I’ve had my share of reading in the past 20 years, but I must say that the last book I read quickly made its way into my top five. Predictably Irrational, by Dan Ariely can be revealing in understanding why we sometimes choose some things over others, and why some of the decisions we make may not be the most logical ones, despite what we feel in that moment. It did ring some bells in my case. I think this book has great teachings that can be beneficial for us as individuals, but also for the companies, if correctly applied. One of the theories that I agree with, and that I would like to share with you, is related to the power of social norms.
According to the theory, our existence is split between two very different worlds: one where we behave based on social norms, and the other where we follow the rules imposed by market norms.
The things we benevolently do for our friends and family are governed by specific social norms; it is by these unwritten laws why we volunteer to help others, for example cooking a nice meal or helping our friend’s child with the math lessons. These norms are warm and social by nature, meaning we are not waiting for instant payback or any financial reward.
The market norms, on the other hand are very straightforward, with clear, harsh exchange rules based on money. There is nothing heartwarming in going to the store to buy bread. This does not mean that these norms should have a negative connotation attached, as sometimes these are easier to apply: you receive what you pay for.
Dan Ariely describes several experiments in his book that all lead to the same conclusion: People react better and are more productive under the influence of the social norms. “People will work more for a cause than for cash”.
You can also experiment this: ask someone to do something with a financial reward attached, and someone else to do the same thing as a favor to you. For example, helping you clean your house. You might be surprised of the attention and energy the “volunteer” will put into this activity, compared to someone you pay to do this. One advice though, don’t make a habit out of asking your friends to help cleaning… You could be running out of friends sooner than you think.
While reading this book, I remembered that during college, I used to teach French to a few students to make some extra money. In time, I became fond of one of the students and we actually became friends. That was the moment I started to feel ashamed for taking her money and I couldn’t do that anymore. I did not realize until I read this book that the norms had changed. We had moved from market norms to social norms. First bell.
There are many other examples that prove the social norm theory, like asking a lawyer to offer his services at a 50% discounted rate, versus asking the same lawyer to offer his services for free to help someone in need. That lawyer is more likely to provide the services for free than at discounted price. The explanation is that when someone mentions “a discount”, our mind starts using market norms and calculates if the discounted price would be still suitable, related to our market salary. When money is not mentioned, we tend to function using social norms, that dictate us to be “nice”. Did you ever think why so many good friends end up fighting when together in a business or when it comes to borrowing money? Right. Social norms are replaced by market norms and introducing market norms into social exchanges will be damaging for the relationship. Second bell.
Now, how could companies apply this theory for their benefit?
Most of the companies that treat customers socially have really loyal customers and the small mistakes from the company are accommodated easily. If the company and the customer are “family”, the customer is more likely to accept a small increase in pricing or in fees. However, in order to maintain this relationship, the customer service offered by the company must be very personal. For example, if a customer is late with a payment, he should receive a friendly call from a CS agent with a kind reminder for the due payment. That’s all. It is not advisable for the company to charge penalties, as that would bring market norms on the table and thus leave the social exchange behind.
The story with the employees is a bit more complicated. Everything related to employment used to be market driven a few years back, when it was a seven-to-three or eight-to-four mentality for the employees (that’s the generation of our parents). The 40 hours per week mindset implied that you would do what is asked of you for 40 hours and then receive a weekly or monthly paycheck, the financial reward. All job related issues were forgotten and ignored after 4 PM. For a while this worked very well for both sides.
Today, companies focus on creating a social exchange with their employees. This can be due to the fact that technology has replaced a lot of the repetitive activities and there is more emphasis on creativity and energy now. For most employees, there is an undefined line between work and leisure time, as they take home their laptops, mobile phones and some need to be available even when out of the office. This is where social norms become an advantage for the companies, as employees become passionate about their jobs, flexible with their schedules and concerned about the company’s success. Dan Ariely calls this working model a “24/7 work environment”, which is something many of us identify with, myself included. Third bell.
Social norms are one of the best ways to make workers loyal, as well as motivated, and thus to boost the company’s productivity. This may seem like an easy task but the truth is that it requires consistency across all the interactions with the employees. If your team works hard and overtime to meet an important deadline, often affecting their personal agendas, they should get something similar in return. It’s a two-way conversation if I may put it like this. The employees need to feel respected and listened to, need to feel part of the success, and more importantly, they need to feel appreciated and confident that the company will help them in case of need. After all, this is what “family” is for.
Companies have started to create the social exchange by offering their employees comprehensive medical coverage or shares in the firm case of a public company. Nowadays this is not enough anymore, so we need to think smarter. There are many other ways for a company to socially connect to its staff, and most of them are free or at least cheaper than cash bonuses. Do not get me wrong, no one is going to work for a handshake. But when money is off the table, it is amazing how much people are willing to offer in return for recognition, respect and feeling part of something bigger that themselves.
I will close here with a quote from this amazing book. “If corporations started thinking in terms of social norms, they would realize that these norms build loyalty and – more important – make people want to extend themselves to the degree that corporations need today: to be flexible, concerned, and willing to pitch in. That’s what a social relationship delivers.”
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