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What is Business Psychology?

February 22, 2022
7 minutes to read

We talk about business psychology day in, day out. We’re a business psychology firm, so it’s hardly surprising that it bleeds into everything we do.

But, we realise that for many people, business psychology might be another one of those jargon phrases that are bandied about without really knowing what it is, how it works or who it can help.

So we’re here to rectify that. We’re going back to basics to share with you what business psychology is, where it came from, and how it can help every business under the sun to be better, more productive and more impactful.

What is business psychology?

Business psychology goes by a number of different terms, all of which mean roughly the same thing. We won’t go into the ins-and-outs of the nuances here, but for the purposes of this piece we’ll be using ‘business psychology’ to refer to the same concept as these terms:

  • Organisational psychology
  • Occupational psychology
  • Industrial psychology
  • Industrial-Organisational psychology (I-O psychology)
  • Work psychology

We’ll be using ‘business psychology’ hereon in, simply because it feels to us like the most accessible and understandable term to use.

So, what exactly is business psychology?

Unfortunately, there’s not a quick, one-stop definition! But we’ve gathered a few from across the industry that feel aligned with what we believe business psychology is – and that are as easy to understand as possible!

Business psychology is:

“The application of the science of psychology to work. [Business] psychologists develop, apply and evaluate a range of tools and interventions across many different areas of the workplace” – British Psychological Society’s Division of Occupational Psychology

“The study and practice of improving working life. It combines an understanding of the science of human behaviour with experience of the world of work to attain effective and sustainable performance for both individuals and organisations” – The Association for Business Psychology

“[the combination of] the science of human psychology with practical business application in order to improve the work environment for employees, improve productivity in businesses, and organise groups of people in companies” – University of the People

Basically, business psychology is the application of psychology to business environments, with the aim of improving wellbeing, elevating performance and enabling a more engaged and motivated workforce.

Simple, right?!

A (brief-ish) history of business psychology

Psychology as a scientific discipline is far from new. In fact, we’re just the latest in a long line of psychologists and scientists exploring the human psyche and trying to understand what makes people tick.

While we can’t possibly cover every development in the area of business psychology here, we’ll do our best to give a short-and-sweet summary of the world’s journey from ‘what on Earth is business psychology?’ to ‘business psychology is powerful!’.

The early days of business

Business psychology started to develop from the mid-1880s onwards and followed parallel paths in the US, UK, Australia, Germany and the Netherlands.

But what prompted the start of business psychology?

Two words: Industrial Revolution.

If it’s been a while since your school history lessons, the Industrial Revolution happened across the western world in the early 1800s. Suddenly, manufacturing and business were BOOMING, with factories and corporations and businesses with big ambitions popping up everywhere you looked.

And with that revolution came economic progress, but also uncertainty and a whole heap of new problems for people to deal with.

Suddenly, thousands of people were working in roles that hadn’t previously existed. Hierarchies were being created within organisations and along with those hierarchies, leadership roles.

As Helio Carpintero notes, “The history of organisational psychology is deeply rooted in the process of growth, increasing complexity and richness of both economic and industrial structures in our modern world.”

From the Industrial Revolution onwards, business psychology started to be taken seriously. Instead of seeing industrial conflicts, workplace accidents, and organisational inefficiencies as ‘organisational’ or ‘social’ issues, governing bodies and business owners began to accept the view of psychologists – that the individual worker and their human psychology were at the core of industrial issues.

Business psychology’s teenage years

But business psychology didn’t stop there.

During World War One and World War Two, business psychology was taken even more seriously.

In both the UK and the US, psychometric testing was introduced to recruit military personnel and identify the most effective role for them in the war efforts. IQ was developing in the educational psychology world, and psychologists like Charles Myers (National Institute of Industrial Psychology, and later a founding member of the British Psychological Society) were studying worker fatigue and wellbeing in munitions factories.

The wars gave business psychologists the opportunity for mass testing and huge data gathering to research, test and develop their theories – which were then published in a wide array of scientific journals that were launched throughout the 1920s and 1930s.

Like with many areas of society during the world wars, individual and group relationships in workplaces began to be taken seriously – partly driven by the need for camaraderie and collective action to defeat the enemy abroad. While there remained the usual management-worker tensions during this time, the focus shifted tangibly towards empowering the individual worker to work to their full potential and encouraging leaders to manage people individually, taking their personality traits into consideration.

The twentieth century

As with any scientific discipline, methods of testing and the application of business psychology were refined during the twentieth century, with a focus on reliability and validation of psychometric testing – and a focus on developing practices that fuelled global economic growth.

The 1980s in particular saw huge discontent in the workforce, with workers strikes happening regularly and a demand for better working conditions. While business psychology had started to shift momentum away from seeing worker discontent as a class issue and towards it being a psychological issue that could be tackled with a scientific approach, the unrest of the 1980s pushed business psychologists to consider the impact of group psychology in the workplace.

Business psychology began to incorporate group behaviour, individual differences, and leadership effectiveness – all of which continue to be a focus for business psychologists today. Increasingly, business psychologists began to consider the impact of the individual and the impact of the organisation – and how the two interact in the workplace to create behaviours, cultures and psychological contracts that can be studied by business psychologists to improve the workplace for everyone involved.

… And now?

Today, business psychology is a firm, well-respected discipline. There’s an immense amount of scientific and academic research to back up business psychology and its applied discipline – and it’s become a go-to source of trusted advice for businesses across the world, of all shapes and sizes.

Most recently, we’re seeing a big shift towards focusing on wellbeing, effective and empathetic leadership, as well as psychologists rising to the challenge of handling hybrid and remote workforces.

Paralleling a shift in society’s perception of mental health issues, positive psychology has emerged as a way of prioritising worker wellbeing by focusing on creating environments and systems that allow people to flourish and utilise their strengths and personality traits for positive impact.

At KinchLyons, we focus on using positive psychology practices, backed up by decades of scientific proof, to develop human capital as the ultimate business advantage. We’re firm believers that people are business’ greatest assets – and business psychology allows us to help businesses to help their people thrive.

What exactly does a business psychologist do?

Ah, another can of worms that doesn’t have a simple or single answer!

Business psychology is a huge discipline, with an even more huge array of practices under its banner. From leadership development to ability testing to coaching to acquisition – there is a lot that business psychology gets involved in.

Again, we stand no chance of being able to do every single field of business psychology justice here, but we’ll do our best to cover the main areas so that you get a good idea of what we business psychologists spend our days doing!

Leadership Development

Often what happens in businesses is that the best workers get promoted into leadership positions. But that often results in people finding themselves in leadership positions that they’ve never been trained for.

As business psychologists, our priority is to develop and identify leaders who have the ability to effectively manage their teams and workforces. Our focus isn’t the tangible management skills that are taught in MBAs or leadership programmes, but instead the use of psychological practices to motivate and empower team members, negotiate workplace conflicts and ultimately create a positive working environment for all.

Leadership development includes:

  • 1:1 leadership coaching using psychometrics
  • Team development (especially C-suite teams)
  • Leadership hiring
  • High performance talent identification/development
  • 360-degree performance assessments
  • Executive coaching

Talent Acquisition & Hiring

Finding the right person for the right job is one of the most important things in the world of business – as proven by years of business psychology research! While it’s rarely an exact science, one of the things we do as business psychologists is to help business owners or human resources departments identify the right people when filling roles.

When identifying the best fit for a role, the first step is usually to identify the traits and skills needed for a role – and map those onto psychometric competencies wherever possible. On top of that, interview skills training, identifying existing internal talent and designing engaging onboarding programs are all things that business psychologists can help with.

In recent years, there has been a big focus on interview skills in the business psychology field. With an increasing focus on diversity and inclusion across the business world, it’s important that interviewers are able to be objective, unbiased and fair in their interviews. Consulting with HR departments to design competency-based interview questions that reduce the impact of unconscious bias has become a focus for business psychologists recently.

Talent acquisition and hiring work for business psychologists includes:

  • Competency mapping for psychometric testing
  • Talent identification in internal teams
  • Interview skills training
  • Engagement and onboarding consulting

Team Management & Executive Coaching

Interpersonal relationships within teams and organisations can make or break a business’ chance of success. As Benjamin Schneider said, “The people make the place” – so managing teams and individuals within a business is a vital part of any business psychologist’s role.

At the team level, business psychologists can help to facilitate team relationships through team building exercises and simulations, 360-degree assessment sessions or through individual coaching with a whole team. Whether it’s a team whose performance is lacking, or a team who has experienced organisational change, a business psychologist will discuss with key stakeholders before designing a bespoke, science-based intervention.

At the individual level, business psychologists can support organisations with performance management (using psychometrics and constructing objective, feedback-gathering performance review sessions), individual coaching (whether focused on career development or professional development within the workplace), and supporting individuals through organisational change.

Business psychologists can support organisations with:

  • Team development workshops
  • 1:1 coaching using psychometrics
  • Performance management
  • Employee engagement initiatives
  • Team building simulations
  • Decision making training and simulations
  • 360-degree performance appraisals

Organisational wellbeing

The importance of wellbeing and positivity in the workplace has been slowly coming to the fore for a few years now – but with the unavoidable rise of remote and hybrid working thanks to the pandemic, even more organisations are beginning to realise the power of supporting employee wellbeing at every stage of their working lives.

Workplace wellbeing initiatives are increasingly becoming the norm in businesses – but for business psychologists the important thing is that these initiatives are evidence-based and actually effective. Rather than assuming a pool table in the break room will make staff happier or adding ‘Pizza Thursday’ to the culture, business psychologists work with organisations to assess current employee engagement levels, use psychometrics and structured interviews to figure out what makes people tick, and then develop wellbeing initiatives that are far more likely to be effective in increasing employee satisfaction.

Workplace wellbeing includes:

  • Employee engagement assessment and programmes
  • Positive psychology practices
  • Group coaching and team development
  • Leadership styles assessment and coaching

How does business psychology help organisations?

Essentially, wherever there are people and wherever those people are performing some kind of work task, business psychology can help. As we’ve seen, business psychology can support organisations through periods of organisational change, team development, individual development, leadership coaching – and pretty much anything that a particular business is struggling with when it comes to people.

But does business psychology actually have an impact on a business’ bottom line?

In short, yes. Keep reading to learn about the ROI of business psychology for your business.

The cost of a bad hire

If you’ve ever hired someone who seemed great on paper, made a great impression at interview, but then didn’t quite live up to expectations when it came to job performance, you’ll know first-hand how important it is to find the right person for the job.

Hiring an ineffective candidate is not only stressful, it’s also incredibly costly. According to BMS Performance, bad hires often cost UK companies more than £50,000, through job advertising fees, hiring fees, wasted time and team inefficiencies. For small businesses in particular, a £50,000 loss can have a huge impact on the business and its people.

Outside of the financial burden of ineffective hiring, businesses often see other negative effects of ‘bad hires’, including:

  • Negative impact on company culture, particularly if turnover is high
  • Employee engagement falling, as a result of increased workload and uncertainty
  • Productivity levels falling, as other team members resent needing to pick up the slack

With a business psychologist on board, however, it’s much more likely that a business will hire the right fit for the role off the bat. By using competency-based interviews, reducing unconscious bias, and using psychometric assessments to judge culture-fit as well as job competence, business psychologists help businesses to avoid the financial and non-financial costs of hiring the wrong person.

The cost of ineffective leadership

You’ve heard the saying, “People quit bosses, not jobs”, right? There’s an element of truth in that!

When working day-in, day-out with the same team, interpersonal relationships are incredibly important. Even if a person is 100% satisfied with the content of their job role, a bad boss can be the nail in the coffin for them. In fact, a poll conducted by Gallup found that 50% of employees have left a job explicitly because of a manager.

Not only can business psychologists help businesses to identify high potential candidates for leadership roles, but they can also support leaders themselves through 1:1 coaching.

Particularly when emotional intelligence tools are used during these coaching processes, there is a demonstrable financial and non-financial ROI for leadership coaching. By supporting leaders and managers to develop their emotional intelligence and arm them with emotionally-aware management tools, business psychologists can help to reduce the number of employees who leave jobs because of poor management, which saves the company money, reduces employee turnover (which supports the development of a positive workplace culture), and improves employee wellbeing too.

The cost of low employee engagement (particularly in remote or hybrid workplaces)

Employee engagement has been a focus for business psychologists for many years now – but it’s still sometimes met with scepticism in the business world. When HR budgets are stretched and investment is funnelled into other areas of the business, employee engagement might feel slightly too intangible for businesses to worry about.

But really, investing in employee engagement has one of the highest ROIs in the business psychology world. It’s clear that businesses with high turnovers are likely to be less successful, due to disrupted workflows, a high upfront cost for onboarding new hires, and an impact on workplace culture. Besides working with leaders to improve management styles, assessing and improving employee engagement is one of the most effective ways of reducing staff turnover – in fact, a Gallup survey concluded that companies with highly engaged employees have a turnover rate that is between 25% and 59% lower than their competitors.

More recently, the shift towards remote and hybrid working has brought the importance of employee engagement into the forefront of many businesses’ minds. With employees working from home and physically distanced from managers and colleagues, informally assessing employee engagement becomes more challenging – and the risks of employees losing touch with the business and its values increases dramatically. Engaged employees, whether they’re remote or in the office, are more likely to be productive, efficient members of the organisation – which clearly improves the bottom line.

How to start harnessing the power of business psychology

If you’ve stuck with us this far, you should now understand what business psychology is, where it came from, what it does for businesses, and how powerful it can be for organisations of all shapes and sizes.

So you might be thinking, “How can I get the power of business psychology working for my business?” – and that’s where we come in!

KinchLyons is here to help businesses of all sizes, shapes and industries make the most of their human capital. Our focus is on using scientifically robust and proven methodologies and psychometrics to help individuals, teams and businesses create organisations that allow people to thrive. You can read more about us and our people over here.

Through accreditation workshops or our Talent Services, our friendly team of coaches and consultants can help your business solve its people woes and help you to fully harness the potential of every individual in your business.

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