ROI: A hazard to workplace safety?
The dark side of a Business Driver
A familiar and popular business performance metric is ROI—Return on Investment. For many, this is the keystone of workplace culture, driving business strategy and decisions as well as the behavior of managers and employees.
There is also a performance metric that is as critical to organizational success as ROI: ROS—Return on Safety.
Providing a healthy balance to ROI, ROS is a metric that applies to every business, though it carries particular significance in manufacturing and production industries such as oil and gas, transportation, chemical, farming, and recycling. In these workplaces, humans interact closely with heavy machinery and hazardous substances, and it is not an unproven theory that focusing too intently on ROI can affect employee safety and decisions as well as organizational success.
In the past five years we’ve witnessed tragedies that serve as prime examples of what happens when organizations’ focus on ROI is dominant:
• Upper Big Branch Mine (29 miners killed): A final report on the West Virginia tragedy indicated that Massey Energy had a culture of willful disregard for safety in favor of optimized profit and production.
• Deepwater Horizon drilling platform explosion (11 workers killed): A statement from the final report noted that “the culture of safety is less strong than the imperative to meet deadlines, what has been referred to in the Deepwater Report by the Center for Catastrophic Risk Management as an ‘imbalance between production and protection’” (Forbes.com, 11/28/2012).
• General Motors’ faulty ignition switch (31 deaths): Began with an ignition switch that was found to be defective in 2001. GM’s CEO, Mary Barra, stated to a congressional committee investigating the failure, "The customer and their safety are at the center of everything we do." Yet, GM’s own internal investigation, The Volukas Report, noted that there were conflicting messages regarding ROI and safety: “Two clear messages were consistently emphasized from the top: 1) ‘When safety is at issue, cost is irrelevant’ and 2) ‘Cost is everything.’” One engineer said that the emphasis on cost control at GM “permeates the fabric of the whole culture.”
The price of imbalance
The cost of these disasters combined is estimated to top $50 billion. But the real tragedy is that as many as 71 people lost their lives because employee safety became an afterthought, or was never a priority to begin with.
This is the dark side of ROI. Could a culture that focuses on ROS, instead, have prevented these disasters? Most experts and authorities say yes.
Peter Kelly-Detwiler’s 2012 Forbes article, “BP Deepwater Horizon Arraignment: A Culture That ‘Forgot to be Afraid,’” addresses not just the Deepwater Horizon disaster but others as well:
“The gist of all of these inquiries and reports is pretty much the same: repetition, complacency, complicated technology, and a poor culture of safety combined with the production/protection imbalance is a recipe for failure. This can generally be remedied by the appropriate focus on best available safety practices and technology.”
Calculating the worth of ROS
ROS as a metric is not as easy to calculate as ROI. It doesn’t show up in quarterly profit and loss statements and if it does its typically as an expense, therefore organizations have difficulty assessing its value to the bottom line—something many CEOs, under pressure from shareholders and the financial markets, can’t see beyond.
Instead, ROS requires leaders to have a vision that extends beyond quarterly reports. These men and women must have a steadfast commitment to safety, the courage to confront the short-term thinking of Wall Street, and a willingness to reject the idea that production and profit achieved at the expense of employee safety is a sustainable business strategy.
How one company benefitted
Paul O’Neill, CEO of Alcoa from 1987-2000, was a leader who understood ROS and had the foresight to make it his keystone business philosophy and strategy.
In “How Changing One Habit Helped Quintuple Alcoa’s Income,” Drake Baer writes:
“The emphasis on safety made an impact. Over O'Neill's tenure, Alcoa dropped from 1.86 lost workdays to injury per 100 workers to 0.2. By 2012, the rate had fallen to 0.125.
“Focusing on that one critical metric, or what (writer Charles) Duhigg refers to as a ‘keystone habit,’ created a change that rippled through the whole culture. Duhigg says the focus on worker safety led to an examination of an inefficient manufacturing process—one that made for suboptimal aluminum and danger for workers.
“By changing the safety habits, O'Neill improved several processes in the organization. When he retired, 13 years later, Alcoa's annual net income was five times higher than when he started.”
Signs of an ROI imbalance
An ROS mindset instills organizational leaders with the compassion, courage, and values of a Paul O’Neill. To assess the balance and tension between ROI and ROS in your business, review the following list:
1) The person who is responsible for safety does not report directly to the CEO.
2) The CEO and managers rarely discuss safety at strategy, HR, production, quality, and sales and marketing meetings.
3) The company’s safety vision is not linked to the business strategy or worse it is non-existent.
4) Managers throughout the organization fail to consistently emphasize safety or are resistant to safety initiatives.
5) The organization has few if any feedback loops for continuous safety improvement.
6) Metrics used to evaluate individual and team performance have minimal to no weight placed on safety.
7) Employees are not familiar or are skeptical of the sincerity regarding the company’s safety vision and values.
8) Training and development do not emphasize safety.
9) New employees and contractors are not first and formally introduced and oriented to the organization’s safety vision and values.
10) Employees are fearful of negative repercussions for reporting safety incidents, risks, and hazards.
Take a hard look
Truly understanding what drives your business requires a more nuanced and careful approach than checking some boxes. I’ve seen many situations in which the person responsible for EHS reported directly to the CEO yet felt disrespected and undervalued, and vice versa. Assessing the motives of any organization requires a hard look at these relationships.
References and Acknowledgements:
Volukas Report: http://www.autonews.com/article/20140605/OEM11/140609893/read-gms-internal-report-from-investigator-anton-valukas-here
I want to acknowledge Hugo Moreno’s article, “10 Warning Signs of a Weak Culture of Quality” (Forbes Insight), which provided the basis for the checklist used in this article.