46 Market Leader Quarter 2, 2015

Chief behavioural officer: thenew ‘must-have’ executive role

CRAWFORD HOLLINGWORTHB E H AV I O U RA L E CO N O M I C S

AMP: senior behavioural insights manager.Allianz: senior behavioural finance specialist.Amazon: data scientist.

Behavioural science roles already exist at Unilever and Microsoft, among others, and are being developed at other companies.

In the public arena, governments and other institutions are increasingly engaged in more effective understanding of consumer behaviour. When the new UK Financial Conduct Authority (FCA) launched in 2013, CEO Martin Wheatley stated that behavioural economics was “very much part of our toolkit” and affirmed the FCA’s intention to empathise with and try to understand the consumer better in order to regulate effectively.

Significantly, many UK government departments now have a Behavioural Economics team, such as HMRC and the Department for Transport.

WHAT DOES A CBO DO?In a nutshell, the role of a CBO is all about the application of behavioural science to the business or policy area. They typically liaise with other parts of the business (or government) to understand behaviour and identify behavioural goals and challenges where there might be an opportunity to apply behavioural science to improve or change behaviour, whether that is on the part of the consumer or of employees. They use their knowledge of existing behavioural insights to work with other parts of the business to research, design and run different behavioural interventions (randomised controlled trials), figuring out what works with consumers or employees and what doesn’t work.

The growth of behavioural economics and its application has accelerated in recent years. There have been three main drivers aiding this:

1Demand side: business and government driven

Marketers became increasingly frustrated with the insights delivered in research,

Step by step, behavioural economics and psychological science have expanded to become an established part of business, policymaking and regulation. Within marketing and market research, behavioural economics has become a required area of expertise, which has led to the creation of the role of chief behavioural officer (CBO). Crawford Hollingworth believes this move will ensure that behavioural science has a voice at the highest level inside companies and institutions

I N RECENT months there has been a big upsurge in the creation of a defined role for an in-house behavioural scientist – the chief

behavioural officer. Just as most large companies have a CFO, CMO or head of CI, it is becoming far more common to have an in-house behavioural scientist or behavioural insights team.

CEOs are becoming increasingly aware not only of the need to understand consumer behaviour, but also how behaviour might be steered more cost-effectively using insights from behavioural science.

Christopher Graves, Ogilvy PR’s chairman, spent six years studying over 800 pieces of primary research in behavioural economics and neuroscience. He says: “It adds a layer of planning and effectiveness, and it helps you figure out what will not work.”

Elizabeth Corley, chief executive of Allianz Global Investors, backed the creation of Allianz’s Centre for Behavioural Finance, recognising how behavioural science relates to the business’s customers and clients. She notes: “We’re all programmed to have some behavioural biases that may cause us to act in ways counter to our own best interests. These biases don’t naturally change with wealth or sophistication.”

Here are some of the global companies and prestigious institutions that have advertised for an in-house behavioural scientist in the past 12 months. These are positions that specifically required qualifications, knowledge, experience and competence in the behavioural sciences:Bank of America: behavioural finance analyst.Facebook: audience insights analyst.Google/Bon Appetit: director of food choice architecture.HSBC: senior manager in behavioural economics.Capita: senior manager, behavioural insight and intelligence.

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Chief behavioural officer: thenew ‘must-have’ executive role

CRAWFORD HOLLINGWORTHB E H AV I O U RA L E CO N O M I C S

finding that attitudinal insight or change did not necessarily correspond with consumer behaviour or behavioural change. The assumption that consumers were rational turned out to be unrealistic. Such frustrations coincided with the rise of behavioural economics, creating new possibilities in the industry.

Today, increasing numbers of clients and researchers are focused on understanding behaviour and effecting behaviour change rather than targeting attitudinal change.

This increased focus on behaviour has also been strengthened and supplemented by research centres such as the Ehrenberg-Bass Institute for Marketing Science and the growing interest and developments in neuroscience and neuroeconomics. While neuroscience is unlikely to provide us with the specific tools and concepts to change behaviour, it can help us understand more about what is happening in the brain when people behave in certain ways.

At the same time, the financial crisis of 2008 compounded the realisation that rational behaviour was not a realistic assumption to make. Dan Ariely, a professor of psychology and behavioural economics, believes behavioural economics might never have entered mainstream discourse if it hadn’t been for the 2008 crisis – a huge and timely illustration of the irrationality of both consumers and traders in the global banking sector.

The frustrations among businesses and government made them receptive to the growing number of popular books on behavioural science and behavioural economics, including Nudge: Improving Decisions about Health, Wealth and Happiness (Richard Thaler and Cass Sunstein, 2008), Predictably Irrational (Dan Ariely, 2008) and Daniel Kahneman’s Thinking, Fast and Slow (2011). These are now standard reference works for the area and have all become bestsellers. Thinking, Fast and Slow has sold over a million copies in the UK alone. Barack Obama

embraced the teachings of behavioural science wholeheartedly and David Cameron, the UK’s coalition Prime Minister, was so impressed with Nudge that he urged ministers to read it during their summer recess.

These popular books have inspired many experienced, senior-level business

people to go ‘back to school’. Not only are there increasing numbers of MSc programmes and PhD courses for behavioural economics, but also executive courses for those already in a career. Online courses are flourishing and executive education programmes have been launched at the London School of

48 Market Leader Quarter 2, 2015

Economics, Yale and Harvard, among others. This trend can only serve to feed the demand for in-house behavioural scientists and increase discussion about behavioural insights in business and government.

2Supply side: academic drivenAt the same time, with the rapid

growth of the behavioural economics field over the past few decades, academics realised there was a fantastic opportunity to apply what they knew about behaviour to the real world – to business and policy problems. Early research a few decades ago was mostly lab-based and very much an analytical process that allowed academics to develop reasoning and hypotheses about human behaviour.

Max Bazerman, a professor in business psychology at Harvard Business School, observes: “Lots of people over the past few decades have catalogued the predictable and systematic ways in which even smart people make mistakes on a regular basis… We knew what the problems were, but we didn’t know how to fix them.” However, Bazerman notes that in recent years the field has “switched away from trying to ‘fix’ intuition, to identifying how to encourage people to switch from System 1, or their intuitive processes, to their more deliberative System 2 processes for important decisions, and how leaders can use the tools of understanding to change the environment… to enable better decisions”.

So academics are now increasingly interacting directly and collaborating more with the private sector and government. Both parties win – companies can learn from the top experts in the field of behavioural economics, while academics can access and analyse huge, rich data sets on real consumer behaviour and collaborate with companies to design behavioural interventions to test their hypotheses and learn from them.

In just a few years, there have been countless successful applications of behavioural science in business and government. These applications have all demonstrated how behavioural science is as effective a tool as others, but often has the advantage of being virtually costless.

Private sector applications include gently steering households to use less energy or prompting individuals to save more, to improving medication adherence and increasing online conversion. Public sector applications include prompting tax payments and designing tax rebates, increasing pensions enrolment and getting people back to work faster. The UK

CRAWFORD HOLLINGWORTHB E H AV I O U RA L E CO N O M I C S

government laid the foundations for this when it created its Behavioural Insights Team (BIT) in 2010, which pioneered much of this work. Since then, many other governments have created their own teams, inspired by the BIT’s success, including the US, Australia, the Netherlands, Singapore and Germany, and the now part-privatised UK BIT is working with more than 10 governments around the world.

The Obama presidential campaigns of 2008 and 2012 demonstrate perhaps the most impressive (and successful) application of behavioural economics. Recognising that voter turnout was crucial, and putting this together with the inherent behavioural challenges that can get in the way of

Behavioural economics might never have entered mainstream discourse if it hadn’t been for the 2008 crisis – a huge and timely illustration of the irrationality of both consumers and traders in the global banking sector

CRAWFORD HOLLINGWORTHB E H AV I O U RA L E CO N O M I C S

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voting (even though we know we have the right to vote, many of us don’t because we feel we don’t have time or assume our vote won’t make much difference), they drew on the insights of a consortium of behavioural scientists to maximise turnout. Commitment bias, implementation intentions (or ‘make a plan’), social norms and other tools were applied with considerable success.

3Clever brandingThe field of behavioural economics

has benefited from useful branding. For decades, it has been economists who have mostly been the decision-makers in government and business; the social

sciences have had little standing and recognition among the most senior decision-makers. This situation, says Robert Cialdini, a professor of psychology and marketing, has changed – and perhaps all because of a name. When Cialdini first began working with Obama’s consortium of behavioural scientists, he participated in two seminars where, on the guest list, he was described as a ‘behavioural economist’. Having always called himself a social psychologist, he questioned this, and a government official explained: “We couldn’t have justified bringing you here unless you were labelled as a behavioural economist.”

Move on seven years and many have

recognised that behavioural economics is, to a large extent, a clever and extremely effective brand name, which has been able to open doors into the boardroom and the top levels of government. Rory Sutherland, Ogilvy & Mather Group’s UK vice-chairman, observes: “Behavioural economics has a vocabulary that can play in the boardroom or the ministry in a way that simple pleas for creativity don’t.”

Similarly, Cialdini says he “feels indebted to behavioural economics for bringing social psychology to a non-academic audience”.

The sharing of behavioural science knowledge is now no longer confined to academic conferences and seminars. Other channels of communication have increased in number to meet demand.

There are now a multitude of conferences and workshops open to everyone, and public seminars from academics and practitioners have increased in number and size, as have the more informal behavioural economics meet-ups in cities around the world.

Daniel Kahneman attracts huge and diverse audiences – one lecture had an audience of over 2000 last year – and other esteemed academics are achieving similar figures.

CONCLUSIONThese many and diverse drivers have led to a paradigm shift in business and in government that recognises the importance of understanding behaviour and the possibility of changing it cost-efficiently. And to embrace this new understanding, organisations have realised they need their own CBO.

The next challenges will be to deconstruct and better understand some of the cultural sensitivities that make the tools of behavioural science more (or less) effective. For example, where are social-norm ‘nudges’ most effective in driving behaviour change? Where is reciprocity least effective?

In ten years’ time, behavioural science and accurate behavioural understanding of the consumer will simply be an established part of the regular conversation around the board table.

We will be able to discuss different cognitive biases and tools from the behavioural sciences as common knowledge. It will be so much a part of what we’re all doing that it won’t need explaining. And when some of the finer detail does get tricky to explain, we’ll be able to call on our chief behavioural officer.

Crawford Hollingworth is co-founder of The Behavioural Architectscrawford@thebearchitects.com