If the name Paul O’Neill rings a bell, it’s probably because of the “Apprentice”-like way President George W. Bush fired him as Treasury Secretary. But in the business world, O’Neill is better known for his visionary leadership of Alcoa prior to his brief tenure in the Bush Administration. It’s a story that offers insights for all CEOs who want to cultivate the habits of highly effective organizations.
In 1987, Alcoa was struggling, and its board tapped O’Neill, an industry outsider, to take charge. His tenure got off to a rough start when he declared that he had one singular metric of success: improved worker safety. Analysts, who were looking for a different metric (profits!), went crazy. “The board put a crazy hippie in charge and he’s going to kill the company,” one investor concluded after hearing O’Neill’s plan. “I ordered [my clients] to sell their stock immediately.”
Investors who followed that advice were sorry they did. During O’Neill’s 12-year tenure, Alcoa’s stock price skyrocketed. And, by the way, the company became one of the safest in the world. Mission accomplished.
Why did O’Neill choose to focus on worker safety? And how did such a Main Street focus lead to financial returns that made Wall Street cheer? The journalist Charles Duhigg provides good answers in his book The Power of Habit: Why We Do What We Do in Life and Business.
In short, O’Neill saw Alcoa’s high injury rates not only as morally unacceptable but also as a strong indicator that the company had lost its culture of excellence. He then bet his job on the proposition that he could help the company build a new approach to safety that would have positive spillover effects on the company’s entire culture and, ultimately, its performance. His bet paid off. In worker safety, O’Neill found the perfect “keystone habit” he could use to spark a wide array of other habits that favored excellence over mediocrity.
To learn more about those habits of excellence and the brain science behind them, we encourage you to read Duhigg’s book. You’ll see why habits have such a big hold on our psyches and the cultures of our organizations—for good or for ill. And you’ll see how leaders in a wide variety of fields—from advertising to faith to Civil Rights—have harnessed the power of habit to advance ideas much more effectively than they could in any other way.
The Leap Ambassadors Community, of which we are members, is using its collective knowledge to build a new tool to honor these insights on the power of habit. The tool is tentatively called the PIOSA (Performance Imperative Organizational Self-Assessment), and the community hopes to have an early release this fall. While The Performance Imperative put forward a clear definition of “high-performance organization” and the organizational disciplines that support high performance, the PIOSA will identify more than 120 specific organizational habits that high-performance organizations not only adopt but, in many cases, successfully integrate into their DNA.
But the PIOSA won’t tell each organization what its “keystone habit” should be. For Alcoa, improving worker safety turned out to be the perfect place to start building a whole suite of high-performance habits. For the world-renowned Cleveland Clinic, which Mario serves as a director, becoming patient-first was the keystone. For Ascension Health, it was dramatically reducing preventable deaths. After reading Duhigg’s book, you’ll be in a better position to identify your keystone habit.
And now for brief updates from around the Leap of Reason community:
- In “Internal Culture, External Impact,” Community Wealth Partners’ Amy Celep, Sara Brenner, and Rachel Mosher-Williams found that foundation leaders rarely pay attention to cultivating good cultural habits within their own walls. Most simply don’t appreciate that their culture can have a big enabling or hindering effect on what they can achieve externally. For example, foundation leaders often favor subject-matter expertise over good management. “These cultures may be dominated by individuals who attempt to champion solutions rather than engage outside perspectives,” the authors said. “This can perpetuate a distance between … foundation staff and grantees, and can severely limit innovation and the application of solutions.”
- “Pay-What-It-Takes Philanthropy” is a great contribution to the heated debate over “overhead costs.” To determine what it actually costs for high-performing nonprofits to get the job done, Bridgespan analysts Jeri Eckhart-Queenan, Michael Etzel, and Sridhar Prasad studied the financial records of 20 effective nonprofits and tallied up their indirect costs—that is, the costs not attributed to a specific program. “The median indirect cost rate for all 20 nonprofits was 40 percent, nearly three times the 15 percent overhead rate that most foundations provide,” the authors found.
- If you’re on the journey to high performance, please consider applying for the $100,000 Drucker Prize, the biggest management contest in the country for innovative, effective nonprofits. This year, the Drucker Institute has given the prize a clever overhaul, turning it into a learning platform rather than just a winner-take-all prize. Applications are due July 1. Starting July 25, the Drucker Institute will give 50 semifinalists a chance to participate in online mini-courses on performance, delivered by some of the best management minds in the country. The semifinalists will then be asked to answer a series of questions intended to help them clarify how they will apply their new knowledge. The winner of the top prize will be announced September 12.
- Kudos to Phil Buchanan for speaking truth to power in his essay “Big Issues, Many Questions.” Don’t be thrown by the soft title. It’s a hard-hitting critique of foundation practices that are out of alignment with major forces in society—from growing disillusionment with “establishment” institutions to a backlash against mindless measurement efforts. We loved Phil’s insider anecdote about a nonprofit leader who was turned down for funding because his cost per child served fell outside of a funder’s guidelines. “I can give every poor child a f***ing lollipop if you want a low cost-per-lives-served number!,” the leader yelled in frustration. “But that won’t create impact.”
- Advancing the Power of Economic Evidence to Inform Investments in Children, Youth, and Families, a new book from the prestigious National Academies of Sciences, Engineering, and Medicine, provides valuable insights into how we can incorporate economic evaluation into policymaking as well as program design and management. Congratulations to the book’s editors, Eugene Steuerle and Leigh Miles Jackson, for advancing the movement for bringing “Moneyball” principles to the federal government’s massive investments in programs for children and youth.
- Jim Shelton was recently named head of the education component of the Chan Zuckerberg Initiative, the LLC established by Facebook founder Mark Zuckerberg and his wife, Priscilla Chan. Good choice, guys! Jim is smart as hell and has just the right hybrid background to help advance Zuckerberg and Chan’s vision of “personalized learning” and knocking down barriers to educational achievement.
- Finally, a birthday that doesn’t warrant a party but at least a quick mention: This month marks the fifth anniversary of Leap of Reason‘s publication. There are now more than 91,000 copies in circulation, across 70 countries. #thankyou!
Events/Webinars for Raising Performance:
- “Measurable Impact 2016” conference; June 1-3; Baltimore, MD; Results-Based Accountability
- “Mission-Critical: How to Ensure Financial Health & Sustainability in Service of Better Outcomes” webinar; June 14; Social Solutions
- “Moneyball for Head Start: Using Data and Evidence to Improve Outcomes” briefing; June 14; Washington, DC; Results for America; Bellwether Education Partners; National Head Start Association.
- “Carrots & Sticks: How to Create a Culture that Values Learning” webinar; July 12; Social Solutions
- “From Frontline Workers to the CEO: How to Use Internal Monitoring for Continuous Improvement” webinar; August 9; Social Solutions
- “Internal Data is Not Enough: How to Add External Evaluation for Mission Effectiveness” webinar; September 13; Social Solutions
Mario and Lowell