"A rut is a grave with the ends kicked out"

As a student of leadership in general, I like to follow and read other leadership blogs.  I recently came across one of Dan Rockwell's older posts (from August, 2020 actually) on his blog Leadership Freak that I thought was poignant.  It was entitled, "A rut is a grave with the ends kicked out" (which originally came from a quote by Vance Havner, "Many people are in a rut and a rut is nothing but a grave - with both ends kicked out.").  Rockwell elaborated, "Self-imposed irrelevance is the consequence of prolonged repetition.  Unaltered repetition leads to stagnation and stagnation is the predecessor of putrefaction."  

No one can argue that the last two years or so have been particularly hard on the health care industry.  From managing a massive influx of patients with COVID-19 to dealing with supply chain disruptions and workforce shortages, health care organizations have been forced to deal with rapid change.  What's clear is that health care organizations will need to continue to adapt to change as we position ourselves for the future.  Without it, we are at risk of stagnation, which Rockwell says is the predecessor of putrefaction!

Unfortunately, even when change is necessary, most organizations fail at doing so.  A McKinsey survey involving over 1,500 business executives found that only 30% of organizational change initiatives succeed - this is a remarkably consistent statistic that has been true going back to at least the late 1990's, when John Kotter published his article "Leading Change: Why Transformation Efforts Fail" in the Harvard Business Review.  One of the reasons that change initiatives fail is that leaders fail to appreciate the importance of psychology to change management.      

Emily Lawson and Colin Price ("The psychology of change management") describe four basic conditions that are critical to the success of any organization-wide change initiative: (1) A compelling "change story"; (2) Role modeling; (3) Reinforcing mechanisms; and (4) Capability building.  Carolyn Aiken and Scott Keller ("The irrational side of change management") provide additional insights that are necessary for successful change.  So far in the last few posts, I've covered the first two conditions, so today I would like to discuss how leaders can leverage "reinforcing mechanisms" to drive change.

Most of the articles discussing change management talk about "hard-wiring" new behaviors and practices into structures, processes, and incentives.  And this makes a lot of sense - it was Upton Sinclair who said, "It is difficult to get a man to understand something if his salary depends upon him not understanding it."  Unfortunately, money is one of the most expensive ways to motivate people.  Moreover, it can be difficult to directly link the results of a change initiative to compensation.  Lastly, financial incentives may not be the best motivation and rarely, if ever, suffice on their own.

As I stated above, financial incentives are expensive, and they may not even be necessary.  At times, even small, token gestures can be powerful motivators.  There is a classic study (published in German) called the "dime in the photocopier" study.  Essentially, half of the individuals who were using a photocopier found a dime in the coin return.  When asked about how much they were satisfied with their lives, those with the dime reported an average life satisfaction of 6.5 (on a scale of 7), while those individuals who did not find a dime reported an average life satisfaction of 5.6!  Even small, token gestures can be very powerful motivators for change!  Sam Walton (founder of Wal-Mart Stores) said, "Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise.  They're absolutely free - and worth a fortune."

I've previously discussed some of the drawbacks to using financial incentives to motivate people to change (see my post "Holes" from last month).  The "crowding out effect" (also known as the "overjustification effect") is a well-described phenomenon in behavioral economics.  When individuals are paid for their services, their intrinsic motivation actually decreases!  Individuals perceive extrinsic rewards, i.e. money, as part of a "market exchange" rather than a "social exchange" (for more on this, see James Heyman and Dan Ariely's interesting study "Effort for Payment: A Tale of Two Markets").  For example, a daycare center was trying to motivate parents to pick up their children on time, so they instituted a modest ($3) fine for parents who showed up late.  What happened?  Rather than decreasing late shows, the number of parents who showed up late to pick up their children skyrocketed!  Why?  By implementing a fine, the daycare staff shifted the relationship between the parents and the daycare from a "social exchange" to a "market exchange"!

I want to make one final point about financial incentives.  They have to be fair, but more importantly they have to be perceived as fair.  There is a very well-known model in game theory called the "Ultimatum Game".  The basic set-up is as follows.  There are two players in this game.  Player 1 has a $10 and is instructed to split the $10 with Player 2, however way he or she decides.  The catch is that if Player 2 refuses to accept the offer, no one gets to keep the money.  This game has been repeated millions of times, and when Player 1 selects a $7.50/$2.50 split, Player 2 rejects the offer almost every time (actually, 95% of the time).  In other words, most individuals would prefer to go home with nothing than be treated unfairly.  Simple economics would tell us that Player 2 should walk away with $2.50 (which, he or she did not have at the beginning of the game).  Humans behave irrationally when they perceive something as not being fair (as it turns out, even monkeys play the ultimatum game and respond in a similar way)!  Aiken and Keller write, "In making any changes to company structures, processes, systems, and incentives, change managers should pay an unreasonable amount of attention to employees' sense of the fairness of the change process as well as the outcome."

Again, in order to understand how individuals will respond to change, we must first understand the individuals!  Psychology is important.  We can and should set up reinforcing mechanisms to help drive change, but in order to do so, we must understand human behavior!  Next time, we will finish up this discussion on change management with the final condition - building capability.