An introduction to behavioral operations management

The Next Matter Team
January 12, 2023
Updated:
7
minutes

Operations and workflow management are only a part of excellent operations. Another part is behavioral operations management, a field of study within operations management that has started to develop over the past decade thanks to the influence of psychology and cognitive behavioral science on operations management (OM). The goal of behavioral operations management is to add personal elements like culture and personal motivation to operational processes to have optimized results for organizations and their teams.

In this article, we’ll give a brief overview of the field and how it has impacted current trends in operations management.

1. The origins of behavioral operations management

The core ideas behind behavioral operations management come from the huge changes made in business studies by behavioral economists like Gary Becker, who wrote The Economic Approach to Human Behavior. In this book, he outlined how behavior is based on both personal experience and rational decisions and combined these two factors with psychology and rational choice theory. The result explained how social factors influence the psychological makeup of a person, and, thus, their rational behavior when making purchasing decisions. Becker won the Nobel Prize in Economics for this groundbreaking theory, and much of his work still influences economics today.

It was through the influence of behavioral economics on organizations and the experience of practicing operations managers that behavioral theories began to fuse with operations management strategy to create the field of behavioral operations management. Before, one of the main problems operations managers had with academia was that most models were oversimplified in terms of human motivation and behavior. 

Still, when the models for behavioral operations management were created, the field was quite new, so there wasn’t a clear definition of what these models should look like or how much cognitive psychology would be involved.

2. The slow development of psychology-influenced management models

Operations management isn’t unique in its development towards more psychology-based theories. It’s actually one of the last fields in business studies to begin adopting a psychological approach. 

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Let’s take a look at another field that has already started to go in this direction: behavioral marketing. Before, when companies wanted to sell something, they would put a sign in their window or in an area where people who normally bought their products would see it and hope  for the best. These decisions were based on intuition and bias, which were often not the best decision for maximizing profit.

Today, thanks to technology and algorithms, most companies are now leveraging customer data to help personalize their ads and eliminate intuition-based decisions. If you’d like to see a personal example of this, go to the homepage of your Amazon account and scroll down to see your recommendations. These were compiled using data on your behavior when using your account. 

An example of a fictional account could be one where someone is being shown water filters and pans after a recent search history that ended without a purchase. Another example might be recommendations for gifts during the holiday season in November and December, and the algorithm knows that this is the time people begin thinking about gifts for loved ones in Western countries. 

If you don’t have an Amazon account, you can try a streaming service like Netflix or Disney+. You’ll see that your homepage is curated with things you’ve searched for and watched in the past. It’s the same with Spotify’s song recommendations. Behavioral marketing paired with our personal data is all around us, and it’s powerful.

3. What is behavioral operations management?

Behavioral operations management is a mix of psychological and sociological approaches to operations management. This includes defining different operations around employee motivations, like cultural and social motivations. Many of the behavioral elements of operations management generally come from the HR or People team in a company because their focus is on behavioral management.

You’re probably familiar with this business practice from satisfaction surveys at work where people can anonymously submit feedback to the company about their work environment and submit requests for things like a better break room or more feedback meetings with a manager. 

Behavioral operations management means taking these behavioral factors and translating them into your operations strategy. While you might have orchestrated operations to a point where everything is moving smoothly, quickly, and efficiently, you might see things pop up in employee satisfaction surveys that say something like, “it would be great to have a team exercise to talk about how we work together, and brainstorm ideas on how each of us approaches this workflow.”

During these team discussions, workflows might change to accommodate employee motivations to improve someone’s work environment. While an operations manager is responsible for excellent and smooth operations, behavioral operations management includes employee satisfaction in this strategy. 

A simple example of this might be adding a gif generator at the end of a process like Tassilo did to help make his children’s morning routines more enjoyable:

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4. How is behavioral operations management different from operations management?

Let’s go back to rational choice theory in economics, which states that every person will make the decision that provides them with the best possible outcome for themselves. This stream of thought also goes well with what we know as the Tragedy of the Commons, where people make the choices that are best for them without thinking about the consequences that choice might have on others (especially with shared resources). 

An example that’s often used is a pool of fish where each person catches more fish than they actually need until the fish are gone instead of only taking what they need to allow the fish to repopulate for the future; the Tragedy of the Commons is also often used to explain how people can make environmentally unfriendly choices, even though it will negatively imact them and others in the future. 

The example helps illustrate how operations management used to be modeled in academic settings before psychology became a cornerstone of business studies. Many academics who studied operations management looked at economic systems and the operations of an organization to decide how these could best be structured without ever looking at the human element of their strategy, and this often meant assuming human beings are rational, which has been proven not to be the case. Because the theories excluded human behavior, many of the proposed operational models were shown to not be a determining factor in an organization’s success in practice. 

Behavioral operations management identifies the additional factors related to human behavior that can help make operational decisions and strategies successful.

5. Understanding behavioral operations management in practice

Let’s take a look at a common operations management strategy: the newsvendor model. The basic idea is that you are a newsvendor and need to purchase newspapers each day from a producer to make the most profit. The model offers a mathematical equation to calculate the number of newspapers someone should buy to have the most profit. 

This model, however, when tested in the real world, ends up with lackluster results. Researchers found that the behavior of people using the newsvendor model deviates significantly from what the model predicts because purchasing behavior is pulled towards average demand and not by optimal purchasing decisions to balance the cost of storage and missing demand. 

For over a decade, researchers have investigated this phenomenon and found that the behavior reaches across disciplines, educational levels, cultures, and geopolitical regions. The one finding that has been clear in this research is that humans are irrational when it comes to predicting demand for products. Irrational demand prediction in humans has been a huge driver in AI-demand forecasting, which can reduce risk by 20% to 50%. 

6. How is behavioral operations management implemented?

When creating workflows and processes for an organization, operations managers can use their experience in the field to see how people are completing the steps in each workflow. By changing instructions or steps to ones needed for correct behavioral responses, like purchasing new products for a store based on longer planning horizons or providing a decision support system, operations managers can help direct people to make the right decisions.

One of the next big challenges that behavioral operations management theory has to tackle is how technology is used for operations management, and how these technologies can be adapted to increase people’s motivation and satisfaction in a role. 

Next Matter is actually one example of this new technological shift. 

7. Behavioral operations management and developing technologies

After the internet and the pandemic both fundamentally changed the way we work, new technologies have stepped in as tools for organizing and managing workers. An easy example of this is creating digital workflows within Next Matter to automate operations processes in a team.

That means if a customer is submitting an insurance claim, they’ll get an automated link to a Next Matter form that they can fill out with all of the required information for that claim. The claims team will be notified and make sure that all information is correct before automatically sending it back into their CRM tool with Next Matter. 

Now, imagine this on a much larger scale, where all integrations, all teams, and all repetitive processes are run and triggered on autopilot. 

Welcome to Next Matter. We’d love to demonstrate how much faster your processes can be when automated, so let us know what they are by booking a demo.

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About the author
Our editorial team brings together no-code hackers, ex-management consultants, and business process experts. They share a passion for enhancing customer experience and operational excellence.

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