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Nudge Theory
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Topic Covered: Nudge Theory
Nudge theory was originally developed in the 21st century by American behavioural
economists Richard Thaler and Cass Sunstein and they presented this theory in the renowned
book ‘Nudge – Improving Decisions about Health, Wealth and Happiness which was published
in 2008.
A nudge refers to the principle that small actions can influence the choice of people, or the
way people behave. It focuses on engaging people by knowing how people make choices or
make decisions.
The nudge theory encourages indirect techniques to influence behaviour instead of giving
direct instructions.
For example, instead of saying that monitoring diabetes is essential, the availability and
accessibility of glucometers can be improved which will positively influence human behaviour.

How can Nudge Theory be Helpful in Leading Change in an Organization?

As the Nudge theory's central idea is to indirectly influence individuals without taking
freedom of choice.
It discourages any change in the behaviour of employees by following strict orders and
directions.
It is about giving choices and through providing enabling environment and encouragement
there will be a change in the behaviour of employees.
It is not an easy process, and it starts with analysing the current behaviour of employees and
what are the desired changes in their behaviour.

Following are the three actions which are necessary to lead change in an
organization:

1. Perception Nudges

• These are actions which play around perceptions of organisational behaviour.

• Individuals have different perceptions of different situations. So, it is important

to understand employees’ perceptions of the desired change.
Nudge-Theory-Management-Notes Free RBI Gr. B e-book

• This will also give an idea that what are impediments to change and how these
can be overcome by influencing the perception of employees.

2. Motivation Nudges

• These are actions which are needed to make employees care about a change.

• There are many forms of motivational nudges and organizations can take
examples of another individual’s example to show others that it is the best
behaviour, and it fits the idea of change.

3. Ability and Simplicity Nudge

• When change is hard and complex, and employees feel it is difficult to adopt
changes then simple nudges are needed by the organization.

• These simple and tiny actions will improve employees’ ability to adapt to
change.

Key Steps in Nudging for Implementing Change

Step-1: Defining Change
It is like knowing your destination.
If the desired change is clearly defined and articulated among the employees, then it is more
likely that it will be successfully achieved.

Step-2: Stakeholder Analysis

It is also necessary to have an analysis of how the change will be perceived by all stakeholders
and how the expected change is going to affect all of these stakeholders.
This analysis will provide with change leaders more clarity and a better strategy to implement
change.

Step-3: Timeline
Making a rational plan to implement a change is also a part of the nudging process.
It will also help in identifying what resources will be needed and when these resources will be
required to execute the change.
Nudge-Theory-Management-Notes Free RBI Gr. B e-book

Step-4: Inclusive Decision Making

It is also an essential part of the nudging process that those who matter most and those who
are affected by the desired change should be involved in the decision-making process.

Step-5: Receptive to Feedback

Listening to feedback is a powerful nudging technique.
Whether the feedback is coming from employees, or it is from customers, it is important to
be open about feedback and learn from it.

Step-6: Remove Bottlenecks

The road of change is full of thorns.
The role of change leaders and management is to remove bottlenecks on the way to change.
By doing this, change leaders will get support from the employees and all other important
stakeholders.

Step-7: Consistency
Patience is needed to implement change.
The change leaders need to keep the morale of the team, high and keep moving consistently.
Teams should not show complacency on initial wins and the real goal should remain in focus
till it is achieved.

Take Home Points

Nudge Theory explains how to influence human behaviour in a subtle way to enforce change.
It is about taking small actions which indirectly human behaviour towards change. It calls for
influencing choice without taking the power of choice from individuals.

There are different nudges which can be taken at the organisational level:
a) Perception Nudge
b) Motivation Nudge; and
c) Ability and Simplicity Nudge.
Nudge-Theory-Management-Notes Free RBI Gr. B e-book

There are Various Nudging Techniques, but these Seven Steps are Popular:
1) Define change
2) Analyse stakeholders
3) Work plan and timelines
4) Inclusive decision making
5) Receptive to feedback
6) Remove bottlenecks
7) Consistency.

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Nudge-Theory-Management-Notes Free RBI Gr. B e-book

Examples of how a Nudge might replace enforcement might be:

• Instead of putting up “no littering” signs, and threatening to fine people, an authority
places more litter bins in prominent and accessible places.

• Rather than instructing people, governments try to educate and inform them about
say, better lifestyle choices.

• For the government to improve home energy efficiency, they might show people how
much less their neighbours spent on gas and electricity than they did, rather than
badgering them about saving energy

• Teachers and parents discuss issues with people rather than talking down to them.

• Governments try to embarrass tax evaders into paying taxes by telling them what
percentage of the population pays them voluntarily, rather than pursuing them for
unpaid taxes.

The Importance of Nudge Theory at Work

Healthy nudges can be applied to any aspect of our lives—educational institutes, government
policies or workplace environments.
Many organizations have started to realize the growing importance and relationship between
happier employees and improved productivity.
Employee behaviour can be improved through nudge theory.
Here are various examples of nudge theory that highlight its importance in management:

1. Reduce Meeting Time

• It’s no secret that in a majority of meetings, plenty of time is spent on sharing

information.

• But this doesn’t affect action. Managers can solve this challenge by reducing
the time allocated for meetings.

• This encourages people to spend less time discussing data or sharing

information.
Nudge-Theory-Management-Notes Free RBI Gr. B e-book

2. Workout at Work

• Organizations should prioritize employee well-being.

• An effective way of doing this is designing the office so that healthier options
are more dominant.

• For example, several offices have staircases placed in prominent locations

while elevators are hardly visible. Such a prompt is likely to encourage
individuals to take the stairs and practice healthy lifestyle choices.

3. Minimize Waste

• To foster healthy habits, several organizations have reduced the number of

waste bins available on every floor.

• Fewer waste bins across the corners of the office will discourage employees
from generating more waste such as unwanted printouts and papers.

• The distance between their workstations and the waste bin will make a huge
difference.

Therefore, the nudge theory helps employees realize the importance of addressing a
challenge and encourages them to choose a solution.
It’s highly effective for change management and employees are more likely to embrace
change when they have the power of choice.

Implementing Change through Nudge Management

If you think about rolling out a nudge strategy, consider the following steps:
1. The first step is to define the change that’s needed and talk to employees about it. If
they are on the same page, it’s easier to avoid any conflicts or fallout.

2. Conduct a stakeholder analysis and check how the change will affect everyone
involved. It’ll provide you with clarity and direction to improve your strategy if needed.

3. Nudge theory in management is only effective when it’s supported by a rational plan.
Identify what resources will be needed, including the time to make and adjust to
changes.
Nudge-Theory-Management-Notes Free RBI Gr. B e-book

4. Once your change management plan is in action, be open to feedback—it’s a powerful

nudging technique. Understand what your employees are or aren’t happy with.

5. Most importantly, you need to be patient while implementing change. There will be
highs and lows and you’ll need to power through all of them. Stay focused on your
end goal and be prepared for bottlenecks, if any.

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