All financial information is public knowledge. Including salaries. Everyone has learned how to read a balance sheet. For big decisions, such as moving the company, everyone gets a vote and they stick with the decision. There are no special parking places, no executive dining areas. There are no secretaries or receptionists. The have removed all “dead end jobs” and all of the unnecessary perks and privileges that build ego and hurt the balance sheet. There are no walled offices. All areas are separated with plants.
Encourages managers to work at home. Remember these are manufacturing facilities, so the line workers can’t really work at home. Twice while Ricardo was on vacation, his office got moved and each time it got smaller.
The standard policy is no policy. For example, there is no travel department. You decide on when, where, and how much you travel. No one checks to see what seat you sit in on the plane or how many stars your hotel has. You spend the company money as if it is you own money. If they can’t make these types of decisions, then they “shouldn’t be sent to do business in the companies name, should they?” Profit sharing is done democratically. The workers decided what percentage they get and then they have assemblies to decide how to split it up. The percentage of profits shared ended up about 25 percent.
As workers began to exercise more control over their jobs and assume more voice in their policies, the need for supervisors diminished. Employees are encouraged to start their own companies. Semco leases equipment to these new companies at favorable rates. They buy from their former employees, but they are free to sell their service to anyone, including competitors.
These are statistics, which reflect the success of Semco’s unusual work place. Semco has grown six fold. Despite recession, staggering inflation, and chaotic national policy. They are located in Brazil. Productivity increase of nearly seven fold. Profits have risen five fold. Periods as long as 14 months without an employee leaving. Backlog of 2000 job applications.
Description of how the family business started and how Ricardo entered the mandatory military service.
Describes how his father was very rigid and stern. His father could see that he was different and the transition of father to son “ownership”of the company was going to be difficult.
Semco made its money in the marine pump business. In the 1980’s, the business was hard hit. Ricardo wants to diversify, while his father’s executives argue to keep with the core business.
Ricardo buys a ladder company because his Dad will not give him any power at Semco. His father realizes this and allows Ricardo to take over the business and run it his own way. He then fires senior management because they had refused to consider diversification. This was 60 percent of top management. The first guy he fires assumes he has a six-month period to transition the change. Semco was moving to slow and Ricardo wanted change quickly in order to save the company.
He hires Ernesto Gabrele, a man he had interviewed to be C.E.O. of the Ladder Company to take over as “right hand man.” The former executives had made themselves repositories of their trade secrets to insure their continued employment. They never considered anyone would make such as rash move as to fire everyone as Ricardo did.
Finds Harro Heyde to take over sales.
“Harro started selling on his first day at Semco and never stopped. He would pass a salesperson’s desk and ask how a given quote was progressing. The salesperson would tell him the customer was studying it. Harro would suggest a visit. The salesperson would say that he would try to arrange one for the next week. Harro would say he didn’t mean next week, he meant now. Impossible, the salesman would argue. But Harro would grab him by the arm, and a bunch of magazines from our reception area, and head straight for the prospect’s office. Announcing their arrival, they would wait one, two, even three hours – whatever it took until they were seen. Meanwhile, Harrow would keep himself entertained by talking to the receptionist about the company… or reading the magazines…”
Talks about getting contracts for food mixers and other products that diversified their product line.
Ernesto has put in place policies and procedures like Xerox and Firestone. The new budget system could tell you how much coffee was consumed.
Years Semco is ready to buy a company. He talks of the Whiz Kids of Wallstreet, buying, selling, and merging companies, oblivious to the rich, complex histories each company had. “These Armoni-outfitted, BMW-driving know-it-alls broke corporations into pieces in the name of short-term profits, and broke the hearts of those whose dreams the corporations embodied. But there was no place for sentiment or tradition or employee motivation in their world. “Bottom line, what’s the bottom line?” they bellowed into their cellular phones.”
They buy a refrigeration company. They proceed to loose more than $1 million during the next four years before the division turned a profit. This was due to the lack of understanding of that business.
A falling out with Ernesto, who left the company and shortly after was tragically killed in a motorcycle accident. Fernando Lotamorro took his place and continued with the meticulous financial controls.
Harro leaves to work at a rural company where he could raise his chickens and have no commute.
Ricardo Semler decides the company needs a director of human resources. They hire Clovis Bojikian. Page 41 goes into detail of his credentials. He is a very interesting man. A year later Clovis is offered a job at three times his salary. He leaves, but in a year comes back to Semco. Clovis likes freedom and Semco offered that to him. This is the person that helps start the transformation of Semco.
They buy Hobart Brazil, a division of Dart and Kraft. Hobart manufactured dishwasher, slicers, scales, and other items. Hobart had been a leader for years but had slid into 5th place in the market. Months after the acquisition, Fernando Lotamorro insists that the division is still sliding and hard action should be taken.
“Clovis and I discussed it often and, in the end, agreed with Fernando. We were worried about his hard-edged style and lack of experience as a general manager. But Fernando had the aggressive personality that we then believed a successful business required, especially one in a slump.”
Fernando was convinced that Hobart plant lacked organization, ambition, and controls. He would arrive at 7:30 a.m., to find himself alone in the office until about 9:00 a.m. At 5:30 p.m. people would leave for home and Fernando would stay until 9, 10, and sometimes 11 p.m. This didn’t please him and everyone knew it.
Many others worked long hours too, and their families were beginning to complain. They were convinced that the hours were temporary, until the company had digested its acquisitions. “It took us almost a decade to learn that our stress was internally generated, the result of an immature organization and infantile goals.”
Fernando was firing people and changing things constantly.
“At the Hobart plant, and all over the new…Semco, we could track with great precision virtually every aspect of our business, from sales quotes to…welding machines. We could generate all sorts of reports almost instantly with dazzling charts and graphs…. (I)t took us a while to realize that all those numbers weren’t doing us much good. We thought we were more organized, more professional, more disciplined, more efficient. So,…how come our deliveries were constantly late.”
Work hard or get fired was the new motto. Everyone was being pushed forward instead of being self-propelled.
“During this time I often thought of a business parable… Three stone cutters were asked about their jobs. The first said he was paid to cut stones. The second replied that he used special techniques to shape stones in an exceptional way, and proceeded to demonstrate his skills. The third stone cutter just smiled and said: “I build cathedrals.”
As I walked around Semco’s plants, I had the sense we had far more stone cutters than craftsmen… I wanted… was a company filed with cathedral builders…”
At an executive retreat it all blew up. The hard against the soft. The autocrats thought nothing would get done unless they done it themselves. The others wanted a company driven by individual motivation.
Ricardo Semler becomes sick and faints. He had fainted a couple of years earlier. He suffers from chronic soar throat, chronic anemia, accelerated heartbeat, fainting, and a rash on his back. Doctors in Boston tell him that he as no sickness; he is suffering from advanced stress. The worst they had ever seen. His entire life must change.
“We simply do not believe our employees have an interest in coming in late, leaving early, and doing as little as possible for as much money as their union can wheedle out of us. After all, these are the same people that raise children, join the PTA, elect mayors, governors, senators, and presidents. They are adults. At Semco, we treat them like adults. We trust them. We don’t make our employees ask permission to go to the bathroom, nor have security guards search them as they leave for the day. We get out of their way and let them do their jobs.”
He comes up with four causes of time-sickness.
They rearrange the budget system, put in place five-year plans and six-month reports. They make reports with only the big numbers. They tried to tell him that it is more expensive to understand a report with only big numbers, but he claims that is a fallacy that is difficult to eradicate.
The company was also filled with fiefdoms: each department defined its turf at all costs. Salespeople thought marketing lived on the moon. Marketers thought the salespeople could see all the way to their navels…
They try several quick fixes for their organizational problems, from suggestion boxes to leadership training to Japanese-style Quality Circles. For ideas he read Alfred Sloan’s My Years with General Motors and Tom Peter’s In Search of Excellence.
He removes the security check at the gate that was used to see if anyone is stealing. The employees want it back to prove their innocence that they are not the ones stealing. “I wasn’t under the illusion that, by eliminating searches, we would eliminate theft... on average 2 percent or 3 percent of any work force will take advantage of an employer’s trust. But is this a valid reason to subject 97 percent to a daily ritual of humiliation?”
In a company meeting they have to pick the color for their employees uniforms. Ricardo notes that they were not considering what the people who would be wearing them wanted. The managers said, “Are you crazy? They’re going to want yellow, orange, white – it’ll be a nightmare.” “What could be expected of workers?” the managers argued. They polled the employees and they choose petroleum blue.
They form committees from their employees. They are involved in all aspects of the business. They change their work areas, they scrutinize the money the executives spend, and assist in restructuring during difficult times.
Ricardo lets Fernando go. He was very smart but unequivocally autocratic. Ricardo takes over as general manager of the Hobart plant. Institutes a weekly meeting where managers present their ideas. Everyone gets exactly one vote, so Ricardo, as well as everyone else, have to improve their lobbying skills. Budgets are set in the meeting, and if someone is not doing a good job, then you won’t be considered a good investment and you will be cut from the budget.
The committee idea extends to the cafeteria. The quality of the food is improved and the subsidizing of the meal is changed. Managers and engineers where asked to pay 95 percent of the meal cost while floor sweepers were asked to pay 5 percent.
The workers started changing their work, not just their work environment. They improved they way things were done, how the assembly of dishwashers was done, how inventory was maintained, the design of products, and the assembly materials. There was no approval needed to make a change, and the decisions made stayed. There were no special rewards for new ideas. It was a spontaneous process. People participated if they wanted to.
With the empowering of the employees, middle management panics. They say that they cannot even fire anyone for excessive tardiness because they decide when they come to work. To help middle management, they come up with a new set of company rules, which ended up being very complicated. Finally, they gather all of the employee handbooks and have no intention of replacing it. Management by common sense is the goal.
With few exceptions, rules and regulations only serve to:
The desire for rules and the need for innovation are incompatible. Remember, Order or Progress. Eventually the feeling of rulelessness subsided and middle management began to remove their armor plates.
Semco decides to make sure their salaries are competitive. They find that they are lagging behind, probably due to the lack of turnover. They start the salary corrections with the company at Santo Amaro. One of the employees of Santa Amaro transfers to Ipiranga. At a company barbecue he tells them that everyone at Santa Amaro got a 40 percent raise. Since Ipiranga was unaware that their company would be next in the salary corrections, the strike was on. The information was incorrect; a 40 percent raise was not what was given, but it was too late. After much confusion, and problems, they finally settle, and the average increase was 18 percent.
Almost all businessmen think their employees are involved in the firm and are its greatest asset.
Almost all employees think they are given too little attention and respect, and cannot say what they really think.
How is it possible to reconcile these two positions?
The sad truth is employees of modern corporations have little reason to feel satisfied, much less fulfilled. Companies do not have the time or the interest to listen to them, and lack the resources or the inclination to train them for advancement. These companies make a series of demands, for which they compensate employees with salaries that are often considered inadequate. Moreover, companies tend to be implacable in dismissing workers when they start to age or go through a temporary drop in performance, and send people into retirement earlier than they want, leaving them with the feeling they could have contributed much more had someone just asked.
The era of using people as production tools is coming to an end. Participation is infinitely more complex to practice than conventional corporate unilateralism, just as democracy is much more cumbersome than dictatorship. But there will be few companies that can afford to ignore either of them.
Human nature demands recognition. Without it, we become disinterested, dissatisfied, restless, and unproductive.
Semco’s organization was known as a functional system. Product managers reporting to Product directors. Salespeople answered to the marketing director, so on and so forth. It is a feudal system, isolating one team from another, and generating solutions and strategies that serve one department at the expense of another.
They send João Vendramin around the world looking at companies and how they handle size. They conclude that the business must be small enough for people to know what is going on and contribute accordingly. The recommendation was to replicate itself like an amoeba. So they prepared to divide.
The Ipiranga plant was chosen to test the amoeba plan. They divided along the lines of the electronic products, the dishwashers, and the food preparation products. The divisions were a success; finding that smaller companies are more responsive to product needs as well has hard times. “From all of this I have come to believe that the economies of scale is one of the most overrated concepts in business. It exists, of course, but it is overtaken by the diseconomies of scale much sooner than most people realize.”
The Santa Amaro Plant was next for division. The marine products division was big enough that they needed new space. They gave the employees all of the information and let them decide. They choose a location near the existing plant, but right across a street from a company that had frequent strikes. No one in management wanted front row seats to labor disputes, but they did not override the employee’s decision.
Not only did the employee’s pick the location; they designed the layout of the new facility.
Tells of Texas Air buying Eastern Airlines as an example of business organizations. Eastern Airlines had grown, and put in place very rigid job descriptions. When your job was finished or you were waiting for something, you did nothing. At Texas Air, pilots sold tickets, attendants help with luggage, and everyone worked while there was work to be done. Semco calls these multi-talented employees and their system of work, manufacturing cells. There is reward in working together and finishing a product.
Because of the changes Semco had made, in 1987 Semco was making $2.2 million in eighteen months. It was time for profit sharing. The few Brazilian companies that had profit sharing did it in an off the shelf way which allowed them to treat some employees better than others. This is a formula for resentment and division.
To implement the plan, everyone needed information. There are many arguments against full disclosure. A Company that doesn’t share information when times are good loses the right to request solidarity and concessions when they aren’t.
The first information that the employees wanted to know was the top salaries. Executives should be proud of their salary, and their salaries should provide everyone with an incentive to rise. If they are ashamed of their salaries, it might be because they don’t feel they are really worth it.
The profit-sharing model is the profits from each autonomous unit are calculated and 23 percent of that sum is delivered to the employees of that unit. The units then decide how to split it. They have decided to split it evenly, everyone getting the same amount.
In a meeting, it is noticed that Semco has ordered $50,000 worth of file cabinets. Instead of approving the order, they stop work for a half-day to see what everyone is filing. They tell everyone to throw out anything that they don’t need. At the end of the day the have several dozen file cabinets emptied, which they auction off.
Then over two years eliminate the position of personal assistant, and secretary.
Finally, they institute the one page memo, with a newspaper like headline. All market reports, surveys, and letters are restricted to one page.
Laura de Barros starts the group known as “Semco Women.” This was suggested by Ricardo Semler to correct any bias that the company might have. “It usually doesn’t take much to evaluate a companies commitment to fairness. Don’t bother with records and statistics. A look around the office is often all that is needed. If nearly everyone is white, or attractive, you can bet your company is biased.”
The Semco Women first change the bathrooms, but then move on to policy such as the company paying for day care. Their meetings increased in size and frequency, and then tapered off. Laura would say, “When a problem arises requiring collective action, the women will, too.”
“Man is by nature restless. When left too long in one place he will inevitably grow bored, unmotivated, and unproductive. The cure, I believed, was to encourage managers to exchange jobs with one another.”
They felt a minimum of two years and a maximum of five years at any job was sufficient. Plan ahead, maybe even one year, so that the transition to the new job and its responsibilities will be smooth.
There are many benefits to job rotation. It obliges people to learn new skills. It discourages empire building. How can you build an empire if you aren’t going to be there very long? It reduces the trauma when someone leaves the company, especially if he had tendencies toward irreplaceability – the conscious effort, through the inability to delegate and other related shortcomings, to insure that he is in absolute control. What if someone with a particular talent decides to change positions at an inopportune time? If the person really wants a change, they will leave the company and you won’t have them with you at all.
Because of pressure in the workplace, currently employees in midlevel jobs or higher can take sabbaticals every year or two for a few weeks or even a few months. They are to redesign their job, learn new skills, or improve their skills.
Semco doesn’t care what employees do on their own time, as long as it doesn’t interfere with his performance on the job.
Semco also doesn’t get involved with employee drug abuse problems, alcohol abuse, or any other problems. They are willing to help, only when the person takes the first step. They don’t want their managers being father figures helping employees solve their personal problems. They don’t want to be a big, happy family. They are a business. In paternalism, the hand that helps is also the hand that slaps. One such owner of a company paid for an expensive medical procedure for one of his employee’s children, clear and free, as a gift. The same owner fires people on the spot for doing something he didn’t like. Employees give these owners a lease on their soul for their working lives. That can be an expensive proposition.
You won’t find a running track or gym to help relieve stress at Semco. They try not to cause stress in the first place.
They believe in total honesty. If it can’t be said, then don’t say it. They don’t make up politically correct answers.
Twice a year, employees rank their bosses. A questionnaire is used with the answers ranked. Scores are posted. Employees are involved in the hiring of new people, doing interviews, and making sure the right person gets the job.
Semco gives preference to employees, if they meet 70 percent of a jobs requirements, they get the job. Semco orphans, former employees, get preferential treatment also.
Brief tale of two employees that learn the “Semco way.”
Simpliciano Domingos de la Sierra started working in factories at age 15. He had worked for places that wouldn’t allow you to talk on the assembly floor. He had started at Semco under Ricardo’s father and had organized strikes and got them a cafeteria. He learns the Semco way of doing things and becomes an advocate, defending Semco before Union Bosses.
Alipio Camargo was the administrative manager at the Hobart plant. He was a tough guy. He would tell workers that they are paid to work, not think. In his first Semco review he received a score of 55. Laura de Barros worked with him and he eventually received a score of 80, organized a real “team” of workers, and became so efficient that he eliminated his own job.
Semco had a typical hierarchy of management they referred to as the pyramid. The company was suffering from the bureaucracy. In the food processing plant they removed middle management, the entire second tier. The people that were under the second tier divided the work up amongst themselves, no meeting, no memo, they just went to work. The plant increased sales and profits.
“The heart of the problem is the pyramid, the basic organizing principle of the modern corporation. It gets narrower as it rises, rewarding the few who keep climbing but demoralizing a far greater number who reach a plateau or fall by the wayside. What can be expected from the employees on the lower levels, whose opinions are never sought and to whom explanations are rarely given? They know that the decisions that matter, the decision that will affect them, are made on high. Is it reasonable to ask, year after year, for a special effort from these people, and then reward them with a few public thank-yous and perhaps an extra month’s salary, while the lucky few at the top enjoy fancy offices and shiny new cars, not to mention bonuses that can exceed the combined salaries of a hundred or even a thousand ordinary workers?”
The pyramid enforces salaries, rewards, and titles. Those with ambition expect raises and promotions, but the pyramid doesn’t have room for this. To satisfy these ambitious employees, additional titles and levels are created. How can anyone five rungs (five layers of management) from the factory floor know what is going on? He can’t, so he distracts everyone with memos, phone calls, and meetings trying to find out what is happening.
They come up with a new business model based on circles. The innermost circle, equivalents to vice presidents are called Counselors. The second circle will be made up of the leaders of business units and called Partners. The last circle will hold almost everyone else and be called Associates. Small triangles float around the circles, each representing a single person and are called Coordinators, and where the supervisors, foremen, and other leaders of the old model. Associates can make more money than Coordinators, so moving from one position to another doesn’t affect you paycheck.
Coordinators don’t report to other coordinators. Associates do not report to other associates.
“The organizational chart is the birth certificate of a business, nothing more and nothing less. It is only useful for people who are unsure about the origins of a division or a role. Organizational charts have their place in the modern corporation – locked away in a file cabinet.
Let those who swear by these charts take this test: Pick a department and ask all of the people in it to classify their supervisors according to their proven competence and actual decision-making powers. Transform the results of this survey into a parallel organizational chart and compare it with the official version. I’d be surprised if they’re close. The truth is, power and respect cannot be imposed in connect-the-dot fashion.”
Paulo Pereira suggests that you set your own salary. They review the current model of bonuses at that time. Semco had tried five or six bonus plans without success. Finally they decide that the managers set their own goals, and when the year was over, decide the extent to which they met them. With this bonus plan in place, it opened the door to setting your own salary.
To help them come up with their salary, the provided information from Price Waterhouse and Coopers & Lybrand. There are four criteria for basing your salary: what they thought they could make elsewhere; what others with similar responsibilities and skills make at Semco; what friends with similar backgrounds made; and how much money they needed to live.
You might think that people would be unfair and unreasonable. Except for six people, everyone set salaries within expectation. Five were to low, and one to high. The one that was to high, accepted an offer at another company, so was it really to high?
There are three reasons why reasonableness prevailed. First, everyone knew what everyone else was paid. Second, the top people – Clovis, Batoni, Vendramin – are all modest about their pay. The third reason has to do with self-preservation. Semco uses six-month operation budgets, so any unanticipated increase in expenditures has to be offset in a short period, there is little margin for maneuvering. Salaries are the biggest expense of Semco, and no one wanted to stick out.
Finally, Paulo proposes the “risk salary.” Let’s say you make $1,000. You may risk up to 25 percent of that to possibly receive 50 percent more. So now your salary is $750. If Semco has a good quarter, you weekly salary goes up to $1,500. If there is a bad quarter, your weekly salary is $750. Buy participating, employees make more money when business is good. When it isn’t, they are helping cut expenses and lowering their profit in case cost cutters are called out.
Semco was doing well. Sales, which had been about $4 million for decades, had swelled to $35 million.
Ricardo writes his memoirs. 750 hand written pages called Turning the Tables. No one is interested in publishing it. Ricardo knows a small publisher and they make a deal. The book sells 400,000 copies and for nearly 200 weeks is on the top seller list of Brazil.
Now, Ricardo wants to fulfill a long had dream of being an alumnus of Harvard. He is twice rejected. He finally sends a slightly abusive letter to Harvard Admissions saying that their standards would prevent Steven Jobs of Apple from being accepted. He receives admission papers, but the timing is not good for Semco. He finally attends a program from corporate executives at Harvard and fulfills his dream.
Everyone wanted to know about Semco’s success. The tours of the facilities began to interfere with production. Ricardo was giving fifty to sixty lectures a year. They actually started to believe what everyone was saying about them.
During this time, Brazil’s economy stalled, like it always does. The mechanical slicer was out-dated. Their air-conditioning line was too slow switching to fiberglass housings. A new product, a fluid coupling, was stifled by the market leader, a German company, which continued to under bid Semco. Instead of taking their time to market, they thought they could take the competitor head on.
Brazil’s government is very corrupt. The book discusses their zero tolerance policy against pay-offs. This causes the company to be the target of many inspections, products being held up and the docks, and other tactics.
The Nucleus of Technological Innovation (NTI) team is created. Three employees spend their days coming up with ideas for Semco. Every six months they have to justify their job. So far they have redesigned products, came up with new products, started an environmental division of Semco that consults with other companies, and developed fiber optic systems for medical examination.
Next came the “lost is space” program. Some lucky young person that has applied to Semco is selected to spend one year working at Semco in at least twelve different areas. The person has to make enough contribution to pay their salary. At the end of they year the work a deal with a division for a position they would like to have.
Semco finally introduces flextime to the factory workers. You can come to work anytime between the hours of 7:00 and 9:00 a.m. and work an eight hour day. Believe it or not, but the union leaders didn’t trust anything that the “bosses” would propose and fought against the flex time proposal.
There was a task force formed to mediate problems with flextime, but the task force has never needed to meet.
The most difficult plant was the air conditioner plant. It was ran by a union that is affiliated with the Worker’s Party, a political organization that comprises many far-left and militant groups. In the end they ratified the policy and the union leader to a television audience that “Brazil had only one trustworthy boss – Ricardo Semler and Semco.”
In the first eleven years that Ricardo led Semco, Brazil had two good years, three transitional years, and six dreadful years. Inflation averaged more than 400 percent a year, swinging from yearly highs of 1,600 percent to lows of a mere 100 percent.
There were 1.5 million unemployed by 1992. A new finance minister went on TV to declare a bank holiday and seize 80 percent of the cash in the country. The government laid hold of savings accounts, checking accounts, certificates of deposit, company funds, and the works. Every Brazilian, no matter what his assets, was left with $800 or 20 percent of his holdings, whichever was less.
Semco has to prepare for layoffs, but is struggling to find a way to ease the pain. They had been working steadily to insulate employees from the Brazilian economy. They only made products with a future, never fad products like Hoola-Hoops. Also, the never promised any job security. They refrained from hiring good executives if the demanded a job contract. There is no such thing as a sure thing, and one side or the other will necessarily suffer. Look at the damage those golden parachutes have done to corporate morale, not to mention balance sheets.
Semco kept its hiring practices the same in lean times as well as times of plenty. “An alley cat can stay lean when food is scarce; the trick is to stay lean during the good times.”
The various plants vote down a salary reduction plan and cost cutting measures. They want the layoffs to occur quickly. João Soares had worked at to many companies where they fired you for being one minute late, and he wasn’t about to see Semco fail. He thought for days on how to save the plant and the employees. He came up with a plan. Semco employees would take over everything that had been contracted out. Cleaning the toilets, running the cafeteria, preparing the food, delivering products, everything. It also included pay cuts for workers and management. The details are on page 246. The workers also approved everything, equal vote with management.
They saved so much money that within three months everyone’s salary was restored. However, this co-management strategy was run with exceptional effort that could not be sustained. Brazil’s economy was not getting better soon. Semco was a unique company capable of adapting faster than any, now they had to put the adaptability to the test.
With all of there efforts, Semco had too many employees making too many products at too many factories, or maybe just too few customers. Either way Semco was in trouble. Semco decided they wouldn’t do anything that could be done as well somewhere else. But instead of hiring outside contractors, they set up their employees to start companies to provide the services need to Semco and to any other company. People act differently if the own their own company. They will work late into the night to keep it afloat.
Brazil has a very complicated severance law in place. Semco would offer their employees this severance money as seed money for their new companies. To free up the money Semco would fire the employees. The trick was getting workers at one of the safest, most comfortable places in Brazil, to become entrepreneurs. Semco offered to even lease the machinery necessary for free for the first few months, then extremely reasonable prices later on. They were allowed to sell to Semco competitors, but in turn, Semco could buy from their competitors.
To date Semco has farmed out two dozen Satellite companies, and they believe they can farm out another 10 percent or even 20 percent in the coming years. Not a single Satellite has closed. Some are looking for partners, others struggling to expand product line. Some are little Semcos, organized around the ideas of democracy, transparency, and trust.
“People who have a stake in the company are bound to be more involved in their work. As a result, only good things will happen: costs will fall, quality will rise, and innovation will bloom. People will look at a part and say, Why does it have to be like this? Why can’t it be made better? Or cheaper? Or faster?”
They wanted a company that could last decades, one that could withstand the ups and downs of many business cycles. The factories were nearly empty after the Satellite program. Ricardo decided it was time to close the out lying factories and bring everything together. They went from 830 employees and nine business units at five locations to a bit under 300 employees in six business units at two sites.
Through these changes Semco was able to break even in the worst years of the Brazilian economy, and made good money in the middling ones. During all of this economic strife, Semco did not take on any additional debt to keep the company going.
Semco holds a weekend retreat for its top 40 managers. They lay on the floor, stretch out and relax, and are asked to envision what Semco will be like in 2010. The ideas are shared and reshared until a picture is painted of the future. Everyone wants a smaller, more fluid, more flexible, less defined company. One that causes no pollution. One that you can work from home. One that has factories so clean and so safe that their children can visit.
Semco has learned that to want to grow big just to be big is a catch. They have outgrown their allure to growth, albeit after paying the price in money, time, and gastritis. Growth opportunities are always springing up. Much about growth is really about ego and greed, not business strategy.
Growth through acquisition is exciting, glamorous, and ulcer-inducing.
The company you buy is not very similar to the one you thought you were buying, and never like what they told you.
Buying small, family firms is a certain way to skip the ulcers and go straight to bypass surgery.
“Whenever I’m tempted by a deal, I remember what Ray Krinker of Price Waterhouse used to say: “A small hole can sink a big ship.””
Why do companies think they need a CEO to make the final decision? It didn’t help Ford Motor Company when they continued to make the Model T well passed its marketability, which caused them to layoff thousands of workers. He says Henry Ford was a hardheaded dictator.
Alfred Sloan was a shortsighted structuralist that couldn’t see the threat of the Japanese automakers. So, why do companies feel the need CEOs? Is it good for a company to have a single strongman that does pretty much as he pleases, with a disproportionate amount of attention to his habits and with the instability that reigns when his successor need to be chosen?
It is time for the elimination of another position, Ricardo’s. A committee of their Counselors would run the company. Ricardo is now just another Counselor. “But my job hasn’t changed—I try to make things happen, like a catalyst. I lobby for what I believe in. I step in when I think I can do some good, and step out when I’m tired of an issue or when the other Counselors are tired of me.”
Ricardo had just finished speaking to a group when a man asks, “This story of your is all very interesting, but I’ve been sitting here for two hours waiting for something that I could use at my hospital and pharmacies, and I don’t know that I’ve heard anything that’s applicable.”
Ricardo makes a deal, given one of his pharmacies with three employees, he is allowed to talk to them, to provoke their imagination. The employees are allowed to arrange the medicine there own way, instead of the mandated alphabetical ordering. They make more changes, and now the doctor that was skeptical is spreading the Semco gospel.
He tells of using Semco tactics in Brazil’s Federation of Industries of the State of São Paulo. He manages with much difficulty to cut through the bureaucracy and empower the people under him. Ricardo becomes the Business Leader of the Year.
Semco has accomplished a lot, but still has a long way to go. The basis of it all is freedom and trust. In their desperation for quick fixes, too many executives are too quick to jump on the latest managerial fads and fashions, as if they will be panaceas for sagging productivity. Quality Circles. Just-in-time deliveries. Kanban production systems. Networking. Direct costing. Total quality. You’ve heard all of the buzzwords.
“I know a textile company that wove fine English woolens. Its 200 employees worked in a machine-filled factory set in what might be called an exurban industrial park. The chief executive was definitely performance-oriented, starting with his own: he arrived early, left late, and made all of the important decisions in between. The factory was subdivided into specialized areas of production, each with its workers. Each boss, in turn, had a group of foremen to watch the workers. Accountants and salespeople were on the mezzanine above the shop floor and reported to their respective department heads. Everything was strictly hierarchical and pyramidal.
As I described this company to an international telecommunications convention… I could see people in the audience becoming more and more puzzled. What was the point? They seemed to be wondering. It was just an ordinary business. There didn’t seem to be anything distinctive about it.
Except that this textile company existed in 1633. And the moral of the story: our advances in technology have far outstripped our advances in mentality.”
With all of our increases in technology, all we have done is accelerate our malfunctions and increase the intensity of our miscommunication. The truly modern company avoids an obsession with technology and puts quality of life first.
No Company can be successful in the long run if profits are its principal goal. During his studies at Harvard, he met many industrialists that paid close attention to the personal finance course. They clearly had thoughts of selling their business. Some did sell. By the third installment at Harvard, nearly all those that had sold had started or acquired new businesses. They were happily back on the job. They were never in business for money.
Money isn’t the only goal of workers, either. Semco always tried to pay workers more than they could make elsewhere and of course there’s profit sharing. But that isn’t why so few people leave. They offer employees a chance to be true partners in our business, to be autonomous and responsible. That’s why, with some regularity, many key Semco people spurn lucrative employment offers.
Information is the most undervalued commodity. Information sharing at Semco had a profound affect. People in the higher echelons could no longer rely on the conventional symbols of power and had to develop leadership skills and knowledge to inspire and respect. The centers of power shifted, as people that were formerly quiet and apolitical rose in stature and the people who were good at hobnobbing and gossiping eventually left.
Fixed working hours, organization charts, and policy manuals are all so negative. They strip away freedom and give nothing in return but a false feeling of discipline and belonging. They elevate bureaucrats and ennoble conformity.
The successful companies will be the ones that put quality of life first. Do this and the rest—quality of product, productivity of workers, profits for all—will follow.
“No, Semco isn’t a mode, with programs to be followed with precision, so many recipes for participation, productivity, and profits. Semco is an invitation. I hope our story will cause other companies to reconsider themselves, and their employees. To forget socialism, capitalism, just-in-time deliveries, salary surveys, and the rest of it, and to concentrate on building organizations that accomplish that most difficult of all challenges: to make people look forward to coming to work in the morning.”