His top priority would have to be something that everybody could agree was important

Saturday, April 24th, 2021

Charles Duhigg explains the concept of keystone habits (in The Power of Habit) through the example of Paul O’Neill, who took over as CEO of Alcoa with a promise to make Alcoa the safest company in America:

The audience was confused. These meetings usually followed a predictable script: A new CEO would start with an introduction, make a faux self-deprecating joke — something about how he slept his way through Harvard Business School — then promise to boost profits and lower costs. Next would come an excoriation of taxes, business regulations, and sometimes, with a fervor that suggested firsthand experience in divorce court, lawyers. Finally, the speech would end with a blizzard of buzzwords — “synergy,” “rightsizing,” and “co-opetition” — at which point everyone could return to their offices, reassured that capitalism was safe for another day.

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“Now, before I go any further,” O’Neill said, “I want to point out the safety exits in this room.” He gestured to the rear of the ballroom. “There’s a couple of doors in the back, and in the unlikely event of a fire or other emergency, you should calmly walk out, go down the stairs to the lobby, and leave the building.”

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“I’m not certain you heard me,” O’Neill said. “If you want to understand how Alcoa is doing, you need to look at our workplace safety figures. If we bring our injury rates down, it won’t be because of cheerleading or the nonsense you sometimes hear from other CEOs. It will be because the individuals at this company have agreed to become part of something important: They’ve devoted themselves to creating a habit of excellence. Safety will be an indicator that we’re making progress in changing our habits across the entire institution. That’s how we should be judged.”

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Within a year of O’Neill’s speech, Alcoa’s profits would hit a record high. By the time O’Neill retired in 2000, the company’s annual net income was five times larger than before he arrived, and its market capitalization had risen by $27 billion.

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O’Neill believed that some habits have the power to start a chain reaction, changing other habits as they move through an organization.

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These are “keystone habits,” and they can influence how people work, eat, play, live, spend, and communicate.

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At the time, Alcoa was struggling. Critics said the company’s workers weren’t nimble enough and the quality of its products was poor. But at the top of O’Neill’s list he didn’t write “quality” or “efficiency” as his biggest priorities.

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O’Neill figured his top priority, if he took the job, would have to be something that everybody — unions and executives — could agree was important.

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The key to protecting Alcoa employees, O’Neill believed, was understanding why injuries happened in the first place. And to understand why injuries happened, you had to study how the manufacturing process was going wrong. To understand how things were going wrong, you had to bring in people who could educate workers about quality control and the most efficient work processes, so that it would be easier to do everything right, since correct work is also safer work. In other words, to protect workers, Alcoa needed to become the best, most streamlined aluminum company on earth.

He identified a simple cue: an employee injury. He instituted an automatic routine: Any time someone was injured, the unit president had to report it to O’Neill within twenty-four hours and present a plan for making sure the injury never happened again. And there was a reward: The only people who got promoted were those who embraced the system.

Unit presidents were busy people. To contact O’Neill within twenty-four hours of an injury, they needed to hear about an accident from their vice presidents as soon as it happened. So vice presidents needed to be in constant communication with floor managers. And floor managers needed to get workers to raise warnings as soon as they saw a problem and keep a list of suggestions nearby, so that when the vice president asked for a plan, there was an idea box already full of possibilities.

To make all of that happen, each unit had to build new communication systems that made it easier for the lowliest worker to get an idea to the loftiest executive, as fast as possible. Almost everything about the company’s rigid hierarchy had to change to accommodate O’Neill’s safety program. He was building new corporate habits.

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Then, as email habits became more ingrained and comfortable, they started posting information on all kinds of other topics, such as local market conditions, sales quotas, and business problems.

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This is the final way that keystone habits encourage widespread change: by creating cultures where new values become ingrained. Keystone habits make tough choices—such as firing a top executive— easier, because when that person violates the culture, it’s clear they have to go.

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He got fired because he didn’t report the incident, and so no one else had the opportunity to learn from it. Not sharing an opportunity to learn is a cardinal sin.”

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On average, workers are more likely to get injured at a software company, animating cartoons for movie studios, or doing taxes as an accountant than handling molten aluminum at Alcoa.

“When I was made a plant manager,” said Jeff Shockey, the Alcoa executive, “the first day I pulled into the parking lot I saw all these parking spaces near the front doors with people’s titles on them. The head guy for this or that. People who were important got the best parking spots. The first thing I did was tell a maintenance manager to paint over all the titles. I wanted whoever got to work earliest to get the best spot. Everyone understood the message: Every person matters. It was an extension of what Paul was doing around worker safety. It electrified the plant. Pretty soon, everyone was getting to work earlier each day.”

Comments

  1. Gavin Longmuir says:

    Someone recommended Henry Ford’s 1922 book My Life and Work, which I am currently reading.

    In essence, Ford’s message was to concentrate on the business, focus on how to do each step in the process as efficiently as possible, and never be satisfied with current practices. Focus on doing the business right, and the money would follow.

    Ford also excoriates financial types and bankers who focus on the money instead of the business. They pursue short-term profits and end up destroying the business.

    As has been said many times, there is nothing new under the sun.

  2. Bruce says:

    “My first toys were tools. They still are.”

  3. Sam J. says:

    “…Ford’s message was to concentrate on the business, focus on how to do each step in the process as efficiently as possible, and never be satisfied with current practices. Focus on doing the business right, and the money would follow…”

    Andrew Carnegie did exactly the same. Any improvement in steel making or the input of materials to the steel process he added immediately.

    Andrew Carnegie,”…Man must have no idol and the amassing of wealth is one of the worst species of idolatry! No idol is more debasing than the worship of money! Whatever I engage in I must push inordinately; therefore should I be careful to choose that life which will be the most elevating in its character…”.

  4. Sam J. says:

    I missed adding that Musk is doing exactly the same. His business practices likeness to Ford is unmistakable.

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