What HR can learn from behavioral science with Ogilvy's Rory Sutherland

[Music] Today on the podcast, I talk to Rory Sutherland, vice chairman of Oglevy. We talk about behavioral science. We talk about what marketing can teach HR. We talk about the British Agricultural Revolution, working from a beach in Southeast Asia. R Gen Z really that different to us. All those kinds of things and more. Some great book references. It's a conversation that goes everywhere and anywhere and he's a fascinating guest and a great rack on tour. Sit down, get yourself a drink, enjoy the next 20 minutes with Rory Sutherland. This is Unleashcast. It gives me great pleasure to welcome to Unleashcast today, vice chairman of Oglevy Rory Sutherland. Rory, thanks so much for your time today. I'd like to talk about behavioral science based off a conversation, another conversation that you had fairly recently actually on Matt Alders podcast, Recreating Future. Behavioral science is a specialism of yours, I believe. Yes, yeah. It's a long time passion. Even before I knew it was called behavioral science, I worked in direct marketing and very rapidly it became clear that the way humans behave, think the side-and-act in practice diverges quite dramatically from how they're supposed to think and decide in theory and that difference is vitally important to all kinds of problems. There was a line from that podcast that I listened to where you said that productivity is a mixture of solitude and sociability. I'm wondering how the move towards possible full-time remote work or hybrid work, how is that going to be, how is say, company or organizational productivity going to be affected by this change in your opinion? Right, potentially and it will take time, it can lead to a significant improvement in productivity. And for the full effects which may take time to actually play out and I'll explain why in a moment, I'd refer you to a very, very good article by the economist Noah Smith on what he calls Distributed Service Sector Productivity, in which he predicts that over the next five to ten years we could see what he calls a Zoom Boom. Now just to be clear about that, okay, I don't think this is all about remote working or all about hybrid working, it, nor is it all about getting people back in the office, it's complicated, okay. Now in the 19th century there was something called the British Agricultural Revolution and the British Agricultural Revolution wasn't about the optimization of any one thing, it wasn't telling people what crop to grow. Where it was an extraordinary revolution was in it through experimentation, it discovered better forms of crop rotation. I can't remember the details, I think turnips played a particularly significant role because it was discovered that if you grew turnips instead of leaving the land fallow for a year, not only do you get a crop out of it, but it significantly improved the quality of the soil as well. And I think this is interesting because one thing that really annoys me is when people say face-to-face meetings are better than Zoom meetings, which in most cases they probably are if judged in isolation. Therefore we should always try to meet face-to-face. And my argument is, no, this is absolutely the wrong way to look at it. It isn't a question of one being better than the other, the best result will be come from using both in combination. So it's completely wrong, for example, to proscentize face-to-face meetings without remembering that there's a considerable opportunity cost to demanding that decisions have to be made by co-locating people. Because there's a financial cost to doing that, in many cases, and there's also a time cost, it takes time to get everybody in the same place. Therefore it's a very false dichotomy, I think, to say either or, or is this better than the other, because it's worth noting, for example, that, I'll give you an example of this, if I want to attend a two-hour meeting in Southeast Asia, okay? If I do it physically, that's a week out of my life, okay? If I do it virtually, that's two hours out of my working life. And by the way, it doesn't even prevent me going on holiday that week, because I could just come in from the beach, talk to Southeast Asia, walk back onto the beach again, okay? There's a completely different order of complexity, cost, and general friction that is undoubtedly imposed on business if you require face-to-face synchrony in making decisions and in discussing problems or coming up with ideas. So this is like crop rotation, it isn't whether wheat is better than turnips, okay? It's what combination of wheat and turnips will actually provide the best result. Yes, I think it's better to have a zoom meeting with someone you've physically met once in the past. Equally, it's probably better physically meeting someone if you've previously met them on zoom, okay? The idea, however, that you can generalize or create kind of hard and fast rules like the laws of physics about this, very, very dangerous. The crop rotation, British agricultural revolution basically happened through a lot of experimentation, and it recognized that what worked in one place didn't necessarily work in another. So this is not a question where you can generalize and the people who do so are getting it wrong. In the same way, I mean, it's fairly obvious, I think, through observation, two things. You sometimes get markets or behaviors which are kind of bifurcated. And if you think about it, there was a yawning gap between the phone call and the email and the face-to-face meeting. It's a bit like a world in which you had buses and limousines, but you didn't have the tube, okay? And I think it was obvious to me even before the pandemic that video conferencing was significantly underused. I didn't say it should have been used all the time, but it was obvious that what the correct ratio was was not 100 naught. And I experimented with my team working from home on Fridays, for example, because I thought at the very least 20% of time on video had to be an improvement. So that's a really important point. It's also worth noting, I would argue, that there are faults with the office, which is this is the opposite. This isn't the case where the solutions are bifurcated. This is where everything is clustered in the middle and there's two little variety. And my argument about solitude and sociability is that the open plan office doesn't provide either of the two conditions, which are often essential to meaningful and productive work, which is either a very high degree of sociability, which is, you know, at the extreme, a pub, okay? Nor does it provide you with solitude, which is what you often need to perform different kinds of work. David Ogleby, famously, the founder of my company never wrote anything in the office. He couldn't, there were just too many distractions. Some people can, a lot of people can't. And the open plan office, it's also worth noting, is a deeply flawed conception in many, many ways. I'm going to come on to behavioral, the core elements of behavioral science in a moment and talk about Nudge stock, which I've just signed up for, by the way. But before we do, to talk a bit more about the direct marketing side of things, one thing that I've been hearing more and more in various different contexts in events on social media, things like that is, is the way that HR can learn from marketing in the way that it communicates with the rest of the business. And I think that the HR function kind of can kind of adopt marketing strategies and philosophies in the way that it can communicate better and more openly and more effectively with the business. What do you think about that? Well, I mean, certainly what marketing teaches you is you can say the same thing in two different ways and get a completely different emotional response. What you call things has an enormous effect on how we perceive things. What do you compare something to? Our perception, if you like, as humans is highly comparative. And also, I would argue that one model, which I think applies as much to HR and your employer brand, as it does to your consumer brand, is a model by the neuroscientist David Rock, who's a New Zealander currently based in New York, who calls it the SCARF model. And SCARF stands for five things that humans care deeply about and get very, very emotional about, but which are not generally included in most models of employment economics or labor economics, and which aren't also very well captured by market research. If you want to know what SCARF stands for, its status, certainty, autonomy, relatedness and fairness. And I can't think of a single one of those five, which doesn't loom large in the consideration of HR and employee relations every single day. Status is something and perceived status, certainty of employment, of course, is valued to a great extent alongside mere remuneration. Other findings from behavioral science, which are important, I think, are that actually making work and remuneration too nakedly transactional actually reduces motivation. So a lot of standard economic theory around incentives is probably wrong. It makes perfect sense. If you do this, we will pay you more. In certain cases, in actually surprisingly many cases, people don't do a great job and don't like the thought that they're doing a great job to make money. They like the thought that they're doing a fantastic job as part of their own identity and self-worth. And the use of financial incentives can bizarrely actually erode social incentives. And so that's a very important understanding for HR as well. One of the things I would argue is that we often talk about Gen Z and we go, "Oh, Gen Z, they never stick around. You know, they're very fussy. You know, if the work doesn't interest them, they're often a minute." Well, yes. And maybe Gen Z in some respects are materially and psychologically different from their predecessors. But equally, it's worth noting that companies have increasingly made the relationship with their employees highly transactional. People are disposed of just in order to meet a quarterly financial target. There isn't much sense of employer loyalty or commitment towards all but a very few employees. And therefore, is it all that surprising that Gen Z might have noticed this and therefore adapted their behaviour accordingly? Doesn't seem surprising to me at all. So, it's worth noting when I first joined Ogleville in the 1980s, you know, I was paid eight and a half thousand pounds a year, but the company would send me on training courses which probably cost a couple of thousand pounds, okay? Now, at the time, to be absolutely frank, I probably would have rather had the money, but it sent a very powerful signal that we are investing in you and see you as a long-term part of the company. If you erode that and if you erode the longer-term forms of reward and remuneration which reinforce that feeling, you will fundamentally change the relationship that the employee has with the employer. It goes from being one which is relational, that's the r of scarf, don't forget, to one that is just transactional and perfunctory. And you won't get the same value out of someone if you generally treat them under those terms or they will deliver only to the extent to which their remuneration requires it rather than actually delivering extra magic in ways that you hadn't even predicted or imagined. So, a lot of labour economics has to be treated very, very skeptically. It possibly appeals to people like finance because people like finance genuinely do think that way, most people don't. You mentioned Gen Z sort of touching on the kind of the various tropes of people born between whatever it is, 1980, 1996. I'm technically Generation X. That's good to say. I have a complicated relationship with these kind of signifies and markers, I think. I'm skeptical, by the way, highly. Yeah, I mean, there are traits that you can apply to people of certain ages, but giving them boundaries, I guess is the idea that if you're younger that you're more likely to do something, you're predisposed to behaving in a certain way more so than if you're older. Do you think that older people have a completely different set of values or? Well, by doing to being older, obviously, you know, much of our behaviour changes with age experience, we become slightly less experimental. We know what we like more to an extent. And that's an eternal truth, okay? But the extent to which generation suddenly spring up genetically different, you know, where let's face it, you know, human evolved psychology doesn't change that much from one century to the next. Obviously, the circumstances change and people react differently to different circumstances. You know, the gig economy didn't really exist 40 or 50 years ago for many people. There are some trades that practice it. But I mean, obviously people will react differently when they see different mechanisms of reward and incentive and so on. But this idea that the generation of fundamentally different in their motivations strikes me as pretty unsafe. If you want the best book on it, Bobby Duffy has written a book called Generations and there are differences, but they're not generally as clear-cutter as compartmentalised as the kind of futurologists like to say. Yeah, I'll definitely check that out. We'll put that in the podcast. I've got one final question and it's more about behavioural science as a whole. So I think I've probably first heard the idea of behavioural science and nudging when the Conservative government came in in 2010 and they had a nudging unit which was about kind of influencing communications with the public in kind of subtle ways. I think I've got that sort of right. Yes, no, no, I mean, that's fair. You could go even further and say that a badly designed government scheme in terms of just the, what you might call the choice architecture, the descriptive language, the path dependency of engagement, etc. You can have the best scheme in the world, but if you design the user interface badly, it gets nowhere. And so it isn't just about nudging actually, it's also about the removal of what you might call psychological friction. Right. Any HR person will know about psychological friction when it comes to things like filling in time sheets. Okay. Yes, people are very bad at it, but yes, it's also fair to say that not much work has gone into making the actual mechanism and performance of it, automatic habitual, easy, attractive, social and timely. Thank you, Mark. Yeah, I mean, so from 2010, just as in terms of my experience, 12 years later, we have nudged stock. So it's clearly a discipline which has grown and been popularised and diversified as well. So I just signed up to it this morning. A friend of mine actually works for Ogilvy. He's one of the creative directors in, let me get his actual job title. I messaged him this morning, creative director, digital and social, I think, Ogilvy. And he was telling me about nudged stocks. I was like, okay, I'll sign up. Sounds really interesting. So just tell us a bit about the genesis and what you can learn. The genesis, I mean, very similar to your business. It was a physical festival which started in London, migrated to the seaside in Deal for two years, then went sort of at larger premises in Folkston. Then was hit by the pandemic, went online only in a kind of 12 hour global behavioral science fest. And we ended up with audiences in kind of high five and six figures. I mean, literally 100,000 people, that's sort of stadium event, okay. That's the Melbourne Cricket round. And we pretty rapidly realised that the scale of interest in behavioral science was both more geographically widespread and actually much more numerous in terms of the fan base than we'd ever realised. And so it continues on the 10th of June this year as an online festival where we interview the latest practitioners both in academia but also in business in how they're deploying behavioral science to greatest effect as a great information sharing exercise. And we find this just immensely valuable. It's actually very, very necessary because actually one group of people who would learn a lot from marketers as well as HR would be academics and they're very, very good in actually promulgating their findings to a small group of other academics in absolutely close to the rates in fields. But these findings aren't like that. They're actually findings of very, very wide practical application and so they needed proportionately large audience as a result. So as a final, as an additional final question actually, how can how can HR leaders embed these techniques then? What can they do to add to kind of behavioral science insights and techniques to the way that they deal with their people? The first thing is, and this is the awkward part that when you admit psychological solutions alongside economic solutions, you make the solution set larger and that's the great contribution to behavioral science. It increases the possible range of solutions and the possible combination of interventions that can be used effectively. Now the downside of that of course is people in some ways rather like economics because it only provides you with one answer to any question which is bribe people or fine people. And people in an institutional setting often like a narrow set of solutions because then you can't be blamed for following them. What we would argue is that behavioral science is only really effective if you combine it with genuine creativity, experimentation and imagination. And so one of the things we would argue is consider more possible solutions when an issue comes along, spend longer perhaps mulling over the possible solutions. What we have in business now is we're often very, very rigorous about enacting solutions but we're not very rigorous about defining them in the first place as broadly as possible. And so the trick here is to go upstream and to actually imagine and admit the possibility of counter-intuitive or seemingly trivial or seemingly irrational solutions to problems which normally you would solve in some rudimentary economic way. Again that's difficult. It does take time, it takes creativity and it does require you to engage in a certain level of comfortable uncertainty. An awful lot of institutional behavior I think militates very strongly against that, but the fact is that if you want to use behavioral science, it's necessary. But the other thing that's important is that generally we tend to look for solutions that are kind of commensurate with the budget devoted to their solving. And one of the other gifts of behavioral science is that sometimes you can solve big, big, behavioral problems in surprisingly small ways. If it's the time sheet problem, pre-populating the field with job numbers, would probably do 70% of the heavy lifting, whereas threatening not to pay people or to withheld their expenses in theory would be more effective, but actually, and it may indeed be more effective, but at the price of creating an enormous amount of annoyance and resentment. Absolutely. Well, we thank so much for your time. It's been a huge pleasure. Yeah, really fascinating, and good luck with the event, and I'll see you at NudgeDoc.co.uk 10th of June. Yep, see you there. Thank you. Thanks very much. Bye-bye. [BLANK_AUDIO]