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Who's in the Video
Paul Zak is the founding director of the Center for Neuroeconomics Studies and professor of economics, psychology and management at Claremont Graduate University.  Dr. Zak has degrees in mathematics and[…]

Companies can create an oxytocin-led positive feedback loop, bettering employees and business while making customers happier—or they can lead their business into a downward spiral.

Question: Can neuroeconomics work for individual businesses?

Paul Zak:  There are direct applications for organizational leaders on how you design an environment in which you can be both profitable, productive and have very fulfilled employees.  So one way to do that is to lead by fear.  So if you’re business is about exploiting individuals, taking advantage of people, making the biggest profits possible, this is the kind of "greed is good" model, then you kind of just want to whip people into doing things that are not fun, not interesting, it’s a nine to five job. 

If instead, the oxytocin research is correct, that individual normally connect with each other, that’s our motive being as social creatures as human beings, and it means that if business is about service to others then business itself is a virtue – you are engaging in a virtuous activity by serving the needs of somebody else.  When you do that, when you serve the needs of your employees, of your customers, you will induce oxytocin release and they will want to reciprocate.  So can you say, “Customer loyalty?”   This is how you do it. 

Okay, so if you can induce this oxytocin rich environment, if you can create this environment, then you have a way to drive productivity and drive individual satisfaction for being part of this organization.  We have a purpose, we are here to serve others and we see this as some endeavor that we do together.  When do it together we feel good about ourselves and about the people that we’re helping. So what this means is that in the old model, "greed is good," the measurement technique is: lead with fear.  In the model, empower individuals to be the best they can be in an organization with purpose, you’re going to lead with love.  So if you lead with love then you have this oxytocin environment that will motivate people going beyond, exceeding expectations and leading to delighting the customer, delighting the people around me.  And delight is what we really want from a customer experience. 

Question: Can this relate to employees too?

Paul Zak:  So one of the key findings we just discovered, just in the last two years, is that oxytocin relates, facilitates release of other chemicals in the brain, including chemicals that are associated with reinforcement learning and reward.  So it literally feels good to do good.  And I think that was the missing piece of the conscious capitalism equation... Which is, "gee I think I should do this, I think I have a good reason to be compassionate towards those around me and be a good steward with the resources I have.  But I’m really working against human nature."  And I think the science we’ve done shows that’s not the case.  That this is, in fact, very compelling.  People want to work for Whole Foods or The Container Store or Southwest, because they enjoy it.  They get pleasure out of doing good for other people.  And by doing good for other people, you attract people to you, that is customers, and when you have those customers you can do more good.  So there is a positive feedback loop. 

Now the downside is also true.  If I’m doing my job poorly, if I am not serving the needs of my clients, then they’re going to be unhappy.  They will leave and tell other people.  That puts more stress on the organization and stress inhibits oxytocin release.  So now we’re kind of in a downward spiral
Question: How can a company reverse a downward spiral?

Paul Zak: If you want to change that direction, there is a kind of recipe from the science that we’ve done on how to do that.  And the first thing you want to do is have a change in a whole outlook.  You’ve got to refocus on what you’re mission is.  What is your purpose?  Once you do that, you have to recognize individuals who are contributing substantially to that purpose.  And again, that could be, and is often... it’s the janitor who sweeps the shop floors who does this every day perfectly and doesn’t make a mess.  That’s so important.  Right?  You know, if you walk into a restaurant or retail store and there’s gunk on the carpet or floors, you just feel like the job's not being done right.  So everybody from the janitor to the CEO has got to be focused on, number one priority, make this an experience for our client, for our customer that is outstanding, that is delightful, that is wonderful. 

And if we do that, what happens is, that customer smiles.  They’re happy, they give us feedback.  And then in this larger brain system facilitated by oxytocin, we want to do it again; we’re reinforced to say, “Oh, this is how it really works.  This is how we get good business.  This is how we sustain ourselves.” 

So the first way is this subtle change.  The more radical approach is change from the top down.  Kick out the CEO and senior staff and just start over.  And that has worked in a number of places.  That is something that is much more costly because you’ve got to reform the culture, fire a lot of people, and so I think there are small ways that you can start and for this, ground up.  For empowering individuals to actually have this purpose and make a change.

Recorded October 27, 2010
Interviewed by John Cookson