Semco - A Maverick Organisation

Critically analyze SEMCOs organizational structure. What, according to you, are the advantages and disadvantages of adopting such an organizational structure? Do you think organizations such as this are more suitable to the changing of future business environment? Give reasons to support your answer. SEMCOs Organisational structure Brazilian entrepreneur Ricardo Semler turned business convention on its head when he took over a small family engineering firm Semco, introducing a radical form of management by giving the workers a huge role in the running of the company. By outsourcing most of the work, except the most strategic, SEMCO is creating a lean company which intends to leverage its strength only, which primarily is innovation. To excel in this format, it is vital that the company is completely unencumbered by undue processes, rigidity or routine monotonous jobs. For Ricardo Semler, its like having a bunch of entrepreneurs working for you! Its a happy combination of entrepreneurship and management the best of both worlds. A really radical move was to establish a large number of satellite companies that the parent company could rely on to its outsourced work, while at the same time being a profit centre by generating its own business, and, in a curious turn, sending some work back to Semco. This is another example of leveraging the strength of entrepreneurship while retaining the control of management. By removing positions such as secretaries, receptionists and personal assistants, Semco enforced the culture of every individual performing every task necessary to fulfill his own obligations to the company, effectively converting every individual to a one-man company within the company. An interesting aspect of the organisation structure is the position of the Coordinator. This would be the equivalent of a middle manager in most companies. What is unique about this position at Semco was the fact that anyone could opt for this position if he/she felt that he/she was capable of handling the job. The position is not necessarily permanent. All these factors together indicate that the position is neither prominent nor necessarily indispensable, which then gives a clear indication that there is a proactive attempt to create a flat organisation. Another radical departure from norm that Semco exhibited, in the way its organised itself, was the lack of permanency of the business units. For every new business opportunity or potential revenue stream, a new business unit was started. The way the units were organised for this purpose amounted to creating a separate company for each individual project. This approach holds the advantage of being able to bring all the resources necessary to accomplish the objectives while at the same time keeping the total unit size down to manageable numbers of 150-200. A participatory culture was introduced at Semco in the 1990s. Triggered by the prevailing recessionary times, the company allowed the workers to have a much greater say in the way salaries are structured, profits are shared and expenses are incurred, than probably what would have been acceptable in normal times. This move can be perceived as being a major milestone in the companys history of innovative solutions to organisational problems.

Semco - A Maverick Organisation Workers at Semco are offered a choice of 9 different compensation packages to choose from that could include choices like fixed salary, goal specific bonuses, share in companys profits or even self set salary in return for accomplishing self set goals. This is a highly evolved version of payfor-performance system, where the worker is truly free to set the limits on his / her earnings in return for the amount of effort he / she is willing to put in and amount of money the worker is able to generate for the company. Job titles at Semco are not particularly coveted and are mostly just used to indicate an individuals current role to outsiders. For this reason, workers normally chose titles for themselves that could be continuously variable. Teams chose their own team leaders, who, like the job titles, are completely unfixed and could be changed at will. Employees have near complete freedom in terms of what, how, when and where they would perform their work. The only thing that matters is meeting the objectives of the project the methodology of achieving it left entirely to the discretion and good judgment of the individual. In an extreme display of 360 degree appraisal, Semco has a system in place where any employee who desired to get promoted would, instead of being interviewed by his seniors, would actually be interviewed and recommended by the people who he would be leading in that position. Twice a year, within Semco, employees evaluate leaders performance and attitudes using a questionnaire and discussion . This allows employees to provide honest feedback to managers about their leadership style. Employees can take early retirement, meaning they get one day a week off in return for working one day a week after they retire. While there is a fair amount of freedom in the way an individual chooses to discharge his responsibilities, the system is not, by any stretch of imagination, a free-for-all. There are two ways in which control is exercised: 1. Pay is very closely linked to performance 2. Semco conducts budgeting and planning reviews every six months, and all those who fail to achieve the targets they set for themselves, are asked to leave. At Semco there are no revenue targets set for the business units. Each unit is free to set its own targets and then to mobilise the resources necessary to achieve this. Of-course at the half yearly reviews if the unit performance is not found to be upto the mark, the unit is disbanded and the resources allocated to other units. How does a seemingly against the flow system deliver the results? The answer probably lies in the fact that personal gain is the final motivator. Employees do not abuse the system because they are constantly being evaluated not by their superiors but by their peers. Semco treats employees as adults who are capable of making decisions for themselves. In return, people respond by honouring that trust and delivering excellent results. The system is self-supporting in some sense people either benefit together or sink together. Most people, when faced with this option, will choose to take the more beneficial route. --------------------------------------------------------------------------------------------------------------------

Semco - A Maverick Organisation

Advantages The essence of Semcos strategy is to create a larger number of small business units rather than have a centralised approach to project planning and execution. The clear advantage here is that smaller teams are by nature more cohesive, allow faster and easier communication, and can more easily align themselves with the common objectives. The element of profit sharing, that is common amongst most business units at Semco, is a great motivator for employees at these units. The company also uses the pay-for-performance approach to its advantage, both as a tool for keeping investments low, and for providing greater impetus for ultimate profits. The system, when implemented honestly and transparently, has the potential to extract the maximum value for all individual input. The entrepreneurship culture, once successfully cultivated and demonstrated, is self perpetuating within the organisation. Employees are always on lookout for new revenue streams and are willing to nurture their ideas, when they know that they stand to gain personally and professionally from the success of their ventures. The presence of leadership at all levels creates an organisation that is able to adapt, learn and innovate much faster than others. Greater work-life balance is possible under this model. Disadvantages There could, occasionally, be a gross mismatch between an employees expectations and what he eventually earns. Semlers unconventional style created havoc on a number of occasions where his lack of experience led the company into financial and organisational difficulties. There is no possibility of compassion or second chance for the employees who do not contribute sufficiently to the bottom line (who dont pull their weight). According to Semler himself, theres no place for it really when youve exchanged the bottom line for compassion, because the bottom line is what gave you that freedom. In a highly democratic environment, where peers vote for your progress, there is a danger that office politics can be extreme - people might devote a lot of time to keeping their colleagues satisfied and supporting them in extraneous ways for ensuring they receive a positive vote. Performance appraisal can also be very sensitive as it is conducted by peers. The system is also very unforgiving. As Ricardo Semler himself says, .if you put your salary too high, and people don't put you on the list as someone they need for the next six months, you're in more trouble than you would be at General Motors." In a no-holds-barred environment, there is a strong possibility that a lot of time and energy is wasted on superfluous discussions, particularly if the team leadership is not strong or not sufficiently skilled at chanelising group energy towards the accomplishment of team goals. New workers need a lot of time to get used to what is essentially a counterintuitive way of working. Genuine effort, if unsuccessful in the end, will not be recognised.

Semco - A Maverick Organisation -------------------------------------------------------------------------------------------------------------------Is it suitable for changing future business environment? Semco is one of the most interesting companies on the planet. There are no job titles and no personal assistants. People set their own salaries. Everybody shares in the profits. That sounds like a recipe for disaster, or at least chaos, but Semco has grown consistently for the last twenty years despite being located in one of the most volatile economies in the world. The question to ask is that is it really possible to establish a truly democratic workplace in the modern world? Or, to examine the issue from a different angle, why will it not work? Is the system only culture or country specific? This means, do some people actually prefer an authoritarian regime over self-governance? The answer is probably No. Nearly everyone on the planet enjoys the idea of freedom, self audit and definitely profit sharing. There is also one more question to be answered is it a desirable model? What are the requirements of the future business environment? greater work-life balance better people management, particularly in the knowledge industries where human asset is the primary asset flatter organisations that cut away the bureaucracies and red tapism, for faster communication, decision making and results With the average IQ and education levels of the workers on the rise, workers will demand a greater participation in decision making and managerial roles individuals demanding greater respect for privacy increased need for innovation, in the face of ever increasing competition It appears, the Semco model already caters to the anticipated requirements of the future business environment. In fact the way Semco is constituted, as a confederation of small, freestanding units, it is the right structure today to adapt quickly to deal with threats or to seize opportunities. Semco model is neither easy to copy nor does it guarantee success. Semco is an organisation that has evolved through a series of small incremental changes. Some of the bigger changes in the companys history have come about at times of high desperation rather than by some grand design or high principle. The style of democracy that is prevalent today at Semco primarily came about when Semler collapsed from exhaustion and had no other option than to relinquish control. Today, companies are desperately looking for ways to increase their creativity and flexibility, and to better utilise their talent - to do, in other words, what Semco has been doing for 20 years. The only reason it will not work is because leaders will refuse to give up control.

Semco - A Maverick Organisation

Semco - A Maverick Organisation

Discuss the role played by Ricardo Semler in institutionalizing a unique culture at SEMCO and in the success of the firm. Role of Ricardo Semler Ricardo felt that his fathers style of functioning was not conducive to a forward looking company. It was necessary to bring about a change in peoples mindset. For this to percolate throughout the organisation, everyone involved had to change. Predictably enough, some of the old guard exhibited a resistance to change. Ricardos response to this resistance was what was somewhat unique. He took drastic and massive action at this stage to curb and eliminate resistance by letting go those who had chosen to not support his initiatives, even if it meant loosing experience and talent. He correctly recognised that for a revolutionary formula to succeed, it needs to be endorsed unanimously. There was no scope for uncertainty. Even if he was criticised at the time for being too radical, the eventual results clearly vindicated all his actions. During the early part of 1990s, when recessionary pressures were high and layoffs were unviable due to the high severance pay involved, Semler agreed to a new and completely revamped compensation structure that was put forward by the employees to help ease some of the financial burden. Predictably enough, the demands made by the workers, in return for agreeing to the new structure, were quite severe. Surprisingly enough at the time, Semler agreed to the workers demands. Critics would say that Semler caved in to employee pressures and gave away a lot of managerial power that should traditionally have resided with the CEO and the senior management. This criticism though would be far from justified, given the eventual success of the system, which clearly proves that Semler had the necessary foresight to correctly recognise what would work best for the company in the long run. Semler created an environment of respect within the organisation by reducing the hierarchical structures that existed before he took over the reins of the company. Transparency in business operation is extremely effective at Semcosupporting Semlers underlying principle of treating people like adults. Semler brought in a culture where participation and involvement are welcomed and the employees are actually encouraged to voice their opinions. Semler also created an environment where teams and individuals are encouraged to self-manage and be involved in the core business of the organisation. It is said in Semlers favour that he created his own style of leadership by drawing the best elements from a number of different models including those of capitalism, socialism, and the Japanese models of leadership.1 Semler encouraged his managers to rotate jobs every two to five years. Job rotation offers employees the opportunity to learn new skills, get a broad view of the company and provides an opportunity for advancement. It also helps in effective succession planning. Semlers objective of seemingly handing over his power to the workers was to free time for himself to go build up the customer, government and other relationships required to make the company grow.

Semler 1994, Book Review of Maverick Gretchen Haman

Semco - A Maverick Organisation (In 2006, Semco celebrated the 10th. anniversary of Ricardo Semler not deciding anything in the company. It started when he took 18 months out to travel the world, and discovered that the company ran just fine without him.) Semler also firmly believed that competition is inevitable, and competitive advantage came only from continuous innovation. So, instead of resisting change, Semler went out and embraced it. He also successfully communicated this principle throughout the company, thus creating a culture that thrives on change. As Christian Sarkar says .Semler has literally turned our current understanding of management on its head. He has taken the philosophies of Deming ("management is the problem") and Drucker ("dedicated employees are the key to success of any corporation") seriously and implemented them in a way that no one dreamed possible.2 British management guru and social philosopher Charles Handy has said about Ricardo Semler, I just wish that more people believed him. Admiring though many are, few have tried to copy him. The way he works letting his employees choose what they do, where and when they do it, and even how they get paid is too upside-down for most managers. But it certainly seems to work for Ricardo.3 Without taking away any credit that rightfully belongs to Ricardo Semler, it is worth noting though that the big changes at Semco were driven by crisis such as financial hard times or Semler's stress-related illness. With very few exceptions, most of the dramatic ideas came from someone other than Ricardo Semler. His genius has been in holding to a general concept of empowerment and allowing and supporting changes that could easily have been viewed as taking away his power. Semlers philosophy is best summed up in his own words: The key to management is to get rid of the managers. The key to getting work done on time is to stop wearing a watch. The best way to invest corporate profits is to give them to the employees. The purpose of work is not to make money. The purpose of work is to make the workers, whether working stiffs or top executives, feel good about life. Ricardo Semler

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Ricardo Semler's Grupo Semco: The Democratization of Work, www.christiansarkar.com Ricardo Semler's Grupo Semco: The Democratization of Work, www.christiansarkar.com

Semco - A Maverick Organisation

References 1. Ricardo Semler and Semco S.A., - The American Graduate School of International Business 2. Australian Broadcasting Corporation Interview with Semco's business guru, Reporter: Kerry O'Brien, www.abc.net.au 3. Interview with Ricardo Semler, By Nick Easen, www.edition.cnn.com 4. 'Idleness is good'. Stephen Moss, The Guardian, www.guardian.co.uk 5. Ricardo Semler Set them Free, by Brad Wieners, www.cioinsight.com