Semco - A Maverick OrganisationCritically analyze SEMCO’s 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. SEMCO’s 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, it’s like having a bunch of entrepreneurs working for you! It’s 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 company’s history of innovative solutions to organisational problems. within Semco. are completely unfixed and could be changed at will. Pay is very closely linked to performance 2. Semco has a system in place where any employee who desired to get promoted would. Most people. would actually be interviewed and recommended by the people who he would be leading in that position. Employees have near complete freedom in terms of what. by any stretch of imagination. At Semco there are no revenue targets set for the business 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. 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. 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. In an extreme display of 360 degree appraisal. Each unit is free to set its own targets and then to mobilise the resources necessary to achieve this. There are two ways in which control is exercised: 1. While there is a fair amount of freedom in the way an individual chooses to discharge his responsibilities. In return. goal specific bonuses. This is a highly evolved version of payfor-performance system. who. like the job titles. are asked to leave. Job titles at Semco are not particularly coveted and are mostly just used to indicate an individual’s current role to outsiders. a ‘free-for-all’. Teams chose their own team leaders.Semco . when and where they would perform their work. This allows employees to provide honest feedback to managers about their leadership style. how. Of-course at the half yearly reviews if the unit performance is not found to be upto the mark. instead of being interviewed by his seniors. workers normally chose titles for themselves that could be continuously variable. Semco treats employees as adults who are capable of making decisions for themselves. the system is not. the unit is disbanded and the resources allocated to other units. For this reason. when faced with this option. share in company’s profits or even self set salary in return for accomplishing self set goals. meaning they get one day a week off in return for working one day a week after they retire. The system is self-supporting in some sense – people either benefit together or sink together. people respond by honouring that trust and delivering excellent results.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. employees evaluate leaders’ performance and attitudes using a questionnaire and discussion . will choose to take the more beneficial route. Semco conducts budgeting and planning reviews every six months. and all those who fail to achieve the targets they set for themselves. Employees can take early retirement. Twice a year. -------------------------------------------------------------------------------------------------------------------- . when implemented honestly and transparently. will not be recognised. learn and innovate much faster than others. The clear advantage here is that ‘smaller’ teams are by nature more cohesive. has the potential to extract the maximum value for all individual input. when they know that they stand to gain personally and professionally from the success of their ventures. if unsuccessful in the end. Semler’s unconventional style created havoc on a number of occasions where his lack of experience led the company into financial and organisational difficulties. Greater work-life balance is possible under this model. “…. As Ricardo Semler himself says. both as a tool for keeping investments low. and can more easily align themselves with the common objectives. Employees are always on lookout for new revenue streams and are willing to nurture their ideas.A Maverick Organisation Advantages The essence of Semco’s strategy is to create a larger number of small business units rather than have a centralised approach to project planning and execution." In a ‘no-holds-barred’ environment.if you put your salary too high. According to Semler himself.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. The company also uses the pay-for-performance approach to its advantage. Disadvantages There could. There is no possibility of compassion or ‘second chance’ for the employees who do not contribute sufficiently to the bottom line (who don’t ‘pull their weight’). The element of profit sharing. The entrepreneurship culture. In a highly democratic environment. and for providing greater impetus for ultimate profits. where peers vote for your progress. The system is also very unforgiving. once successfully cultivated and demonstrated. because the bottom line is what gave you that freedom”. there is a danger that office politics can be extreme . Genuine effort. Performance appraisal can also be very sensitive as it is conducted by peers. particularly if the team leadership is not strong or not sufficiently skilled at chanelising group energy towards the accomplishment of team goals. is self perpetuating within the organisation. that is common amongst most business units at Semco. be a gross mismatch between an employees expectations and what he eventually earns. is a great motivator for employees at these units. New workers need a lot of time to get used to what is essentially a counterintuitive way of working. allow faster and easier communication. The system. “…there’s no place for it really when you’ve exchanged the bottom line for compassion. there is a strong possibility that a lot of time and energy is wasted on superfluous ‘discussions’. The presence of leadership at all levels creates an organisation that is able to adapt. occasionally. you're in more trouble than you would be at General Motors…. and people don't put you on the list as someone they need for the next six months. .Semco . . in other words.A Maverick Organisation -------------------------------------------------------------------------------------------------------------------Is it suitable for changing future business environment? Semco is one of the most interesting companies on the planet. Semco is an organisation that has evolved through a series of small incremental changes. In fact the way Semco is constituted. and to better utilise their talent . Everybody shares in the profits. That sounds like a recipe for disaster. Semco model is neither easy to copy nor does it guarantee success. but Semco has grown consistently for the last twenty years despite being located in one of the most volatile economies in the world. for faster communication. Some of the bigger changes in the company’s history have come about at times of high desperation rather than by some grand design or high principle. freestanding units. particularly in the knowledge industries where human asset is the primary asset − flatter organisations that cut away the bureaucracies and red tapism. The only reason it will not work is because ‘leaders’ will refuse to give up control. 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. why will it not work? Is the system only culture or country specific? This means. the Semco model already caters to the anticipated requirements of the future business environment. or at least chaos. The question to ask is that is it really possible to establish a truly democratic workplace in the modern world? Or. companies are desperately looking for ways to increase their creativity and flexibility. Nearly everyone on the planet enjoys the idea of freedom. as a confederation of small. decision making and results − With the average IQ and education levels of the workers on the rise. what Semco has been doing for 20 years. Today. to examine the issue from a different angle. in the face of ever increasing competition It appears. There are no job titles and no personal assistants. 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. it is the right structure today to adapt quickly to deal with threats or to seize opportunities.to do. workers will demand a greater participation in decision making and managerial roles − individuals demanding greater respect for privacy − increased need for innovation.Semco . People set their own salaries. self audit and definitely profit sharing. do some people actually prefer an authoritarian regime over self-governance? The answer is probably No. A Maverick Organisation .Semco . This criticism though would be far from justified. Semler also created an environment where teams and individuals are encouraged to self-manage and be involved in the core business of the organisation. During the early part of 1990s. government and other relationships required to make the company grow. which clearly proves that Semler had the necessary foresight to correctly recognise what would work best for the company in the long run. Ricardo’s response to this resistance was what was somewhat unique. It was necessary to bring about a change in people’s mindset. Job rotation offers employees the opportunity to learn new skills. 1 Semler 1994. the eventual results clearly vindicated all his actions. Semler brought in a culture where participation and involvement are welcomed and the employees are actually encouraged to voice their opinions. It also helps in effective succession planning. Book Review of ‘Maverick’ – Gretchen Haman . in return for agreeing to the new structure. socialism. 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. He correctly recognised that for a revolutionary formula to succeed. Semler’s objective of seemingly handing over his power to the workers was to free time for himself to go build up the customer. the demands made by the workers. even if it meant loosing experience and talent. It is said in Semler’s favour that he created his own style of leadership by drawing the best elements from a number of different models including those of capitalism. were quite severe. 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. get a broad view of the company and provides an opportunity for advancement. Predictably enough. Surprisingly enough at the time. everyone involved had to change. and the Japanese models of leadership. Role of Ricardo Semler Ricardo felt that his father’s style of functioning was not conducive to a forward looking company. For this to percolate throughout the organisation.Semco . Predictably enough. Semler agreed to the workers demands. 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. it needs to be endorsed unanimously. when recessionary pressures were high and layoffs were unviable due to the high severance pay involved. Transparency in business operation is extremely effective at Semco—supporting Semler’s underlying principle of ‘treating people like adults’.1 Semler encouraged his managers to rotate jobs every two to five years. There was no scope for uncertainty.A Maverick Organisation Discuss the role played by Ricardo Semler in institutionalizing a unique culture at SEMCO and in the success of the firm. Even if he was criticised at the time for being too ‘radical’. 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. some of the old guard exhibited a resistance to change. given the eventual success of the system. Semler’s philosophy is best summed up in his own words: “The key to management is to get rid of the managers.christiansarkar. 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. Semler went out and embraced it. With very few exceptions.”3 Without taking away any credit that rightfully belongs to Ricardo Semler. whether working stiffs or top executives. Admiring though many are. Semco celebrated the 10th. It started when he took 18 months out to travel the world. few have tried to copy him. He also successfully communicated this principle throughout the company. “I just wish that more people believed him. www. 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.” Ricardo Semler 2 3 Ricardo Semler's Grupo Semco: The Democratization of Work. where and when they do it.Semler has literally turned our current understanding of management on its head. www. So. The purpose of work is not to make money.2 British management guru and social philosopher Charles Handy has said about Ricardo Semler.com Ricardo Semler's Grupo Semco: The Democratization of Work.) Semler also firmly believed that competition is inevitable. But it certainly seems to work for Ricardo.christiansarkar. and discovered that the company ran just fine without him. and even how they get paid — is too upside-down for most managers.com . anniversary of Ricardo Semler not deciding anything in the company.Semco . The purpose of work is to make the workers. The way he works — letting his employees choose what they do. 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…”.A Maverick Organisation (In 2006. and competitive advantage came only from continuous innovation. instead of resisting change. feel good about life. most of the dramatic ideas came from someone other than Ricardo Semler. thus creating a culture that thrives on change. The best way to invest corporate profits is to give them to the employees. As Christian Sarkar says “…. The key to getting work done on time is to stop wearing a watch. guardian. www.com 4.. Stephen Moss.au 3.edition.A Maverick Organisation References 1. . www.uk 5. Ricardo Semler – ‘Set them Free’.Semco .net. by Brad Wieners.cnn. “The Guardian”.co.abc. Ricardo Semler and Semco S. www.A. By Nick Easen.The American Graduate School of International Business 2. Reporter: Kerry O'Brien. Interview with Ricardo Semler. Australian Broadcasting Corporation Interview with Semco's business guru.com . 'Idleness is good'. www.cioinsight.