384. The Hidden Tax of Sludge in Business (Refreshed Episode)

Welcome to episode 384 of the Brainy Business Understanding the Psychology of why People Buy Today's episode is all about Sludge. Ready? Let's get started.

You are listening to the Brainy Business Podcast where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now, here's your host, Melina Palmer.

Hello hello everyone. My name is Melina Palmer and I want to welcome you to the Brainy Business Podcast. Today's episode is all about the gunk that slows us down. Some call it friction, and there are a few books with titles that include that, including this upcoming Friday's guest, Huggy Rao, who's here to discuss his new book, the Friction Project, which he co wrote with Robert Sutton. Or in this case, we're going to be digging into Cass Sunstein's delightful book so Sludge, which shows how the opposite of a nudge can work for or against you in life and business. This episode originally aired in November of 2021, far before I got to meet Cass and have him on the show. That episode aired just a few weeks ago and is of course linked for you in the show notes. As mentioned, I refreshed this one this week because of the upcoming conversation about the Friction Project. It felt like the perfect time to start thinking about all that unnecessary stu, the sludge that keeps things from getting done. Do you have a particularly sludgy project or process at work? Make a note of it as you learn about Sludge today so you can learn some of the tips for how to remove it when Huggy is here in a couple of days, as well as when you might want to be including Sludge when you want to add it because it's not always bad, so maybe there are times we're actually slowing something down. If you is better. Don't forget there are links for everything, including my top recommended past episodes, books like Sludge and articles all waiting for you in the show Notes for this episode, which are found within the app you're listening to and@the brainybusiness.com 384 all right, let's talk about sludge. Let's kick things off with a reminder of nudging. I want to give a little refresher before we get too deep into sludge. We like to think that we would make the same best choices for ourselves regardless of how the information is presented to us, but that simply isn't how it works. Context and the way choices are presented make a huge difference in what we find to be most appealing. When the choices are presented in a different order, we might choose something else entirely. This is known as choice architecture. Whether you think about it or not, you're influencing the choices that others make all the time. You are a choice architect. Whatever your job or experience in your personal and professional life, you are constantly presenting choices and the way you present them influences how the chooser decides and what they pick. In my opinion, it is best to be thoughtful of that to know how you might be inadvertently impacting the decision someone made makes so you can help them to make their own best choice. And if you're in business ensuring that that lines up with what's best for your business. So you are nudging toward and creating profitable products that align with what people are going to want and putting all your eggs in that best choice basket. Concepts of behavioral economics can be used to accomplish this, and when you use a tactic to influence choice, we typically call that a nudge. Nudges is a mnemonic device for the six areas of nudging incentives, understanding, mapping defaults, give feedback, expect error, and structure complex choices. Again, I am not going to get into all that today, as there's a full series on the podcast already, which starts with episode 35. I do want to note though, that nudges are dependent upon having free choice. If you remove choice from the equation, say with a regulation or by banning something, you're no longer working in nudges and are outside of behavioral economics. One famous example of nudging is of how food is presented in a cafeteria. Putting the desserts at the front of the line makes it 25% more likely they will be chosen, while at the back of the line or in a completely different line will make them 25% less likely to be chosen. And whatever's at eye level, whether it's french fries or carrot sticks, is more likely to be chosen. All the options are still there, but the order in which you see them impacts your choice. Those who still want dessert can get it easily, but people tend to make healthier choices when healthy options are presented first, so this can be a valuable nudge to people in the cafeteria. So now that you've had a little refresher or introduction to nudges, what the heck is sludge? I'm going to read a bit from the introduction to Sunstein's book, as he explains it much better than anyone else could because he, you know, literally wrote the book about it. So here we go. Sludge comes from private and public institutions it comes from small companies and from large ones. It comes from national governments and from state and local authorities. It comes from the United nations, the European Commission, and the World Bank. Lawyers impose sludge. So do courts. So do doctors and hospitals. Banks certainly impose sludge. Although the problem of sludge is worse in some countries than others, it can be found in every nation on the planet. And while my focus is on the United States, the basic lessons are much broader. Sludge is built into the human condition, and we need to start to remove it piece by piece. In many cases, sludge imposes economic harm. In other cases, it damages public health. In the worst cases, it kills every day. It impairs education. Often it deprives people of educational opportunity and it cripples economic growth. It decreases employment and stifles entrepreneurship and innovation. It hurts patients, parents, teachers, doctors, nurses, employees, customers, investors, and developers. It compromises fundamental rights, including the right to vote and the right to be free from discrimination on the basis of race and sex. It is a pervasive source of inequality. Sludge can also be an assault on human dignity. Confronting sludge and having to find a way to overcome it can create a sense of humiliation. Kafka captures that. His novels depict a world in which people cannot navigate life or escape their predicament because of that viscous mixture. If sludge stops you from voting or from getting some kind of license, you might feel as if you do not count. People without much money struggle with sludge. It hurts all of us. But if you are sick, old, disabled, or poor, or if you don't have a lot of education, Sludge is a curse. In 2020, the city of West Sacramento, California, took a small step toward breaking the curse. It automatically admitted every high school student in the area to college and also offered a scholarship award of $200. As Mayor Christopher Kabandon put it, imagine no one in your family has ever gone to college, and you open up an envelope with a letter of admission and a scholarship award. He added that the new effort will make it just as simple to go from high school to college as it is to go from kindergarten to first grade. As we shall see, the idea of automatic admission grows directly out of behavioral science. Even a little sludge in the form of an application process can have large effects. There's every reason to think that taking away the sludge will help a lot of high schoolers to end up in college. More officials should be doing that. Sludge is everywhere in our lives. For a glimpse, consider the following 1 Poor students are entitled to financial aid for college. To obtain that aid, they have to fill out a form. It has dozens of questions, and many students find it challenging to answer some of them. As a result, they decide not to apply for aid at all. 2. To obtain benefits under a health care law, people must navigate a complicated website. A lot of them do not understand the questions that they're being asked. For many people, the application takes a long time. Some of them give up. 3. To register a complaint about defective products, consumers are required to go through a time consuming process. The necessary forms call for detailed information about where the product was originally purchased and how it was used. Some consumers do not have easy access to that information. Others fear that their privacy might be invaded. Many of them decide not to fill out the forms at all. 4. To vote, many citizens of Georgia have to wait in a long line. Sometimes the wait takes four hours or more. A number of people cannot spare that time. A number of others think that it's too unpleasant. Some of them do not go to the polls at all. Others leave after an hour. 5. A cell phone company markets some of its products with mail. In rebates on some products, consumers are entitled to a rebate of $200. The company is well aware that many consumers will be excited about the potential rebate, but they fail to mail in the forms. 6. To fix a broken laptop, consumers have to make a telephone call to a customer service representative and then make an appointment once they arrive at the relevant stores. Waiting times are often long. They can be up to two hours and seven. A professor is asked to review an academic article for a journal. To do so, she must register at the journal's website. Registration is confusing and complicated. As a result, she declines to review the article. Some of these cases are trivial, others are not. All of them involve sludge. And if you've ever tried to get a license from public officials or some kind of permit, you have encountered it. To get a driver's license, you have to go through sludge. Sometimes there's only a little of it. Sometimes there's a lot. But what exactly does the term encompass? If sludge is understood to consist of frictions that separate people from what they want to get, the concept is not entirely mysterious. Much sludge involves waiting time in person, on the phone, even online. Much of it involves reporting burdens, as when people are required to fill out weekly reports explaining what they've been doing with their lives. Much of it consists of dreary or duplicative application requirements, including time spent online, which might be required if people are seeking to obtain money, medical care, a job, a visa, a permit, or some kind of life saving help. Much of it involves travel, as when people need to show up somewhere for an in person interview. Much sludge involves confusing administrative burdens, requiring people to obtain information, to figure out whom to call to find out exactly what they're supposed to do. Much of it involves clearance processes familiar with in government, as when 10 people must sign off on some document or initiative and also in the private sector, as at private universities and hospitals, training requirements imposed for example on doctors, nurses, pilots, truck drivers and flight attendants count as sludge, though they may of course be justified. Sludge includes, but goes beyond red tape itself a vague idea. If you have to wait in line to vote, or if you have to go to a government office for an interview before receiving a license, you're not exactly facing red tape, but you have to deal with sludge Sludge is not bureaucracy, though it overlaps with it. The Department of Energy is a bureaucracy, but it is not sludge, though it imposes plenty of it. Sludge can be seen as a kind of transaction cost, a familiar term in economics. But the house of transaction costs has many rooms, and some transaction costs are not sludge. For example, legal fees and brokerage fees are often characterized as transaction costs. They do not count as sludge. The important idea of admin developed by Elizabeth Emmons includes sludge, but a lot of admin, such as household labor is not sludge. Still, the term is not hard edged and it does leave unresolved questions. Sunstein goes on to give many more examples of what sludge is and isn't throughout the book, and noting that it isn't always a bad thing. Sometimes it's good for people to be confronted with a little sludge to prove they qualify for a benefit, or that they care enough to earn whatever is being presented, or that they're a good fit for a position. While there are of course some places where businesses could or should add sludge, those are few and far between. For that reason, I don't want to dedicate a lot of space to them here. Instead, the episode is about removing sludge and why it matters for your business. In this episode, I'm going to give you a back office example, a customer facing example, and some ways to think about quantifying the problem of sludge so you can know its real impact, either to help you fix it yourself or compel others in your company who might not be convinced it's enough of a priority. When it comes to customer facing examples I like to start with the buy now button from Amazon. You've seen this before and likely used it a lot without giving it much thought. And unless you've read my book or attended one of my speaking engagements, you probably don't know that Amazon patented one click buying back in 1999. This means that all their competitors needed to include one extra click to their process. A little bit of sludge that says something like are you sure? Or makes them do one more thing before they can buy. This may not seem like that big of a deal. I mean, how often in your business do you have one more form or field people need to fill out? One more click, one more page on the website, one more person to talk to, one more process or procedure? To a logical brain, it doesn't feel like much for something people want. But we behavioral economists know what Amazon did all those years ago. And so did Steve Jobs. He paid Amazon a million dollars to have one click buying in itunes. That means he felt it was worth million dollars to reduce a single click in the buying process. If all those one more items of sludge in your business were valued at a million dollars each, how many could you remove from your process? In a buying process, those questions like are you sure? Or extra fields or steps can act as partitions. Each new partition is a point where someone will evaluate if this is worth it or if they should bail completely or plan to back later. Unfortunately, later often never comes. One thing I see often with businesses is that they think of each customer interaction as this sort of once in a lifetime moment where you have to cram in as much as possible so you're prepared for future opportunities down the road. They might ask 35 questions of a potential new customer. Name, phone number, email address, physical address, previous buying preferences, what they might want to get six months from now, things about the competition, the best time of day to contact you, best method of contact, and way too many required fields that can gunk up the works. What I ask my clients to consider is how much of this is required for the person to do what they need or want to do right now, and how much is something you think might be nice in the future. Often a lot of the questions you want to ask are to help you sell more to them someday down the line. Well, we might need their physical address someday, so let's just ask now while they're already filling out a form. Unfortunately, that extra sludge is making it so you lose the sale today. An opportunity for future cross selling that inspired you to ask those extra questions in the first place. Those people might leave your website without ever finishing or starting a form because it feels like too much effort or an invasion of their privacy or or they're worried you're going to spam them, so you never know they were interested in what you had to offer and you have no way of following up with them on this one thing they really wanted. Right now they feel worse. You lost a potential customer and everyone loses Removing the sludge so you only ask what is absolutely necessary can help a lot more people get over that first hurdle, that initial small step. Focus on each micro moment as it exists and what's absolutely necessary. Instead of thinking about the entire buying process, focus on each micro moment as it exists and what's absolutely necessary. Right? Then you likely have a lot of sludge mucking things up. As an example, if someone wants to schedule a discovery call with me, they only need to input their name and email. There's an option to provide some background, but it isn't required. For me, it's more important to get someone in the door and have that conversation to see what they need help with and if we could benefit from working together than to have them fill out a bunch of other information I might want later if we choose to work together. Of course, if I started getting a lot of spam or there were way too many requests to handle and my calendar was overflowing, I could add in some extra steps and sludge to make it more difficult so only serious potential clients take the time to wade through it. You can turn the sludge up or down as needed, but again, I want to stress that most companies have way too much sludge in the way of people doing business with you. Sludge could also be present in the way you send emails to schedule a time or talk with someone, or if you insist on calling when your clients would prefer, refer to email. I have had previous vendors who wouldn't adjust to my style and insisted on leaving voicemails and calling with information. So I found a competitor who would email me like I asked. Sludge could also be in lots of complicated decisions and choices. Remember that episode on the Paradox of Choice from a few weeks ago? I've linked to that episode and the book in the show notes as well. But having too many choices will paralyze someone and act as a form of sludge. There are a million and a half examples I could share here, but in the interest of time, the best thing for you to do is to use your free worksheet in the show notes to go looking for sludge in your business. For our purposes, think of sludge as extra stuff you're asking someone to do now that isn't required to do the thing they want and start looking around for examples. I guarantee if you look you'll find a ton as you search. My main piece of advice is to find the least amount of items you need to get someone to move forward in this singular situation. What are the least amount of words you can say to get them ready to do business with you? What's the smallest amount of data you need to collect? What are the least amount of steps you need them to complete? Asking those questions will give you lots of prime opportunities to remove the sludge and make it easier for people to to do business with you. Of course, still plan for things into the future. Know what the next step in the process is, but it doesn't mean you have to ask for a bunch of stuff and put a lot of sludge in the way now all right, let's move on to our back office examples. When Roger Dooley was on the show talking about his book Friction, which is very similar to Sludge and provides a lot of great business examples, the episode and his book are linked for you in the show notes. Anyway, when Roger was on the show he talked about expense reports and how much time it took people to complete them for every single item. As he was saying, when forced to put every two dollar cup of coffee, it adds a lot of time from him and accounting to complete forms and find receipts and process stuff. Way more than the $2 you're claiming. So why is it worth the sludge? He also gives an example of a business that had workers using tools and one day one of them was stolen. The business then put in a security guard and lockdowns and procedures to keep it, so people had to check tools in and out each day. It cost tens of thousands of dollars a year to uphold this process to save the potential theft of maybe $500 a year in tools. This is sludge that feels justified, but makes no sense when you really look at it. Spending 50,000 to save $500. Again, you hear Roger talk about this and much more in his episode, which is linked for you in the show notes@the brainybusiness.com 179 There are many, many, many examples of sludge in the back office, but I'm going to focus on a simple one Sunstein alluded to in that section. I read a little bit ago about having people sign off on a change when I First started at the credit union, we had a process that required a physical form to be completed by hand and you walk around the office to get something like 8 out of 12 specific people to sign off on it before you could move forward. This included some people who absolutely had to sign off on every change, which included the CEO. And you had to get a certain number of other executive team members and people from various departments to okay the change, which was often something small that they knew nothing about. And so they would either get into the habit of signing without looking or make a big, big deal about not signing until you did some sort of presentation explaining why it was necessary. And they'd ask a lot of questions that about things they didn't really know anything about or need to know anything about for their own job roles, because it was about stuff that the person who was going to make the change that was requesting it should have within their own sphere of influence and their abilities within their job. It took ages to walk around the building and find people between meetings and beg for signatures. You had to make the rounds over and over and hope you might catch someone while they're walking to the bathroom or something. All for changes that, like I said, should have been within the decision making powers of the person who was forced to use those forms. Often the decision had already been made in another meeting where everyone verbally signed off, but that person then had to chase to prove it was okay. Now these were the senior most team members at the organization and I bet you've dealt with something like this if you've ever worked in a business as well, if the chief operations officer had to spend four hours walking around getting signatures for a small change, how much money is wasted? And when you add up all those forms and experiences, it's unbelievably expensive and, and it makes people feel like they aren't trusted, so they're annoyed with the business as well. It's all around a bad experience. You get less done and it costs more. If you haven't already listened to episode 148 on the speed and Economics of Trust with Stephen M r Covey, I highly, highly recommend it. It's waiting for you in those show notes, of course as well in the back office. When you trust your employees, you can reduce the sludge and things get done faster for a lot less money than if you don't have trust. Work on trust and get rid of that sludge. And this leads us to the final point of the episode on how to quantify sludge in your business. This could be just for you, or if you're trying to get permission to remove a bunch of existing sludge that already exists and has been around for a long time, either on the customer side or in the back office. Because people get stuck in the status quo, they often don't feel like they can give up sludge. We do this for some reason. We've always done it this way. What might happen if we got rid of it? It isn't that big of a deal, right? Well, when you can quantify that for them and put it in real lost money, it can make them much more likely to be on board with the change. Sunstein gives an example of TSA Precheck and shares how quickly the value can add up. As he says in the book, in a recent year, 5 million people were enrolled. What are its benefits? Let us assume conservatively that on average, those 5 million people are using the program four times per year. If so, we're speaking of 20 million uses. Let us also assume plausibly that on average, a user of the program saves 20 minutes per trip. If so, we're speaking of 400 million hours saved per year. Let us assume that an hour is worth an average of $27. If so, the benefit of the TSA program would be $1.08 billion per year in any year. Few regulations generate benefits of that magnitude. To be sure, we do not know the cost of the program, but it would be astonishing if they came anywhere near the 1.08 billion. I'd be willing to bet that a lot of people traveling and using TSA Precheck would have their hours valued at more than $27, as they're likely business travelers or those who make more than that per hour. And I don't know if you have TSA Precheck or if you've ever had to wait in the long lines, but I'm guessing it also is more than 20 minutes that you're saving on average. So this number could be even much higher than that 1.08 billion. When you take a minute to quantify the lost sales or the minutes wasted by key staff members, the initiatives that couldn't be completed because of wasted time or anything else, it can add up incredibly quickly. Take a moment to do the math and you'll be shocked at what you find. Sludge is a huge problem in your business, I promise. No matter your size or industry. Find it, remove it, and enjoy the benefits. So what got your brain buzzing as you learned about Sludge today? For me, I do like looking for opportunities where sludge can be removed from life and in business. Every business has unnecessary sludge that can be removed to improve a process both internally and externally. It could be a form, a procedure, a process, a click. There are so many ways to remove sludge and it can really add up when huggies here in a couple of days we talk about an example in his book the Friction Project where a single click was removed from a process that nurses had to go through when performing a diaper change for babies, and the process took about 24 seconds each time in their system, which may not seem like much, but across their four hospitals they determined that this saved removing one click saved them 1700 hours per month. That is massive. So small wins can become big wins very quickly if you're thoughtful about which things you're going to work on. You heard about some of that in today's episode with examples from the book Sludge and I've also linked to Roger Dooley's great book Friction in the show notes and of course the Friction Project, as they all have great examples within them for the power of removing friction and sludge. But don't let yourself believe that it's all bad. Remember those points where adding sludge is actually helpful. I like to talk about thoughtful sludge and how making something that you want to change harder can actually be a good thing. One of my favorite examples is from a research study which took the idea of reducing energy usage from elevators and getting people to exercise more by taking the stairs. Simply telling people the value of the stairs and the logic of why they should make this decision didn't do much. We all get that right. We often intend to take the stairs. We know it's better, but it's still so much easier to take the elevator. We think we'll do it next time. In this case, when they increase the door opening from 10 seconds to 26 seconds on average, that little bit of sludge made a difference. More people took the stairs because the elevator was less convenient. This is a delightful and simple example of the value of adding sludge that I always love to reference in talks and in working with clients, so you don't forget that it isn't all bad. That paper is of course linked for you in the show notes, along with links to my top related past episodes and books like Sludge and Friction and the Friction Project. You'll also find a timestamp summary of the episode and more. It's all waiting for you in the app you're listening to and atthe brainy business.com384 and just like that, episode 384 on sludge is done. Join me Friday for a brand new episode with Huggy Row, co author of the Frixion Project. It's going to be a lot of fun. You don't want to miss it. Until then, thanks again for listening and learning with me. And remember to be thoughtful.

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