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A leader’s guide to instilling behavorial change

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ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

Your organization is lavishing time and money on ambitious corporate transformation programs. Yet none of them have made a dent in employee behaviors, which will need to change for the organizational transformation to succeed. To effect visible change, leaders may want to take a closer look at behavioral science (also known as behavioral economics or behavioral insights), which applies findings from psychology, economics, sociology, and other disciplines to understand how people behave and make decisions in real life. An aspect of behavioral science called “nudging”—using subtle interventions to steer people in a specific direction without limiting their options—has been successfully applied in both public- and private-sector settings. Here are some perspectives on the subject for leaders to think about.

AN IDEA

A young woman standing in a beam of light cast from a partially open door.

Turn information into action

Most companies today have access to a wealth of data about their people and organizations but struggle to use it effectively. Metrics alone don’t tell the whole story: research led by McKinsey partner Davis Carlin and colleagues shows that a three-pronged behavioral-insights approach, which takes patterns of human behavior into account when analyzing raw data, may yield more tangible behavioral changes over time. An important aspect of this strategy is to formulate “end statements”—the questions that you want the data to answer—that are specific, exhaustive, and actionable. A company found that employees appreciated and valued its capability-building programs but were not necessarily changing their day-to-day behaviors as a result. Once the company formulated a clear end statement, it was able to gather information that enabled leaders to make better decisions about which obstacles they needed to remove to make the programs more effective.

A BIG NUMBER

6

That’s the number of questions that any leader should ask before setting up a behavioral-science team—colloquially known as a “nudge unit”—to help people make better decisions, according to our research. A key issue to consider is whether the nudge team will focus on employees, customers, or both. It’s also critical to set up the unit for success—for example, by launching projects on a smaller scale before rolling them out across the entire company. “We grossly underestimated the challenge of implementing even seemingly simple innovations in large organizations,” a team leader told us. “We initially went after quite ambitious innovations, and then had to abandon them.”

A QUOTE

“Individuals’ desire for excessive coherence . . . prompts them to draw conclusions faster than they should.”

That’s McKinsey partner Tim Koller and coauthors on one of the many cognitive biases that skew corporate decision making. “Important personal and professional choices are often subject to the halo effect, which is the tendency for individuals to make specific judgments based on overall impressions,” they say. They cite the case of a company that picked a favored candidate for CEO based on initial impressions of his good performance—only to be disappointed when the candidate did not fulfill expectations. Making conscious efforts to recognize and avoid biases can go a long way toward countering ingrained behaviors. And machines are just as prone to biases as humans—research shows a high prevalence of gender and racial stereotypes in AI algorithms.

A SPOTLIGHT INTERVIEW

A lit sphere in the midst of three silver spheres.

More than a decade after academics Cass Sunstein and Richard Thaler introduced the concept of nudging to the corporate world, they have updated the idea in a revised version of their book, Nudge: The Final Edition (Penguin Books, August 2021). “The basic theory is similar, though I think we understand it better now than we did then,” says Sunstein in this conversation with McKinsey partner Julia Sperling-Magro. “We know that good nudges still make the chooser’s life better, and bad nudges don’t.” Technology enables good nudges: connectivity devices such as fitness bands and smartwatches “allow people to nudge more efficiently and effectively,” says Thaler. But look out for the increasing spread of “sludge,” which may be defined as “frictions or burdens or barriers that make it hard for you to get where you want to go,” Sunstein says. “It’s like a wall between people and something that can make their lives much better.”

HEAVY-HANDED

Hand ready to knock down a stacked set of dominoes.

Is your nudge more like a shove? Any hint of aggressive “behavior modification” may meet with resistance from customers and employees alike. Nudge theory proponent Richard Thaler himself acknowledges the danger of “evil nudging,” including misleading claims and lack of transparency. Recent research questions whether nudging has any effect on behavior at all. Leaders may want to consider using a light touch in behavioral interventions, beginning with small changes that slowly shift habits by targeting one behavior at a time.

Lead by nudging gently.

— Edited by Rama Ramaswami, senior editor, New York

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by "McKinsey Leading Off" <publishing@email.mckinsey.com> - 01:18 - 1 May 2023

The duties of the CEO have changed, so how you prepare for the role looks different too

On Point

TODAY’S NEWS. TOMORROW’S INSIGHTS.
A daily newsletter from McKinsey & Company

Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

Growing into a CEO

In the news

•

Getting better feedback. During periods of uncertainty, soliciting feedback from direct reports may be the furthest thing from business leaders’ minds. But correcting mistakes makes it easier to adapt and pivot in response to changing conditions. It also makes teams feel trusted and supported. Having a go-to, open-ended question (such as “Is there one thing I can do to better support you?”), embracing the discomfort that comes with receiving criticism, and sharing with teams what actions bosses will take can go a long way to creating a trust-based culture. [HBR]

•

Turnover in the C-suite. Nearly 170 CEOs in the US left their jobs in February 2023, more than in any other month since early 2020, a Chicago-based executive outplacement business has found. At the same time, more women are filling these roles: in January and February 2023, a record 31% of newly appointed CEOs at American companies were women. Faced with economic uncertainty fueled by the COVID-19 pandemic, worker shortages, and the “Great Resignation,” companies may be looking for a new type of leader to manage ongoing transformations, one talent expert said. [Fast Company]

It’s often said that being a CEO is the loneliest job—perhaps the second loneliest is being a CEO candidate.

On McKinsey.com

•

Executive readiness. Nowadays, CEOs need to focus on more than the bottom line: they also need to consider employee health and well-being and the ability to manage through uncertainty. Since the role has evolved, so have the best ways to prepare for it. McKinsey senior partner Celia Huber and colleagues distill lessons learned from the McKinsey Leadership Forum, attended by about 300 C-suite leaders since 2006, with 88 participants becoming CEOs. These include how to measure CEO readiness against six key elements of the job, such as setting the company’s direction and engaging the board .

•

New path, new role. A natural byproduct of the CEO’s changing role is that there are now more pathways to becoming one. In addition, there’s a bigger emphasis on personal, emotional, and psychological preparation. Many CEO participants of the forum said that they thought they were ready for the job, only to realize that it demanded new expertise. “There were a lot of things that I didn’t know, so many things that I’d never worked on,” said one participant. Explore eight key lessons for help preparing for the CEO role or simply becoming a better leader.

Prepare to lead

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โอกาสดีที่สุดแห่งปี! เชิญท่านร่วมงานเทคโนโลยีอุตสาหกรรม ชไนเดอร์ อิเล็คทริค

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by "Schneider Electric" <reply@se.com> - 09:00 - 30 Apr 2023

The week in charts

The Week in Charts

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ALL THE WEEK’S DATA THAT’S FIT TO VISUALIZE

Our McKinsey Chart of the Day series offers a daily chart that helps explain a changing world—as we strive toward sustainable and inclusive growth. In case you missed them, this week’s graphics explored completion rates in US higher education, the homelessness crisis in Los Angeles, investment in clean-energy projects, growth equity fundraising, and the space economy.

FEATURED CHART

A broken ladder?

Completion rate between two and four year institutions.

This week’s other select charts

A complex crisis

Investing in a sustainable future

Fewer unicorn sightings

A new space age

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by "McKinsey Week in Charts" <publishing@email.mckinsey.com> - 03:33 - 29 Apr 2023

Poet Maggie Smith on dealing with adversity and embracing possibility

Readers & Leaders

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THIS MONTH'S PAGE-TURNERS ON BUSINESS AND BEYOND

Have you ever looked back on your life and asked yourself, “How did I get here?” In this edition of Readers & Leaders, poet Maggie Smith makes an argument for possibility after loss, former Apple VP Don Norman uncovers how humanity-centered design can change the world, and tech venture capitalists Freada Kapor Klein and Mitchell Kapor discuss how a bold experiment became a successful formula for closing gaps in access for vulnerable communities. Catch up on new conversations from Author Talks, plus this month’s top bestselling business books, prepared exclusively for McKinsey by Circana. Itching for more great reads? Preorder Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI by McKinsey senior partners Eric Lamarre, Kate Smaje, and Rodney W. Zemmel for a playbook on what it takes to build the capabilities to continually create great customer experiences, lower costs, and build value.

IT BEARS REPEATING

“We all have disappointments. We all have relationships, whether personal or professional, that didn’t work out the way we wanted. We all have to reappraise things in life every now and then, and look around and think, “OK, this is where I’m at. Now, what do I want to do? What’s not really doing it for me right now? Where do I want to refocus energy?” Change is the only constant, and we’re all human beings, and we’re all dealing with that in various ways in our lives.”

— Poet Maggie Smith in a recent edition of Author Talks.

IN CASE YOU MISSED IT

Former Apple VP Don Norman explains why leaders should take the “humanity-centered” approach: “Humanity-centered design builds on the principles of human-centered design, except it expands them. We must think about all living things and about the environment. We must realize we are part of a complex system, so what we do here can impact people all across the world and have a long effect.” Watch the full interview.

Tech venture capitalists Freada Kapor Klein and Mitchell Kapor share how their equity-focused approach creates opportunity for vulnerable communities: “What they haven’t done is hold up a mirror and look at the ways in which they are merely reflecting their own biases.… For a long time, Silicon Valley venture capital firms have confused pedigree and privilege with merit. So you need a new yardstick.” Watch the full interview.

LOOKING AHEAD

Power to the Middle: Why Managers Hold the Keys to the Future of Work

McKinsey partners Emily Field and Bryan Hancock and senior partner Bill Schaninger offer a new model for companies to radically alter the way they hire, train, and reward their most valuable asset: managers.

Preorder now

Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI

Business leaders will be digitally transforming their companies for the rest of their careers. From McKinsey senior partners Eric Lamarre, Kate Smaje, and Rodney W. Zemmel, Rewired is the reference manual they need for the journey.

Preorder now

BUSINESS BESTSELLERS TOP

8

National Library Week wraps up today, but your reading journey doesn’t have to. Check out this month’s list of business bestsellers in eight categories, prepared exclusively for McKinsey by Circana. Explore the full selection on McKinsey on Books.

BUSINESS OVERALL

Atomic Habits: An Easy & Proven Way To Build Good Habits & Break Bad Ones by James Clear (Penguin Group USA)

BUSINESS HARDCOVER

Atomic Habits: An Easy & Proven Way To Build Good Habits & Break Bad Ones by James Clear (Penguin Group USA)

DECISION MAKING

How Big Things Get Done: The Surprising Factors That Determine the Fate of Every Project, from Home Renovations to Space Exploration and Everything in Between by Bent Flyvbjerg and Dan Gardner (Random House)

ECONOMICS

The Power of Wonder: The Extraordinary Emotion That Will Change the Way You Live, Learn, and Lead by Monica C. Parker (Penguin Group USA)

ORGANIZATIONAL BEHAVIOR

Atomic Habits: An Easy & Proven Way To Build Good Habits & Break Bad Ones by James Clear (Penguin Group USA)

WORKPLACE CULTURE

Culture Rules: The Leader’s Guide to Creating the Ultimate Competitive Advantage by Mark Miller (Random House)

DIVERSITY & INCLUSION

Poverty, by America by Matthew Desmond (Random House)

SUSTAINABILITY

Net Positive: How Courageous Companies Thrive by Giving More Than They Take by Paul Polman and Andrew Winston (Two Rivers Distribution)

BOOKMARK THIS

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by "McKinsey Readers & Leaders" <publishing@email.mckinsey.com> - 10:07 - 29 Apr 2023

A new issue of the McKinsey Quarterly is here

Your guide during this time of uncertainty and transformation

The newest issue of the McKinsey Quarterly examines how organizations are transforming themselves and their industries to reckon with this world of disruption. Explore our cover story to learn how multinational companies are navigating the current risks and opportunities in China—and don’t miss a discussion of the rise of chief transformation officers, a look into the future of mobility, and more.

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Ambitions for launching satellites are sky-high. Here’s how operators can prepare for liftoff.

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Brought to you by Liz Hilton Segel, chief client officer and managing partner, global industry practices, & Homayoun Hatami, managing partner, global client capabilities

Satellite strivers

In the news

•

Safely navigating space. With thousands of satellites orbiting Earth, these pricey instruments are often at risk of hurtling into one another. One study suggests that between 2017 and 2021, the number of times spacecraft passed within 1 kilometer of each other in low-Earth orbit—too close for comfort, in space terms—doubled from approximately 2,000 to 4,000. In response, a coalition of more than 30 space-related companies and organizations have released a document that proposes safety guidelines for satellite operators. Such a framework could help companies protect their assets and get a head start on potential future regulations from governments. [Axios]

•

Seeing farther into space. The growing number of satellites in space can interfere with scientific research being conducted by telescopes on the ground. However, some astronomers view the increasing space traffic as an opportunity rather than an eyesore. Satellite operators could partner with scientists to equip the orbiting machines with sensors that enhance research. Onboard gamma-ray detectors, for example, could help scientists better understand the behavior of dark energy. [NYT]

The continued enthusiasm for commercial-satellite constellations is encouraging, but it often results in plans that exceed what operators can reasonably accomplish.

On McKinsey.com

•

Launch ambitions. It’s an exciting time to be in the space business. Technological advances, cost reductions, and better access to capital have enabled commercial-satellite operators to create ambitious launch plans, McKinsey senior partner Ryan Brukardt and coauthors share. The number of announced satellite constellations—a group of satellites intended to work together as a system—is now more than 300, up from about 250 in mid-2019. Commercial satellites can be used for national security, climate monitoring, and authorizing credit-card transactions, among other applications .

•

An ongoing odyssey. Our updated analysis of satellite constellation deployments reveals that, despite growing interest in the sector and recent positive momentum behind launches, reality continues to lag behind expectations. For example, when it comes to announced constellations in recent years, about 45% of operators still haven’t launched a single satellite. Leading companies can stay a step ahead in the race to launch by creating data-backed plans that detail the potential for increased customer demand for satellite offerings, among other moves. Read the full article for more on boosting satellite businesses.

See a reality check for satellites

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What is a business transformation?

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A better path to growth and value

In the news

•

The need for speed. The pandemic showed corporate leaders that IT can deliver digital transformations at a rapid clip. Now, with fears of a global economic slowdown swirling, it is even more crucial to deliver transformative new technologies—and the value they bring—quickly. To do so, IT executives say that companies should help all leaders become more tech literate, so that they, too, can ask the right questions about whether digital initiatives are aggressive enough or the best solution to a problem. [CIO]

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A gap narrows. Advanced economies have also benefited from the pandemic-spurred adoption of transformative digital technologies. Following the COVID-19 crisis, digitization in mature economies increased by an average of six percentage points, IMF research finds. The digital gap narrowed by country and industry, with enduring implications for productivity and labor markets. Countries with a higher proportion of employees working from home saw bigger gains in labor force participation. And small companies, which typically rely more on manual processes, experienced larger increases in digitization. [WEF]

Waiting to “earn the right to grow” is no longer the best strategic or financial option. In such a dynamic business environment, focusing on new technologies is the way forward.

On McKinsey.com

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Why transform now? Companies undertake transformation in pursuit of a number of goals, including tackling urgent external challenges (disruptive, new market entrants), industry discontinuities (technology is changing consumer behavior), or macroeconomic pressures (supply chain woes). Almost all transformations are “digital transformations” because they require new investments in technology and tech-enabled processes .

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Who, what, how. The CEO helps a transformation succeed by communicating its significance, modeling the desired changes, building a strong top team, and getting personally involved, explain Wesley Walden , managing partner of McKinsey’s Australia and New Zealand office, and coauthors. The chief transformation officer (CTO) is the high-level orchestrator of the transformation process. A transformation office defines goals, models new ways of working, and ensures that the overall program and specific work streams stay on track. Discover what makes a business transformation successful.

Learn what it takes to transform

— Edited by Barbara Tierney, senior editor, New York

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