Benjamin Bargetzi: The World of Tomorrow – Digitization meets Neuroscience
The pandemic has fundamentally changed the functionality of companies and the nature of human collaboration. But what impact does the digitalization push have on individual brains, such as those of managers and employees? Benjamin Bargetzi, an internationally sought-after expert on the intersection of digitization and neuroscience, on the big trends.
In business managements around the world, digitization checklists are recurrently discussed and need to be checked off. But digitization does not simply mean setting up a new CRM, a cloud or an online store and then putting the issue to rest. On the contrary, a serious digital transformation is a never-ending iterative process, because transforming means growing side by side with the changes in the world. This is only possible if a bridge is built between the technology, business and people factors and a fundamental shift takes place across business models, corporate vision, leadership styles, marketing & sales, HR and day-to-day. Neglecting any of these three factors inevitably leads to process inefficiencies in the day-to-day operations of the business, missed strategic opportunities, and competitive disadvantages.
However, the human factor in particular is not properly planned for in many transformation processes, resulting in a lack of training, faulty and demotivating communication, and the neglect of employees during transformation planning.
Neuroscientific findings on how the human brain deals with rapid changes help to understand how to lead a company successfully into the future, not only on a technological and economic level, but also from the perspective of the employees. After all, rapid changes in human life are nothing new, but have occurred again and again in the course of evolution. The human brain has accordingly developed a contingent of automatic reaction patterns to deal with such change.
Simplified strongly, the human brain can thus be understood as a thinking apparatus, which consists of two subsystems: a “slow” and analytical system A, which processes information thoroughly in order to make rational decisions, and a “fast” and instinctive system B, which interprets information via automatic heuristics, since human cognitive capacities are not sophisticated enough to analyze all the information we perceive with equal depth. These response patterns have built up over millennia to efficiently respond to changes in the environment.
Many of these unconscious reaction patterns, however, are still adapted to the Stone Age life of humans and not to the – historically very recent – life in modern industrial societies. This creates room for often irrational decision-making tendencies (so-called cognitive biases), which have often helped the human species in the course of evolution, but can lead to serious disadvantages in companies and in our everyday lives. Today, psychological science is aware of dozens of such (formerly adaptive) reaction patterns, of which three of the most prevalent will first be presented below.
Loss Aversion
Influenced by the dangers of the Stone Age world, the pattern has become ingrained in the human brain that, on average, we would rather not take any risks than risk something. Even if there are individual differences, humans are fundamentally averse to accepting risks and uncertainties. This heuristic is also reflected in the fact that humans are more focused on avoiding losses than on making equivalent gains – a phenomenon known as loss aversion. Avoiding potential losses thus has a stronger weight in our decision-making processes than obtaining potential gains:
«The human focus is inherently more on the negative.»
Benjamin Bargetzi
Accordingly, in the context of digital transformation, one often notices how discussions tend to revolve around costs, risks and concerns rather than what positive impact a new training program, a new technology or a new business strategy could have. Of course, this does not mean that risks should not be weighed rationally – the advice from neuroscience is simply not to overestimate them in comparison to the potentially gigantic benefits that digital transformation can bring.
The credo of the big tech companies is accordingly “Fail Fast, Fail Smart” and expresses precisely this mindset: It is better to take a risk and then learn from the mistakes than to miss the opportunity to remain relevant in the market. Here, executives in particular are held accountable for leading away from the status quo with an ambitious, positive, and success-oriented picture of the future. At the communicative level, too, it is correspondingly essential whether a change is presented as a risk or as an opportunity, and even small differences in the ways these facts are formulated can lead to fundamental differences in motivation in companies due to loss aversion.
Sunk-Cost Fallacy and Hyperbolic Discounting
Building on loss aversion, the sunk cost fallacy also arises, in which people view an existing solution as more valuable than it actually is because of the resources they have already invested.
People do not want to admit that previously invested resources in a strategy A were wasted, and therefore prefer to continue wasting resources instead of investing them in the corrected strategy B. Especially in the digital transformation process, where a multitude of old systems, processes and structures have to be reinvented, this fallacy often leads to companies getting stuck in the status quo.
Related to this is also the evolutionary phenomenon of hyperbolic discounting (mutatis mutandis: temporal devaluation), through which the brain values short-term and thus more secure gains as more valuable than larger gains for which it would have to wait longer. However, the world’s most successful companies think longer-term and accept short-term losses and investments in order to be able to profit from them many times later and thus position themselves further on the market. «It is important to closely involve employees in the transformation process.»
Konklusion
In their interplay, loss aversion, sunk-cost fallacy and hyperbolic discounting lead to risk aversion, bad investments and short-term thinking, as a result of which the digitization process is approached too slowly, too cautiously, with too little ambition and in too short a time frame. Nonagile companies thus not only fall further and further behind their competitors, but also lose the motivation and confidence of their employees. The solution approaches for a holistic transformation across people, technology and business are not trivial and accordingly determine the difference between winners and losers of digitization.
Rethinking business models and work processes is just as important as creating an agile corporate culture and future-proof communication. The influences of cognitive biases on corporate success are rarely immediately apparent, yet they accompany people at every turn. This makes it all the more important to closely involve employees in the transformation process and to create a culture in which every good idea counts, regardless of who it comes from.
In the sense of the future: Be Fast, Fail Smart and Dare to Think Big.