How O'Neill Got Alcoa Shining

In June, 1987, when Paul O'Neill arrived at Alcoa Inc. (AA), it was just another wheezing industrial giant with an unremarkable financial record and a workforce that was biding its time. The first outsider brought in as chairman and CEO, O'Neill set out to shake things up. He warned managers that they would be judged by how well they met his numbers. ''I drove a stake in the ground,'' he recalls.

But O'Neill didn't hold his troops to criteria that CEOs commonly use, such as profit margins, sales growth rates, or share appreciation. His singular standard: time lost to employee injuries. Although Alcoa already outperformed most U.S. manufacturers on safety, O'Neill believed, say those who know him, that to be a world-class company, it first had to become the safest.

You can't argue with the results. Alcoa's rate of time lost because of employee injuries was one-third the U.S. average when O'Neill took over. Today, it is less than one-twentieth. More important, O'Neill's emphasis on safety fundamentally altered Alcoa's culture. To meet his targets, managers and even bottom-rung workers began showing initiative instead of mutely waiting for orders. Productivity soon began rising, with a timely assist from the high-tech tools O'Neill also introduced, and then so did the financial tallies. ''Paul came in and got us to do things we never thought we could do,'' says L. Richard Milner, head of Alcoa's automotive unit. Labor also offers gruff praise for the CEO. ''Maybe he hasn't always told me what I've wanted to hear,'' says George Becker, president of the United Steelworkers of America. ''But I could always believe it.''

Today, Alcoa is the global leader O'Neill envisioned. In 1986, the Pittsburgh-based company recorded $264 million in net income on sales of $4.6 billion; it had 35,700 employees and a market cap of $2.9 billion. When O'Neill retired at the end of 2000, at age 65, Alcoa boasted record profits of $1.5 billion on sales of $22.9 billion and a payroll of 140,000. Meantime, its market cap--up 126% in 1999 when Alcoa was the top stock among the 30 Dow Jones industrials--stands today at $29.9 billion. ''His major impact has been to run an Old Economy company as though it were a New Economy company,'' notes Donald S. Perkins, a retired Alcoa director. ''He is not a traditionalist in any sense of the word.''

O'Neill started out as an engineer at Morrison Knudsen and came to Alcoa from International Paper (IP), where he had been president. It hardly seemed like a shoot-for-the-moon career move--much less one that would lead to Treasury. In those days, Alcoa was a Rust Belt relic. It maintained a strict hierarchy and offered few opportunities for rising stars. Alain J.P. Belda, who succeeded O'Neill as CEO in 1999 and chairman in 2000, remembers that Alcoa ''for a long time had been doing just what it had done in the past.''

Within a few years, O'Neill changed that. His safety commitment won over labor unions. By requiring managers to measure up, the program also got employees used to meeting benchmarks; O'Neill later expanded ''stretch goals'' to financial results. By leaving it up to the managers how to hit their targets, O'Neill effectively decentralized authority. ''What stands out,'' says Merrill Lynch analyst Daniel A. Roling, ''is his absolute commitment to delegating responsibility.''

O'Neill was one of the first major company CEOs to embrace the Internet, requiring as far back as 1991 that every Alcoa facility be linked to it so employees could see how the company was faring. He also took advantage of computer power to push for sped-up production and delivery cycles. O'Neill became known for his New Economy bent in other ways, too: He made himself accessible, forgoing an office in the new headquarters that opened in 1998 for a cubicle like everyone else. And it was not unusual at lunch to find him in the cafeteria line.

It would be a mistake to see O'Neill as a touchy-feely manager, however. He set Alcoa on a tough, growth-by-acquisition strategy that refused to settle for plodding sales and earnings. Today, thanks to a buying spree capped by last year's takeover of Reynolds Metals Co., Alcoa controls one-sixth of global aluminum output and nearly half of the U.S. output.

To carve out such a major piece of the market, O'Neill tapped his Washington connections. Although an avowed free-trader, he began pressing for government intervention in 1992 to curb Russian aluminum exports, which were flooding the global market and driving down prices. Eventually, Alcoa hatched an international scheme with its competitors and their governments to collectively cut output and halt the glut.

Some rivals say that they liked Alcoa better before O'Neill showed up. It has become ''the Saudi Arabia of the aluminum business,'' grouses one U.S. executive. But the stakes O'Neill drove into Pittsburgh's riverfront soil seem there to stay.

By Michael Arndt in Chicago

A correction to this item appeared in the February 12, 2001 issue of BusinessWeek._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _


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