In a Perfect World

For former U.S. Treasury Secretary Paul O’Neill, good enough doesn’t cut it.
Interviewed by Brett Krzykowski

Listen to the interview

Anyone looking for proof that quality has a place in all aspects of society can make the search a short one by examining the professional career of Paul O’Neill. Relying on transparency, systems thinking and—most importantly—the pursuit of the theoretical limit of perfect performance, O’Neill has cut a swath through myriad industries.

At manufacturing giant Alcoa, he helped reduce workdays lost to injury to almost zero.1 During his time at the U.S. Treasury, he whittled the process of closing the financial books from five months to three days.2 But his current passion is healthcare, an industry in which he has already made his mark via the Pittsburgh Regional Health Initiative (PRHI).

During a recent interview with Brett Krzykowski, QP’s assistant editor, O’Neill spoke about the ills of—and cures for—the U.S. healthcare system, the signs of economic calamity everyone ignored, and the U.S. government’s resistance to the quality way of thinking.

QP: A big focus of yours has been this idea of the pursuit of the theoretical limit—that organizations shouldn’t settle for anything less than perfection in everything they do. During your time at Alcoa, you met some resistance from people who thought this was a ridiculous pursuit. But the results certainly indicate that this works, as far as a zero-loss workday and the number of safety incidents dropping to miniscule proportions (see sidebar, “Taking Alcoa to the Limit”). Do you think businesses are hurting themselves by settling for being good rather than striving for perfection?

Paul O’Neill: I do, because when you establish goals using the concept of a theoretical limit, effectively it lets you identify the complete spread between where you are at any particular time and perfection.

Identifying the size of the opportunity doesn’t mean you can capture it all. But it’s the right kind of a thought process so that you don’t effectively compromise yourself into a position where you’re satisfied with something that’s clearly short of the possibility.

I’ve found, when you’re talking about workplace safety as the area of attention, it’s easier to get substantial agreement that the organization and the people in it should strive to eliminate incidents in the workplace. When you’re dealing with manufacturing processes, there are more people who can explain to you a thousand reasons why we can’t be close to perfect.

Taking Alcoa to the Limit

When Paul O’Neill became chairman and CEO of Pittsburgh-based aluminum manufacturer Alcoa in 1987, he wasted little time showing how serious he was about the pursuit of the theoretical limit. “I said the first day I was there, no one who works at Alcoa should ever be hurt at work.”1

Even after it was explained to him that the lost-workday average rate at Alcoa was 1.87 cases per 100 employees per year—compared to the national average of five cases—O’Neill was undeterred. During a tour of the company’s manufacturing sites, he told one management group in Tennessee not to budget for safety—when there’s a risk, fix it. Then he told hourly workers “Here’s my direct home phone number. If they don’t do what I just told them, I want you to call me.”2

Later, a companywide system that relayed real-time safety information was put in place, giving 140,000 people access to incident reports so they could see for themselves what happened and how it could be fixed. By the time O’Neill left Alcoa in 2000, the lost workday rate was 0.15. As of April 2009, it was 0.114.3

“I believe that the pursuit of excellence is a habit like breathing if it’s really well developed,” O’Neill said. “It’s not something that can be taken away from the arrival of someone who’s supposedly the new leader, because the fundamental ideas will govern the institution on and on and on.”4

QP: But there certainly seems to be applications of this pursuit of perfection outside of manufacturing, and you’ve spoken about that.

O’Neill: There are applications in everything we do.

QP: In particular, you’ve made comments about healthcare and how the pursuit of the theoretical limit could help cut costs by as much as 50%. Maybe you can flesh that out a little bit and also talk about how those ideas have been met in the healthcare community.

O’Neill: It’s useful to break this up into a microdimension, which means at the local level, and to differentiate that from the macrolevel.

At the microlevel, with the work that [the PRHI has] done, we’ve demonstrated in places, particularly at Allegheny General Hospital in Pittsburgh, that it’s possible to eliminate hospital-acquired infections that occur in intensive care units by setting the goal at zero, and then establishing a process of continuous learning and continuous improvement so that when there is an infection, you learn where there was a break in protocol so you can go back and eliminate the possibility that you’re going to have breaks in protocol going forward (see sidebar, “Perfecting Healthcare”).

At the microlevel, at Allegheny General Hospital and other places we’ve worked with, we’ve demonstrated that it’s possible to do this and, in effect, to break the conceit that it’s a God-given fact that 2% of the people who go through intensive care units are going to get an infection.

At the macrolevel, it’s been much more difficult to get people to observe what’s been demonstrated at the microlevel and to adopt the concept of a theoretical limit and the practices that lead toward it. In things like central line infections, bloodstream infections and, more broadly, nosocomial infections [for example, staph infections], it’s possible and it’s been demonstrated, particularly in the workplace safety area at Alcoa, what can be done in an entire institution with 350 operations in 43 countries. It’s much more difficult to find the application of those ideas and principles across the whole of society.

Perfecting Healthcare

In 1997, Karen Wolk Feinstein, president of the Jewish Healthcare Foundation, approached Paul O’Neill, then at Alcoa, with an idea to create an organization that would bring improvement methods traditionally found in the manufacturing realm to the healthcare industry. The result of their efforts is the Pittsburgh Regional Health Initiative (PRHI), which in the decade since has proven that improving quality and safety saves dollars and—more importantly—lives.1

The mission of the organization is to improve healthcare in Southwestern Pennsylvania, but PRHI’s focus on continuous improvement and standardization to eliminate errors, inefficiency and waste—what it calls Perfecting Patient Care (PPC) principles—has attracted national attention due to its numerous success stories, including the following:

Between 2003 and 2006, Allegheny General Hospital reduced central line infections by 95% and deaths caused by central-line infections to zero. And, between February 2006 and February 2007, the hospital didn’t have a single central-line infection.2
The Veteran Affairs (VA) Pittsburgh Health System used PPC methods to find dozens of improvement opportunities that reduced its rate of methicillin-resistant staphylococcus aureus infections from 0.97 per 1,000 days of bed care in 2002 to 0.27 in 2004.3
In a separate initiative, the VA Pittsburgh Health System employed a team-based model for diabetes care and increased the number of patients it served while also improving patient satisfaction rates.4

Battling benchmarks

QP: You’ve also talked about benchmarking, which you see a lot of in healthcare. Hospitals track mortality rates, which are low and may be improving, but they aren’t perfect. Is benchmarking an obstacle to the pursuit of the theoretical limit in that people seem to be settling?

O’Neill: I think that’s right. The convention, for example, in health and medical care is to have measures across the country and measures for individual institutions to find out how they compare to the national averages. It’s very routine to find institutions that say, “We’re better than the national average, and it’s not possible to be better than we are.” So the establishment of the idea of national norms is the enemy of continuous improvement.

QP: Is it just that people have gotten used to the idea of having built-in excuses?

O’Neill: I think it’s a phenomenon … I’m tempted to say it’s a worldwide phenomenon. It’s particularly a phenomenon in the United States, I think, that people have a mind-set of, “We don’t want to set goals that we’re not sure we can attain.” So if you set goals that are referenced against some national level of performance, in effect you’ve set yourself a barrier that’s not too difficult to get over, and then can declare yourself superior.

QP: What do you think it’s going to take for people to get past that mentality?

O’Neill: I think in health and medical care, it takes enough demonstration of performance close to the theoretical limit in enough places of different sizes and scales across the country, so that it’s undeniable that we can achieve much better results.

As is often the case in health and medical care, people say when they’re confronted with what seems to be a huge difference in levels of performance, “Well, we take sicker patients, and so while our mortality and morbidity rates may be higher than the places you’re pointing to, it’s because they screen out the really complicated cases, and the really complicated cases come here. And of course the rates of failure are going to be higher, but it’s because we start with a more difficult pool.” People can rationalize almost anything.

QP: Another aspect of quality you’ve advocated is transparency. When you were at Alcoa—and now still—there was an emphasis on each person understanding all the inputs and all the outputs of a process. How can transparency contribute to this understanding, and is it crucial to this pursuit of perfection?

O’Neill: I think the identification, first of all, of everything that went wrong—and, even better, at the great institutions, of things that almost went wrong—is the pathway to moving ever closer to the theoretical limit of perfect performance.

One of the reasons why I think health and medical care performance is such a jumble is because there’s such huge pressure against identification of things gone wrong and sharing of things gone wrong so people can learn from them. That’s because of the fear of malpractice suits and other legal pursuits. It makes it much more likely that people will not report and share things gone wrong, because there’s a financial reason not to.

QP: Is there a way to insulate healthcare and hospitals from that (financial responsibility), or is that always going to be a risk?

O’Neill: What I’ve advocated is that we get rid of the idea of medical malpractice. It’s virtually impossible to find people in the healthcare system that intentionally hurt people, right? There are some flagrant individuals, isolated examples where people decided to make life-and-death decisions. But I guess I would say, at the 99.999% level, people who are delivering medical care do not intentionally hurt people.

At the same time, we know that people are inadvertently injured, or their hospitalization is longer than it ideally should be. I think we need to recognize the circumstances for what they are, and we need to say to people, “We’re not going to have medical malpractice insurance anymore, and we’re going to abolish the idea of medical malpractice.”

When someone is injured, we’re going to create an expectation that the injury or the length of hospital stay will be recorded in cyberspace within 24 hours so we can do a root cause analysis, and everyone in the world can learn from it in a short cycle of time. And in exchange for that, we’re going to have an economic arbitration process so that people who are inadvertently injured will be compensated to the extent of their economic loss, and we’ll pay for it out of general revenues of the federal government, because that’s the broadest base for tax support.

In exchange for that, we expect the people in the delivery system to report without fail, at a huge penalty if they fail to report, with an expectation that the professional societies will take a much more aggressive role than they typically have in disciplining and withdrawing privileges from people who have repeatedly failed to deliver the expected level of performance.

QP: Obviously, transparency is a crucial part of this whole concept. Can there be any real progress without total transparency?

O’Neill: It’s really difficult, and in fact one would like to have transparency that goes far beyond just identifying injuries to patients.

For example, we’ve found in the work that we’ve been doing that 50% of a nurse’s time is spent doing things that don’t add value, like looking for medications that aren’t where they’re supposed to be or looking for equipment that isn’t where it’s supposed to be. You want to identify and have the people in the process identify every aspect of waste every day, so that people can work on systems redesign to take out the waste.

A significant part of the $1 trillion out of the $2 trillion we’re currently spending on health and medical care—the trillion we believe can be taken out—is substantially related to waste rather than injuries or harm that’s caused to patients. Much like in a manufacturing process, where we’d work on quality improvement, if we brought those same ideas to health and medical care, we would question the whole idea of batch processing for medications. Because in the same sense that there’s an enormous waste that’s been discovered in manufacturing processes, the same kind of things exist across the breadth and depth of medical care.
Cashed out

QP: There’s no better cautionary tale for people who seem to resist this transparency movement than the current state of our financial system.

O’Neill: Exactly.

QP: How significant of an impact did that (transparency) have on the situation?

O’Neill: I think it was a huge factor. Beginning in 2005, it was possible to know—although no one seemed to do it—that with a very substantial fraction of newly admitted mortgages, the mortgage holders were failing to make their first payment. That was a tell-tale [sign] two years before we had a calamity. If we had real transparency and had collected data in the proper way so that we could see this growing volume of failed mortgages at the first payment, we could have avoided a huge calamity.

QP: Has anything been done to rectify that?

O’Neill: Not yet. I’ve been advocating that we implement a policy that requires a minimum 20% equity down payment for every new mortgage. So far, no one in the political process is willing to step up. It doesn’t seem like a very difficult concept.

QP: You can only hope that other industries are going to be a little bit smarter, because the theories and strategies you’ve put forth are relatable to food safety, product safety, environmental safety, worker safety. Do you see evidence that people are starting to catch on?

O’Neill: Not nearly as much as I would like. Right now, I would say it’s very difficult to find any of this conversation in what’s being proposed in Washington for health and medical care reform. If you look really hard, you can find a little bit, but it tends to be a very small part of the conversation.

Federal failings

QP: In comments you’ve made about the Bush administration, you stated there was a lack of transparency and a lack of communication. It went against the very specific things you’ve said about what leaders of successful organizations do: You treat people with dignity, you let people make a contribution, and you recognize their contribution (see sidebar, “No Room for Discussion at White House”). What lessons can leaders of the country take away from those failings?

O’Neill: There’s a big question. The idea of transparency, as you said, is essential to the prospect of better performance. To go back a little bit, there was never any evidence of weapons of mass destruction. And there was never enough transparency of what they were relying on as a basis for a preemptive war so that people could make an intelligent judgment. In fact, they shoved [former Secretary of State] Colin Powell out there in front of a pile of surmise and allegation as though that were evidence. It’s cost us dearly.

No Room for Discussion at the White House

On June 25, 2002, 18 months into his tenure as head of the U.S. Treasury, Paul O’Neill gave a speech that included an extensive discussion about leadership. During his keynote address, O’Neill outlined a trio of elements common in all humans that are recognized among effective leaders: Everyone wants to be treated with dignity and respect, wants to make a contribution to give his or her life meaning and wants someone else to notice his or her contribution.1

At the time, O’Neill was in a unique position to comment on the trilogy’s importance, because he was in the midst of a two-year stretch of serving a presidential administration he claimed ignored all three.

In 2000, President-elect George W. Bush tabbed O’Neill as his Treasury secretary-designate, the latest entry on a Washington, D.C., resume that reached back to 1961. A few weeks after the election, in December, the Associated Press ran an article about a two-day economic forum in Austin, TX, that was going to feature Bush and O’Neill, among others.

O’Neill first learned of his participation while reading the article in the New York Times.2

The disconnect turned out to be a precursor to what O’Neill later claimed was a regime headed by an uncommunicative leader.

In a 2004 interview with 60 Minutes, O’Neill said the president “did not make decisions in a methodical way. There was no free flow of ideas or open debate.” He added that Vice President Dick Cheney was “part of a praetorian guard that encircled the president” as a means of shielding him from contrary opinions.3

While O’Neill had his issues with the White House, the reverse was also true. Never one to temper his opinions, he made several comments that had significant consequences, including a remark in February 2001 that the United States was “not pursuing a policy of a strong dollar,” which sent the currency into a nosedive.4

Then, in November 2002, during a White House meeting of Bush’s economic advisers, O’Neill refused to offer public support for a significant tax cut already in the works. Nine days later, Cheney called and asked for O’Neill’s resignation.5

Those revelations appeared in a 2004 book, The Price of Loyalty, written by Wall Street Journal reporter Ron Suskind, who conducted extensive interviews with O’Neill and was provided more than 19,000 internal documents from O’Neill’s time as Treasury secretary.

When asked about the book and the allegations made within, then-White House spokesman Scott McClellan said, “The president is someone that leads and acts decisively on our biggest priorities, and this is exactly what he’ll continue to do.”6

QP: President Obama has created a new position [chief performance officer] to serve as an overseer of sorts. Does that represent a change in thinking, even a minute one?

O’Neill: That’s what I was going to say about shifting forward to the current time. I’ve been advocating so far, without any progress, that if we’re ever going to fix our economic situation, we’re going to first have to stabilize the financial system. I don’t think it’s possible to do that without truth and transparency.

I’ve been advocating that each of the 19 major financial institutions be required to post on the internet the layers of the assets they’re currently holding by financial rating categories, beginning with AAA down through –BBB, which is the end of the investment grade rating category. And then for those assets they claim can’t be valued, they ought to be put into what I would label a quarantine account, with an understanding the institutions would hold them until maturity, when their value would be revealed.

Absent that, I think what they’re talking about now—doing this stress test—kind of stretches the imagination beyond the breaking point. If you think about it, if you can’t value assets on a financial institution’s balance sheet, then it’s impossible to stress test them.

QP: Is that evidence that while there is a new administration, they still don’t seem to be moving in the right direction?

O’Neill: Unfortunately, I think it is.

QP: Is the pursuit of perfection something that has to come from the top down, or is it going to be a bottom-up phenomenon?

O’Neill: I think in order to have an institution that has a shot at being the best in the world, it has to come from the top. It doesn’t mean that you can’t keep pushing away and try to get people who are in leadership positions to adopt the ideas. But I don’t think you can do it from the bottom up.

As many rocks as you throw at an institution, unless the leadership adopts the ideas, there’s no hope for that individual institution. That’s why it’s so important, I think, for the new president to show leadership on these issues.

QP: Is his creation of the new post within the government evidence of that?

O’Neill: I don’t think so. I think it’s more political posturing than it is a systemic determination to use the idea of the theoretical limit as a structuring device for thinking about and making policy.

QP: With all of that said, is there hope for this line of thinking?

O’Neill: Some of the people that are being discussed as major appointees in HHS [Department of Health and Human Services] know a lot about this. And so I still have some hope that the people at the subsecretary level in HHS are going to bring these ideas with them. But we’ll see. They haven’t been publicly identified yet.

QP: That has to be a little bit heartening for you. You have to hope that if healthcare can prove this can work, then other industries are going to take notice.

O’Neill: Absolutely.

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