Yesterday, we looked at how Michael Phelps focused on a few core or “keystone” habits that impacted all other areas of his life. Attending to these “small wins” had an oversized return.

And, it’s not just individuals who are capable of this type of transformation.  

“When companies focus on changing habits, whole organizations can transform,” writes Charles Duhigg in The Power of Habit: Why We Do What We Do in Life and Business. “Firms such as Procter & Gamble, Starbucks, Alcoa, and Target have seized on this insight to influence how work gets done, how employees communicate, and—without customers realizing it—the way people shop.”

Keystone habits can have a far-reaching impact.  

Long before becoming CEO of Alcoa and leading a turnaround that increased the company’s market value 5X, Paul O’Neill was just another college student. From an early age, he had always been a big believer in lists. “Lists were how he organized his life,” Charles writes. “In college at Fresno State—where he finished his courses in a bit over three years, while also working thirty hours a week—[Paul] had drafted a list of everything he hoped to accomplish during his lifetime, including, near the top, ‘Make a Difference.'”

After graduation, he got a job working in the government. He was told to learn about computer systems. Paul kept writing his lists, and he earned a reputation as someone who solved problems and got things done. He got promoted each year.

In the mid-1960s, Robert McNamara remade the Pentagon by hiring a group of young mathematicians, statisticians, and computer programmers. “President Johnson wanted some whiz kids of his own,” Charles writes. Paul was recruited into what later became known as the Office of Management and Budget, one of D.C.’s most powerful agencies.  

Paul was assigned a project to create an analytical framework to understand where the government was spending money on healthcare. “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,” writes Charles about Paul’s findings at the time.  

It was a “habit loop”—spread across thousands of people and billions of dollars.

For example, after World War II, Congress had created a program to build community hospitals. Decades later, the program was still in effect. “So whenever lawmakers allocated new healthcare 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,” Charles notes.

Most of the time, no one bothered to ask if the town wanted or needed 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!'” Paul states in The Power of Habit. “It didn’t make any sense, but everybody did the same thing again and again.”

Institutional routines like this exist in every organization. “Individuals have habits; groups have routines,” writes Geoffrey Hodgson, an academic who has spent his career examining organizational patterns. “Routines are the organizational analogue of habits.”

Paul recognized these kinds of habits were dangerous. “We were basically ceding decision making to a process that occurred without actually thinking,” he recalls. 

We can, however, use our understanding of how habits and routines work to drive positive change. “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,” notes Charles. In time, this practice became an organizational habit.

Another example is the Environmental Protection Agency, first created in 1970. “The EPA’s first administrator, William Ruckelshaus, consciously engineered organizational habits that encouraged his regulators to be aggressive on enforcement,” writes Charles. “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, being aggressive gets rewarded.

“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,” Paul recounts. “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 time, Paul left the government and entered the private sector, where he used these learnings to become CEO and drive profound organizational change at two large Fortune 500 companies, International Paper and Alcoa.

More tomorrow.


Reflection: What habits and routines work well in my team or organization? What habits and routines are not working well?

Action: Discuss with my team.

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