“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.
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
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. [102]
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
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.” [104]
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
