Up to now, our risk management primer has consisted of four parts: (i) providing a way to think about risk management, (ii) introducing the concept of corporate longevity as a key metric, (iii) explaining the need for business leaders to become “chief learners” that serve within an institutional learning system, and (iv) how an institutional learning system is integral to risk management. Parts V and VI explore how former Alcoa CEO Paul O’Neill used a risk management strategy focused on workplace safety to create an institutional learning system and a culture of habitual excellence that resulted in record prosperity.
“When I look ahead, I think about companies that are winners in the sense that they endure for decades and centuries, not just some ten-year wonder.”
Former Alcoa CEO & Treasury Secretary Paul O’Neill,
Fortune Magazine, October 22, 1990
The most compelling part of the Alcoa risk management story is how the company changed – not the business – but the changes in the employees themselves and the way they felt about their employer. When he became CEO of Alcoa in 1987, O’Neill didn’t know anything about aluminum and the prevailing sentiment was that commodity products like aluminum needed to be made overseas where labor costs were cheaper. He believed, however, that three factors mattered: the Alcoa workforce, its processes for producing goods and services, and the value of those goods and services (customer value). He also believed that if Alcoa was going to improve its processes and deliver greater value to customers, it would take all of Alcoa’s employees working together to make that happen. To O’Neill, the greatest risk was not the standard CEO discussion points of profits or taxes etc., it was whether the company was harnessing the power of its greatest resource: Alcoa’s 145,000 employees.
If people are your company’s greatest resource and their unrealized potential is your company’s greatest risk, what do you do? In O’Neill’s case, he was determined to show that Alcoa’s management truly cared about the employees as people. The only way to do that was to actually care about them and to prove it, he declared that Alcoa’s most important priority was the elimination of all job-related injuries. At his Wall Street introduction as CEO, O’Neill said:
I want to talk to you about worker safety. Every year, numerous Alcoa employees 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’s it not good enough, I intend to make Alcoa the safest company in America. I intend to go for zero injuries.
O’Neill delivered the same message at each Alcoa plant he visited and, as a point of emphasis, he shared his home telephone number with the employees, telling them to call him personally if they had unmet concerns about safety.
O’Neill backed up his words with action. He fired several people who didn’t believe he was serious about worker safety and he walked the talk. Six months after he became CEO, an employee was killed repairing a piece of equipment. Immediately, O’Neill led a day-long meeting of plant executives to recreate the accident and determine what correctable errors contributed to the employee’s death. After making a list of the correctable errors, O’Neill told the group that they should not blame the employee’s supervisor; instead, O’Neill took personal responsibility saying: “We killed this man. It’s a failure of my leadership. I caused his death.” Everyone began to realize that O’Neill was serious and that he was genuinely concerned about Alcoa’s employees, including those he had never met.
Within two years, Alcoa’s injury rate (which was already an industry best (50% reduction every five years)) had declined to 1.8 per 200,000 manhours, making it more likely that someone would get injured working as an accountant or software designer than handling molten metal at Alcoa. O’Neill didn’t dwell on the numbers. Instead, he brought the statistics back to his central point – that Alcoa’s people and their wellbeing was his most important priority. In a memo distributed to the entire company, O’Neill wrote: I want to congratulate everyone for bringing down the number of accidents. We shouldn’t celebrate because we followed the rules, or brought down a number. We should celebrate because we are saving lives.
Alcoa’s employees took notice. Some workers made copies of O’Neill’s memo and taped it to their lockers. One employee “painted a mural of O’Neill on one of the walls of a smelting plant with a quote from the memo inscribed underneath.”
O’Neill’s relentless focus on job safety created a change in mental models (the deeply ingrained assumptions, images, and generalizations that influence how we think) (see iceberg model below). Now Alcoa’s employees felt that they mattered and that they were contributing to something bigger than themselves. Having a larger view of their roles led to better relations with management (the structures level of the iceberg). Improved relations led to greater discussion and collaboration across the board about all sorts of ways to improve company processes. When workers called O’Neill, “they didn’t want to talk about accidents. They wanted to talk about all these other great ideas” to improve the company.
With improved mental models and better structures (i.e., workplace relationships), O’Neill could guide Alcoa towards his ultimate objective – habitual excellence, a behavioral pattern that would lead to the desired business outcomes (e.g., positive events such as increased profits, lower costs, higher quality etc.). The focus on safety naturally stimulated a much broader discussion about processes in general because you can’t tackle safety without understanding the inherent processes that comprise the job. More importantly, the company had unlocked the potential of the workforce to work together on improving processes. No matter the issue, the workforce knew how to work together to problem-solve:
Former Alcoa CEO & Treasury Secretary Paul O’Neill,
Fortune Magazine, October 22, 1990
The most compelling part of the Alcoa risk management story is how the company changed – not the business – but the changes in the employees themselves and the way they felt about their employer. When he became CEO of Alcoa in 1987, O’Neill didn’t know anything about aluminum and the prevailing sentiment was that commodity products like aluminum needed to be made overseas where labor costs were cheaper. He believed, however, that three factors mattered: the Alcoa workforce, its processes for producing goods and services, and the value of those goods and services (customer value). He also believed that if Alcoa was going to improve its processes and deliver greater value to customers, it would take all of Alcoa’s employees working together to make that happen. To O’Neill, the greatest risk was not the standard CEO discussion points of profits or taxes etc., it was whether the company was harnessing the power of its greatest resource: Alcoa’s 145,000 employees.
If people are your company’s greatest resource and their unrealized potential is your company’s greatest risk, what do you do? In O’Neill’s case, he was determined to show that Alcoa’s management truly cared about the employees as people. The only way to do that was to actually care about them and to prove it, he declared that Alcoa’s most important priority was the elimination of all job-related injuries. At his Wall Street introduction as CEO, O’Neill said:
I want to talk to you about worker safety. Every year, numerous Alcoa employees 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’s it not good enough, I intend to make Alcoa the safest company in America. I intend to go for zero injuries.
O’Neill delivered the same message at each Alcoa plant he visited and, as a point of emphasis, he shared his home telephone number with the employees, telling them to call him personally if they had unmet concerns about safety.
O’Neill backed up his words with action. He fired several people who didn’t believe he was serious about worker safety and he walked the talk. Six months after he became CEO, an employee was killed repairing a piece of equipment. Immediately, O’Neill led a day-long meeting of plant executives to recreate the accident and determine what correctable errors contributed to the employee’s death. After making a list of the correctable errors, O’Neill told the group that they should not blame the employee’s supervisor; instead, O’Neill took personal responsibility saying: “We killed this man. It’s a failure of my leadership. I caused his death.” Everyone began to realize that O’Neill was serious and that he was genuinely concerned about Alcoa’s employees, including those he had never met.
Within two years, Alcoa’s injury rate (which was already an industry best (50% reduction every five years)) had declined to 1.8 per 200,000 manhours, making it more likely that someone would get injured working as an accountant or software designer than handling molten metal at Alcoa. O’Neill didn’t dwell on the numbers. Instead, he brought the statistics back to his central point – that Alcoa’s people and their wellbeing was his most important priority. In a memo distributed to the entire company, O’Neill wrote: I want to congratulate everyone for bringing down the number of accidents. We shouldn’t celebrate because we followed the rules, or brought down a number. We should celebrate because we are saving lives.
Alcoa’s employees took notice. Some workers made copies of O’Neill’s memo and taped it to their lockers. One employee “painted a mural of O’Neill on one of the walls of a smelting plant with a quote from the memo inscribed underneath.”
O’Neill’s relentless focus on job safety created a change in mental models (the deeply ingrained assumptions, images, and generalizations that influence how we think) (see iceberg model below). Now Alcoa’s employees felt that they mattered and that they were contributing to something bigger than themselves. Having a larger view of their roles led to better relations with management (the structures level of the iceberg). Improved relations led to greater discussion and collaboration across the board about all sorts of ways to improve company processes. When workers called O’Neill, “they didn’t want to talk about accidents. They wanted to talk about all these other great ideas” to improve the company.
With improved mental models and better structures (i.e., workplace relationships), O’Neill could guide Alcoa towards his ultimate objective – habitual excellence, a behavioral pattern that would lead to the desired business outcomes (e.g., positive events such as increased profits, lower costs, higher quality etc.). The focus on safety naturally stimulated a much broader discussion about processes in general because you can’t tackle safety without understanding the inherent processes that comprise the job. More importantly, the company had unlocked the potential of the workforce to work together on improving processes. No matter the issue, the workforce knew how to work together to problem-solve:
- Get everyone involved in the process (workers, supervisors, managers) engaged.
- Get everyone observing and discussing how the process currently works.
- Come to agreement with all about how the process should work.
- Do it the same way every day.
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