labeled as “15% fat.”

As another example of the power of presentation, Mantas cites studies that show a powerful way to encourage behavior in people is to sign them up for something—like a ​​401(k) savings plan—and allow them to opt out. That brings much higher adoption rates than a program requiring people to opt in. According to research from fund manager Vanguard, people who are auto-enrolled in a 401(k) have a 93% participation rate, compared to a 66% rate when people have to opt in.

In both cases, people are given the same choice—to join a 401(k) or not—but the facts are presented differently, using an opposite ​​choice architecture, as behavioral economists call it. Research about the power of auto-enrollment is so persuasive, in fact, that a new U.S. federal spending package requires employers to automatically sign up their employees for 401(k) plans to improve their retirement security.

Mantas believes data and facts make up 20% of a decision, while presentation is the other 80%. Factors like color and design “have disproportionately more impact than baseline statements,” he says. Efforts around transformation should always keep that in mind, and businesses should spend much more time getting the presentation right.

​​​​Stop making things so hard for people

The 401(k) research bolsters another point Mantas mentions frequently: If you want to influence behavior and encourage adoption, create the simplest possible path. What could be easier than joining a 401(k) through auto-enrollment? In other words, make things easy for people.

“‘Why is nobody following our new process?’ OK, well, it has 42 steps.”Jesus Mantas

As Mantas says, “People will do what’s easy more often than they will do what is correct, right or expected. It’s so simple, so obvious. Nobody has ever disagreed with me when I say that. And yet people barely ever apply it in practice. And then they ask, ‘why is nobody following our new process?’ OK, well, it has 42 steps.’”

When Mantas worked with a company looking to build a network of charging points for electric vehicles, the company’s team was focused on getting the technology to work well and rolling the stations out widely. “That’s great,” Mantas recalls asking them, “but why will someone adopt yours versus any other option that they have?” His own answer: “The charging experience has to be easier than any other one on the market. If you do that, you will have more adoption than anybody else.”

​​​Build strong and sticky habits

Mantas once spoke with a CEO who wondered how employees could adopt his company’s new principles as it underwent a transformation. It wasn’t about principles, Mantas told him, but habits.

The objective is to change what people do every day, which is very different from what they believe in or aspire to. Habits are what we do, who we are and how we think. If using new technology or processes doesn’t become a habit, the effort will ultimately fail.

The first step to developing a habit is, of course, making it easy and starting small; that’s an idea shared by BJ Fogg, a behavior scientist at Stanford University, in his book Tiny Habits. Leaders can establish habit-building cues, or reminders to do something.

IBM Consulting has its own list of habits, one of which is to build client trust. In practice, that means creating processes around transparency, like supplying data and metrics that measure success. “Building client trust is not a principle,” Mantas says. “That’s something you need to do in every interaction. That’s like brushing your teeth.”

The old adage is true: Humans are creatures of habit, and building routines will make your transformation stick. Like Mantas’s other recommendations, it’s a commonsense truth that’s backed up by research. The big picture, he says: ​​“When you study behavioral economics and science, you really find new avenues and tools to accelerate transformation—and unlock a significant amount of value.”

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