Nudge theory

How it can create more Customer centric leaders?

We are seeing a gradual shift away from products to services. There is now a huge opportunity for creating a much richer product and brand experience. And yet, in our day-to-day experiences with brands, we find many brands not living up to our expectations. As technology lowers barriers to entry, it is easier for unorthodox competitors to enter and disrupt markets. And many of these new age competitors are “customer obsessed not only customer centric”.

Amazon aspires to be “Earth’s most customer-centric company.” Numerous mission statements are sprinkled with customer focus. But in reality it is hard to actually be customer centric. I loved the concept that Prof Ranajoy Gulati speaks about:  “In fact the big leap that companies need to make is to “not sell what they produce” but to “solve customer problems” & then suddenly “who produces the product is no longer important “because you start “owning the problem space”.

Also customer obsession is about really knowing your customers better than anyone else. But in today’s world of unexpected competition, traditional ways of gaining customer knowledge may not be enough. Also unless leaders across level become customer centric, this orientation will not come through adequately.

Often it is the CMO who is responsible for customer experience. She may or may not wield enough authority to make the significant changes needed to create a compelling customer experience. While 75% of organizations believe themselves to be customer-centric but only 30% of customers agree. And while 91 percent of retail bank's chief executives in India see the need to be customer-centric, only 29 percent of customers believe banks truly offer customer-centric experiences.

Companies that are trying to move up this curve will need to relook at how their leaders are “leading in the age of the customer”? They need to create a Coaching Culture with leaders across the organization. Providing clarity about the customer-centric part of their role and the impact that their behavior has on their teams and the customer’s experience (CX). They need a Customer experience coach who guides key leaders & helps them find their own solutions to help make the company more customer-centric. Companies have spent an enormous amount of money in changing technology & looking at the data that is important but change will not happen without changing leadership behavior on the ground.

Many leaders are not able to gain significant influence over their senior colleagues to enlist greater support for customer-centric action. While everyone says that the customer is important, it’s only very few leaders who are able to make fundamental changes that bring the customer to the center of leadership action. Customer-obsessed CMO’s must migrate investment budgets from areas that traditionally created dominance — brand advertising, distribution, mergers for scale, and supplier relationships — and invest in Retention & customer experiences. But how do they drive consensus for this? How do they lead such a transformation?

Leaders are not born, they are made! And they are truly developed in the crucible of everyday leadership roles that they play. How a leader performs is a complex weave of triggers, emotions, habits & rewards. How should a CMO work with the CEO & CFO when the signal is clear, reduce Marketing budgets? Or how should the CMO work with a Business head who owns the P&L & is not as bothered about the customer experience?

So how should a CMO work with other leaders to bring customer-focused leadership into the operating team?

Nudge theory is the science behind leading people to the ‘right’ decision through non-intrusive, subtle interactions. It works on the principle that small nudges can have a substantial impact on the way people behave.

By breaking down the last mile customer transactions and rebuilding them with behavioral and experiential principles, companies could hugely impact the customer experience.

But to do this, leaders who are in positions of power will have to assess a different way to lead. What do these Customer-centric leaders look like? How can Nudge theory help in creating more customer-centric leaders?

Operating in the background within the leader’s mind is a neural system called the mesolimbic dopamine system. Dopamine is a neurotransmitter with an important function of rewarding the leader when she behaves in a certain way & this is the underlying basis by which habits form.

Habits are behaviors that are on autopilot for us. We don’t think about them & the behavior runs on its own. Obviously, the first time we do something, it’s new & we do it by choice. So a leader who wants to be a better listener may start by telling herself not to interrupt others when they are talking. This is hard & takes a lot of willpower, but once we start repeating it & if we get rewarded with better outcomes then it develops into a habit.

We know from Neuroscience that we can think about habits a system in operation with three key components:

1.     The most critical component is the behavior itself. Leaders are under pressure & short on time, so interrupting others & overlaying their agenda becomes a routine or a habit. So, this behavior of “interruption” is how the leader acts out her busy day.

2.     If this interruption behavior becomes a habit, there are triggers in the leader’s environment that turn this habit on. Sometimes it is about the personality of the person they are talking with, maybe it’s someone who doesn’t get to the point quickly, or maybe it’s someone who constantly uses jargon. Once the leader gets triggered, it shows in how the leader reacts, his expressions, his body language all change & create the trigger which turns on the habit of “interrupting”.

3.     The third component of the Habit system is the Reward. We know that our system rewards us & sets us up to continue to get triggered by a similar context & keep taking the reward that has been obtained in the past. So, interrupting someone may give the leader a strong feeling of control & a feeling that she is driving urgent action? So, there is always a reward as a payoff that the leaders get for his being a bad listener.

So how do you bring a Nudge philosophy into the workplace

Nudge 1: Creating a context

Leaders need a context that helps them understand why they need to change. This is where increasing the leader’s self-awareness is the key to frame the changes needed in the right context. This is where tools like Hogan or Lumina really allow leaders to understand their behavior in normal circumstances as well as when they are stretched or overextended. Marketers are often under pressure, how does the CMO act when he is under pressure in a meeting with the CEO & other CXO’s. Does her behavior when she is stressed reduce her chances of gaining consensus for significant customer-centric action. CMO’s need to see themselves when they are under pressure & identify what might be hurting their ability to lead to make customer-centric impact.

Nudge 2: Creating alternative behaviors

After understanding the context, leaders need a new playbook of alternative behaviors that are driven by small nudges. Imagine that I am not a good listener, intelligent nudges remind me that I may focus on not “interrupting” others in my next meeting. Another set of nudges remind me that letting others know that I am listening through facial expressions & repeating parts of what was said to show your attention can help you improve your listening skills.

Nudge 3: Providing opportunities to practice new behaviors

The rubber does not meet the road until leaders bring these alternative behaviors into practice. Creating lower risk experimental nudges within teams for leaders to experiment & then nudging them for higher stake experiments in larger settings is the way to set up a new behavior.

Nudge 4: Giving regular feedback

In their 2009 book Nudge, Professors Cass Sunstein and Richard Thaler show how powerful positive reinforcement can be for behavior change. Most people want to get better

It is interesting that we are seeing 2 converging movements happening simultaneously. One is that businesses across the world are digitizing very rapidly & which is allowing businesses to become far more data-driven. And at the same time, there is a behavioral science revolution that is beginning to impact the way we organize & lead people.

I wonder how CMO’s & other CXO’s can use behavioral science to become more customer-centric leaders.