Case Studies and Further Reading

With Safety, Alcoa Showed Its Mettle

By William J. Bratton and Zachary Tumin Jan 13, 2012 1:00 PM GMT+1300Fri Jan 13 00:00:14 GMT 2012
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 aluminium, 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 aluminium 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 aluminium product innovation — the beverage can — came back in the 1960s. By the 1980s, the aluminium 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. Aluminium was a mature industry with a poor outlook.

In the early 1980s, Alcoa tried diversifying, buying companies that specialized in ceramics and composites, not aluminium. But it didn’t work.

Government Background

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 aluminium, 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 aluminium coils.

For the first time, Alcoa was seriously listening to its employees, both salaried and hourly.

Financial Incentives

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 aluminium 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.

Another accident waiting to happen

She’ll be right is alive and well! …. Unfortunately it is only ‘alright’ until it isn’t. We were recently talking to a sub-contractor not far from Auckland. The conversation went something like this:

“How’s the job at (location) going?”

“Pretty good, but it is a classic case of an SME sub-contractor. I see safety issues that are absolute ‘no-goes’ every day. It is very sobering. I have spoken out two or three times already but it makes absolutely no difference. First it is all about the bosses on site, and then it transfers down to the workers, there is no respect for health and safety – they just basically ignore it and mock it.

This is a project where we are working around diggers, heavy lumps of steel sheet, and large pipes. There are employees working in three metre deep ditches, others working at heights, and electric cables underground. The main contractor has all the necessary signs, personal protective equipment, and all the ‘forms’, but the practices seem totally unrelated. They do it to comply – not to save lives! This is a common issue as I see it.

Me – well, as just one subcontractor I have my own health and safety toolbox meeting each morning. I am the only attendee! But – it is the process that is important.”

No doubt, if and when there is an accident at this site or the next one, the main contractor will claim that “All the safety gear and processes where in place – we just don’t know how this happened – probably human error, and just one of those things that unfortunately happens in the workplace.”

We’ve heard this rationale and these sorts of excuses before, and despite the evidence to say that poor safety attitudes and behaviours are significant contributors to fatalities and serious harm accidents, little seems to change.

It is little wonder that with the ‘she’ll be right’ or ‘it’ll never happen here’ attitude more than 187,000 people were injured at work in New Zealand during 2010 – that’s over 500 people every day of the year. More than 5,900 people were seriously harmed at work – that’s 16 every day of the year and in 2010, 75 people were killed at work.

Until Board Members, CEOs, Executive Team members and ‘Bosses’, realise that while they may have the ‘hardware side’ of safety working well , there is much to learn about safety ‘software’ – the human aspects of safety. Until leaders understand what their safety culture is telling them, we can expect only incremental improvements. Some organisations do already make the effort to understand their safety culture, but mostly the others have a lot to learn.

New Zealand gripped in epidemic of workplace deaths and injuries

The 2011 statistics from England, Wales and Scotland report that 171 workplace fatalities occurred during the year to March 31, 2011

In New Zealand during the year to June 2011 there were 85 workplace deaths. Not only that, there were 445 serious harm injuries and 213,000 claims for work related injuries.

How does a workforce one tenth the size of the UK manage to have half as many deaths?
How do we manage to have over one serious harm workplace accident for every day of the year, and why do we have about 583 claims every day (2009) for work related injuries?

The NZ Department of Labour recently reported that “Research indicates that ‘human error’ and ‘procedural violation’ have contributed to nearly 70% of work related fatalities over the past six years” and yet they claim that the “complex issues of safety culture are largely intangible”. At Concordia we’ve been measuring safety culture (the human factors) for years for clients who understand the importance of safety at work. Internationally, measurement of safety culture is recognised as critical for reducing workplace deaths and accidents.

At Concordia our Vision is to halve the number of workplace fatalities and accidents by 2016. We need your thoughts, ideas, and support, because we won’t do it alone.

Transformation needs Engagement

Employee engagement in health and safety is the key to getting the transformational shift needed to break New Zealand’s one-fatality-a-week cycle, according to an organisational culture specialist.

Hamish Brown told delegates to the Conferenz Zero Harm in the Workplace conference in Auckland, early in March, that New Zealand workplaces were quite good at describing what they are doing – audits, training, systems, hazard identification – but not so strong on how it was done.

Brown, managing director of Concordia, said the ‘how’ included visible safety leadership, behaviours, personal responsibility, shared purpose, an external view of culture, and OHS delivering business value.

“We have to work at the culture level, because behaviour turns systems and procedures into reality.”

Senior management, he said, has a huge impact on an organisation’s culture, 80 percent of which is attributable to leadership behaviour – and research showed 60 percent of organisational performance is due to its culture.

He recalled a visit to a company where the office and warehouse were on opposite sides of an open yard full of forkhoists, trucks and material. The rule was that everyone had to wear a hi-viz jacket when crossing the yard, but he noticed some managers didn’t bother. In doing so, they were sending powerful messages such as:

• actually, the yard isn’t unsafe;

• safety isn’t really that important;

• I’m too important or intelligent or tough to bother with safety;

• safety is just one of those compliance things, it’s not a priority.

“Do you have people in your organisation giving these messages? We have to convince senior management that they need to understand these things.”

Getting a transformational shift means introducing change. Brown said there were three types of people who resisted change. Those who:

• aren’t aware of the need to change;

• are aware but can’t change because they lack the skills;

• are aware, have the skills, but are unwilling to change.

It is this latter group which needs to be won over, said Brown, by identifying “change enablers”, those who are aware of the need to change, have the skills, and will give it a go.

However, change initiatives driven from the top down usually fail. He recommends using a variety of means – surveys, focus groups – to first listen to what people are saying about health and safety, to understand what they are saying, and to respond to what they are saying.

“We have obtained information that would make your hair stand on end. But once it’s out on the table we can start to understand. We run jam sessions with management and staff. The ideas emerge and they are driven from the bottom up, and resourced from the top down.”

He concluded with three tips for change management. First, move from a compliance approach to one which seeks collaboration. Second, identify where you should focus your change, because change management is most effective when it works one piece at a time.

“Work with the stars who are on board already. Get them on board as your vanguard. They will drag the bell curve up. It’s much easier and more cost-effective.”

Third tip: help managers to engage staff by encouraging them to tell staff about the outcomes the organisation wants and asking what they think. Listen to what they say. Ensure the managers understand – and respond.

“Culture change is seen as a big ogre, but it isn’t. It can change very quickly, one bit at a time, so long as you know where to focus.”

Article from:
Safeguard Update
Issue 407, 2011
Thompson Reuters