Listen above or read an abridged transcript beneath, which has been edited for clarity.
Jon Kennard: It gives me great pleasure to welcome to UNLEASHcast today, vice chairman of Ogilvy, Rory Sutherland. Rory, thanks so much for your time. Today, I’d like to talk about behavioral science – based off another conversation that you had fairly recently, actually on Matt Alder’s podcast Recruiting Future. Behavioral science is a specialism of yours, I believe?
Rory Sutherland: Yes. It’s a longtime 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, decide 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.
JK: 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, say, company or organizational productivity going to be affected by this change in your opinion?
RS: 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, nor is 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 want to crop to grow. Where it was an extraordinary revolution was 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 improves 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 come from using both in combination.
So it’s completely wrong, for example, to proselytize 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 on 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, I’ll give you an example of this, if I want to attend a two–hour meeting in Southeast Asia, if I do it physically, that’s a week out of my life. 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. 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, 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 physically met once in the past. Equally, it’s probably better physically meeting someone if you’ve previously only met them on Zoom.
The idea, however, that you can generalize or create kind of hard and fast rules, like the laws of physics about this is 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 have buses and limousines, but you didn’t have the tube.
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 100/0. 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. This isn’t the case where the solutions are bifurcated. This is where everything is clustered in the middle, and there’s too 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 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 Ogilvy (the founder of my company) famously 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.
JK: I’m gonna come on to the core elements of behavioral science in a moment and talk about Nudgestock, 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 and things like that is the way that HR can learn from marketing and the way that it communicates with the rest of the business.
And I think that the HR function can adopt marketing strategies and philosophies in the way that it can communicate better, more openly and more effectively with the business. What do you think about that?
RS: Well, 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 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 and perceived status, certainty of employment, of course, are valued to a great extent alongside mere remuneration.
Okay, 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: you know, 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 ‘ooh Gen Z, they never stick around, you know, they’re very fussy, you know, if the work doesn’t interest them, they’re off in a minute’.
Well, 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 behavior accordingly? It doesn’t seem surprising to me at all.
So it’s worth noting, when I first joined Ogilvy in the 1980s, you know, I was paid £8,500 a year, but the company would send me on training courses, which probably cost a couple of £1000s, okay.
Now, at the time, to be absolutely frank, I probably would have rather had the money. But it sends a very powerful signal that we’re 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 haven’t even predicted or imagined.
So a lot of labor 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.
JK: You mentioned Gen Z sort of touching on the various tropes of people born between whatever it is 1980 – 1996 – I’m technically Generation X- but I have a complicated relationship with these with these kinds of signifiers and markers, I think…
RS: I am skeptical, by the way. Highly.
JK: Yeah, I mean, there are traits that you can apply to people of certain ages, but giving them boundaries, I guess, the idea that if you’re younger, that you’re more likely to do something or you’re predisposed to behave 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…?
RS: Well, by dint of being older, obviously, much of our behavior changes. With age/experience, we become slightly less experimental. We know what we like more, to an extent, and that’s an eternal truth. But the extent to which generations suddenly sprang up genetically different, where, let’s face it, 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. The gig economy didn’t really exist 40 or 50 years ago, for many people, there were some trades that practiced 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 are fundamentally different than 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 cut or as compartmentalized as futurologists like to say.
JK: Yeah, I’ll definitely check that out. We’ll put that in the podcast notes. I’ve got one final question. And it’s more about behavioral science as a whole. So I think I probably first heard of the idea of behavioral science and nudging when the Conservative government came in in 2010 (in the UK). And they had a Nudge Unit, which was about influencing communications with the public in subtler ways. I think I’ve got that sort of…right?
RS: I mean, that’s fair, you could go even further and say that [it was] 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 timesheets, 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.
For the full conversation – listen above…