Transcription
Time for behavioral science, in particular, as it applies to the workplace. And one thing that strikes me as fundamentally important, which I will talk about, uh, is the very interesting fact that previously, your place of work and your hours of work were assumed to be non-negotiable. And therefore, the only variable was effectively salary. And in fact, labor economics is unbelievably crude.
If you look at labor economics, the part of economics that looks at labor, it's an unbelievably crude measure. It's effectively that people sacrifice leisure in return for money, as though it's a complete bifurcated binary exchange. Whereas, of course, this is a nonsense. People derive huge amounts of meaning from their work. In many cases, some of the time, they can derive enjoyment from their work, although not quite so much when you're about to give a presentation to 2,000 people and 10 minutes beforehand, your computer forces an update on you. Those moments aren't so good, but we can derive considerable pleasure from it. And also, of course, now post-COVID, where and when, as well as free time, I think there's the issue of free where and free when. In other words, work that you can perform at a time of your choosing and work that you can perform at a place of your choosing has a value that is part of the value exchange along with that simple question of leisure.
I learned this the hard way. I had a PA who was a single mom, and I said, "Look, I work eccentric hours. You have eccentric demands in your time. Let's just maximize this value exchange. I don't care if you're in the office at 9:30 in the morning because you'd rather take your son to work. On the other hand, I would send expenses and other admin to her home so she could do them at home after her son had gone to sleep. We just worked out a more intelligent value exchange." And the more variables you have, the more valuable the exchange can be.
I find it bizarre that people who claim to be proponents of capitalism are hostile to flexible work. Because I would argue the whole point of capitalism, it's a process of discovery where you discover ever more new and ingenious forms of exchanging value to mutual benefit. And therefore, adding variables to the work equation strikes me as absolutely a fundamental part of this.
But I think the other reason why behavioral science is very interesting in this field is that quite often we learn things about consumers which are similarly once categorized, applicable to employees. For example, a very simple thing which consumer capitalism has discovered, which marketers have discovered, is quite often people prefer a £10 Marks and Spencer's voucher to £10 in cash. Why would they do that? To an economist, this makes no sense. To the human brain, it makes perfect sense because a £10 Marks and Spencer's voucher or a £100 Marks and Spencer's voucher is guilt-free indulgence because you've got to spend it on Marks and Spencer's goods. Whereas £100 in cash, you might want to spend it on luxuries, but when you do, you feel, "I should really be paying the gas bill with this."
So, one of the things I criticize modern business practice for is the gradual erosion of perks. Actually, kind of imposed indulgence is not only very tax-efficient, it's disproportionately appreciated. And over time, we've got rid of all those things like the company car, the training course, the other things, uh, because the finance department think it's rational to do this. What this has largely meant, actually, is vast extraction from the workforce towards the shareholders, with the return that working has become increasingly less rewarding because it's become more and more transactional exchange. So I think there are huge learnings you can derive from consumer marketing where the insights are equally applicable to how you treat employees and colleagues.
No better example, in fact, being this, which is from the, uh, New Zealand neuroscientist David Rock. It's his SCARF model. I often call it a checklist of things that economists don't understand. You could call it a checklist of things that finance don't understand. But there are five things that have enormous emotional currency to any person, but which don't appear on an economic model of kind of, you know, uh, of exchange. They're not really factored in in any purely economic or financial model. And yet, in many cases, they're the prime drivers, often unconscious, of what makes humans committed, what makes them happy, what makes them work harder, what makes them go the extra mile, what makes them collaborate.
Now, what's interesting about this is I've used it extensively in consumer marketing. You might argue that a product like the American Express card offers, uh, you know, three of those categories. You know, certainly relatedness, member since '93, we acknowledge your past relationship. Okay, that would be a kind of reciprocity you might want to call it. Okay, status. Undoubtedly, the American Express card was, you know, intrinsically, there was a component of status to which card you paid. And I've used this model for ages in consumer marketing without realizing that its real application and its most common use, in fact, probably its origins were actually in HR practice. And it's called the SCARF model because it's a mnemonic. And you probably all know this: Status, Certainty. Status is one of the problems, by the way, of woke capitalism, I would argue, is that you can make financial redistribution feel good to the people who are actually giving their money to someone else. That's philanthropy. You cannot allow someone to relinquish status and feel good about it. We need to be very, very cautious about this because status, much more than money, is a kind of zero-sum or negative-sum game.
Certainty. I've used this extensively in travel economics by pointing out that the best investment that London Transport ever made was putting, um, effectively dot matrix displays on the platform. That's because we'd rather wait 10 minutes for a train knowing it's coming in 10 minutes than wait 5 minutes for a train not knowing when it's going to arrive. My best advice to British Airways in the five years we worked with them is, if you can ever avoid putting up on a departure board "delayed" and put "delayed to 14:23," that's actually more important in psychological terms than fixing the plane faster.
Autonomy. We massively care about the ability to exercise discretionary opinion. People prefer things they've chosen over the same thing when it's imposed on them. So people like to choose to do the right thing much more than they like to have an algorithm which demands that they do the right thing, even if those two things are the same.
Relatedness. I'd also add reciprocity. It's, in other words, the extent to which you feel other people in your team have got your back. And fairness. I mean, there are lots of examples in fairness. I've spent a long time in consumer marketing campaigning against this business that if you miss your non-refundable advanced ticket train, your ticket counts for zero, and you have to buy a full-fare ticket. Fundamentally, people see that as unfair. A very large part of the brain cares about comparative fairness more than it cares about absolute reward. And there are loads and loads of behavioral science experiments about this. There's a wonderful experiment, Google it, I haven't got time to show it, involving capuchin monkeys where if you give both monkeys cucumber in exchange for performing a simple task, they're happy doing it endlessly. If you give one monkey grapes and the other one cucumber, monkeys prefer grapes, the other monkey who's being given cucumber, even though it was happy to perform this task beforehand, gets into a sulk. By the way, the biblical parable of the parable of the vineyard is really a behavioral science lesson. Jesus, along with Aesop, were both brilliant behavioral scientists. It's really about this question of fairness.
And I'll go back to this because I think I've used this all the time thinking how useful it was in consumer marketing. It occurs to me that in anything involving HR or the motivation of teams, um, this is all five of these things are absolutely crucial. In consumer marketing, you might focus on two or three. I think in dealing with, with human beings, with colleagues, with employees, you've got to look at all five. And the question I'm going to ask, which is a tough one, which is, is HR and the bureaucratization of business decision-making actually contributing to the problem in many cases in all five areas? So, is the attempt to reduce business decision-making to individual silos and to effectively formalize it and codify it, is this a case where where the very existence and growth of HR is making things worse?
Previously, you could genuinely feel as a boss that you had some control over the future well-being, security of your staff. Now, you basically go, "I'd love to give you a pay rise, but HR says no," or "Finance says no." And I would argue this has led to a huge feeling of loss of autonomy. Now, in some respects, that's not a bad thing. In the worst cases, people abused autonomy very badly. Okay, I accept that. But nonetheless, the exercise of autonomy is a large part of the pleasure people derive from being good at a particular job.
Um, relatedness. I think it breaks down the relationships within teams. Very successful examples, including Shopify, have formed customer service teams of 10 people with one team leader. The size of 10 is modeled actually on sports teams as an optimal kind of size. I think it actually breaks the idea of fairness because I think we have a world where, by the way, it often feels as if the people performing the core function for which the organization exists are endlessly being scrutinized and in many cases bossed around by people who have an administrative function, who have far less understanding of what life is like on the ground. And I think that violates fairness.
And let's be blunt. I think the fact that between 2016 and 2023, salaries paid in the UK to HR professionals went in that short period from £15 billion a year to £25 billion a year. Okay. This is beginning to create a feeling that any gains to efficiency within the organization are absorbed by the practitioner, and the actual gains go to the expansion of an ever-growing kind of almost kind of oncological bureaucracy, which seems to be an administration bureaucracy, which seems to be growing at the expense of people who are doing the real work. I've got some examples of that coming up.
So, I've mentioned relatedness. It breaks down the feeling of mutual obligation within a team because no one within the team really feels they have any power. They're simply servants of the algorithm. It violates fairness. It denigrates autonomy. Um, it reduces certainty because everybody now feels they're not a valuable member of society. They're just one bad quarter away from oblivion, and that their past record doesn't count in terms of their long-term promotion. The relationship between employer, this is really finance rather than HR, has become transactional with people in a particular job assumed to be basically fungible and infinitely replaceable. Team dynamics are destroyed by this idea that you're no longer Rory Sutherland. You're, you know, AD level four. That has been undoubtedly damaging. And the consequent effect of this is that nobody really feels they have status.
And the way I phrase this in my own life is that when I was hired as a very junior graduate trainee at Ogilvy in 1988, the people who made the hiring decisions were or went on to be some of the most eminent people in creative advertising. When I'm fired in, you know, 2050, 1 year's time, that all depends on the next financial quarter. The decision will be made by somebody in HR and somebody in finance. It won't be made by my peer group.
Now, if you want to read up more about this, there's a great book about it. Unsurprisingly, I think it's written by an anthropologist. Gillian Tett, for those of you who are fans, writes in the FT extensively. She was an anthropologist in the absolutely classical sense of investigating tribesmen. Ended up working in the FT, ended up bizarrely by chance looking at the anthropology of the JP Morgan mortgage trading division and was one of the few people to predict the 2008 financial crash because of what she as an anthropologist saw about the internal habitus that was created within that particular culture. The fact that it was actually blind to anything outside its own metrics. It had no concept of context. It was, if you like, a self-fulfilling system of belief. And this book, I really, really recommend.
But I also point out the extraordinary growth in the adminosphere, which I think is actually part of the problem with the fact that people are finding work less and less motivating. Now, don't so much look at the graph there, although that is the cost of education versus median income. Most things, televisions, holidays, jet travel, etc., either have basically tracked median income or, in many cases, have actually been, uh, subject to deflation. Uh, look at higher education. It's effectively an extractive kind of luxury goods business in the United States. And, um, quite rightly, the author here, Scott Galloway, points out that some of the increase in administrative spending is warranted. Expanding access to kids from different backgrounds requires more resources. I buy that. However, there is now a 10:1 ratio of MIT employees. Okay, there are 10 times as many MIT employees involved in administration as there are who people who actually teach. Between 1976 and 2018, the number of other professionals employed at colleges increased by 452%, while full-time faculty grew just 92%.
A Cambridge historian I spoke to said, "When I joined the history faculty at Cambridge, the entire administrative function was performed by a middle-aged woman who knew everything, as he described it. We now have serried ranks of desks stretching over the horizon. What is going on here? We need to ask."
I wrote about this in The Spectator and, um, uh, I wrote that in every organization, whether in the public or private sector, a great inversion has taken place where the people who do actual useful work, from surgeons to call center staff, find themselves working at the behest of a vast army of box-tickers and pen-pushers who demand that they conform to a host of metrics and proxy targets, not in fact to improve the patient experience, but largely so their contribution can fit into a cell on a spreadsheet or a bullet point in a presentation to stockholders. Although this caste often uses capitalist language, its principal achievement is a kind of Sovietization of the modern organization. As in the Soviet system, the people who report, quantify, and measure things end up with all the power, but none of the scrutiny. Rather than fostering motivated teams and trusting them to make decisions, every job is reduced to an algorithm with the participants treated as wholly interchangeable components in that process. Although keenly focused on the output of productive staff, the administrative caste effectively marks its own homework when it comes to its own activities.
Now, of the 10% of the significance is that I wrote that the real significance lies in the comments page. Now, I accept the fact that The Spectator is not entirely representative in terms of the UK population, even in terms of its online readership, which is obviously more diverse than its paper readership. There were hundreds of posts there from hospital consultants, eminent people in their field, who left their employment largely because they felt that the adminosphere was actually preventing them from doing their job. That was their rational explanation. I would also argue that the adminosphere was diminishing all the SCARF values that they would have enjoyed 20 or 30 years ago.
To take an extreme example, I had a friend who left MI6 because of the, his irritation at the level of bureaucratic procedure. You know, if, if basically James Bond is getting sick of the box-ticking, I think you do have a problem here, and nobody's really addressing it because, as I said, I think these functions mark their own homework. And I think this is just an important thing to understand.
Now, what can we do? Okay, that's my pessimistic take. I'm going to end on a more optimistic note because there are things you can do which are disproportionately valuable, and you can learn lessons here from behavioral science as applied to consumer marketing. And one of those things is that if you do one thing distinctively and differentiatedly well, it pays five times as much as if you do the same thing as everybody else. Look for a unique perk or benefit to offer your staff which your competitors don't offer, and then magnify that to a huge extent.
The reason for this, this is a quote from Citizen Kane. "Mr. Carter, if the headline is big enough, it makes the news big enough." There's a fundamental insight in terms of human perception, which is logically, we should pay attention to what's important. In fact, our brains work backwards, which is we deem important what we pay our attention to.
And speaking to the marketing director of a London hotel chain, she said, "We're a small boutique London hotel chain. We operate in Georgian buildings. Uh, the kitchens are very small. I'll be honest with you, our food isn't very good. What do we do about the food?" And everybody's conventional answer is, "We need to improve the food." She said, "No, we don't talk about the food. We talk about the cocktails. We have the best mixologists in London. All of our effort is devoted to focusing people on the cocktails. When people are focused on cocktails, you can serve averagely good or decent but not amazing chicken wings, and nobody notices." So understanding this kind of disproportionality of attention is really, really interesting.
The DoubleTree Hotel. If you've stayed at a DoubleTree Hotel, you get given a cookie when you check in. There's actually an oven underneath the check-in desk. The finance director's been trying to kill this for years. The marketing director winds him up. It usually is a him by making the cookies bigger. It's brilliant because you don't expect it. One of the dumbest exercises that tends to be performed in businesses is benchmarking, which means you offer exactly the same thing your competitors do, which means that the perceived value is really small because it's neither seen as voluntary or or particularly differentiated. The reason the cookie works is precisely because nobody expects a cookie.
I'm a big fan of Turkish barbers, okay, in the UK. Trust me, 5 years ago, I never said, "I really like my existing hairdresser. I just wish he'd flick burning methylated spirits in my ears." Okay, the very fact that you do something unexpected has 10 or 15 times the power in some cases than if you do something that everybody else does. And that understand that on the right, this is the lift buttons in the now defunct Lydmar Hotel in Stockholm, where you didn't just choose the floor, you chose the lift music. Things like that, by attracting your attention, therefore attain greater importance and therefore attain a value that is out of proportion to their cost.
This is a hotel, for example, in Los Angeles. It's called the Magic Castle Hotel. As you can see, it's nothing that special. Freakishly, however, it frequently comes in the top 10 of all Los Angeles hotels on TripAdvisor. Not because the rooms are particularly great, not because the architecture is completely great. It's actually a converted 1950s apartment building. The pool is nothing to write home about, but they do one of two amazing things. I haven't got time to read this all out. This is about the Magic Castle Hotel. Um, if you really want to know about this, there's a book by Will Guidara called "Unreasonable Hospitality," which is all about this phenomenon of do the thing well that people aren't expecting at all, and you get 10 times the brownie points you get if you do something that people are basically expecting or which has become table stakes. It does one or, actually, it's rather sweet that when you get your laundry back, you also get a sprig of lavender and a little smiley face, but that's a detail. The amazing thing it does is a popsicle hotline for your kids, where when your kids are by the pool, they can pick up a red telephone and someone comes out with a tray of free ice lollies, which are completely free. That's a rounding error in terms of their costs. Although I bet the financial director is trying to kill it all the same. It's an absolute slam dunk. It's a killer in terms of customer experience.
And so this cartoon from Marketoonist, I think, makes a fantastic point here. "We should differentiate our brand, just as long as we differentiate in exactly the same way as all of our competitors." That's what benchmarking exercises are often about.
And so there's some other theory behind this. It's called the Kano model. And the Kano model, from a Japanese chap called Professor Kano at the University of Tokyo. He worked a lot with the consumer electronics industry. Another case where I think HR can learn a lot from consumer marketing and found that products basically have three components. There's must-have components, table stakes. If you buy a brand of milk and the carton always leaks, you'll never buy it again. It doesn't matter how good the milk is. Doesn't matter what else you do. You're not going to, you're not going to have a business. That's what you might call a must-be function. Then there are what you might call one-dimensional functions. They're called performance attributes, how good the milk is. And generally, those improve linearly. Passenger customer satisfaction improves kind of linearly with improvement in performance. But it's kind of, there's a law of diminishing returns. And finally, in the consumer, um, electronics industry, this was famously the cassette deck eject mechanism, or if you're younger, the DVD, uh, eject mechanism. Or if you're younger still, it's, what the hell is a DVD? But it was usually those things are not, they're surprisingly orthogonal and surprisingly tangential to the core function of what we see as a product. Cookies don't have much to do with hotel hospitality. That's precisely why they're magical. Buying a cassette deck in the 1980s, you press the eject button, and if it hissed open with a counterbalanced mechanism, with a kind of num, you know, a kind of hydraulic counterbalance, you thought, "Ooh, that's gorgeous." And if it just went clack, you thought, "That's a terrible cassette deck. I'm not even going to give it house room."
So, one of the things I think we're failing on in HR is we're not looking for delight attributes. We're sometimes looking for things like bonus and salary, which are kind of one-dimensional. Sometimes we're neglecting even the very basics, I think, of being a reasonable employer. But we're also missing out on what used to be those abundant treats and extravagances, the guilt-free indulgence I was talking to you at the beginning of this talk. Sorry.
If you Google, if you Google these two words, "emotional efficiency," you'll find on the whole of the web they barely occur. When you're trying to do something that appeals to human beings, the thing you're trying to maximize is not economic efficiency or mechanistic efficiency. It's emotional efficiency. What gives you the biggest impact on the recipient emotionally in for the smallest amount of possible resources. I would argue in many cases, money has a remarkably low level of emotional efficiency. Yes, people like it. Everybody likes it. But it's the most costly way of actually creating motivation once you've reached a kind of reasonable threshold.
There are brilliant ideas that optimize emotional efficiency. I mentioned certainty and the SCARF model. What Uber realized was that how long you waited for your cab was less important than your level of certainty in knowing when the cab was going to turn up and knowing where it was. There are brilliant creative cases where you can turn a weakness into a strength. Night Nurse was developed as a cold and flu remedy. It had the unfortunate side effect that it sent people to sleep, until a genius person said, if we position it as a nighttime cold and flu remedy, the fact that it actually sends you to sleep isn't a bug. It's actually a feature.
There are ways in which this cost £20 billion pounds. It's an engineering, it's a rational, um, uh, investment in building a complete new railway line. This cost about £100 million, but it carries as many people every day. It's the Overground 90. The reason it cost so little is most of those tracks already existed, but people, because it didn't appear on the Tube map and didn't have a brand identity, nobody knew, actually, nobody could make sense of how to use it. This was literally a case where you created, I would argue, £20 billion pounds worth of infrastructure mostly with ink and pixels and psychology rather than with tunneling equipment. We forget, okay, we forget the fact that actually in many cases psychological solutions to problems are much more efficient and much less expensive. To take the existing infrastructure and make people want to use it is a much, much cheaper solution than build new infrastructure.
As I always say, to your finance director, money is a number. To employees, money is a feeling, with all the nonlinearities and butterfly effects that makes possible. But there's a fundamental bias within all organizations which is that rational people, the engineers, the coders, the, uh, finance people, get to the problem first. They get to define the problem first in their own language, and then they start defining the solution in terms of their own particular skill set. If you have a creative suggestion, you have to present it to rational people for approval. Fine, that's not wrong. It never happens the other way around. You never get people going, "I think the answer is 7.5, but before I present that to the board, I'm going to show it to some wacky people to see if they've got a better idea." There's a fundamental imbalance here between our focus on rational, quantitative, and reductionist solutions and our search for creative, imaginative, differentiated, and exciting psychological solutions.
Maybe I have a tip. According to Herodotus, the ancient Persians, whenever they debated a matter of great import, they used to debate it twice. They debated it once while sober and once while drunk, and only if they agreed in both states would they actually proceed with the course of action. I'm not suggesting you necessarily adopt that literally in your own organizations, although it would be fun. What I am suggesting is we need to have a better system for problem definition which treats creativity in parallel with quantification rather than making it subordinate to quantification, and understands that creativity isn't an alternative to rationality. It's actually an added strength. It's a turbo. It's, it's effectively an enhancement, a compliment.
So, with that said, I can offer a course in precisely that kind of creativity if you're interested. My colleagues in the behavioral science practice write extensively. Here are some of their books, uh, in many cases best-selling books, which we've produced from a group of only 15 employees. I'd really recommend you, you read those. And finally, this has been me, one minute early as I was requested to be, and it's a pleasure to speak to you. And I'm only apologizing that I can't be with you in person, but thank you very much indeed.
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