This article was originally released in Switzerland’s leading communication magazine Persönlich. You can find the original German version here.
The pandemic has fundamentally changed the ways in which companies operate and people work together. But what impact does this digitalization wave have on the human brain, CEOs, managers, and employees? Benjamin Bargetzi, internationally sought-after expert on the interface between digitalization and neuroscience, discusses contemporary trends.
In business meetings around the world, digitalization checklists are recurrently discussed and reviewed in hopes of not falling behind the market. But digitalization does not simply mean buying into a new CRM, a cloud solution, or building an online shop. On the contrary, a sincere digital transformation is a never-ending iterative process in which companies grow alongside the changes in the world. This only becomes possible if technological, business, and human factors are synchronized, and a fundamental change across business models, corporate vision, leadership styles, marketing & sales, HR, and day-to-day takes place. Neglecting any of these three factors will inevitably lead to process inefficiencies of the business, missed strategic opportunities, and competitive disadvantages.
Despite this, the human factor is often neglected in transformation processes across the globe, which is reflected in a lack of training, faulty and demotivating communication, and not leveraging the full potential and knowledge of one’s employees during transformation planning.
Neuroscientific insights on how the human brain deals with rapid change thus help companies to transform themselves not only technologically and economically, but also from the employees’ point of view. After all, rapid changes in environments are nothing new for homo sapiens, but have occurred again and again in the course of evolution and human history. The brain has accordingly developed a set of automatic reaction patterns to deal with such changes efficiently. Greatly simplified, the human brain can be understood as a thinking apparatus consisting of two subsystems: a “slow” and analytical system A, which processes information deeply and carefully in order to make rational decisions, and a “fast” and instinctive system B, which processes information through automatic heuristics, since the cognitive capacities of the human brain are not sufficiently developed to analyze all the information we perceive with the same depth.
These reaction patterns have been built up over dozens of millennia to efficiently react to changes in the environment. However, many of these unconscious reaction patterns are still adapted to the Stone Age environment of humans, not to the – historically very young – life in modern industrial societies. This often leads to irrational decision-making tendencies (so-called “cognitive biases”) as the adaptive and helpful thought mechanisms of the past clash with the modern world. What worked well in the course of evolution may not be what helps us in companies and our modern everyday lives. Psychological research today discovered dozens of such (formerly adaptive) reaction patterns, of which I will discuss three of the most prevalent ones.
Shaped by the dangers of the old world, the human brain developed the rule that it is, on average, better to take no risks than to risk losing something valuable, such as one’s life or resources. Even if there are individual differences in attitudes towards risk, humans are instinctively averse to risks and uncertainties. This heuristic is also reflected in the fact that humans are more focused on avoiding losses than on achieving equivalent gains in their lives – a phenomenon known as loss aversion. The avoidance of potential losses has more weight in our decision-making processes than the achievement of potential gains; by nature, our focus lies on the negative. In the context of digital transformation, one thus often notices how discussions tend to revolve around costs, risks, and concerns, rather than the positive impact that a new training program, a new technology, or a new business model could have. Of course, this does not mean that risks shouldn’t be weighed rationally; the advice of neuroscience is simply not to overestimate them in comparison to the potentially gigantic benefits that a digital transformation can bring. Especially tech companies have thus adapted a culture of “failing fast”, which expresses precisely this mindset: it’s better to take a risk and then learn from the mistakes than miss an opportunity to remain relevant in the market. In this context, employees, managers, and, in particular, C-level executives are required to lead companies away from the status quo with an ambitious, positive, and success-oriented vision of the future. When communicating change within an organization, it is thus also essential whether a change is presented as a risk or as an opportunity to the audience, and even small differences in the formulation of such a message (depending on whether they are framed as an uncertainty, a risk, or a potential benefit) can lead to fundamental differences in the motivational dispositions of organizations due to loss aversion.
Sunk-Cost Fallacy and Hyperbolic Discounting
Derived from loss aversion, yet another cognitive distortion can be observed, namely the sunk-cost fallacy: a tendency in which people regard a solution, project, or course of action as more valuable than it actually is, simply because of the resources they have already invested into it. In other words, people do not want to admit that the resources they have invested in strategy A were wasted, and therefore prefer to continue wasting resources instead of investing them in the correct strategy B. This is particularly true in the digital transformation process, where a large number of outdated systems, processes, and structures have to be reinvented, and through sunk-cost bias, companies thus often get stuck in the status quo. Related to this is also the evolutionary phenomenon of hyperbolic discounting, whereby the brain values short-term (and thus more secure) gains as more valuable than larger gains for which it would have to wait longer; we dislike waiting and prefer the immediate. However, the most successful companies in the world think long-term, accept short-term losses, and celebrate investments, in order to profit from them many times over at a later point in time.
In their interplay, loss aversion, sunk-cost fallacy, and hyperbolic discounting lead to fear of risks, bad investments, and short-term thinking, and digital transformation projects are thus tackled too slowly, too cautiously, too unambitiously, and too focused on the short-term. As a consequence, non-agile companies not only fall further and further behind their competitors, but also lose the motivation and confidence of their employees. Achieving a successful holistic transformation across people, technology, and business is far from trivial and accordingly determines who will become a winner or loser of the digital age. To this end, rethinking business models and established processes is just as important as creating an agile corporate culture and future-proof communication. The influence of cognitive biases on corporate success is rarely immediately apparent, yet they accompany us at every step in our lives. This makes it all the more important to closely involve employees and their unique perspectives and knowledge in the transformation process, and to create a culture in which every good idea counts, regardless from whom it may originate. In the spirit of the future, I have hence encapsulated this mindset in my business slogan: Be Fast, Fail Smart, and Dare to Think Big.
About the Author
Benjamin Bargetzi is an internationally demanded expert on topics surrounding digital transformation, the world of tomorrow, and business applications of psychological science. He works as Senior Key Account Manager for Google, where he oversees digitalization projects and business development partnerships with some of Google’s largest Swiss partners. Previously, he worked for Amazon in Seattle, London and Luxembourg, and managed international digitalization projects to increase the efficiency of Amazon’s pan-European processes. Prior to his entry in the tech industry, he was Senior Strategy Consultant for Europe’s leading future institute 2b AHEAD, and advised major corporations on future-proof business models. He researched and studied the human brain at world-leading universities in Oxford, London, Singapore and Zurich together with international pioneers in the field. As a speaker, he is regularly invited by companies, conferences and universities to talk about success strategies for the digital transformation process, the world in 2035, and the application of neuroscience in business. He is part of Premium Speakers, Europe’s number one keynote speaker programme. As such, he offers keynotes, consultations, and business seminars around the world on the topics of digital transformation and neuroscience in business. For more information, please reach out to Benjamin via his LinkedIn or visit www.benjaminbargetzi.com.