Businesses are always on the lookout for cheap initiatives that can produce significant savings. If four famous authors have their way Britain’s tax collectors and the online shoe site Zappos have something significant to teach us.
If you’ve read Richard H. Thaler and Cass R. Sunstein’s book Nudge, or Steven D. Levitt and Stephen J. Dubner’s books Freakonomics and Super Freakonomics you could be on your way to having your own success story to talk about. The stories these authors tell point out some of the big gains to be found by passing up obvious answers and looking for the hidden side of everything.
Richard H. Thaler and Cass R. Sunstein’s book Nudge addresses a fundamental principle of human behavior known as “social proof.” They conclude that people’s behavior is largely shaped by what is done by those around them.
The authors use the example of how a small change in the wording of letters sent out by the U.K.’s tax authorities to those in arrears significantly increased the number of people who paid their bills. The British authorities added a single sentence telling those who owed money that most other people were paying their taxes. This small change, made at no cost, collected £560 million of the £630 million debt owed – a success rate of 86% (over the 57% seen the previous year.)
Thaler and Sunstein believe that gently maneuvering people into doing the right thing still leaves people with their freedom of choice.
The science of persuasion is an element of the field of behavioral economics made famous by Steven D. Levitt and Stephen J. Dubner. In their books Freakonomics and Super Freakonomics, Levitt and Dubner repeatedly demonstrate that if people are asked the right question they can be trusted to make the best decision.
The online shoe company, Zappos, has a legendary reputation for its culture and its customer service. Founder Tony Hsieh is able to deliver die-hard dedication and over-the-top customer service with call center reps who make around $11 an hour. Part of his success comes from a program called “The Offer.”
New employees go through weeks of training and then are presented with the option to stay with the company or leave. If they quit, they get one month’s pay (about $2,000) and have to agree to never be rehired.
By letting them choose their future, Zappos leaves to each employee the decision of whether they stay or go. The company’s conclusion: the bad employees weed themselves out. If someone cares more about easy money, the culture isn’t right for them.
It seems to be working. When a survey of 2,500 companies shows that a single bad hire can cost companies more than $25,000, even most accountants would conclude that Zappos is on to something.
There is no magic to it. For most companies, initiating positive, meaningful and beneficial change requires a dramatic shift in mindset. Here are a few pieces of advice from Levitt and Dubner to get you thinking about where to start:
Leaders have been brought up to believe that they must present grand strategic visions. Particularly in an era of low growth, businesses need to latch on to the idea that it’s the little things that make the biggest difference.