The Power of Habit – Why We Do What We Do in Life and Business

without forethought, so they often grow from rivalries or fear.

But sometimes, even destructive habits can be transformed by leaders who know how to seize the right opportunities. Sometimes, in the heat of a crisis, the right habits emerge.

II.

When An Evolutionary Theory of Economic Change was first published in 1982, very few people outside of academia noticed. The book’s bland cover and daunting first sentence-“In this volume we develop an evolutionary theory of the capabilities and behavior of business firms operating in a market environment, and construct and analyze a number of models consistent with that theory”-almost seemed designed to ward off readers. [163] The authors, Yale professors Richard Nelson and Sidney Winter, were best known for a series of intensely analytic papers exploring Schumpeterian theory that even most PhD candidates didn’t pretend to understand. [164]

Within the world of business strategy and organizational theory, however, the book went off like a bombshell. [165] It was soon hailed as one of the most important texts of the century. Economics professors started talking about it to their colleagues at business schools, who started talking to CEOs at conferences, and soon executives were quoting Nelson and Winter inside corporations as different as General Electric, Pfizer, and Starwood Hotels.

Nelson and Winter had spent more than a decade examining how companies work, trudging through swamps of data before arriving at their central conclusion: “Much of firm behavior,” they wrote, is best “understood as a reflection of general habits and strategic orientations coming from the firm’s past,” rather than “the result of a detailed survey of the remote twigs of the decision tree.” [166]

Or, put in language that people use outside of theoretical economics, it may seem like most organizations make rational choices based on deliberate decision making, but that’s not really how companies operate at all. Instead, firms are guided by long-held organizational habits, patterns that often emerge from thousands of employees’ independent decisions. [167] And these habits have more profound impacts than anyone previously understood.

For instance, it might seem like the chief executive of a clothing company made the decision last year to feature a red cardigan on the catalog’s cover by carefully reviewing sales and marketing data. But, in fact, what really happened was that his vice president constantly trolls websites devoted to Japanese fashion trends (where red was hip last spring), and the firm’s marketers routinely ask their friends which colors are “in,” and the company’s executives, back from their annual trip to the Paris runway shows, reported hearing that designers at rival firms were using new magenta pigments. All these small inputs, the result of uncoordinated patterns among executives gossiping about competitors and talking to their friends, got mixed into the company’s more formal research and development routines until a consensus emerged: Red will be popular this year. No one made a solitary, deliberate decision. Rather, dozens of habits, processes, and behaviors converged until it seemed like red was the inevitable choice.

These organizational habits-or “routines,” as Nelson and Winter called them-are enormously important, because without them, most companies would never get any work done. [168] Routines provide the hundreds of unwritten rules that companies need to operate. [169] [170] They allow workers to experiment with new ideas without having to ask for permission at every step. They provide a kind of “organizational memory,” so that managers don’t have to reinvent the sales process every six months or panic each time a VP quits. [171] Routines reduce uncertainty-a study of recovery efforts after earthquakes in Mexico and Los Angeles, for instance, found that the habits of relief workers (which they carried from disaster to disaster, and which included things such as establishing communication networks by hiring children to carry messages between neighborhoods) were absolutely critical, “because without them, policy formulation and implementation would be lost in a jungle of detail.” [172]

But among the most important benefits of routines is that they create truces between potentially warring groups or individuals within an organization. [173]

Most economists are accustomed to treating companies as idyllic places where everyone is devoted to a common goal: making as much money as possible. Nelson and Winter pointed out that, in the real world, that’s not how things work at all. Companies aren’t big happy families where everyone plays together nicely. Rather, most workplaces are made up of fiefdoms where executives compete for power and credit, often in hidden skirmishes that make their own performances appear superior and their rivals’ seem worse. Divisions compete for resources and sabotage each other to steal glory. Bosses pit their subordinates against one another so that no one can mount a coup.

Companies aren’t families. They’re battlefields in a civil war.

Yet despite this capacity for internecine warfare, most companies roll along relatively peacefully, year after year, because they have routines-habits-that create truces that allow everyone to set aside their rivalries long enough to get a day’s work done.

Organizational habits offer a basic promise: If you follow the established patterns and abide by the truce, then rivalries won’t destroy the company, the profits will roll in, and, eventually, everyone will get rich. A salesperson, for example, knows she can boost her bonus by giving favored customers hefty discounts in exchange for larger orders. But she also knows that if every salesperson gives away hefty discounts, the firm will go bankrupt and there won’t be any bonuses to hand out. So a routine emerges: The salespeople all get together every January and agree to limit how many discounts they offer in order to protect the company’s profits, and at the end of the year everyone gets a raise.

Or take a young executive gunning for vice president who, with one quiet phone call to a major customer, could kill a sale and sabotage a colleague’s division, taking him out of the running for the promotion. The problem with sabotage is that even if it’s good for you, it’s usually bad for the firm. So at most companies, an unspoken compact emerges: It’s okay to be ambitious, but if you play too rough, your peers will unite against you. On the other hand, if you focus on boosting your own department, rather than undermining your rival, you’ll probably get taken care of over time. [174]

ROUTINES CREATE TRUCES THAT ALLOW WORK TO GET DONE

Routines and truces offer a type of rough organizational justice, and because of them, Nelson and Winter wrote, conflict within companies usually “follows largely predictable paths and stays within predictable bounds that are consistent with the ongoing routine… The usual amount of work gets done, reprimands and compliments are delivered with the usual frequency… Nobody is trying to steer the organizational ship into a sharp turn in the hope of throwing a rival overboard.” [175]

Most of the time, routines and truces work perfectly. Rivalries still exist, of course, but because of institutional habits, they’re kept within bounds and the business thrives.

However, sometimes even a truce proves insufficient. Sometimes, as Rhode Island Hospital discovered, an unstable peace can be as destructive as any civil war.

Somewhere in your office, buried in a desk drawer, there’s probably a handbook you received on your first day of work. It contains expense forms and rules about vacations, insurance options, and the company’s organizational chart. It has brightly colored graphs describing different health care plans, a list of relevant phone numbers, and instructions on how to access your email or enroll in the 401(k).

Now, imagine what you would tell a new colleague who asked for advice about how to succeed at your firm. Your recommendations probably wouldn’t contain anything you’d