When bringing a new idea to market, how do you choose the right approach? Do you ask your senior management and fellow employees for their opinions? Do you rely on market reports and research surveys? Do you simply trust your gut?
Or do you conduct your own in-house experiments to learn firsthand what works best in your organization?
If you forgo experimenting, you’re not alone: The latest findings from Harvard Business School researchers suggest that few organizations actually experiment. However, this is rapidly changing as the field of applied behavioral science gains momentum and moves from the lab to the real world.
The Rise of Behavioral Science
Popular culture is now embracing the behavioral science movement, thanks to popular TED Talks, New York Times best-sellers, and Harvard Business Review articles that focus on applied social psychology and how it can be used to improve our businesses and our world.
With behavioral economics becoming the new “Moneyball,” psychological concepts such as loss aversion, social proof, and default effects are entering the popular lexicon. Once thought of as incomprehensible “brain surgery,” behavioral science is becoming water-cooler conversation. Behavioral economics pioneer Richard Thaler’s recent Nobel Prize is another testament to the public’s embrace of the field.
Yet the industry implementation of these ideas has been slow to start. While more than 60 governments in 23 countries around the world have pioneered best practices based on behavioral science, few industry leaders are following suit.
Indeed, the number of leading companies with dedicated behavioral science teams can currently be counted on one hand (Walmart, Pepsi, and Morningstar are notable examples). But now more than ever, it’s critical for industries to build dedicated internal practices of behavioral science.
Why Care About Behavioral Science?
Numerous case studies have shown that businesses benefit massively from better understanding human behavior as a fundamental consideration of employee productivity and happiness, customer engagement, and product and business model innovation.
Behavioral science is helping to unleash human potential in the workplace by providing employees with a sense of meaning. Science shows that employees are motivated by far more than money — namely, a sense of purpose.
For example, Adam Grant led a landmark study showing that college fundraisers generated 171 percent more alumni donations, compared with a control group, after reading letters from scholarship beneficiaries. In this same study, meeting a recipient in person for just five minutes generated performance improvements that lasted months.
Although it’s easy to think of employees as mere assets to be managed, business leaders would be wise to apply this principle of purpose — and to experiment within their own organizations to create a happy, engaged, and productive workforce.
Consumer marketers have been leading the way in applying psychological principles to influence stakeholder behavior. Marketers price products strategically — tapping into our bias for the midpoint — by anchoring against higher-priced decoys.
New products are often presented “fully loaded” and tend to be purchased that way, as our default bias taxes the will to remove each bell and whistle. Free trials are an institution of consumer promotions because our natural aversion to loss makes us unlikely to discontinue a service once we’ve tried it.
These behavior-based marketing tactics are enhanced by A/B testing capabilities within consumer websites, enabling marketers to compare subtle nuances of messaging, which can have outsized effects on consumer behavior. But these “nudge” tactics aren’t just about communication. They have the power to change important behavior in consumers’ lives.
For example, when Opower wanted to encourage customers to use less energy, it added an element of social comparison, pointing out how much energy customers used in comparison to their neighbors. This approach decreased energy usage of high consumers by more than 6 percent, thanks to our deeply engrained bias to act in accordance with social norms.
So what really drives consumer judgment and decision-making? Counterintuitively, it’s not always more information. Testing and designing communications for the complexities of the human mind is often a more effective path.
Beyond incremental improvements to existing solutions, behavioral science can also help us dream big. Perhaps the most exciting application is the transformation of products and business models.
In an economy of rapid disruption and technological innovation, companies can’t afford not to pay close attention to human motivation and behavior. Behavior-based trends are transforming entire industries.
For example, subscription models are proliferating because they separate the pain of payment from the joy of consumption — a fundamental behavioral principle driving the rise of innovative startups like Birchbox, Trunk Club, and Blue Apron.
Another emerging principle is operational transparency. Behavioral scientists teach us to “show the work” and to provide a window into the process of delivering value — from clothing to travel to pizza. (Think Domino’s pizza tracker.)
Even established industries such as insurance have been fundamentally disrupted by innovators paying attention to human behavior. With leading behavioral economist Dan Ariely as its chief behavioral officer, Lemonade is the first peer-to-peer insurance company rapidly gaining “crazy market share” by building on fundamental principles of behavioral science. It’s striving to make insurance simple, transparent, and prosocial — by giving back unused premiums to causes that clients care about, for example.
A Culture of Behavioral Science
We wrote this article over a shared curiosity for human behavior in the modern workplace. Do foosball tables really make employees (feel) more innovative? How do soul-sucking commutes affect teammate camaraderie? Why don’t people take their vacation days?
These questions and others led us to a more formal collaboration on an employee engagement research road map. It was designed to inspire a series of experiments within Maritz’s client programs and better understand what makes people tick in the workplace.
Having bridged the academic and industry divide, we’ve discovered a few characteristics, informed both by science and practice, that help make behavioral science part of everyday organizational decision-making.
1. Chief Behavioral Officers
Applied behavioral science requires an in-depth understanding of business and customer challenges — which can only be grasped fully by internal teams with on-the-ground experience and company-specific accountability.
In that vein, businesses would be wise to identify a subject matter expert to build a behavioral science center of excellence. While everyone in the organization benefits from this knowledge, new and focused expertise requires a dedicated person to set goals, be accountable, and share best practices across the organization.
CBOs are advocates for the human at the center of every policy and program. In every meeting, they’re responsible for asking: What behaviors are we trying to influence? Are the employees, participants, or customers in this program doing as well as they could be? What specific steps are we asking these people to take?
Marrying art and science, the CBO leads a series of workshops and journey-mapping to spark curiosity in human behavior and motivation, while engaging data science and analytics resources to identify measurable outcomes. The CBO might also have a scientific background, but it’s more important that he or she knows the programs well and has empathy for the individual participant as well as a strong dose of common sense. A recent article aptly summarizes the characteristics of a successful behavioral scientist.
CBOs can walk through the participant journey and intuit barriers and motivators as hypotheses for testing, which was the first step we took at Maritz toward building a list of testable questions that matter to our leaders, stakeholders, and clients.
2. Academic Communities
CBOs may not have the answer to every behavioral problem, which is where academic networks come in. Not only can they provide greater information, but they also keep confirmation biases in check, which adds rigor and credibility to experimenting.
Forging partnerships oriented toward publishable outcomes is a mutually beneficial way to uncover actionable insights in business. The academic community is trained in the machinery of experimentation, but the business community is endowed with a deep understanding of the machinery of their enterprises.
Teaming together is an exercise in comparative advantage that improves outcomes on both sides. It’s the ultimate win-win: Academics can be a cost-efficient resource to businesses when they’re able to collect unique data to support their research, and businesses can benefit from their knowledge.
Researchers’ expertise and interests can vary widely by topic (consumer decision-making, employee well-being, and salesperson motivation), technique (analysis of big historical data sets versus controlled experiments) and focus (individual employee or organization-level changes). So building a network of the right academic collaborators will take some legwork, further attesting to the importance of having a dedicated chief behavioral officer to develop these connections.
In thinking about employee engagement, we considered this academic diversity and built a network of potential collaborators by taking our research road map on a roadshow, meeting with academics at a few top-tier universities to investigate their research interests related to various dimensions of the modern workplace experience.
It’s critical to work together from the beginning on the research questions and invite key stakeholders such as clients, customers, and employees to contribute. Aligning interests of the business and of the academic collaborator is the best way to generate new insights about human behavior in the modern marketplace.
Experimentation is the foundation of behavioral science. The only way to really understand what causes behavior change in your stakeholders is to make a habit of running randomized controlled trials (“RCTs” in science speak). Without proper testing, you might be inferring causal relationships that aren’t there or missing an opportunity to try something better.
Building testing capabilities into the foundation of a business’s tech platform is a good way to instill the practice of experimentation. It’s also important for leadership to set the expectation that programs aren’t perfect at launch — there’s usually room for trying, testing, learning, and challenging assumptions.
Embracing experimentation means celebrating failures, too. When we continually test new ideas and approaches, learning what doesn’t work is just as important as uncovering what does.
Applied behavioral science is a largely untapped field that can help business leaders better understand and influence their employees and customers. Businesses also have a lot to contribute to the academic field, which still requires field research to better understand the impact of theoretical ideas on real people in natural contexts.
The modern marketplace provides scientists with real-world settings to evolve our collective understanding of the human psyche. Industry and academia is a good partnership for a smarter world.