Jeffrey Saltzman's Blog

Enhancing Organizational Performance

Behavioral Human Resources

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I went to get my haircut yesterday. Applying my own heuristic in determining when to go to get my locks shorn, I look in the mirror and “just know”. I probably go to the last barbershop in New York where you can actually just show up and get your haircut without an appointment. Just grab a magazine, take a seat in one of the chairs and wait until it is your turn. I typically try to go during the week at the end of the day when it is usually not too busy, but on Saturday when I got up and looked in the mirror I knew it was going to be the day. The place was packed as it must have been take your young child to the barber day and the average age of the customers seemed to be about four or five. Sometimes the wait, with its chance to observe the other customers, is the best part of the visit.

As I sat there reading the local village newspaper, with stories about land being bought up by the village to be set aside as open space, and MetroNorth, the local commuter railroad, wanting to put in a power substation at the train station, and a debate about where the trash dumpsters in the parking lot should be relocated, my attention was drawn to a hysterically screaming boy, who was getting his hair cut while seated on his mother’s lap. I peered over the top of the newspaper as to not make it obvious that I was intrigued as to why he was so upset. The noise level was such that I was wondering if unlike the rest of us, the hair on his head actually contained nerves and so each pass of the scissors was accompanied by unbearable pain. The youngster’s mother would have won first prize at a county fair’s “catch and hold onto a greased pig” contest given the amount of squirming that was going on and her ability to maintain a tight grip.

It was very unclear to me why he could be so upset, until later on I asked my 9-year old her opinion and she said he was probably upset about seeing pieces of himself falling off, a rationale I had not considered. Now his seemingly irrational behavior made complete sense. I too would be upset seeing pieces of my body, especially pieces I did not know would grow back, falling off. As they finished the haircut and passed the cash register on the way out, the little boy was able to bring his tears to an immediate halt and ask in an absolutely clear, calm, rational voice, “where is my lollipop?” I had to wonder if he associated carrying on at the barbershop with getting a lollipop in an operant conditioning fashion. Peering into the head of a 4-something year old to understand the logic being played out is not necessarily an easy thing to do.

Peter Ubel in his book “Free Market Madness – Why Human Nature is at Odds with Economics” sheds lights on the irrational behaviors of older people (more than 4 years of age) and how to gently nudge them into more rational choices without necessarily limiting their freedoms and right to choose.  Traditional economic theory holds that people make decisions based on perfect rationality, or logical choices and yet it is very easy to show that is simply not the case. While this sounds fairly straight forward when stated now, it was not always so and not too long ago two psychologists, Daniel Kahneman and Amos Tversky made names for themselves by pointing that out to economists, basically starting a new field, Behavioral Economics. Kahneman, a psychologist won a Nobel prize in economics for his work (Tversky had passed away prior to the prize being awarded). Ubel gives plenty of historical background and examples of how illogical humans can be as they make day-to-day decisions. One example from Dick Thaler’s work was to determine the value to a worker of assuming a dangerous task. How much extra would you have to pay a worker to take on a task that had a one-in-a-thousand chance of immediate death? Well that sounds pretty horrible to me, as it did to the workers and on average the workers said that they would demand a $50,000 raise to take on such work. But if already engaged in dangerous work, what was the value to the worker of getting rid of that one-in-a-thousand risk? On average about $200. Traditional economic theory or perfect rationality would hold that those two numbers should be the same and yet they are worlds apart and that along with a million more similarly seemingly irrational decisions like it is Behavioral Economics.

People do not always behave according to rule based equations, but because we are complex creatures with a complex psychology, our psychological needs including our hopes, fears, desires, rationality and irrationality comes into play as we make our decisions.  While those in marketing and sales and I would add artists of all stripes have intuitively known this for a very long time, using this insight into how people make decisions and to influence the purchasing decisions of customers those in operations often seem not to understand people and keep trying to run their operations in a strictly by-the-numbers fashion, not taking into account that we are humans and not equations.  

For instance, many organizations as they consider their reorganizations, downsizings, mergers, acquisitions, and expansions, run the numbers. How do we squeeze out a bit more performance, trim a few headcount, save a little more money, become a little more effective looking on paper and while there is nothing wrong with those speculations they often do not take into account human behavior. They do not consider how humans actually make decisions, what is attractive to them, what is unattractive, what are their desires, their emotions.  If you ever hear a manager in an organization you are considering working for say as a rationale for a decision “it is just business, nothing personal” it is time to run as fast as you can in the other direction and if you already work for that person, begin looking for another job.  The old saying about “all politics is local” can be morphed accurately into “all business is personal” and those that do not see that are indeed handicapped and likely hiding their true feelings due to perceived business pressure or are somewhat emotionally crippled.

Human Resources has lamented for years and years about their inability to “get a seat at the table”, to the point that when I now hear that phrase I become nauseous and the response of some in HR has been to try to become completely business oriented. ROI, Human Capital, People as Assets, the race has been on to see which HR executive can be the most business focused with forecasting models predicting expected paybacks and an emphasis on running the place strictly by-the-numbers. Numbers and logic are fine and they certainly have their place in the decision-making process but to me a truly exceptional HR executive should be one who most understands what makes people tick and not simply a board-satisfying expert on executive compensation.

Just at economists struggled to integrate a new concept, Behavioral Economics into their world views or paradigms, but gained tremendous predictive power over how the world actually works, I would argue that it is time for Human Resources to begin that same struggle, modifying their world view and paradigm and to begin to create BHR, or Behavioral Human Resources. I have begun to travel down that path myself with a new concept I have developed along with some colleagues, called Employee Confidence. However, I view it as simply the first step in what is likely to be a long journey of discovery. I predict thought that those willing to take on the journey will have rich rewards accruing to both themselves and their organizations.

Written by Jeffrey M. Saltzman

November 8, 2009 at 11:03 am

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