The IKEA Effect and OKR: Boosting Employee Engagement

Category: Behavioral Economics.

Engage \ in-ˈgāj: to occupy, attract, or involve someone’s interest or attention. Employee engagement is now at the forefront of successful corporate strategy. According to the 2018 SHRM/Globoforce Employee Recognition Report, leaders are using human-centered approaches to resolve retention, recruitment, and culture management challenges. And in the United States, the percentage of engaged workers is now 34%, an all-time high since Gallup began reporting the national figure in 2000. Yet, 53% of all American workers still remain unengaged, lacking attachment to their work and workplace. These employees may be working for personal gain, trying to work the bare-minimum, burned out, aimless, or just extremely bored. In studies by the Queens School of Business and the Gallup Organization, disengaged workers had 37% higher absenteeism, 49% more accidents, and 60% more errors and defects. In organizations with low employee engagement scores, they experienced 18% lower productivity, 16% lower profitability, 37% lower job growth, and 65% lower share price over time.

Series of experiment

Thankfully, a cure exists. Michael I. Norton of Harvard Business School, Daniel Mochon of Yale, and Dan Ariely of Duke conducted a series of experiments to investigate the IKEA effect, a cognitive bias in which people place a disproportionately high value on self-made products. Participants were split into two groups: builders and non-builders. After each experiment, the researchers held an auction for each self-made product. People were willing to pay 63% more for products – be it IKEA furniture, lego toys, or origami creatures – if they successfully built them.

The IKEA Effect reveals our human tendency to love the things we create or contribute to. This behavioral economics principle has broad implications for businesses.

We can embrace the IKEA effect to better our management style. Making tasks too easy – or too mechanical – stifles engagement and creativity. Instead, it produces apathy and a sense of purposelessness in our employees. To avoid such pitfalls, leaders should invest in creating a positive company culture in which employees feel comfortable and included.

Carpenter working

It’s also important to set some transparent goals from the bottom-up. Goal-setting is meant to be a collaborative, continual process of measuring, tracking, and aligning employee efforts to company-wide objectives. But according to Deloitte, a leading management consulting firm, only 51% of companies even attempt to develop aligned goals, and, among these, only 6 percent regularly revisit them. Moreover, Harvard Business Review (HBR) conducted a 9-year study that included more than 40 experiments and surveyed 8,000 managers in more than 250 companies. HBR researchers found that less than ⅓ of senior executives and 16% of frontline employees truly understand how strategic objectives connect with corporate priorities.

To avoid these problems, firms should adopt a system that helps everyone clearly define and track objectives as well as key performance indicators. Bruce Gil notes that cascading goals from the top-down align teams but over-alignment can stifle creativity and individual motivation. Organizations need to find a balance between collective commitment and creative freedom. This is where bottom-up OKRs come in.

Objective and Key Results

OKR culture embraces collaborative goal setting from the bottom-up. No one employee is the same. That is, everyone has different work styles, expectations, and values. Employee engagement is a highly personal process. Organizations that rely on broad, top-down engagement strategies miss the mark. With OKR, individuals are encouraged to create their own personal objectives and key results which align with team, department, and company goals.

profit my okr dashboard

When you encourage this bottom-up process, you start seeing the IKEA effect in play. When employees set their own goals that align with top level goals, they value them even more than those objectives that are thrust down their throat. It takes a village to engage a workforce, not just human resources departments. When employees connect with and contribute to their company’s goals, a domino effect takes place. They begin to value their work, perform better, and positively influence the people around them.

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