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Applying behavioral economics to innovation: Personal bias and stakeholder management

Future of Work|Talent
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By Nathan Schneeberger, Phd. and Paige Seaborn | October 28, 2021

A two-part series exploring how innovators can use behavioral economics as a lens to examine their processes and projects.

One of the core findings of behavioral economics is that the decisions people make are subject to heuristics and biases. This includes the decisions that are made about your innovation project by the stakeholders within your organization. How you approach and manage stakeholder biases will determine whether you receive support from your organization or have to continue pushing around the boundaries of the formal structure (which is not always a bad thing).

Stakeholders, like most people, will tend to be risk averse, so how you frame your problem and proposed solution will influence your outcomes. There’s always the possibility that you have more than sufficient evidence to support the profitability of your project but a stakeholder still says “no” or tells you to go in a different direction. This is because there’s much more in play beyond purely rational, evidence-based economic decision making.

Behavioral economics teaches us that we must account for irrational factors — things like ego, personal interests, biases, and differing viewpoints and levels of understanding — that may drive stakeholders to behave in non-evidence-based ways. So, the more homework you can do beforehand to understand where your stakeholders are coming from and what their interests are, the better you can tailor your presentation to influence the investment outcome. Knowing that we can’t count on our stakeholders, or anyone else for that matter, to be unfailingly rational, here are some things you can do:

Make stakeholders part of the journey

Keep them informed, share your passion and excitement for your ideas and the problems you are trying to solve, and bring them along on each step of the journey. Tackle irrationality together.

Understand your stakeholders as professionals

What are their professional goals and what’s their decision-making style? You might also think about how you’ll tailor your “asks” to align with their level of approval power and scope of accountability. Make it clear how your innovation can help them achieve their goals.

Understand your stakeholders as people

What are their personal goals and how do they best process and receive information? You might tailor your presentation or “ask” based on whether your stakeholders are men or women. This doesn’t mean changing your idea or that all male and female stakeholders will be the same, but research has shown that you might find more success by emphasizing the details of how your innovation will become a reality with female stakeholders versus focusing on the size of the opportunity and “dazzling with dollars” when presenting to male stakeholders. Also, try to avoid the impacts of “decision fatigue” by scheduling your pitch or “ask” immediately after your decision makers have eaten and never right before a meal.

Share the evidence

During the innovation process, you’re gathering evidence to support or disprove your assumptions and to keep yourself honest and on track as to whether your solution addresses your problem. Share that information in as tangible and as a visual way as possible to keep decision makers invested, interested and excited about the work you are doing.

In psychologist Robert Cialdini’s seminal work on the topic, Influence, he identified six pillars of persuasion that help one person alter the beliefs or behavior of another. These pillars may also help you effectively manage your stakeholders:

  1. 01

    Activate the norm of reciprocity

    Try giving something of value to the person you are hoping to influence. Simply sharing a compliment, status update or gratitude can be beneficial for helping to get people to see something from your perspective and agree with a request.

  2. 02

    Learn a stakeholder’s goals and objectives

    People like to feel they are behaving in a consistent manner. Ask them what their goals and objectives are and then frame your proposal or innovation in the context of helping them achieve those goals and objectives.

  3. 03

    Know your social surroundings to help understand how to behave

    We look for clues in the environment and from other people to determine the appropriate thing to do in a given situation. Creating a social context that supports your innovation and highlights how other people think your idea is good can help persuade others to be supportive.

  4. 04

    Be likable

    Researchers have demonstrated an obvious fact: People are more likely to comply with requests from people they like than from people they dislike. So, getting people to like you, as a person, may be the difference between them supporting your idea or the idea of someone else.

  5. 05

    Maintain a level of authority

    Another fairly obvious fact is that people respect requests more from people who are in positions of authority. If you don’t have your own authority to draw on, building wide-based organizational support for your ideas, including people at a higher level, can also help keep momentum in your favor.

  6. 06

    Drive desire through scarcity

    As noted in an earlier section, people are averse to risk and would sometimes rather avoid losing an opportunity than gain something. It’s why sales are “THIS WEEKEND ONLY” and Amazon shows there are “fewer than five left” of the item you were just browsing. Highlight the ways in which your innovation is time sensitive may help garner support now rather than later.

It’s critical to remember, however, that not all stakeholder decisions are going to be in your favor, and sometimes you have to figure out how to work around them.

Consider the case of Richard Drew, the inventor of masking and cellophane tape. At one point during his employment at Minnesota Mining and Manufacturing Company (3M) in the 1920s, an executive told Drew to stop trying to invent a better tape and just go back to his job of selling sandpaper. However, that executive turned out to be wrong. Within two years of taking masking tape to market, 3M was selling more tape than any other product they manufactured. Today, they manufacture more than 40,000 products, many of which are based on Drew’s original invention. Imagine how different the world would be had Drew listened to that executive and not believed in his evidence and continued to work on his side project?

What this means for you as an innovator

As important as it is to keep in mind these insights about working with stakeholders, one important take away from behavioral economics is that you too are human and are therefore not infallibly rational. Behavioral economists tend not to look too much in the mirror when talking about these issues, but it’s important for you as an innovator to realize that you bring a set of your own personal biases and heuristics to your own innovation process. How do you manage your own issues?

  • Stay focused on the problem you are trying to solve and avoid falling in love with any one particular solution. When you devote time and energy to creating something, it’s easy to become attached to that thing. Remember, a solution is only useful when it solves a particular problem and if the problem changes, it may be time to pivot or simply let go of that solution and start over.
  • Be reflective and self-critical. Why do you think your idea is worth pursuing? Are you cherry-picking the evidence to help sell the story or are you being thorough and responding to the pulse of client need inside your data? Are you considering all the possibilities and weighing the cost-benefits appropriately? After all, if you’re working inside an organization it’s not your money you are gambling with; it’s the time and resources of the firm. Would you make the same decisions and take the same risks if you were not gambling with house money? On the flip side, are you being too conservative, maybe out of fear of rejection or failure? Are you being more averse of risk than the evidence you have collected would support? Try hard to look in the mirror and see the ways in which you’re succumbing to biases and your own heuristics for making decisions.

It is impossible to be perfectly rational, or even perfectly aware of the potential for irrationality. However, dedicated innovators can use some of the findings from behavioral economics as a lens to examine their own processes and projects. This approach can help us better understand how we and our fellow humans tend to behave when faced with risk-reward economic decisions that are prevalent throughout innovation projects.

Authors


Senior Associate – Corporate Innovation

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