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The Irreducible Components of Leadership

In a powerful 2009 address to healthcare CEOs, Paul O’Neill shares what he has learned are the fundamental components of leadership necessary for an organization to achieve greatness, and encourages the CEOs to apply these ideas and methods in their own institutions. The Tennessee Hospital Association and BlueCross Blue Shield of Tennessee sponsored the meeting.

I want to talk to you about leadership concepts this morning because I believe this: With leadership, anything is possible, and without it, nothing is possible. So I’m going to define for you if I can what it is I mean by leadership what it is that we should expect a leader to do. First of all, I think it’s necessary for a real leader to articulate what I call unarguable goals and aspirations for the institution that they lead.

That doesn’t mean that I think they should invent them themselves in the dark closet in the middle of the night, but I believe it’s a really important critical role for a true leader to articulate non-arguable goals. So I want to tell you some non-arguable goals. I want to start with my favorite thing: In a really great organization, the people in it are never injured at work.

Now when you head off in that direction, one of the things you’ll find - I found when I first went to Alcoa - and I said on the first day I was there: “People who work for Alcoa should never be hurt at work.” There were a whole lot of people in Alcoa who didn’t say to my face, but we’re saying in the hallways or behind me: “He doesn’t know anything about making aluminum.”, “He doesn’t know what he’s like to be in a smelter in Alcoa Tennessee in the summertime, where it’s a hundred and thirty degrees, and the humidity is almost a hundred percent, and people get heat prostration, and there’s nothing you can do about it.”, “He doesn’t know, understand or appreciate any of that and so we’re pretty sure after he learned something about the business, and we have our first downturn in metal prices, he’ll shut up about safety because we’re already in the top one-third of all organizations in the United States in terms of our safety performance!”

So I’m here to tell you a leader who articulates non-arguable goals is likely to get some arrows in the back. But it doesn’t mean you should stop. It really should renew your commitment to be out there in front articulating goals. Let me take it into health medical care and say to you I believe the same kind of goal is the right goal for hospital-acquired infections.

And let me be careful to say, it’s very difficult to actually get to zero injuries to a workforce or to zero nosocomial infections, but I think it’s pretty hard for anyone to sustain an argument that says our goal should be some positive number because I - and I did this you know when I first came to Knoxville - and I said to people: “You know I’ve only been here three weeks, but I hope the Alcoa tomtom network works as well as most informal communication systems do and you already know that I’ve said that Alcoa should be a place around the world, not just in the United States, around the world in 43 countries and 350 plants, that we should be a place where people are never hurt at work. And it can only happen if you will take personal accountability and responsibility for this, for yourself and for your associates, for us to get there and if some of you - as I’ve been told by the supervisors - believe that we should not set a zero goal because it’s unlikely we can achieve it, I’d like for you to raise your hand if you want to volunteer to be hurt so we can reach the goal.” There were no, but there were no volunteers! And I guarantee you if you ask patients, “would it be okay if we gave you an infection because we’re not meeting our goal this month,” there would be no volunteers.

So a leader needs to articulate non-arguable goals. And again, it doesn’t mean that we know exactly how we’re going to get there, but at least we’ve got every human factor in our organization lined up and trying to achieve the targeted goal. This cannot be a delegated function. You can’t have a person who’s the vice president for goals. The leader needs to articulate the goals. Other people do not have the power or the position to do that.

Now, after the goals have been articulated clearly, you notice I didn’t start by saying you know we’re going to make a hell of a lot of money and let me just say parenthetically that’s because I believe in a truly great organization, finance is not an objective, it’s a consequence. And it’s great if it’s the consequence of being more excellent at what you do than anyone else that does what you do. In my experience, finance follows excellence. So having a goal for financial success is, to me, not a good place to start. It doesn’t mean you don’t have to earn the cost of capital or cover your cost or any of that, but it should not be an objective of the organization; it should be a consequence of excellence.

So how do you move from these goals into action and organization? First of all, I think it’s incredibly important to reach every person in the organization, and again I’m talking about the theoretical limit. In my experience, they’re always, no matter how hard you work at it, there is three or four percent of the human factors in the organization that never get it and can’t get it, and you need to do something about that, but I found most people respond to a positive idea of leadership and organizational aspiration. Not many places really respond very well to negative motivation.

And so in an organization, I believe that has the potential for greatness - doesn’t guarantee it - but has the potential for greatness, the people in the organization can say every day without any reservation or hesitation ‘yes” to three questions. Here are the three questions:


I’m treated every day with dignity and respect by everyone I encounter without respect to my gender or my nationality or my race or my educational attainment or my rank or any other discriminating qualifier. Think about that for a minute. So it means when you go into the lobby of your enterprise every morning, the person behind the desk treats every person with the same happy face and welcoming greeting not related to whether you’re a surgeon that brings in 13% of the business or the person who cleans the room. In a truly great organization, there is a seamless sense of “Everyone here is a court of dignity and respect every day.”

Now I have a corollary for you which I practice at Alcoa: “If you’re not important, you shouldn’t be here.” That raises a really difficult, challenging proposition, if you think about it, because in an awful lot of organizations when times are tough, people are laid off. Not in a great organization, because at any particular time, the people that are there are necessary, or they wouldn’t be there. That creates a real challenge for leadership to figure out how to navigate ups and downs and economic cycles. And there is a way to do it by being clear in your own mind and in your own institution about the difference between a baseline of activity and fluctuating activities so that you can negotiate with people who are going to be on the bubble if you will, that they understand that they’re on the bubble and they are there as casuals to take care of fluctuations. But for people who are part of the baseline, there needs to be an honored commitment, that you are really important or you wouldn’t be here, and we need you all the time. So the first proposition is I can say every day I’m treated with dignity and respect. Full-stop.


The second proposition is this: I’m given the things that I need - training, education, tools, encouragement, so that I can make a contribution - that’s important now - that gives meaning to my life. If your work doesn’t give meaning to your life, it’s what you spend eight or ten or twelve hours a day doing, then where are you going to get meaning in your life? On the golf course? Or going out to dinner? So I believe it’s an obligation of leadership to create a condition, so people can say, “I have all the things I need so I can make a contribution that gives meaning to my life.” Not a lot of places where people can say: “this place gives meaning to my life.”


And third proposition pretty simple, it says every day I can say, someone I care about and respect noticed I did it. In a word, its recognition regular - meaningful, sincere recognition. Now, if you find a place, or you can create a place, I would say this is a job of leaders - again, this cannot be delegated to human resources - this is for a leader of an institution to establish the conditions on an ongoing basis so every person in the institution every day can say yes to these three propositions, then you have a potential for real greatness.

Now after the leader has articulated the goals and created these cultural characteristics that are pro excellence, a leader needs to take away excuses. And in my experience, the excuses are all the same across public, private, and nonprofit. When you make these suggestions to people, they say: “Well, you don’t understand. We really can’t do this quality or continuous learning continuous improvement set of things because we’re already working two hours past what we get paid for. We’re too busy to take on something new”. And people say “We’re too busy!”, and they will say: “If we’re going to do this we need more people. We need to hire some people who are experts in continuous learning and continuous improvement and quality, and we need to set up a new department”, and people will always say, “We don’t have enough money, we’re already struggling, so we need more money!” I believe it’s the leader’s responsibility to take away all of the excuses.

So I want to give you an example of taking away excuses. So when I first came to Tennessee to Knoxville to Alcoa, Tennessee, and I spent the morning walking through the plant because I like to feel the things that I am supposed to be responsible for, so I wanted to see what it was like to be there for half a day and see what it smelled like and how the people were dressed and whether they had, you know, half of a finger - whatever as a consequence of being in this place. And so at noon they said, we’re going to have lunch. And there were 75 people at lunch, half of them were from the supervisory ranks, and the other half were from the union-organized workforce. So they said, “Would you like to say something?” I said, “Yes, I would.” So I got up, and I said

“You know I want to talk to you about safety, and I presume you’ve all heard this, but here’s what I want to say to you: I want to say to the supervisors: I believe it’s the leader’s role to take away excuses so here’s what I’m saying to you: We will never ever in Alcoa again budget for safety. Never. We’re not going to have a budget line for safety. As soon as we identify anything, as soon as anyone in the institution identifies anything that could cause an individual to be hurt, we’re going to fix it right, and we’re going to fix it as fast as it’s physically possible. And so, I want to charge you and the supervisory ranks with acting on that idea. You need to actually do it. If something breaks down or you think something could hurt somebody, fix it right now. We’ll figure out how to pay for it later on. Just do it!

And then I turn to the hourly workforce, and I said to them, “You heard my instruction to them. Here’s what I want to do with you. I want to give you my home phone number so that if they don’t do what I said, you can call me!”

Not many CEOs were giving their home phone number away, but I wanted the people to know that this was a real thing. In a few weeks, I got a call late one afternoon from an operating guy from the floor in Alcoa, Tennessee, and he said, “You know, well I’m calling up because you told you told all of us, we should call you if the supervisors are not fixing things. Well, we’ve had a roller conveyor system down here that’s been broken for three days or so, and as a consequence, those of us who are the workforce have to pick up the 900-pound ingots, a bunch of us, and put them on a dolly and take them from one processing step to the next. And we’re going to get hurt doing this! Our backs are at risk at a minimum, and if we dropped one of these things on our foot, we’d be permanently disabled. So I want to know what are you going to do about it?” So I said, “You know, let me make a few phone calls.” So I called the supervisory people and explained to them that they were not doing what I told them was their obligation to the workforce. And you know, I had a couple of phone calls in the first six months I was at Alcoa, but fortunately, the tomtom network at Alcoa really worked well, and after I had to make a couple of interventions, I didn’t have to make any more interventions.

So part of what I want to say to you is: Leadership is not about writings on the wall. It’s about acting in a noticeable way on the principles that you establish so that people begin to believe that they are real that they’re not just writing on the wall. I would suggest that every organization that I know about that has an annual report that says someplace early in the annual report, “Our human resources are our most important asset.” But in most places, there’s no evidence that’s true; it’s just a sentiment. So we all say it, yeah, our human resource arm. Is your practice consistent with that? So it’s part of the reason that I elected the first day I went to Alcoa to articulate this goal that no one should ever be hurt at work because it’s measurable. You can tell whether or not somebody couldn’t come to work if they were hurt at work because they aren’t there! Right, you can’t fudge the numbers. You can fudge numbers about recordable instance incidents and first-aid cases, but it’s pretty hard to lie about “Didn’t show up today.” That’s why I wanted a hard measure that we could look at every day, and we could appreciate whether we were making progress or not.

So I want to tell you a little bit about how these numbers are done. In 1987 the average number of cases of Americans in the workforce being hurt at work was five out of every 100 Americans had an incident at work that caused them to miss at least one day of work, five out of 100. Alocas number was 1.86. And if you want to know what the number is today, go on the internet, type Alcoa when you get the drop-down menu, go on environment health and safety. It’ll tell you 24 hours a day in 43 countries, in 350 locations, what the injury, what the lost workday injury rate is on a running basis anytime you want to look at. Yesterday it was 0.116. Now, why do I tell you that? Because the average lost workday rate in American hospitals is 3.0. And if you’re not good at math, that’s 26 times worse than Alcoa. That’s unforgivable. Because it’s within the capacity of leaders to articulate a zero goal and then to accomplish it.

And I’m going to tell you a little bit about how do you accomplish it because cheerleading won’t do it. And this is really relevant to the quest for excellence in health and medical care. But I want to stay for a moment with injuries to the workforce because the lessons about how to get close to zero in injury rates among the workforce are exactly precisely the same things that are required to achieve startling excellence in the delivery of health medical care.

So first of all, you have to establish a process that says: Every incident that happens to one of our employees is going to be recorded within 24 hours, and it’s going to be put into cyberspace along with the surrounding circumstances. And where it’s possible to do it in 24 hours, the root cause analysis and an indication of a corrective action that’s being taken so that this set of circumstances will never again produce this result.

Now I want to tell you a special piece about this. I believe that it’s really important in our world to keep things personal. And so when I started this Alcoa. And I said, “Not only do I want to identify this case, I want to do it by name.” My lawyers didn’t like that because they said, “You’re going to create a feast for the tort bar to come in here and sue the hell out of us because we’re now going to put in cyberspace for anybody to look at individuals by name and what happened to them.” What lawyer could find a better way to produce cases. Okay, and I said, “I don’t think you’re right, and I’m going to take the personal responsibility if we do get sued because it’s so important that we not let this be statistical.” It needs to be about “Every person is important, and they’re important by name; they’re not important as a statistic.”

So what do you do when you create that, in a world that we live in now with this unbelievable connectivity, if you have an understanding and everyone in the organization has signed on the wall, “I’m responsible for myself for not being hurt and for my mates not to be hurt” when the message goes into cyberspace you can look at it with an expectation that - within the next 24 hours - 349 other locations around the world including Guinea and Russia and China India and Brazil and Argentina, 43 countries in all, that the people in those institutions will look at those cases and they will make whatever modifications are indicated, so we don’t have to learn this 350 times! That’s how you get close to zero, by continuous learning and continuous improvement from everything gone wrong.

It really works in an unbelievable way, and I would suggest to you in health and medical care, it would be great if we could get leaders to sign up for the idea that there is a measurable way of knowing whether or not the people in the organization are truly the most important resource, by being able to tell, what kind of an injury rate exists among the people who deliver the care. So that I have to tell you I’m really skeptical of an organization that doesn’t know what its injury rate is. That they’re really good at hand hygiene, you know, because if you’re not really good at your worker’s own safety, at least for me, there’s a doubt that you’re really good at the other things that we know are directly related to perfect patient care. And again, I would suggest to you, the tools of learning and approach and engagement of the population are exactly the same in every kind of institution.

So that when I went to the Treasury, I tell you a little story about Larry Summers, who was my predecessor as the secretary of the Treasury under the Clinton administration. And so when we had our first briefing session where he was going to tell me about what he’s been doing, toward the end of the session, I said to Larry, “Larry, what’s the lost workday rate at Treasury?”, and he said, “I don’t know what you’re talking about.”, which frankly was not a surprise to me.

And it took about three weeks to actually round up the data, and it turned out that the injury rate at the Treasury - you may think you know how can anybody get hurt at the Treasury - well there are 125 thousand people there, and a significant fraction of them work in the mint. And if you went into the mint in 2001 and looked at the workers, you’d find a lot of workers with a half little finger because the stamping machines at the end of their finger off is kind of a badge of experience. The injury rate of the Treasury was unbelievable. In 23 months, we reduced the injury rate of the Treasury by 50%. In 23 months.

But I will tell you another story that’s related both to Alcoa and the Treasury to demonstrate another important principle to you. I believe that excellence at its best is habitual. And by habitual, I mean it’s ingrained and inculcated in all the individuals in the institution so that it’s almost automatic. So it means it applies to everyone - again, I can’t say enough about how important it is that if you’re really going to be on a quality quest - it needs to be about everyone in the institution. The people in the quality department cannot produce quality in an organization. It doesn’t mean they don’t have an important responsibility, but they cannot do it. In the same way that infection control committees cannot fix infections, right? They have an important role, but they cannot make it happen for the whole institution.

In this quest to make sure that everyone in the institution grasps these ideas, I called in the controller at Alcoa - this is about 1991 - and I said, “Ernie, I’d like to know, right now we’re closing our books in this worldwide enterprise in 11 days and reporting our results to Wall Street and I’d like to know, if we had a perfect process with no repair work, no transpositions of numbers, no foul-ups with computer programs that don’t integrate very well with each other for all these 350 locations, if we had no repair work and all of the time that we spent was high-value touch time, that means we’re actually producing value in every minute of every day, how long would it take?” About three weeks he came back to me, and he said, “I’ve figured out the answer to your question, and here it is: Right now, we’re closing in books at 11 days. If we did it perfectly, we could do it in three days”. And I said, “You know, Ernie, that’s our new goal!” and he said, “No, that’s not what I meant. Oh my god, we can’t really do that! That’s just the answer to your question!”. I said, “Hey Ernie, we’re trying to be perfect at everything else we do, including workplace safety and manufacturing, and so the finance function needs to demonstrate to the rest of the organization what excellence really looks like.”

And it took us a year to get there. Now here, the leadership functions are really important. I had to say to them,

“I don’t care how much it cost to make this perfect. I don’t care because I’m so confident that the value is there, and so here’s your permission: you can examine all of the things that we’re sucking up from around the world and decide whether the stuff that has evolved is really critical to a financial characterization of our organization and meeting our responsibilities to the Securities and Exchange Commission. So you have the freedom to redefine what it is we do. You have the resources to rewrite the computer programs so that they’re friendly to human beings instead of only people who are nerds, who delight in complexity, so you can make this so that it works for the people who have to do the process of financial roll-up. And if you need some outside help go and get it!”

So a leader needs to provide a running room for people to work toward the theoretical limit. And in a year, we got to the point where we could close our books in three days. Full stop. And today, if you look at the quarterly earning report process, you look at CNBC or any of the other financial channels, Alcoa is still and probably always will be the first major corporation to roll up as earnings and report them good and bad because the process works now.

Think about the implication of that; I want you to transfer it to health and medical care. In Alcoa, at that time, we had 1,300 people in the finance function, and by going from 11 days to 3 days, we freed up 8 days a quarter for 13 of the most highly trained analytic people in the organization. Not so we could fire them, but so that they could use their brainpower to help us better understand how to improve everything else we were doing. This is not about firing people. It’s about creating the opportunity for applying resources in a way that produces ever-greater value.

So when I went to the Treasury, I said to them, “How long’s that take us to close our books after the end of the fiscal year of September 30th”, and they said, “Well, we usually get it done by March.” and I said, “I don’t know why you even bother! Who the hell wants to know what the numbers were five months after the fact?” So I said to them, “You know, I know an organization that’s more complicated than the Treasury where they closed the books in three days, and that should be our goal at the Treasury; we should be at least as good as Alcoa.” And so they said - you know, again the excuse for routine, “We don’t have the money. We’re already too busy”. And then they hit me with a new one: “Government laws and regulations won’t permit it.” Smart guy, so I said, “I tell you what if you can show me a rule or regulation or a law that prohibits us from doing this I will go and get it changed.”

Again it was taking away the excuses. “Give it to me. If you tell me there are barriers that need to be rolled away, I will roll over the barriers. There weren’t any. It was just an excuse. Nobody had really examined, “How the hell can we do this? We will do it!” And so, in 13 months at the Treasury, we figured out how to close the books in three days. If you want to see this story, it’s on the Treasury website. They’re so proud of it. My name isn’t there, but it happened on my watch because I got my controller from Alcoa to come pro bono. We didn’t pay them a dime to come pro bono to coach the people at the Treasury how to do this job.

And again the reason I tell you this is because I know an awful lot of health care institutions that don’t close their books in three days, but they could if the leadership decided this is a value and a way to demonstrate to the organization that every part of our institution is on the same wavelength, and we’re all about excellence, and we don’t, and we won’t live in silos, and we won’t embrace excuses, and we will be excellent at everything that we do. And I would tell you more stories about health medical care, but I’ve used up my time, and I hope I have challenged you a little bit, maybe inspired you a little bit about the potential for what you as leaders in health and medical care can do because I will tell you just one more thing: I believe there is no other sector of our society and our economy that has the same potential for simultaneously improving outcomes from medical intervention and reducing the cost by a trillion dollars a year.