“Do we need to understand Psychology in the business environment?” – yes.
But we probably don’t all need degrees in it.
What I think is essential for leadership, whether in operations or change management, is basic emotional intelligence - some understanding and empathy with those you work with.
From my experience, these aspects can very quickly get forgotten - especially in times of pressure and stress. However, these times are exactly when patience, understanding and empathy can make the difference between success and failure.
As a Deming fan, a good leader should be able to display a clear and accurate picture of their business as a process. But they also need to understand people and their behaviours in that process to be able to maximise its performance.