The Power of Habit: Why We Do What We Do in Life and Business (17 page)

KEYSTONE HABITS, OR THE BALLAD OF PAUL O’NEILL
Which Habits Matter Most

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 Hershey’s Kisses and the metal in Coca-Cola cans to the bolts that hold satellites together.
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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, over time, 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.
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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.
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