How to Thrive in Digital Transformation: Think Fast and Slow

I am not rational.

At least not all the time. And neither are you.

As human beings, we’re hardwired to assess situations and draw conclusions based on instincts and emotional reactions. This is what’s enabled us to survive threats from predators, wars, and other dangers throughout our history.

But as we all know, in the modern world, and particularly in the context of business, relying on intuition and emotions alone will not lead us to success. Instead, it will drive us to irrational behavior and errant decisions.

Like I said, I’m not rational all the time. Neither are you, and neither are your employees. No one is.

Understanding this is fundamental to leading successful organizational change. Once you get how people think, assess situations, and make decisions, you’ll be in a position where you can actually drive change forward.

The human side of leading digital change

Digital transformation is at the top of most leaders’ agendas today. Unfortunately, it’s proved to be one of the most challenging initiatives to execute.

We’re all familiar with the dreary success rates. The vast majority of digital transformations fail. Coming up with a solid digital strategy isn’t the hard part.

Most efforts fall flat because managing the human element of change is extremely complicated.

If you can’t relate to your employees, understand their concerns, and importantly, how they interpret the changes around them, I guarantee your digital transformation will get swallowed up by resistance.

Discover how to use behavioral economics to drive successful digital transformation in this free guide.

Before diving in, understand how your employees think

I recently read Daniel Kahneman’s book Thinking Fast and Slow, which I believe every change leader should study. In the book, Kahneman, a renowned pioneer of behavioral economics, summarizes his lifetime of research of the field.

Thinking Fast and Slow explains the two main systems of thought that drive human reasoning and decision making.

System 1 is fast thinking. It’s automatic, instinctive, relatively unconscious, and powered by emotions. System 1 is the thinking that tells you one object is closer to you than another, that 2+2=4, or that the sound of a gunshot signals danger.

System 2 is slow thinking. It’s deliberate, logical, and conscious. System 2 enables you to focus on one person’s voice during a conversation at a loud party, decide what type of behavior is appropriate in social settings, or determine how much to pay for a new microwave.

Here’s the point

Kahneman proposes that usually, System 1 runs automatically at the forefront while System 2 operates in a relaxed mode in the background. When a situation is too complex, System 2 steps in to process and interpret the information.

In other words, System 2 functions as a lazy supervisor, whose main function is to monitor and correct the thoughts and actions first proposed by System 1.

Sounds like a decent system, right? The problem is it doesn’t always work like this.

Often, we let System 1 do all the work. But without the slower, more deliberate thought processes, we end up resorting to biases and heuristics that lead us to draw wrong conclusions and make bad decisions.

System 1 thinking is stifling your digital transformation

Everyone knows that resistance to change is powerful enough to completely derail your digital transformation. But understanding what contributes to this resistance is more complicated.

Fear of the unfamiliar, fear of incompetence, fear of failure, fear of losing status — all of these fears fuel resistance. But let’s dig even deeper. Now that we know the two main systems of thought, it’s easier to understand which cognitive processes lead to these (often irrational) fears.

According to Kahneman, thinking fast contributes to perceptions and decisions based on biases and fallacies. Instead of processing information slowly and deliberately, we automatically draw conclusions based on mental shortcuts and heuristics that are readily available to us.

So, when you tell your employees change is coming, System 1 is already in high gear. It’s automatically processing the information you provide and suggesting conclusions (fear and anxiety).

Here are a few examples.

Availability heuristic

This is when people judge how likely it is something will occur based on how easily a similar example comes to mind.

For example, if in the last six months you saw three plane crashes in the news, you might become really stressed when boarding your next flight. Even though the actual chance of your plane crashing is close to zero, the fact that you can easily draw up memories of other crashes makes it seem more likely.

The availability heuristic is a major contributor to employee resistance during organizational change. Let’s say Kevin, a new employee, was laid off from his previous company after a failed organization-wide digital transformation led to downsizing. This negative memory is fresh in Kevin’s mind, so when you announce your company will be pursuing digital change, he’s instantly resistant.

Kevin’s automatic fear of the proposed change is System 1 at work. But if he thought about it more closely, he could realize that this is a new company with different leadership, a different strategy, and different ways of doing things. Just because his last company’s failure ended up causing him distress doesn’t mean it will happen again. On the contrary, this digital transformation could be an opportunity for him to gain new skills and opportunities to boost his career.

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Anchoring

Anchoring is an effect of priming. It’s when the first number you are exposed to serves as a reference point and influences later judgment.

If you are going to buy a microwave and the first one you see is $79, would you be willing to buy one for $85? Probably. What about $95? Yes, but you’d expect it to be much higher quality. But what if the first microwave you saw at the store cost $199? Now, this number is your new reference point. Subsequently, you might be willing to spend $210 or $220, by the same logic.

In digital transformation, the order that you present information to employees has a serious influence on whether they will embrace or reject the proposed change. Say you present a study that 91% of sales teams that use this new CRM bring in an average of $1.5 million more a year. I’m sure your sales team will be more than willing to make the change. But if the first piece of information they hear is that transitioning between CRMs demands four extra hours of work a week, they won’t be happy.

Loss aversion

The theory of loss aversion states that the pain of losing is twice as powerful as the joy of gaining.

Loss aversion has a profound effect on people’s behavior. It’s why people are more willing to take risks, be dishonest, or engage in reckless behavior in order to avoid a loss than to gain something. It’s why someone who’s already lost $1,000 gambling wants to keep trying to make it back, rather than cut his losses.

Imagine that, after analyzing how your HCM was performing, your leadership team comes to the conclusion that it isn’t working. There’s poor usability, it doesn’t offer all of the features you need, and the interface is too complex. But, your VP of HR, who spearheaded the implementation, doesn’t want to give it up. They invested a lot of time researching, meeting with the vendor, and creating a plan to implement the HCM, and it’s only been one year.

Instead of cutting their losses and understanding the need to invest in something better, they want to hold on. Again, if System 2 took control, they could see the fallacy of clinging to a bad investment.

Steer your employees toward data-driven decisions

Once you understand how people think and which biases influence their behavior, you can be more deliberate about how you lead change. System 1 thinking is automatic, so expect it. This is what

System 2 thinking is analytical, deliberate and data-driven. An effective change leader brings this mode of thinking to the forefront by empowering employees to ask the hard questions, demand answers, and make decisions based on facts.

“Thinking slow” doesn’t mean slowing down. It means interpreting situations and making decisions based on data. It means relying on careful analysis and conscious thought, not gut instincts.

Now it’s time to put this in practice. The information you provide your workforce should include real data, not biases or feelings. Ensure every meeting is planned thoughtfully, present the right data, and promote transparency.

When you give employees access to the information that’s driving your digital transformation efforts, you’re equipping them to think with System 2. You’re exposing the fallacies that fuel their resistance, and showing them opportunities for exciting change.

That’s how you thrive in digital transformation.