4. Keystone Habits or the Ballad of Paul O'Neill

On a blustery October day in 1987, a herd of prominent Wall Street investors and stock analysts gathered in the ballroom of a posh Manhattan hotel. They were there to meet the new CEO of the Aluminum Company of America--or Alcoa, as it was known--a corporation that, for nearly a century, had manufactured everything from the foil that wraps Hersheys Kisses and the metal in Coca-Cola cans to the bolts that hold satellites together.

Alcoa's founder had invented the process for smelting aluminum a century earlier, and since then the company had become one of the largest on earth. Many of the people in the audience had invested millions of dollars in Alcoa stock and had enjoyed a steady return. In the past year, however, investor grumblings started. Alcoa's management had made misstep after misstep, unwisely trying to expand into new product lines while competitors stole customers and profits away.

So there had been a palpable sense of relief when Alcoa's board announced it was time for new leadership. That relief, though, turned to unease when the choice was announced: the new CEO would be a former government bureaucrat named Paul O'Neill. Many on Wall Street had never heard of him. When Alcoa scheduled this meet and greet at the Manhattan ballroom, every major investor asked for an invitation.

A few minutes before noon, O'Neill took the stage. He was fifty-one years old, trim, and dressed in gray pinstripes and a red power tie. His hair was white and his posture military straight. He bounced up the steps and smiled warmly. He looked dignified, solid, confident. Like a chief executive.

Then he opened his mouth.

"I want to talk to you about worker safety," he said. "Every year, numerous Alcoa workers are injured so badly that they miss a day of work. Our safety record is better than the general American workforce, especially considering that our employees work with metals that are 1500 degrees and machines that can rip a man's arm off. But it's not good enough. I intend to make Alcoa the safest company in America. I intend to go for zero injuries."

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.

O'Neill hadn't said anything about profits. He didn't mention taxes. There was no talk of "using alignment to achieve a win-win synergistic market advantage." For all anyone in the audience knew, given his talk of worker safety, O'Neill might be pro-regulation. Or, worse, a Democrat. It was a terrifying prospect.

"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."

Silence. The only noise was the hum of traffic through the windows. Safety? Fire exits? Was this a joke? One investor in the audience knew that O'Neill had been in Washington, D.C., during the sixties. Guy must have done a lot of drugs, he thought.

Eventually, someone raised a hand and asked about inventories in the aerospace division. Another asked about the company's capital ratios.

"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."

The investors in the room almost stampeded out the doors when the presentation ended. One jogged to the lobby, found a pay phone, and called his twenty largest clients.

"I said, 'The board put a crazy hippie in charge and he's going to kill the company,'" that investor told me. "I ordered them to sell their stock immediately, before everyone else in the room started calling their clients and telling them the same thing.

"It was literally the worst piece of advice I gave in my entire career."

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. Someone who invested a million dollars in Alcoa on the day O'Neill was hired would have earned another million dollars in dividends while he headed the company, and the value of their stock would be five times bigger when he left.

What's more, all that growth occurred while Alcoa became one of the safest companies in the world. Before O'Neill's arrival, almost every Alcoa plant had at least one accident per week. Once his safety plan was implemented, some facilities would go years without a single employee losing a workday due to an accident. The company's worker injury rate fell to one-twentieth the U.S. average.

So how did O'Neill make one of the largest, stodgiest, and most potentially dangerous companies into a profit machine and a bastion of safety?

By attacking one habit and then watching the changes ripple through the organization.

"I knew I had to transform Alcoa," O'Neill told me. "But you can't order people to change. That's not how the brain works. So I decided I was going to start by focusing on one thing. If I could start disrupting the habits around one thing, it would spread throughout the entire company."

O'Neill believed that some habits have the power to start a chain reaction, changing other habits as they move through an organization. Some habits, in other words, matter more than others in remaking businesses and lives. These are "keystone habits," and they can influence how people work, eat, play, live, spend, and communicate. Keystone habits start a process that, overtime, transforms everything.

Keystone habits say that success doesn't depend on getting every single thing right, but instead relies on identifying a few key priorities and fashioning them into powerful levers. This book's first section explained how habits work, how they can be created and changed. However, where should a would-be habit master start? Understanding keystone habits holds the answer to that question: The habits that matter most are the ones that, when they start to shift, dislodge and remake other patterns.

Keystone habits explain how Michael Phelps became an Olympic champion and why some college students outperform their peers. They describe why some people, after years of trying, suddenly lose forty pounds while becoming more productive at work and still getting home in time for dinner with their kids. And keystone habits explain how Alcoa became one of the best performing stocks in the Dow Jones index, while also becoming one of the safest places on earth.

...

When Alcoa first approached O'Neill about becoming CEO, he wasn't sure he wanted the job. He'd already earned plenty of money, and his wife liked Connecticut, where they lived. They didn't know anything about Pittsburgh, where Alcoa was headquartered. But before turning down the offer, O'Neill asked for some time to think it over. To help himself make the decision, he started working on a list of what would be his biggest priorities if he accepted the post.

O'Neill had always been a big believer in lists. Lists were how he organized his life. In college at Fresno State--where he finished his courses in a bit over three years, while also working thirty hours a week--O'Neill had drafted a list of everything he hoped to accomplish during his lifetime, including, near the top, "Make a Difference." After graduating in 1960, at a friend's encouragement, O'Neill picked up an application for a federal internship and, along with three hundred thousand others, took the government employment exam. Three thousand people were chosen for interviews. Three hundred of them were offered jobs. O'Neill was one.

He started as a middle manager at the Veterans Administration and was told to learn about computer systems. All the while, O'Neill kept writing his lists, recording why some projects were more successful than others, which contractors delivered on time and which didn't. He was promoted each year. And as he rose through the VA's ranks, he made a name for himself as someone whose lists always seemed to include a bullet point that got a problem solved.

By the mid-1960s, such skills were in high demand in Washington, D.C. Robert McNamara had recently remade the Pentagon by hiring a crop of young mathematicians, statisticians, and computer programmers. President Johnson wanted some whiz kids of his own. So O'Neill was recruited to what eventually became known as the Office of Management and Budget, one of D.C.'s most powerful agencies. Within a decade, at age thirty-eight, he was promoted to deputy director and was, suddenly, among the most influential people in town.

That's when O'Neill's education in organizational habits really started. One of his first assignments was to create an analytical framework for studying how the government was spending money on health care. He quickly figured out that the government's efforts, which should have been guided by logical rules and deliberate priorities, were instead driven by bizarre institutional processes that, in many ways, operated like habits. Bureaucrats and politicians, rather than making decisions, were responding to cues with automatic routines in order to get rewards such as promotions or reelection. It was the habit loop--spread across thousands of people and billions of dollars.

For instance, after World War II, Congress had created a program to build community hospitals. A quarter century later, it was still chugging along, and so whenever lawmakers allocated new health-care funds, bureaucrats immediately started building. The towns where the new hospitals were located didn't necessarily need more patient beds, but that didn't matter. What mattered was erecting a big structure that a politician could point to while stumping for votes.

Federal workers would "spend months debating blue or yellow curtains, figuring out if patient rooms should contain one or two televisions, designing nurses' stations, real pointless stuff," O'Neill told me. "Most of the time, no one ever asked if the town wanted a hospital. The bureaucrats had gotten into a habit of solving every medical problem by building something so that a congressman could say, 'Here's what I did!' It didn't make any sense, but everybody did the same thing again and again."

Researchers have found institutional habits in almost every organization or company they've scrutinized. "Individuals have habits; groups have routines," wrote the academic Geoffrey Hodgson, who spent a career examining organizational patterns. "Routines are the organizational analogue of habits."

To O'Neill, these kinds of habits seemed dangerous. "We were basically ceding decision making to a process that occurred without actually thinking," O'Neill said. But at other agencies, where change was in the air, good organizational habits were creating success.

Some departments at NASA, for instance, were overhauling themselves by deliberately instituting organizational routines that encouraged engineers to take more risks. When unmanned rockets exploded on takeoff, department heads would applaud, so that everyone would know their division had tried and failed, but at least they had tried. Eventually, mission control filled with applause every time something expensive blew up. It became an organizational habit. Or take the Environmental Protection Agency, which was created in 1970. The EPA's first administrator, William Ruckelshaus, consciously engineered organizational habits that encouraged his regulators to be aggressive on enforcement. When lawyers asked for permission to file a lawsuit or enforcement action, it went through a process for approval. The default was authorization to go ahead. The message was clear: At the EPA, aggression gets rewarded. By 1975, the EPA was issuing more than fifteen hundred new environmental rules a year.

"Every time I looked at a different part of the government, I found these habits that seemed to explain why things were either succeeding or failing," O'Neill told me. "The best agencies understood the importance of routines. The worst agencies were headed by people who never thought about it, and then wondered why no one followed their orders."

In 1977, after sixteen years in Washington, D.C., O'Neill decided it was time to leave. He was working fifteen hours a day, seven days a week, and his wife was tired of raising four children on her own. O'Neill resigned and landed a job with International Paper, the world's largest pulp and paper company. He eventually became its president.

By then, some of his old government friends were on Alcoa's board. When the company needed a new chief executive, they thought of him, which is how he ended up writing a list of his priorities if he decided to take the job.

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. At a company as big and as old as Alcoa, you can't flip a switch and expect everyone to work harder or produce more. The previous CEO had tried to mandate improvements, and fifteen thousand employees had gone on strike. It got so bad they would bring dummies to the parking lots, dress them like managers, and burn them in effigy. "Alcoa was not a happy family," one person from that period told me. "It was more like the Manson family, but with the addition of molten metal."

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. He needed a focus that would bring people together, that would give him leverage to change how people worked and communicated.

"I went to basics," he told me. "Everyone deserves to leave work as safely as they arrive, right? You shouldn't be scared that feeding your family is going to kill you. That's what I decided to focus on: changing everyone's safety habits."

At the top of O'Neill's list he wrote down "SAFETY" and set an audacious goal: zero injuries. Not zero factory injuries. Zero injuries, period. That would be his commitment no matter how much it cost.

O'Neill decided to take the job.

...

"I'm really glad to be here," O'Neill told a room full of workers at a smelting plant in Tennessee a few months after he was hired. Not everything had gone smoothly. Wall Street was still panicked. The unions were concerned. Some of Alcoa's vice presidents were miffed at being passed over for the top job. And O'Neill kept talking about worker safety.

"I'm happy to negotiate with you about anything," O'Neill said. He was on a tour of Alcoa's American plants, after which he was going to visit the company's facilities in thirty-one other countries. "But there's one thing I'm never going to negotiate with you, and that's safety. I don't ever want you to say that we haven't taken every step to make sure people don't get hurt. If you want to argue with me about that, you're going to lose."

The brilliance of this approach was that no one, of course, wanted to argue with O'Neill about worker safety. Unions had been fighting for better safety rules for years. Managers didn't want to argue about it, either, since injuries meant lost productivity and low morale.

What most people didn't realize, however, was that O'Neill's plan for getting to zero injuries entailed the most radical realignment in Alcoa's history. 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.

O'Neill's safety plan, in effect, was modeled on the habit loop. 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.

As Alcoa's safety patterns shifted, other aspects of the company started changing with startling speed, as well. Rules that unions had spent decades opposing--such as measuring the productivity of individual workers--were suddenly embraced, because such measurements helped everyone figure out when part of the manufacturing process was getting out of whack, posing a safety risk. Policies that managers had long resisted--such as giving workers autonomy to shut down a production line when the pace became overwhelming--were now welcomed, because that was the best way to stop injuries before they occurred. The company shifted so much that some employees found safety habits spilling into other parts of their lives.

"Two or three years ago, I'm in my office, looking at the Ninth Street bridge out the window, and there's some guys working who aren't using correct safety procedures," said Jeff Shockey, Alcoa's current safety director. One of them was standing on top of the bridge's guardrail, while the other held on to his belt. They weren't using safety harnesses or ropes. "They worked for some company that has nothing to do with us, but without thinking about it, I got out of my chair, went down five flights of stairs, walked over the bridge and told these guys, hey, you're risking your life, you have to use your harness and safety gear." The men explained their supervisor had forgotten to bring the equipment. So Shockey called the local Occupational Safety and Health Administration office and turned the supervisor in.

"Another executive told me that one day, he stopped at a street excavation near his house because they didn't have a trench box, and gave everyone a lecture on the importance of proper procedures. It was the weekend, and he stopped his car, with his kids in the back, to lecture city workers about trench safety. That isn't natural, but that's kind of the point. We do this stuff without thinking about it now."

O'Neill never promised that his focus on worker safety would increase Alcoa's profits. However, as his new routines moved through the organization, costs came down, quality went up, and productivity skyrocketed. If molten metal was injuring workers when it splashed, then the pouring system was redesigned, which led to fewer injuries. It also saved money because Alcoa lost less raw materials in spills. If a machine kept breaking down, it was replaced, which meant there was less risk of a broken gear snagging an employee's arm. It also meant higher quality products because, as Alcoa discovered, equipment malfunctions were a chief cause of subpar aluminum.

Researchers have found similar dynamics in dozens of other settings, including individuals' lives.

Take, for instance, studies from the past decade examining the impacts of exercise on daily routines. When people start habitually exercising, even as infrequently as once a week, they start changing other, unrelated patterns in their lives, often unknowingly. Typically, people who exercise start eating better and becoming more productive at work. They smoke less and show more patience with colleagues and family. They use their credit cards less frequently and say they feel less stressed. It's not completely clear why. But for many people, exercise is a keystone habit that triggers widespread change. "Exercise spills over," said James Prochaska, a University of Rhode Island researcher. "There's something about it that makes other good habits easier."

Studies have documented that families who habitually eat dinner together seem to raise children with better homework skills, higher grades, greater emotional control, and more confidence. Making your bed every morning is correlated with better productivity, a greater sense of well-being, and stronger skills at sticking with a budget. It's not that a family meal or a tidy bed causes better grades or less frivolous spending. But somehow those initial shifts start chain reactions that help other good habits take hold.

If you focus on changing or cultivating keystone habits, you can cause widespread shifts. However, identifying keystone habits is tricky. To find them, you have to know where to look. Detecting keystone habits means searching out certain characteristics. Keystone habits offer what is known within academic literature as "small wins." They help other habits to flourish by creating new structures, and they establish cultures where change becomes contagious.

But as O'Neill and countless others have found, crossing the gap between understanding those principles and using them requires a bit of ingenuity.


from The Power of Habit by Charles Duhigg

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