Utilization Of Behavioral Nudges As A Tool Of Human Resource Management For Improving Employee Performance In Business Organizations

Abstract

The topic of using behavioral nudges in various realms of public policy and administration -such as health, household savings, social services, environmental protection and energy saving — has been debated widely by many scholars, such as Richard H. Thaler and Cass R. Sunstein. However, the potential to make use of similar nudges in corporate administration, especially in the field of human resources in terms of enhancing employee performance, is an issue which has not yet apparently been addressed. In our study, theoretical frameworks for both human resource management and behavioral nudges are drawn upon, and the possibility of using certain nudges as a tool for human resource management to improve employee satisfaction and organizational performance is discussed. We argue that behavioral nudges could be utilized by business organizations as an effective human resource management tool in order to improve the performance of employees and to increase organizational success. Although we are not able to provide empirical evidence for our argument, our aim is to draw the attention of academia to the absence of a study in this interdisciplinary field, thereby encouraging prospective empirical studies to be undertaken to address this neglected issue.

INTRODUCTION

In the contemporary world, human resources are seen as a valuable asset contributing to the overall success of a business organization. Therefore, the field of human resource management always seeks ways to increase the satisfaction of employees in order to improve their performance and thus their contribution to the organization.

On the other hand, the recently emerging concept of libertarian paternalism offers perfectly-functioning tools called “nudges”. These are simply defined as certain kinds of choice architecture that influence people’s behaviors in a positive way, without compromising with their freedom of choice (Thaler & Sunstein, 2008). They are used to make people’s lives better, easier and healthier by demonstrating that better options are available, and that more logical behaviors exist. These tools are successfully used by many private and public institutions in order to influence the way people behave or make decisions.

After examining the theoretical backgrounds and frameworks of the abovementioned fields individually, we would like to discuss whether it is possible to use nudges as a tool for HRM in a way to improve employee performance and contribute to organizational success.

THE HISTORY OF HUMAN RESOURCE MANEGEMENT AND IMPLICATIONS FOR EMPLOYEE PERFORMANCE

Human Resource management (HRM) may be considered one of the earliest components of the subject of management, dating back to the first functioning societal units, such as the formation of tribes — in which the tasks are first divided among individuals. It is thus older than any other management function, including accounting, finance, and marketing (Deadrick & Stone, 2014, p. 193). Long after this era, subsequent to the emergence of manufacturing, productivity, efficiency, and the various means to enhance these notions have since become of vital significance. Various strategies and new approaches to managing labor and stimulating efficiency were developed by reputable scientists such as Frederick Taylor, Lillian Gilbreath, Max Weber and Henri Fayol. (Deadrick & Stone, 2014, p. 194)

The prevalent assumption that most people are reluctant to work was openly contested in the 1950s and it is during this time that the significance of the contribution of human resources could make to organizations became emphasized. Human resources has ever been undesputably considered an asset to any organization. The first assertions that employee productivity might be related to employee satisfaction and well-being, were put forth in the 1960s and 1970s, and the approaches of HRM suddenly shifted focus to the so-called “Quality of Work Life (QWL)” (Deadrick & Stone, 2014, p. 194). Recently, however, the focus has shifted once again. While the field had been, until a couple of decades ago, merely interested in labor productivity, nowadays, motivation and satisfaction of the employees has become a central realm of concern for HRM. This has been largely thanks to the increasing acceptence that their influence has on the productivity, and thus organizational efficiency. (Aziri, Zeqiri, & Ibraimi, 2014, p. 815) Therefore, managing and organizing human resources in a way that keeps employees motivated and performing well, have become the primary goal of HRM policies in most organizations. (Bogaert & Vloeberghs, 2005, p. 483).

Although first asserted decades beforehand, the idea that HR could play a key factor in the achievement of higher organizational performance remained, until the 1990s, really no more a testimony of faith. Nevertheless, empirical studies conducted in that decade mostly began to provide some concrete evidence for the credibility of this belief. For instance, the study conducted by Delaney and Huselid showed that progressive HRM practices, such as employee selection, organizational training, and financial incentives — had a positive correlation with the organizational performance (Delaney & Huselid, 1996, p. 965).

Since the end of the 20th century, the significance human resources management held for organizations in service and knowledge economies, has become widely recongised, and HRM has been considered a critical function of business management ever since. Moreover, this era has witnessed a rising inclination in HRM to foster greater trust in the relations between management and the lower level employees, and a dependence on good employee relations has become apparent. Good human resource management has also come to be seen as having the power to provide organizations with a competitive edge. For the first time since the advent of the manufacturing economy, HRM has finally evolved to a strategic function of management, starting from a “personnel” focus. (Deadrick & Stone, 2014, p. 195)

In today’s world, since the human resources are seen as a key factor in organizational productivity and efficiency HRM stands as one of the most significant issues in business management. A huge amount of empirical HRM research has been made over the years, and a considerable amount of studies suggest that specific human resources (HR) practices have a direct influence on the performance of a firm. In addition, some of the studies reveal that those HR practices may be even more effective when applied as bundles or systems, together with other complementary HR practices, rather than when applied individually (Youndt, Snell, Dean, Jr., & Lepak, 1996, p. 838). Likewise, Shaw (2004) mentions in her study that several pieces of research conducted in various industries, have come to the joint conclusion that innovative HRM practices have a positive impact on productivity, and similarly, most of them reveal that the use of complementary HRM practices used together systematically, is proved to contribute even more (Shaw, 2004, p. 94). In order to form such complementary HRM systems, practices including teamwork, training, careful recruitment, job rotation, financial incentives, information sharing and transparency musts be applied together by business organizations in order to achieve further organizational performance (Shaw, 2004, p. 107).

Considering HRM is a strategic function of business management, it is essential to remember that, unlike other resources and inputs in business, human resources are a long-term investment, and hence management of this resource requires a high degree of attention (Aziri, Zeqiri, & Ibraimi, 2014, p. 815).

LIBERTARIAN PATERNALISM, CHOICE ARCHITECTURE AND NUDGES, AND THEIR EXISTING REALMS OF USE

• Theoretical Background

The field of behavioral economics tries to understand “how people actually behave” compared to how would they do if they were real “homines economici” which would be defined by traditional economists as being “perfectly informed, forward-looking and invariant in his preferences,” and capable of evaluating all options without being influenced by external factors and hence making absolutely unfailing decisions in a way to maximize their utility. In this respect, the realm of behavioral economics focuses on several issues varying from consumer behavior to health behavior and to environmental behavior (Thorgeirsson & Kawachi, 2013, p. 185)

Libertarian paternalism is a product of the idea opposing the assumption that the human being is absolutely rational in behavior, as claimed by proponents of the idealized definition of homo economicus. Contrarily, real individuals have a “bounded rationality” with limited capabilities to process information (Thorgeirsson & Kawachi, 2013, p. 185). Thaler & Sunstein also object to the notion of homo economicus, and assert that human beings are just homo sapiens who are always capable of making mistakes and poor decisions with the influence of multiple factors such as — but not limited to — the design of the environment, social group dynamics and even laziness (Thaler & Sunstein, 2008).

The concept of “Libertarian Paternalism” was first suggested by Richard Thaler and Cass Sunstein, in a homonymous article in The American Economic Review in 2003. Since it is against blocking, prohibiting or oppressing any choices, the concept is defined as a “weak, soft and nonintrusive type of paternalism”. For instance, it does not prohibit or try to prevent people from smoking, or keeping up on unhealthy diets, or not saving for retirement if they willingly and consciously want to do so. With the help of choice architects, it tries to keep track of people’s predicted choices and attempts to link their focus to other choices, that are supposed to enhance the quality of their lives (Thaler & Sunstein, 2008, p. 5).

Another important concept in this context is choice architecture. A choice architect is able to directly influence the choices of other people by organizing the environment in which decisions are made (Thaler, Sunstein, & Balz, 2010). Many people can and do act as a choice architect, even without realizing what they do. Thaler & Sunstein (2008) give various examples of choice architects and the act of choice architecture in their book. Some of the examples include; a doctor advising a treatment or a healthy diet to patients, HR administrators directing employees to particular health care plan options, marketing professionals creating strategies for the sale of a product, or school cafeteria managers who decide to arrange the foods in a way that makes the healthy options appear more prominent– e.g. at eye level — to students, can be counted as only a few examples of choice architects (Thaler, Sunstein, & Balz, 2010). Choice architects have a capacity to considerably improve people’s lives “by designing user-friendly environments” (Thaler & Sunstein, 2008, p. 11).

Here comes the question: How could a choice architect design an environment that would directly influence the choices of people to make their lives better in such a way which is not intruding their freedom of choice? In an attempt to find a solution to that question, Thaler & Sunstein (2008) have contemplated a series of tools which they call “nudges”.

The meaning of the word “nudge” is defined as “to push (someone) gently with your elbow in order to get that person’s attention” or “to encourage (someone) to do something” in Merriam-Webster’s Learner’s Dictionary. However, Thaler & Sunstein (2008) used the word for naming a much more complicated notion which is directly related to libertarian paternalism and choice architecture. Within their theoretical framework, a nudge is defined as “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives”. The basic characteristics of a nudge is their being “easy and cheap to avoid” so nudging is not a command, but rather an attempt to make a better option more visible (Thaler & Sunstein, 2008, p. 4). Nudges, as “low-cost interventions that steer people’s behavior” in a particular direction — without intervening in their freedom of choice — are the main tools of libertarian paternalism, and can be used as such, to handle “people’s cognitive biases and heuristics” (Schubert, 2015).

To sum up, under the scheme of libertarian paternalism, people are not forced to go for a particular choice; they are just nudged to be made aware of the “welfare-promoting option”. In fact, they maintain their freedom of choice since they are always able to opt out of the promoted choice (Inoue, Shimizu, Wakamatsu, & Udagawa, 2015).

• The Most Common Types of Nudges and Realms of Use

Nudges differentiate over a very broad area, and there are varieties of different kind of nudges that already exist and keep emerging. Sunstein (2014) specifies the most common types of nudges in his article Nudging: A Very Short Guide. He identifies “ten important nudges” with some explanatory examples (Sunstein, 2014, pp. 585–588) which are summarized below:

• Default rules:

These may be considered the most effective nudges. Their implementation consists of “passive choosing”. Because, for reasons such as laziness, distraction, or fear, people usually tend to keep stick to their default choice, rather than changing it, which is burdensome and time consuming (Thaler, Sunstein, & Balz, 2010). Therefore, setting the defaults in such a way to make people’s lives better and easier can be a good use of these kind of nudges. Setting the printer default as double-side printing, or automatic enrollment in programs related to savings, health, and education can be seen as the examples of the nudges of the default rules (Sunstein, 2014).

• Simplification:

Complexity is considered a source of problems in most of countries since, by definition, it causes confusion. Such a confusion usually results in making wrong decisions which may cause the breach of the law, or potentially reduce the economic growth. Complexity reduces the potential success of many programs. Therefore, simplification should be used as a nudge to counteract these problems. Forms and regulations should thus be simplified and made more user-friendly (Sunstein, 2014). In this respect, the iPhone and iPod can be used as successful examples of simplification, as their user-friendly software design help attract more consumers to choose them (Thaler & Sunstein, 2008).

• Uses of social norms:

Social norms can be very determinative regarding people’s decision-making processes. Keeping them at a local-norms relating to a certain community, and using group dynamics as a nudge therefore, may be considerably effective. Telling people what decisions other people in their group would make hasan undeniable impact on the choice of an individual. For example, telling people “the overwhelming majority of people in your community pay their taxes on time” or “most people in your neighborhood plan to vote” make them more likely to do so (Sunstein, 2014).

• Increases in ease and convenience:

People usually tend to choose the easiest option available. If the desire is to encourage a particular behavior, or to highlight a better option, the solution is just to make it easy to reach. For example, making healthy food visible by placing it at eye level or in the front line would nudge people to choose the healthy option (Sunstein, 2014).

• Disclosure:

Additional information always has an influence on people’s decisions. Therefore, disclosure of decision-related information could well be used as nudges. For example, disclosure of economical or environmental costs of an individual’s energy consumption may have a nudging effect and make his/her to save more energy and be a responsible consumer (Sunstein, 2014).

• Warnings, graphic or otherwise:

Private or public warnings may act as nudges as well if a serious risk is in question. Bright colors, large fonts, and graphics that attract attention may be used for nudging people to consider the risks involved in their choice. The warning images on cigarette packages are a good example of such nudges. These nudges may not be as effective as other types, however, since there is a natural human tendency to ignore and underestimate the risks (Sunstein, 2014).

• Precommitment strategies

When people precommit to achieve their goals, they are more likely to make decisions that make them stick to the path to that goal. For example, precommitmence may act as a nudge for people to stop smoking or to save money (Sunstein, 2014).

• Reminders:

People are constantly preoccupied by countless thoughts and tasks. Therefore, reminders may have a significant nudging effect on those busy people. For example, a mobile application to remind one about birthdays and anniversaries, or an e-mail and text message notification informing one about overdue bills, or doctor appointments, would have a significant influence (Sunstein, 2014).

• Eliciting implementation intentions:

People tend to be influenced by others’ eliciting their implementation intentions. For example, when someone raises the question “do you plan to vote?” your suppressed intention to vote may reawaken, and you would be more prone to implement your intention (Sunstein, 2014).

• Informing people of the nature and consequences of their own past choices:

People’s past choices in certain fields, and the results of those choices, are extensively known to private and public institutions. However, individuals themselves does not have this information. Therefore, informing them about the results of their past choices may help them make better decisions in the future. For instance, information about their health expenditures in the past, may lead people to care more about their health, or to switch to a healthier diet (Sunstein, 2014).

People are constantly encountering nudges in their daily lives. For example, GPS can be refered to as a nudge, since it suggests the best directions to reach your final destination but allows you to choose whether or not to follow these directions. Examples of everyday life nudges can vary more extensively, however, to include, say, a mobile application telling you how many calories you have eaten or how many you have burnt, or a default settings on a computer, an alarm clock, an automatic payment service for your bills, the graphic warning on a cigarette package, environmentally-friendly labels on products, the design of government website, and many more (Sunstein, 2014, p. 583).

Nudges are used across all sectors from the private, to non-governmental and public. Their use in the private sector includes marketing activities, as well as HRM activities, such as nudging employees to choose the right healthcare plan or to invest in retirement savings (Thaler & Sunstein, 2008, pp. 85–86). Moreover, non-governmental organizations make use of nudges according to their causes. An example of this is when one Norwegian non-profit organization, named “GreeNudge,” collaborated with an electrical products retailer in 2012, resulting in the life-cycle cost of the latter company’s laundry dryers being included on the price tag of each item written in large fonts. Thissuccessfully nudged people to select a more energy-efficient dryer with a lower life-cycle cost. This rearrangement of price tags counts as a good example of nudges used by NGOs (Stoknes, 2014, p. 167).

Governments may have differentiated policies. Some of them are shaped as obligations and prohibitions determined by laws and regulations. Others take the form of incentives and disincentives, such as subsidies on renewable energy and taxes on gasoline or tobacco. Aside from the these, certain libertarian policies take the form of nudges (Sunstein, 2014, p. 583). It can be stated confidently, that the utilization of nudges by governments is nothing new; on the contrary, governments have always been active in their uses of the nudges. In fact, some governments have even established official units to manage their use of nudges, which have been pursued increasingly, since they represent excellent value when set against their potential to promote public welfare. Two examples of such units are the Behavioral Insights Team (“Nudge Unit”) of the U.K., and the White House Social and Behavioral Sciences Team of the U.S. (Sunstein, 2014, p. 585). Thaler & Sunstein (2008) also propose that governments should make an effective use of nudges in order to promote their citizens’ welfare, by steering their choices in a way which steers them towards their best benefits (Thaler & Sunstein, 2008). For instance, a nudge of social proof and peer comparison may be used by the government by simply asking high-consuming citizens in their bills: “Did you know that you use more energy than 90 percent of your neighbors?” (Guszcza, 2015, p. 66)

Therefore, it can undoubtedly be asserted that people are exposed to nudges in every aspect of their lives; when they wake up in the morning with an alarm clock, when they choose the means of transportation to go to work/school, when they make their regular payments, when they decide on a health care plan, when they want to buy something, even after they die — on whether to become an organ donor. The fact is, that there is no way to avoid choice architecture and its influence; therefore, Thaler & Sunstein defined “the golden rule of libertarian paternalism” as proposing nudges that can help people in their decisions rather than nudges that may cause them harm. In other words, nudges should help people when they need to make difficult and infrequent decisions in which they do not have enough experience or the capability to clearly understand the results of their decisions (Thaler & Sunstein, 2008, p. 72). Moreover, three certain aspects of nudges that may help quell any ethical concerns surrounding their use are clearly defined by Sunstein (2014):

1. Nudges promote freedom of choice and do not pose a threat to any liberties. They neither mandate an idea, nor forbid a certain type of behavior or decision. The goal of many nudges are simply to make people’s lives better, safer, simpler, or healthier. There is already a settled environment beyond the nudge which holds a degree of influence on people’s decisions; therefore, what nudges do is to simply replace that environment with a new one in a way to improve their decision-making.
2. Nudges ought to be transparent, and clearly disclosed; not concealed, hidden, or implied. In addition, the effects and the contributions of any kind of nudging activity to the well-being of the individuals or to the welfare of the society should be disclosed, and it should be ensured that they are kept away from being manipulative and tricky.

• Nudges should rely on empirical data rather than intuitive beliefs, anecdotes, or dogmas. The practicability and the assumed benefits of a nudge should be tested and improved before implementation.(Sunstein, 2014, p. 585)

Therefore, as long as they are in compliance with these three characteristics, nudges can be welcomed in every field of life without any concerns about their potential to manipulate or oppress.

CONSIDERING BEHAVIORAL NUDGES AS A TOOL FOR HRM

The topics of libertarian paternalism, choice architecture and behavioral nudges were first asserted by Richard H. Thaler and Cass R. Sunstein in 2003, and have been discussed by many scholars since. The use of nudges in various spheres of economics, business, and daily life has become a popular topic of many studies. A considerable amount of empirical research has been conducted regarding the use of nudges in various realms of the private sector and public policy administration — such as marketing activities, retirement plans, health and nutrition, household savings, social services, environmental protections and energy savings. However, extensive utilization of nudges in HRM in a way to improve employee satisfaction and performance has not been adequately addressed in literature. There are few studies which mention the use of nudges in HRM, and those studies are not merely about the HRM, but comprehensive studies focusing solely on nudges. It is also important to indicate that all of these studies mention only one type of nudge reference to HRM: nudges influencing the health care and retirement plan enrollment decisions of the employees. (Thaler & Sunstein, 2008) (Guszcza, 2015).

It can logically be asserted that not all of employees love their jobs, in fact, most people do not have the job they always dreamed of. A world in which everybody loved their job would be practically impossible, since there would be some jobs and tasks that nobody would be happy to engage in — such as sitting on a table engaging in boring paperwork all day, which would blunt many people’s intellectual potential, or in some extreme cases, jobs like cleaning toilets or sewers etc. Given this fact, we can say that it is not an easy task for HRM to generate and maintain total employee satisfaction, which would presumably reflect to their performance vis-a-vis the success of the organization. Thus, each and every tool that can contribute to achieving this HRM goal represents an asset to any business organization, and nudges are a potentially great tools that can be harnessed to this end.

In fact, nudges are most likely already being used in HRM, if not in name. However, identifying and contemplating these kind of hidden nudges in a theoretical perspective, and measuring their effectiveness and level of influence on employee satisfaction and performance is essential to using them consciously and systematically in an effective manner. Only in this way, can the benefits that nudges bring for both the business organization and employees be maximized.

We assert that potential for the use of nudges for promoting HRM activities — in such a way as to enhance the well-being and productivity of the employees — would be incredibly high. For example, in HRM, nudges encouraging paperwork reduction, or simplifying complex procedures, promoting transparency, or disclosing the performance information of the employees may be used in order to achieve the performance goals. Moreover, considering that self-efficacy (“one’s belief in one’s capability to perform a task”) has a high degree of influence in the employee’s organizational behavior, job satisfaction and performance (Gist, 1987), nudges that might promote this feeling among employees may be used to achieve higher employee performance.

However, this assumption — that the nudges can serve as an effective and efficient tool in HRM — should be built on a strong foundation and thus needs to be supported by empirical evidence in order to more forcefully posit their benefits and contribution to business performance. Sunstein also puts a great emphasis on the necessity of empirical testing and evidence for talking about the practicability and benefits of a nudge in a particular realm, and indicates that some promising nudges may create no influence, or worse, may have negative impacts when implemented. Therefore, before systematically implementing a nudge in a broad area, it should first be empirically tested on a smaller group with practices including randomized controlled trials (Sunstein, 2014, p. 585). By doing so, the most effective type of nudges may be detected and put into use by HRM professionals.

CONCLUSIONS AND NOTES

The field of HRM dates back to ancient times, when the division of labor first emerged. Human resources have since evolved from a crude work model, to being valued as a crucial strategic asset to the success of any organization in history. What has remained unchanged throughout this evolution is the significance attached to the productivity and performance of employees. In its current form, the performance of employees is associated with their well-being and satisfaction; therefore, various HRM policies are implemented and many new tools are being devised to achieve a high organizational performance by maintaining employee satisfaction at the highest level possible. In our study, we would like to shed light to a new potential tool for human resources: nudges, “low-cost interventions that steer people’s behavior” in a particular direction -without intervening in their freedom of choice”.

The core weakness of our study is that our assumption that nudges can serve as a very handy tool for HRM professionals is just a product of our logic — considering that nudges work perfectly well in some other areas of the public and private sector and hence they might probably do the same in the field of HRM. We tried to draw a theoretical framework for our assertion and mentioned some possible kinds of nudges that could be implemented in HRM activities. However, our study lacks the empirical data needed to reach clearer and more positive conclusions about the practicability and results of nudging in HRM. Since such an empirical research would require a much more extensive study in both the fields of human resources and behavioral science, and also a generous amount of time, we decided to postpone such a research for our future studies. We also made an extensive literature review in order to find a study which would support our assumption by focusing on the use of nudges to promote HRM activities; nevertheless, we couldn’t find one.

As a result, after bringing over the topic and drawing a general framework, we would like to address this gap in the literature, and make a call for the academia studying the field of HRM to peek over this subject and consider making studies and empirical researches on the utilization of nudges as a tool for HRM.

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