Successful businesses rely on getting their team to take the right actions at the right time in the right way. Ordering your people around won’t get you the results you’re looking for. But, according to nudge theory, subtly guide employees’ choices and you’ll find more people pull in the same direction.
We investigate what this fascinating theory entails, explore how it works and look at ways you can use it to align your employees more closely to your business.
The Nudge Theory
Nudge theory is the brainchild of Richard Thaler, an American economist who won the Nobel prize for his contribution to behavioural economic theory. Based on the premise that humans are irrational creatures, nudge theory is about tapping into emotional decision-making rather than appealing solely to logic.
The theory suggests that, by making subtle changes to how we communicate, it’s possible to encourage people to act in particular ways. Far more carrot than stick, the concept is about helping people to reach a particular decision, especially in situations where their own best interests are at heart.
What Does The Nudge Theory Look Like in Practice?
A good recent example is the 2012 change to pension legislation.
Before this date, employees had worryingly low rates of retirement savings. Although people knew they needed to save for old age, many were failing to do so. Even though it was clearly to their advantage.
Based on the premise of nudge theory, the government introduced auto-enrolment pensions. Instead of workers needing to take action to opt in to a pension scheme, they are automatically added.
The nudge hypothesis suggested most wouldn’t bother to remove themselves from the scheme and the theory has been proved right. As the graph below shows, from 2012 onwards, there has been a significant boost in the numbers saving for retirement.
How Nudge Applies to People Management
What does this mean when it comes to successfully managing your people and delivering the organisation’s mission? From hiring and learning and development to helping people feel engaged with their work and achieving and sustaining wellness, nudge can be employed in many ways.
1. Keep It Simple
Nobody turns up to work wanting to do a bad job. But poor performance sometimes happens because there are blockers that make it too difficult for some people to do the right thing.
One of Thaler’s key tenets is to ‘make it easy’. This can be achieved by reviewing all the hurdles an employee has to leap to do what you want them to do. By finding simpler ways to deliver the same goal, you’re more likely to engage employees with the task and secure better results.
This could mean reviewing policies, paperwork, forms and processes, stripping out the unnecessary and monitoring whether you get a change in behaviour. Employees always late submitting their expenses causing problems with cashflow? Assess whether you can make the process simpler to get better results.
2. Make Good Choices on Employees’ Behalf
Although pensions auto-enrollment has resulted in more people saving for retirement, many are still not saving enough.
Employers who want to help staff save sufficiently for their post-work lives can nudge them into making extra savings by asking them to commit to saving more in the future.
This approach has been trialed by some US companies who encourage workers to allocate a proportion of future salary increases to their pension.
Most people will commit to doing this because it’s a simple decision to make that won’t have an immediate impact on their income. It works because it leverages the human inclination to be more likely to agree to distant future losses.
And it works. Firms running this scheme found 80% of those enrolled were still in the programme after four years. Plus they had increased the portion of their salary being saved from 3.5% to 13.6%.
3. Emphasise the Negative
Staff training costs money and when people don’t turn up it’s like washing cash down the drain. Changing the way you communicate training can make a huge difference to the numbers who attend.
One company found that highlighting how non-attendance could mean missing out on potential promotions was much more successful than telling people that the training could help their future careers.
Why does this tactic work? Because humans are usually more motivated by the fear of losing out than they are of gaining something.
There are lots of ways you can nudge your employees into taking the right course of action both for them and your business. Think carefully about how you ask your people to take action and remove any barriers that make tasks seem too difficult. You’ll be amazed how tiny changes can make a big difference.