1: A group of Wall Street investors and stock analysts gathered in the ballroom of a swanky New York City 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 Hershey’s Kisses and the metal in Coca-Cola cans to the bolts that hold satellites together,” writes Charles Duhigg in The Power of Habit: Why we do what we do in Life and Business.”
Alcoa was one of the biggest companies in the world. Its founder had discovered the process to smelt aluminum. For more than 100 years it had provided steady returns. Recently, however, the company had made a string of poor decisions and a new CEO had been brought in to turn things around.
Investors welcomed the decision to bring in a new leader. Who the board selected though seemed puzzling. His name was Paul O’Neill, a former government bureaucrat.
2: “I want to talk to you about worker safety,” Paul told the audience. “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 perplexed. “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,” Charles writes. “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.”
Not this speech. Not this CEO. He didn’t say anything about profits or taxes. There was no talk of “using alignment to achieve a win-win synergistic market advantage,” Charles notes. “For all anyone in the audience knew, given his talk worker safety, [the new CEO] might be pro-regulation.”
“If you want to understand how Alcoa is doing, you need to look at our workplace safety figures,” Paul told the crowd. “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.”
When the speech was over, the room was quiet. The only sound was the hum of traffic through the windows.
“One investor in the audience knew that [Paul] had been in Washington, D.C. during the sixties. Guy must have done a lot of drugs, he thought,” writes Charles.
One stock broker left the meeting and immediately called his twenty largest clients. “The board put a crazy hippie in charge and he’s going to kill the company,” the investor remembers. “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.”
3: Less than one year after Paul’s speech in Manhattan, Alcoa’s profits hit a record high. By the time he retired thirteen years later, the company’s annual net income was five times larger than the day he was hired and the value of the firm had increased by $27 billion.
“Someone who invested a million dollars in Alcoa on the day [Paul] 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,” Charles recounts.
As Paul predicted in his speech, Alcoa became one of the safest companies in the world. Prior to his arrival, almost every Alcoa plant had at least one accident per week. His new safety plan resulted in some facilities going years without a single associate losing a workday due to an accident. The company’s worker injury rate fell to one-twentieth the U.S. average.
How did Paul make “one of the largest, stodgiest, and most potentially dangerous companies into a profit machine and a bastion of safety?” Charles asks.
By focusing on one habit and then watching as the changes ripple through the organization.
More tomorrow.
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Reflection: What surprises me about the story above? Why would focusing on one habit (safety) make such a big impact? Are there any opportunities like this one at my organization?
Action: Discuss the questions above with a colleague or with my team.
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