Can creating a habit be a strategy?
Many of the people in the audience had invested millions of dollars in Alcoa stock and had enjoyed a steady return. In the past year, however, investor grumblings started. Alcoa's management had made misstep after rnisstep, unwisely trying to expand into new product lines while competitors stole customers and profits away. So there had been a palpable sense of relief when Alcoa’s hoard announced it was time for new leadership. That relief, though, turned to unease when the choice was announced: the new CEO would he a former government bureaucrat named Paul O'Neill. Many on Wall Street had never heard of him. When Alcoa scheduled this meet and greet at the Manhattan ballroom, every major investor asked for an invitation. A few minutes before noon, 0’Neill took the stage. He was fifty-one years old, trim, and dressed in gray pinstripes and a red power tie. His hair was white and his posture military straight. He bounced up the steps and smiled warmly. He looked dignified, solid, confident. Like a chief executive. Then he opened his mouth. “I want to talk to you about worker safety,” he said. “Every year, numerous Alcoa workers 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 it's not good enough. I intend to make Alcoa the safest company in America. I intend to go for zero injuries.” The audience was confused. These meetings usually followed a predictable script: A new CEO would start with an introduction, make a faux self-deprecating joke—something about how he slept his way through Harvard Business School —then promise to boost profits and lower costs. Next would come an excoriation of taxes, business regulations, and sometimes, with a fervor that suggested firsthand experience in divorce court, lawyers. Finally, the speech would end with a blizzard of buzzwords—“synergy,” “rightsizing,” and “co- opetition”—at which point everyone could return to their offices, reassured that capitalism was safe for another day. O'Neill hadn’t said anything about profits. He didn’t mention taxes. There was no talk of “using alignment to achieve a win-win synergistic market advantage.” For all anyone in the audience knew, given his talk of worker safety, 0’Neill might be pro-regulation. Or, worse, a Democrat. It was a terrifying prospect. “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 Guy must have done a lot of drugs, he thought. 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 he an indicator that they're making progress in changing our habits across the entire institution. That’s how we should be judged.” Within a year of O’Neill’s speech, Alcoa’s pro?ts 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.
Hewlett-Packard, a cautionary tale
What happens when a company stops believing in secrets? The sad decline of Hewlett-Packard provides a cautionary tale. In 1990, the company was worth $9 billion. Then came a decade of invention. In 1991, HP released the DeskJet 500C, the world’s first affordable color printer. In 1993, it launched the OmniBook, one of the first “superportable” laptops. The next year, HP released the OfficeJet, the world’s first all-in-one printer/fax/copier. This relentless product expansion paid off: by mid-2000, HP was worth $135 billion. But starting in late 1999, when HP introduced a new branding campaign around the imperative to “invent,” it stopped inventing things. In 2001, the company launched HP Services, a glorified consulting and support shop. In 2002, HP merged with Compaq, presumably because it didn’t know what else to do. By 2005, the company’s market cap had plunged to $70 billion—roughly half of what it had been just five years earlier. HP’s board was a microcosm of the dysfunction: it split into two factions, only one of which cared about new technology. That faction was led by Tom Perkins, an engineer who first came to HP in 1963 to run the ...
Perhaps the most famous is the railroad lines, which Levitt argues fell into steep decline because they thought they were in the train business rather than the transportation business. If those leaders had seen themselves as helping customers get from one place to another, they might’ve expanded the business into other forms of transportation like cars, trucks, or airplanes.