April 21, 2015

Habit-Forming Public Policy

When Paul O’Neill took over the Aluminum Company of America (Alcoa) in 1987, he immediately confused and shocked investors and shareholders by announcing that he was out to change specific workplace habits. Investors and shareholders were expecting the new CEO to tell them how he was going to use “alignment to achieve a win-win synergistic market advantage,” stated Charles Duhigg, author of The Power of Habit: Why We Do What We Do in Life and Business (2012).

Charles Duhigg Habit Loop
Image Source: http://bit.ly/1IdPt94
The habits O’Neill wanted to change were those that lead to serious, catastrophic workplace accidents and, by the way, simultaneously drove up costs and decreased profits. But there was a method to his apparent madness. O’Neill wanted to transform Alcoa, yet he knew he could do so only if he instilled a set of habits that “would spread through the entire company.” 

O’Neill gained that insight years earlier when he worked as a middle manager in the Veterans Administration. During that time, he recorded why certain projects succeeded while others failed and figured out that government programs weren’t driven by logical rules and priorities, but “bizarre institutional processes that, in many ways, operated like habits,” Duhigg wrote. “Bureaucrats and politicians, rather than making decisions, were responding to cues within automatic routines in order to get rewards such promotions or reelection.  It was a habit loop—spread across thousands of people and billions of dollars.” 

O’Neill’s insight and Duhigg’s analysis add up to a model for developing effective public policies, the kind that stick. As the graphic suggests, habits are routines triggered by cues and sustained by rewards. An economic development policy maker for example, might use the cue-routine-reward model to identify desirable business actions, such as hiring workers or expanding facilities; the cues that trigger these actions, such as getting a government contract or increased demand for a product or service; and the rewards that sustain the action, such as higher profits. Knowing how the cues, routines, and rewards align could help policy makers design tax credits and other incentives that affect the cues that trigger desired routines.