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Why Behavioural Science is Good for Business

by Erik Johnson

Spring 2019 - Behavioural Science

Delicious, perfectly portioned and ready-to-cook meals delivered to your doorstep. Easy-to-use tools to significantly increase your retirement savings. Systems for de-biasing your hiring process. These ideas might seem unrelated, but in fact they are tied together by a common thread: they were all made possible by insights from behavioural science.

Such innovations are possible when behavioural science is applied to companies’ three primary functions:

  • Creating the best product or service;
  • Reaching users who want that product or service; and
  • Managing an efficient and ethical organization.

In each of these processes, smart companies are infusing behavioural science to improve their bottom lines. It only took Blue Apron about three years to join the ranks of the rarefied, so-called ‘unicorns’ — start-ups valued at over a billion dollars. Driving this success is a simple, smart business idea: Send people everything they need to cook tasty, healthy recipes right to their doorsteps.

The vast majority of millennials—80 per cent—think cooking meals at home is a good thing to do; and yet they eat out more than any previous generation. Why? Cooking can be intimidating, hard to plan, and it can just feel like too much work after a long day. Whatever the obstacle, millennials have a hard time turning their good intentions into, say, fontina-stuffed pork chops with potatoes and pizzaiola sauce. By making cooking easy, Blue Apron makes cooking at home an intention people will actually follow through on.

Another behavioural insight baked into the Blue Apron business model is that it removes the temptation to eat out by nudging its subscribers to plan ahead. You subscribe to Blue Apron when you are motivated to follow through on your intentions, and groceries arrive when your motivation to shop may have been waning: when you get home from work, tired and hungry.

Great companies know how to get their customers’ attention. At Morningstar, we partnered with a company to provide a tool to help its employees plan and save for retirement. We liked the tool, but the problem was that our direct mail communications to the company’s employees were falling on deaf ears. A member of our team came up with a hypothesis: The recipients had no idea who we were and thought we were spam. Ouch.

To test this, we ran a simple randomized control trial (RCT). Some employees got the same letters as before, while others received the communication with their company’s logo positioned right next to ours. The result? Simply adding the employer’s familiar logo boosted uptake of our product by 300 per cent.

Consider one of the most important and frequent decisions companies make: hiring new employees. Typically, candidates are evaluated through interviews, where they show, well, how good they are at interviewing. That’s not a super relevant skill for most jobs. Daniel Kahneman recognized this during his time in the Israeli army and proposed a new process. Instead of interviews that rely on intuitions or gut feelings, simply select key traits or skills needed for the role (no more than six) and then grade candidates using questions that evaluate those traits and skills. After interviews are completed, add up the scores for each trait and select the candidate with the highest score.

Organizations — like the UK’s Behavioural Insights Team (BIT) —are offering platforms that make these more objective hiring practices easier to implement. For example, since we know names can bias our perception of candidates, the BIT’s hiring platform makes it easy to anonymize résumés. They also allow blind scoring of different candidates’ responses to the same question at once, ensuring candidates are not judged differently on the second question because of their response to the first.

Although managers may be reluctant to surrender a part of their hiring autonomy to a platform, these tools can remove bias and help them hire people with the skills their organization really needs. 

Erik Johnson is the Marketing Optimization Manager on Morningstar’s Behavioural Insights Team, where he applies behavioural science principles and experimentation to marketing processes and communications.

Further Reading:

  • Re-framing Innovation: Integrating Behavioural Science and Design by Sarah Reid and Ruth Schmidt, available in the Spring 2019 issue or individually as a PDF. 

This article appeared in the Spring 2019 issue. Published by the University of Toronto’s Rotman School of Management, Rotman Management explores themes of interest to leaders, innovators and entrepreneurs.

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