Jan. 13 (Bloomberg) -- What would happen if a corporation rejected financial goals as practically subversive of its true aspirations?
That is what happened with 100-year-old Alcoa Inc. Under the leadership of Paul H. O’Neill, Alcoa revived its fortunes through the single-minded pursuit of perfection in an area that wasn’t about money at all.
It was about safety.
In the 1880s, Charles Martin Hall, Alcoa’s founder, invented the smelting of aluminum, a lightweight and highly conductive material that is easy to work with. A century later, neither the process nor the company had changed all that much. Take 4 tons of bauxite-rich dirt, refine it into 2 tons of alumina powder, smelt that down into a ton of aluminum ingots, then on to can sheets. From these, you can make 60,000 Pepsi cans, or seven Audi car frames, or planes or boats -- whatever the customer wants.
The most recent major aluminum product innovation -- the beverage can -- came back in the 1960s. By the 1980s, the aluminum business was in decline, thanks partly to trade barriers, the growth of manufacturing in developing countries, volatile ore prices and new synthetic substitutes like laminates and composites. Supply was up, demand was down. Aluminum was a mature industry with a poor outlook.
In the early 1980s, Alcoa tried diversifying, buying companies that specialized in ceramics and composites, not aluminum. But it didn’t work.
So in 1987, the board of directors brought in a new chief executive officer, Paul O’Neill. It was an odd choice. O’Neill had grown up in government, not industry, rising in the Nixon and Ford administrations to deputy director of the Office of Management and Budget. O’Neill had then served as an executive at International Paper Co. Having been on the Alcoa board for only a year and knowing little about aluminum, he was the first Alcoa CEO ever to be chosen from outside the company’s ranks.
Like a new sheriff in town, O’Neill rode in alone: He brought no new executives with him. Nor did he fire any veterans.
O’Neill wanted to achieve growth by improving the way the company used its assets -- the speed of machines, the amount of energy used, the number of people needed per task, waste material generated, and length of time on processes.
“By taking care of those nonfinancial indicators,” O’Neill said, “I had a really strong feeling that the financial result would take care of itself.”
He sent teams to compare Alcoa with competitors such as Reynolds Metals, Co. and Alcan Inc., and companies such as DuPont Co., Xerox Corp. and Florida Power & Light Co. He identified 450 measures of productivity, safety and quality. How good were the other companies? How did they do it?
How high should Alcoa aim? To O’Neill the answer was obvious: perfection.
“We could have been as good as, say, DuPont, and stopped there,” he said. “But they weren’t perfect, so who wants to be like that?”
Only an all-hands-on-deck collaboration could take Alcoa to performance at this level. He needed a rallying point that would propel Alcoa into the “perfection” business.
The day laborer, the forge supervisor and the plant manager wouldn’t be swayed by cheerleading. The one shared truth that bound all was the incredible complexity and danger of the Alcoa workplace.
Safety, O’Neill said, “was a good place to drive a stake into the ground.” It was an appeal to the heart of every employee, a message that every one of them mattered.
Losses to Injury
The company already had an impressive safety record, standing in the top third of all U.S. companies in days lost to injury. But O’Neill wanted to bring the number to zero.
“People should not be hurt who work for Alcoa,” O’Neill told a group of union and management executives at the company’s huge Knoxville, Tennessee, plant. “It’s not a priority. It’s a precondition.”
Turning to management, O’Neill said, “From this day forward, we will not budget things that need to be done to improve safety conditions. If you have identified something that needs to be done, you should go and do it -- not put it into next year’s budget and in the meantime hope that no one gets hurt.”
Turning to the labor chiefs, O’Neill said, “If management doesn’t follow up on what I just said to them, here’s my home phone number.”
If a manager was told not to worry about money, what argument was left against a perfect injury-free work environment, against striving for zero workdays lost to injury? As emotional fuel for high performance, a rallying cry for collaboration, nothing was more potent than safety,
The whole enterprise ramped up. O’Neill gave his business-unit presidents pagers and orders to call him directly within 24 hours of a workplace injury. That meant the presidents needed to hear from vice presidents fast. Vice presidents had to hear from plant managers even faster.
Plant managers created new safety positions, and ran multiple audits of all safety incidents, past and present. Safety-training programs were retooled. With all eyes on them, safety managers addressed obvious problems that had been long ignored.
After a worker’s fatal fall down a darkened pit in Davenport, Iowa, Alcoa spent $3 million to build protection against a danger that people had been walking by for 30 or 40 years.
Shifting the Mindset
A new real-time safety information system soon gave Alcoa employees at 340 locations in 43 countries access to incident reports from near misses to injuries within 24 hours. This was in 1991, when few companies even knew what the Internet was.
Six months after O’Neill became CEO, an 18- year-old worker died on the job in Arizona. O’Neill summoned everyone in the line of authority to Pittsburgh. “We killed him,” O’Neill told the roomful of executives.
Alcoa was still learning. But shifting the mindset would take patience.
O’Neill felt he needed to shift the mindset of the rank and file, too. Work at an Alcoa plant is tough, and workers come from generations of Alcoans, and pride themselves on being tough.
“Burns, cuts, smashed fingers just come with the territory,” an employee explained. “They make you part of the crew. Danger is like a rite of passage.”
“You have to convince your people that that kind of behavior is not in their own interest,” O’Neill said.
The gains came swiftly. By 1991, Alcoa had reduced its injury rate by 50 percent. The search for perfection in all its processes rippled through Alcoa. Two employees at its troubled Rockdale, Texas, plant invented a new smelting process that reduced variation in a key stage by 80 percent, achieving the best “pot controls” in the plant’s history. That idea added $80,000 of value to the Rockdale operation.
Alcoa’s Addy, Washington, plant had dodged closure on a turnaround but still faced 100 layoffs. An hourly worker stepped forward: His team had figured out how to reduce furnace downtime by 50 percent. The new process saved Alcoa $10 million more than the layoffs had promised -- and preserved the jobs.
Texas workers found system fixes that clipped $400,000 off annual power costs. Brazilian employees devised new shipping containers that saved $150,000. Workers at a Tennessee plant reduced processing times by 40 percent for aluminum coils.
For the first time, Alcoa was seriously listening to its employees, both salaried and hourly.
O’Neill added financial incentives -- a broad move to share perks beyond the usual elite ranks and shareholders. He brought half of Alcoa’s wage-earning workforce onto a profit-sharing plan, up from 5 percent when he began. That put $1,500 into their pockets in 1989 -- serious money for workers with base-wage rates of $12 to $15 per hour.
As for safety, Alcoa’s lost-workday rate dropped by 50 percent. So did its rate of serious injury. The number of disabling injuries fell by more than half.
All in O’Neill’s first five years. By the end of O’Neill’s 12-year tenure, Alcoa’s lost-workday rate had dropped to a 20th of the U.S. average. Not zero, but Alcoa was still learning. Along the way, the company had gobbled up competitors, including Reynolds, and now controlled one-sixth of global aluminum output and almost half of U.S. output, and posted record profits of $1.5 billion on sales of $23 billion.
Trade safety for profits? Many firms will. But O’Neill showed the opposite strategy worked better. He brought his employees into a collaboration that drove safety and financial performance far higher than anyone at Alcoa thought possible.
(William J. Bratton, who led the Los Angeles, New York and Boston police departments, is the chairman of Kroll, a risk consulting company. Zachary Tumin is a senior researcher at Harvard Kennedy School’s Belfer Center for Science and International Affairs. This is the last in a three-part series of excerpts from their book, “Collaborate or Perish!: Reaching Across Boundaries in a Networked World,” to be published Jan. 17 by Crown Business. The opinions expressed are their own. Read Part 1 and Part 2.)
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