12 मार्च 2013

PART II: THE POWER OF HABITS IN BUSINESSES AND ORGANIZATIONS


PART II: THE POWER OF HABITS IN BUSINESSES AND ORGANIZATIONS

 6. Institutional Routines & The Issue of Power
Just as in our personal lives, habits have an important role to play in businesses and organizations as well. In fact, as it turns out, habits and routines are just as inevitable in the latter as they are in the former. This proves to be the case because without institutional habits organizations would quite simply never get any work done. Indeed, with regards to these habits, one study revealed that “without them, policy formulation and implementation would be lost in a jungle of detail” (loc. 2725). To give a few examples, Duhigg points out that institutional routines are what “allow workers to experiment with ideas without having to ask for permission at every step. They provide,” he continues, “a kind of ‘organizational memory,’ so that managers don’t have to reinvent the sales process every six months or panic each time a VP quits” (loc. 2718).
Institutional habits are not only necessary in order to keep operations running, but—perhaps even more importantly—to prevent an entire organization from falling apart in a mess of ambition and rivalry between its members. Indeed, as Duhigg reminds us, “companies aren’t big happy families where everyone plays together nicely. Rather, most workplaces are made up of fiefdoms where executives compete for power and credit, often in hidden skirmishes that make their own performances appear superior and their rivals’ seem worse. Divisions compete for resources and sabotage each other to steal glory. Bosses pit their subordinates against one another so that no one can mount a coup. Companies aren’t families. They’re battlefields in a civil war” (loc. 2732). And the only thing that stops these battles from being waged out in the open and bringing the company to ruin, Duhigg claims, is the fact that there are routines in place to ensure that truces are maintained between the major players to such a degree so as to allow business to more or less go on as usual (loc. 2736): “organizational habits offer a basic promise: if you follow the established patterns and abide by the truce, then rivalries won’t destroy the company, the profits will roll in, and, eventually, everyone will get rich” (loc. 2736).
Now, while the truce arrangement often works well enough, it is susceptible to breaking down in certain situations. For one, the truce system is especially inadequate in scenarios where one individual or group of individuals within  an organization has a great deal more power than another. Indeed, as Duhigg explains, “truces are only durable when they create real justice. If a truce is unbalanced—if the peace isn’t real—then the routines often fail whey they are needed most” (loc. 2781). Just such a situation held sway at the Rhode Island Hospital in the mid-2000’s. In this case, doctors at the Hospital held all of the power, while the nurses had little, if any, and a toxic environment soon developed within the institution (loc. 2601, 2630-34). Ultimately, this toxic environment led to repeated procedural errors, and patients’ health suffered (sometimes fatally) (loc. 2637, 2668-75, 2944-57).
While a severe imbalance in power poses particular problems for the truce system, such an imbalance in power is not necessary in order to expose holes in this arrangement. This fact was revealed with devastating effect in 1987, when a fire tore through the London Underground at King’s Cross station. In this case, a small fire that would have been put out immediately had appropriate organizational procedures been in place was allowed to grow into a major fire that killed 31 and injured dozens (loc. 2905). Unlike at the Rhode Island Hospital, the problem here was not that there was a major imbalance of power in the organization. On the contrary, each major department within the London Underground had perfect autonomy over its own specific domain. The problem was that there was virtually no integration between the departments, such that workers generally ignored issues that were not the direct concern of their own departments. As a result, numerous errors were made that day that contributed directly to the disaster. To give just two examples, first, the worker who originally encountered evidence of the fire did not report it (loc. 2811), and second, no one in the building knew how to operate the sprinkler system “because another department controlled them” (loc. 2856).
In order to avoid these kinds of organizational mishaps, Duhigg argues, an organization must make an active effort to ensure that there is a balance of power between its members, while at the same time making it absolutely clear who is ultimately responsible for any given aspect of its operations: “creating successful organizations isn’t just a matter of balancing authority. For an organization to work, leaders must cultivate habits that both create a real and balanced peace and, paradoxically, make it absolutely clear who’s in charge” (loc. 2795).
Ultimately, the crises at Rhode Island Hospital and the London Underground spurred these organizations to make just these changes (loc. 2968-71, 3012-14), as both organizations have since rewritten their rule books to reflect this philosophy. In the case of the Rhode Island Hospital, the directors “put the entire staff through an intensive training program that emphasized teamwork and stressed the importance of empowering nurses and medical staff… Administrators installed video cameras in operating rooms to make sure time-outs occurred and checklists were mandated for every surgery. [And] a computerized system allowed any hospital employee to anonymously report problems that endangered patient health” (loc. 2970). With regards to the London Underground, “a slew of new laws were passed and the culture of the Underground was overhauled. Today, every station has a manager whose primary responsibility is passenger safety, and every employee has an obligation to communicate at the smallest hint of risk… [T]he Underground’s habits and truces have adjusted just enough to make it clear who has ultimate responsibility for fire prevention, and everyone is empowered to act, regardless of whose toes they might step on” (loc. 3011-16). As a result of these changes, the Rhode Island Hospital is now once again considered to be one of the top Hospitals in the United States (loc. 3026-29), and the London Underground has become a bastion of safety, while “all the trains still run on time” (loc. 3014).
7. Keystone Habits in Businesses and Organizations
In the section on habits in our personal lives, we saw how keystone habits play a pivotal role here. Keystone habits, you will recall, are habits that, when changed, set off a chain reaction that extends to many other aspects of our lives. As it turns out, keystone habits also exist at the level of organizations, and are capable of having just as powerful an impact here. An example of this is how Paul O’Neill, CEO of Alcoa between 1987 and 2000, targeted a particular keystone habit to help turn around the then flailing, but once great American aluminum company. The keystone habit that O’Neill targeted was workplace safety.
Now, you may be skeptical (as many of the investors initially were [loc. 1685-1711]) that a habit such as workplace safety could completely transform a company—including its efficiency and sales—but this is exactly what happened. When O’Neill took over Alcoa in 1987, the once pioneering and juggernaut of a company had been foundering for over a year, as “Alcoa’s management had made misstep after misstep, unwisely trying to expand into new product lines while competitors stole customers and profits away” (loc. 1676). But by focusing on safety, and safety alone, within a year of O’Neill’s hiring “Alcoa’s profits 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” (loc. 1715).
So how did Paul O’Neill come to focus on workplace safety in his mandate, and how did this one habit manage to transform the entire company? Well, to begin with, O’Neill was a believer in the power of keystone habits. As O’Neill himself explains it, “you can’t orderpeople to change. That’s not how the brain works. So I decided I was going to start by focusing on one thing. If I could start disrupting the habits around one thing, it would spread throughout the entire company” (loc. 1725).
O’Neill knew that the one habit that he chose would have to be one that would bring the entire organization together. In other words, he knew that the that habit he chose would have to be one that was of interest to everyone, unions and managers alike—and workplace safety certainly fit this bill (loc. 1799). This was especially true at Alcoa, because at the time the company was an extremely dangerous place to work. Indeed, “before O’Neill’s arrival, almost every Alcoa plant had at least one accident per week” (loc. 1718). So O’Neill set out with “an audacious goal: zero injuries. Not zero factory injuries. Zero injuries, period. That would be his commitment no matter how much it cost” (loc. 1804).
Unbeknownst to the workers and management who signed on to O’Neill’s mission, the project would require transforming virtually every aspect of Alcoa’s operations: “O’Neill’s plan for getting to zero injuries entailed the most radical realignment in Alcoa’s history. The key to protecting Alcoa employees, O’Neill believed, was understanding why injuries happened in the first place. And to understand why injuries happened, you had to study how the manufacturing process was going wrong. To understand how things were going wrong, you had to bring in people to educate workers about quality control and the most efficient work processes, so that it would be easier to do everything right, since correct work is also safer work. In other words, to protect workers, Alcoa needed to become the best, most streamlined aluminum company on earth” (loc. 1815-21). Which is exactly what happened (loc. 1853).
Many of the measures that O’Neill introduced were ones that had been opposed for decades by either the unions or the managers (loc. 1835-38). However, when O’Neill couched these measures in terms of workplace safety, no one could argue with him, the measures were passed, and the positive results started to pour in. In the end, “Alcoa became one of the best performing stocks in the Dow Jones index, while also becoming one of the safest places on earth” (loc. 1737).
8. The Most Important Keystone Habit of All: Willpower
Another story of success involving businesses and keystone habits, involves the company Starbucks, and the most important keystone habit of all: willpower. As Duhigg explains, numerous studies have now shown that “willpower is the single most important keystone habit for individual success” (loc. 2219). For instance, in one study of eight-grade students conducted in 2005 out of the University of Pennsylvania, willpower (as measured by how the subjects performed on self-discipline tests) turned out to be the single biggest factor in predicting academic performance: “‘Highly self-disciplined adolescents outperformed their more impulsive peers on every academic-performance variable,’ the researchers wrote. ‘Self-discipline predicted academic performance more robustly than did IQ’” (loc. 2219-24).
In another (now famous) study performed in the 1960’s out of Stanford University, a group of researchers tested four-year-olds on how well they could resist eating “a selection of treats, including marshmallows” (loc. 2251). Years later, when the participants had entered high school, the researchers tracked them down. What did they find? “They discovered that the four-year-olds who could delay gratification the longest ended up with the best grades and with SAT scores 210 points higher, on average, than everyone else. They were [also] more popular and did fewer drugs” (loc. 2256-59).
Interestingly, willpower appears to be something that works just like a muscle, in that it can be worn out if it is over worked (loc. 2306-15), but can also be built up through a routine of willpower exercise. In other words, as Duhigg likes to put it, willpower can be made into a habit (loc. 2227). Indeed, in studies where subjects took part in multi-week programs that required them to exhibit self-discipline (either when it came to exercise, or money matters or academic matters), the subjects subsequently showed vast improvements in their over-all levels of self-discipline in all areas of their lives. In fact, no matter what program the participants took part in, by the end of the program they drank less alcohol and caffeine, smoked fewer cigarettes, ate less junk food, spent more time exercising and on homework, and less time watching TV (loc. 2332, 2341, 2347). As Duhigg puts it, “as people strengthened their willpower muscles in one part of their lives—in the gym, or a money-management program—that strength spilled over into what they ate or how hard they worked. Once willpower became stronger, it touched everything” (loc. 2344).
In an effort to harness the incredible potential of willpower, the company Starbucks set out in the late1990’s to create a new training program for its frontline workers that would transform them into models of self-discipline. This was necessary, executives felt, because the price of a Starbucks coffee was steep, and, in order to justify this high cost, “the company needed to train its employees to deliver a bit of joy alongside lattes and scones” (loc. 2232). And after all, management felt, “if a worker knows how to remain focused and disciplined, even at the end of an eight-hour shift, they’ll deliver the higher class of fast food service that Starbucks customers expect” (loc. 2234-37).
In order to make this goal a reality, Starbucks spent millions of dollars to come up with a curriculum that would train employees in self-discipline. The end result was a set of workbooks “that, in effect, serve as guides to how to make willpower a habit in workers’ lives” (loc. 2239). The curriculum itself has been incredibly successful, and, as Duhigg points out, is, “in part, why Starbucks has grown from a sleepy Seattle company into a behemoth with more than seventeen thousand stores and revenues of more than $10 billion a year” (loc. 2239).
So, what exactly does the Starbucks curriculum contain? Essentially, the curriculum draws on the principle of the cue, routine and reward loop to instill reliable and successful customer service habits in employees for when life at Starbucks gets a bit hairy. Specifically, Starbucks employees are trained in how to respond to particular cues, “such as a screaming customer or a long line at a cash register” (loc. 2444), with preset routines that are designed to minimize conflict and stress, and maximize customer satisfaction. The rewards for behaving in these pre-set ways at the appropriate times are also specified. So, for instance, “the company specified rewards—a grateful customer, praise from a manager—that employees could look to as evidence of a job well done” (loc. 2446).
To give one concrete example of how this all comes together, let’s say a customer comes to the till at a Starbucks screaming their head off. The Starbucks employee is taught to use the LATTE approach (no, despite the hokey name, this has nothing to do with giving the customer a free coffee). Essentially what the LATTE approach entails is that the employee will “Listen to the customer, Acknowledge their complaint, Take action by solving the problem, Thank them, and then Explain why the problem occurred” (loc. 2457). Once the desired routines are learned for any given cue, the cues, routines and rewards are all role-played until the routines themselves become habits: “managers drill employees, role-playing with them until the responses be[come] automatic” (loc. 2445).
The program has proven to be so effective at Starbucks that many other organizations have copied the strategy and are now using it with their own employees (loc. 2473). And the program is not only helping these organizations with their bottom lines, it is also turning out to help the employees in their own lives. As Duhigg explains, “Starbucks—like a handful of other companies—has succeeded in teaching the kind of life skills that schools, families, and communities have failed to provide” (loc. 2213). One particular Starbucks employee named Travis Leach—who came to the job with severe self-discipline problems, but who has since been transformed into a very successful individual largely as a result of the training—went so far as to say that “Starbucks is the most important thing that has ever happened to me… I owe everything to this company” (loc. 2210).
9. How Companies Instill Habits in Their Customers
Having explored how businesses and organizations cultivate habits in their organizations and among their employees, we will now turn our attention to how companies instill habits in their customers.
The knowledge of how this is done is extremely important to companies, of course, because few things generate more sales than if a company can successfully create a habit out of buying their product or coming to their store. But the knowledge is perhaps even more important to individuals, who stand to save a great deal of money if they can resist forming the habit of buying a product that they really don’t need. So take this how you will, the knowledge may be invaluable no matter what side of the fence you find yourself on.
Perhaps the most interesting example of a company successfully instilling a habit in their customers is the story of Pepsodent toothpaste. In the early 1900’s, when Pepsodent first got its start, almost nobody bought toothpaste, because almost nobody brushed their teeth (loc. 661, 712).  People’s reluctance to buy toothpaste had nothing to do with the fact that they had stellar dental hygiene. On the contrary, as Duhigg explains, “it was no secret that the health of Americans’ teeth was in steep decline. As the nation had become wealthier, people had started buying larger amounts of sugary, processed foods. When the government started drafting men for World War I, so many recruits had rotting teeth that officials said poor dental hygiene was a national security risk” (loc. 657). Nor could the fact that nobody bought toothpaste be blamed on the fact that nobody had tried to sell toothpaste before. To be sure, “there was already an army of door-to-door salesmen hawking dubious tooth powders and elixirs, most of them going broke” (loc. 657). And yet, within a decade of Pepsodent’s introducing its toothpaste, almost half of all Americans brushed their teeth on a daily basis (loc. 672), and Pepsodent itself was one of the best-selling products on the planet (loc. 710).
So, how did Pepsodent succeed in selling toothpaste when countless others had failed? To begin with, Pepsodent’s advertiser, Claude Hopkins, developed a clever little ad campaign that drew on the principle of the cue, routine and reward habit loop. Specifically, the cue that Hopkins targeted was that thin layer of film that you can feel on your teeth when you run your tongue over your gnashers first thing in the morning. The reward that Hopkins promised was a mouthful of beautiful teeth. Here is how one ad ran: “Just run your tongue across your teeth… You’ll feel a film—that’s what makes your teeth look ‘off color’ and invites decay…  Millions are using a new method of teeth cleaning. Why would any woman have dingy film on her teeth? Pepsodent removes the film!” (loc. 699).
Nevermind that that thin layer of film had always presided over people’s teeth (loc. 688 ), and that toothpaste has nothing to do with removing this film (loc. 692)—indeed, the film can just as easily be removed by “eating an apple, running your finger over your teeth, brushing, or vigorously swirling liquid around your mouth” (loc. 692). The fact that you have a film on your teeth is a cue that is quite simply impossible to ignore (loc. 699): “Hopkins had found a cue that was simple, had existed for ages, and was so easy to trigger that an advertisement could cause people to comply automatically” (loc. 703). What’s more, the prospect of a mouthful of beautiful teeth was simply too tempting to turn down (loc. 706). As a result, the ad campaign turned out to be a smash, and within weeks the orders were coming in so fast and furious that Pepsodent couldn’t keep up with demand (loc. 710).
However, this is only half of the story. In addition to having a clever ad campaign, Pepsodent also contained a few ingredients that other toothpastes did not. Specifically, it contained “citric acid, as well as doses of mint oil and other chemicals” (loc. 1060). These ingredients made Pepsodent taste fresh, of course, but they also have an effect that the inventor did not intend or anticipate: “they’re irritants that create a cool, tingling sensation on the tongue and gums” (loc. 1060). As it turns out, this clean, tingling sensation is something that really struck a chord with users, and is a sensation that actually cultivates a craving. As Duhigg explains, “customers said that if they forgot to use Pepsodent, they realized their mistake because they missed that cool, tingling sensation in their mouths. They expected—theycraved—that slight irritation. If it wasn’t there, their mouths didn’t feel clean” (loc. 1063). Here was something concrete that people could latch onto and that kept them coming back for more, and it worked like a charm. The rest, as they say, is history (eventually, other brands caught on and started copying the Pepsodent formula, and Pepsodent itself was ultimately eclipsed by them, put the point remains).
And just to show that the principle of cue, routine and reward (and craving) works just as well at instilling customers with habits today as it did over one hundred years ago, consider the example of Febreze air freshener. Originally, the ad campaign for Febreze emphasized the fact that the product eliminated bad smells, which it did (loc. 803-13). The ad campaign was a flop (loc. 817). So Proctor & Gamble modified the ad campaign (and the product itself, by adding more perfume to it [loc. 1007]) to point up the fact that Febreze made things smell clean: “the tagline had been ‘Gets bad smells out of fabrics.’ It was rewritten as ‘Cleans life’s smells’” (loc. 1011). In addition, the product was now marketed as something that was used at the end of the cleaning routine, rather than at the beginning—it was now meant to be viewed as “the fun part of making something cleaner” (loc. 1007)  These  small changes made all the difference. As Duhigg explains, “the Febreze relaunch took place in the summer of 1998. Within two months, sales doubled. With a year, customers had spent more than $230 million on the product. Since then, Febreze has spawned dozens of spin-offs—air fresheners, candles, laundry detergents, and kitchen sprays—that, all told, now account for sales of more than $1 billion per year” (loc. 1027).
Again, it wasn’t just the ads that allowed Febreze to take off, it was the fact that the new scent created a craving in its users, and the new ads played up this scent.  As Drake Stimson, the team leader of the ad campaign reported, “we were looking at it all wrong. No one craves scentlessness. On the other hand, lots of people crave a nice smell after they’ve spent thirty minutes cleaning” (loc. 1024).
As a final instance of how companies instill habits in their customers we will take the example of the retailer Target. Unlike the previous examples, where the companies had a product that they wanted people to make a habit of buying, Target is a retailer that sells pretty well anything, and just wants people to habitually return to their store. So, what gets people to keep coming back to your store? Coupons! Indeed, fresh deals seem to keep the customers pouring in. And this is especially beneficial for a store like Target, since, if a customer comes in with a coupon for milk, chances are they’ll stick around and buy other groceries too.
Of course, the drawback to coupons is that they’re one-size-fits-all. That is, any edition of a coupon flyer contains all the same products. However, different shoppers have very different shopping patterns and habits (just think of the difference between a confirmed bachelor and a new mom). Given that this is the case, what you really want is a coupon flyer that is tailored to each individual shopper. But in order to generate a personalized coupon book for each individual shopper you need to know a whole lot about each of them and what they buy. In other words, you need data. So, a little over a decade ago, stores such as Target caught on, and they started collecting data on their customers.
Target in particular “began building a vast data warehouse that assigned every shopper an identification code—known internally as the ‘Guest ID number’—that kept tabs on how each person shopped” (loc. 3138). Whenever a customer at Target used an in-store credit card, a frequent-buyer tag, a coupon, or filled out a survey, phoned the help-line, opened an email from Target, visited their web-site, or bought anything online, their activity was recorded in Target’s computer system (loc. 3142). Over and above this, Target bought demographic information about each of their customers from other companies, which included (brace yourself) “the shopper’s age, whether they were married and had kids, which part of town they lived in, how long it took them to drive to the store, an estimate of how much money they earned, if they’d moved recently, which websites they visited, the credit cards they carried in their wallet, and their home and mobile phone numbers… a shopper’s ethnicity, their job history, what magazines they read, if they have ever declared bankruptcy, the year they bought (or lost) their house, where they went to college or graduate school, and whether they prefer certain brands of coffee, toilet paper, cereal, or applesauce” (loc. 3147). Wait, there’s more! Target also purchased information from other companies regarding “shopper’s political leanings, reading habits, charitable giving, the number of cars they own… whether they prefer religious news or deals on cigarettes… if they are obese or skinny, short or tall, hairy or bald, and what kinds of products they might want to buy as a result” (loc. 3154).
And it’s not just Target that’s doing this, of course. Tom Davenport, an expert on how businesses use data and analytics, reports that “it used to be that companies only knew what their customers wanted them to know… That world is far behind us. You’d be shocked how much information is out there—and every company buys it, because it’s the only way to survive” (loc. 3157). Not that everyone likes this new state of affairs. Indeed, there are numerous ongoing lawsuits regarding these matters in several states (loc. 3285-91).
In any event, Target began using the data they gathered to generate personalized coupon flyers for their customers (loc. 3166). So, for instance, “the computers looked for shoppers buying bikinis in April, and sent them coupons for sunscreen in July and weight-loss books in December” (loc. 3184). The strategy, of course, worked like a charm. But the real success came when Target decided to take aim at one type of customer in particular: pregnant women. Among retailers, pregnant women are nothing short of gold mines (loc. 3216); indeed, they are spoken of as the very “holy grail of retail” (loc. 3081). And for good reason: “one survey conducted in 2010 estimated that the average parent spends $6,800 on baby items before a child’s first birthday” (loc. 3216). What’s more, when new parents come into a retailer like Target and buy baby-gear, they don’t stop there. To be sure, “if exhausted moms and sleep-deprived dads start purchasing baby formula and diapers at Target, they’ll start buying their groceries, cleaning supplies, towels, underwear, and—well, the sky’s the limit—from Target as well. Because it’s easy. To a new parent, easy matters most of all” (loc. 3223).
Now, Target already had a way of ferreting out the pregnant women from the non-pregnant. For they had established a baby shower registry, and from the shopping habits of those who had signed up with the registry, Target’s data pundits could discern which other women were also likely to be pregnant (loc. 3245-59). When the process was complete the company “had a list of hundreds of thousands of women who were likely to be pregnant that Target could inundate with advertisements for diapers, lotions, cribs, wipes, and maternity clothing at times when their shopping habits were particularly flexible” (loc. 3269).
The only problem that Target had now was this: how would pregnant women react when they realized that Target knew that they were pregnant, and were targeting them with coupons, when they themselves had not told Target about their pregnancy? “If we send someone a catalog and say, ‘Congratulations on your first child!’ and they’ve never told us they’re pregnant, that’s going to make some people uncomfortable’” (loc. 3274) the data heads at Target thought, and indeed, they were right (loc. 3504). So they decided to employ a little trick. Rather than sending out catalogs to pregnant women full of ads directed at their pregnancy, they would just shuffle these ads in with other ads that were not as conspicuous. As one executive reported, “we started mixing in all these ads for things we knew pregnant women would never buy, so the baby ads looked random. We’d put an ad for a lawnmower next to diapers. We’d put a coupon for wineglasses next to infant clothes. That way, it looked like all the products were chosen by chance” (loc. 3504).
So, how did the campaign work? Well, the people at Target like to keep things private when it comes to particular operations (loc. 3511) (irony of ironies!). But let’s just say this: between 2002, when the project first started, and 2009, “Target’s revenues grew from $44 billion to $65billion” (loc. 3514), and the executives at Target have no plans of ending the program any time soon.
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