Gal Horvitz, CEO of PNMsoft, uses Nobel Prize winner Daniel Kahneman’s research on Prospect Theory to explain what causes people’s aversion to Change, its relevance to Business Process Management, and the philosophy behind PNMsoft’s intelligent BPM Suite.
I’m sure some of you are familiar with Prospect Theory by the Nobel Prize winner Daniel Kahneman and the profound implications of his work on economics. Prospect Theory is a behavioural economic theory that describes the way people choose between probabilistic alternatives that involve risk. Kahneman proved that people are mostly risk averse and yet in some scenarios they become risk seekers.
For example, he showed that for most people, if given the opportunity to choose between the options:
(a) win $9,000
(b) get a 95% chance to win $10,000 (and 5% chance to win nothing)
most people will prefer the sure thing and choose option (a), hence being risk averse.
On the other hand, the same people faced with the options:
(a) lose $9,000
(b) get a 95% chance to lose $10,000 (and 5% chance to lose nothing)
will suddenly become risk seekers and will choose option (b).
In both these examples, the more rational behaviour if calculated mathematically is to choose (b) in the first scenario and (a) in the second one! And yet usually people don’t follow these rational calculations.
Kahneman also proved that people’s decisions change according to their reference point. People don’t want to change, but once they make a change they don’t want to go back (to revert to their original position).
For example, every person has his own curve of Salary/Holiday days. You may settle for less holiday days for a better salary, and you may be willing to give up a potential raise if instead you get many more holiday days to enjoy with your family. Let’s assume you can choose between two options that are equally good for your personal preferences:
- Get a raise of $X
- Get an extra Y holiday days per year
Assuming that both options are equally good for you, you flip a coin and choose one. Let’s say based on this random decision you decided to choose a raise. A year passes and now you get an option to change your mind. Would you do it? Are you willing now to decrease your salary in return for more holiday days? That’s hard, as you and your family have adjusted to a higher income. And what if you had chosen a year ago to get the extra holiday days, would you be willing to change it now? You and your family are now used to a long holiday together, are you willing to give it up for more money?
What happened is that once the reference point has changed, most people would not want to go back and will choose the status quo. People don’t like to change, but once making a change they equally don’t like to change back…
Furthermore, as Kahneman describes, when evaluating a potential change, the majority of people will give more weight to the disadvantages of this change. To support a change, people need to be provided with many advantages and need to be moved to a new reference point.
Implications for Big Change and BPM
I found Kahneman’s work very intriguing in relation to my field of expertise, BPM. Why? I realized that his findings about human nature and behaviour clashed directly with what I knew to be the key to an organization’s success: The ability to change. Charles Darwin’s famous theory about the survival of the fittest, or more precisely, those that are most adaptable to change, supports the need to change, both for individuals and (in my humble opinion) organizations.
Big Change, according to Gartner, is what an organization needs to achieve in today’s rapidly changing world, in order to survive and stay competitive. Gartner, in April 2014, said: “Big Change involves significantly altering ongoing operations in a high risk environment characterized by elevated volatility, ambiguity, disparity/diversity and novelty/scope… At Gartner we call this “BPM Shift” and it is part of our emerging Business Transformation agenda.”
But if people are resistant to change, how could can they achieve Big Change?
Breaking the Psychological Barrier
We spent a lot of time at PNMsoft studying human behaviour when it comes to adapting new technology and deploying projects. We analyzed many projects, read a lot of research, discussed with experts and analysts, and spent countless hours debating and brainstorming. All of that led us to plan the next generation of SeQuence, our iBPMS suite. Our challenge: to create a new technology that takes into account the human nature of resisting change. Our solution to this uniquely psychological dilemma is HotChange®. HotChange® is both a technology and a philosophy that guides everything we do.
HotChange®, in a nutshell, means giving business and IT people the ability to change business process applications in the shortest time possible, without any downtime, as end users continue to operate processes in production.
First revealed in 2012, HotChange® has changed every single feature of our product. Now in its second generation, HotChange® drives our massive annual growth. HotChange® enables teams to make small, frequent, incremental changes, without any loss of uptime or performance. It reduces people’s resistance to change by giving them the option to always rollback. It puts control over change in the hands of the business stakeholder, and provides quick visual feedback. Any change, at any time, by anyone with sufficient permissions, is now possible.
“Small Steps, Big Change”™
So how does HotChange® answer the challenge of Prospect Theory? Simple. It leads people toward Big Changes in small frequent steps. People may be nervous about Big Change, even though it can mean a turn-around for their business. But if they are led toward this change in small incremental improvements, each one achieving a realistic, concrete goal, that in itself can break their innate resistance to change. As demonstrated above, once they take a (small) step and make a change, most likely they will not go back.
The HotChange® approach can be summarized as follows:
- Change people’s reference point with incremental changes and using “prototypes”.
- Allow moving back to previous versions to mitigate risk aversion.
- Create significant potential return by achieving Big Change, for a series of very modest risks (changes).
- Use Agile project methodology.
- Be mindful that Big Change is the target. SeQuence, powered by HotChange® is how to get there, gradually, with human nature in mind.
To sum up, I believe that Big Change is what organizations should aim for, and that HotChange® is the best way for them to get there, in frequent, small steps.
So what should be your next steps?
- Contact PNMsoft and ask for a workshop to experience our innovative technology and methodology.
- Go Agile, go light on documentation. Get business and IT in one room together to rapidly create working prototypes of business process applications using Cora SeQuence with its HotChange® technology. Let them use it for few days and come back with changes. Make these changes and let them use it more. Soon enough, you will get something that they agree can do the job. An application has been created and you are well into your BPM journey.
- I highly recommend taking a deep dive into Kahneman’s work. He wrote books that are considered masterpieces in his field. For me, reading his work is like viewing an X-Ray of our brain. Kahneman’s work can help you understand what’s going on in there and why we behave the way we do.
Gal Horvitz, PNMsoft CEO