Managing without managers

Managing without managers

Two decades ago, Ricardo Semler, a 24-year-old graduate from Harvard Business School, embraced an egalitarian approach to business management and transformed an ailing company into a flourishing one. When Ricardo took over the realms of Semler and Company, a Brazilian manufacturing business from his father, the country’s economy was going through a recession and had hit the company’s sales particularly hard. The company was in mayhem and on the brink of bankruptcy. Ricardo had never agreed with the autocratic management style in which his father had always believed. So he decided to change things a bit. On the very first day after he took over, he fired two-thirds of the top management. Next he rechristened the company to call it “Semco.” He then began mapping fresh strategies for the company to bring it back in form.

In spite of these changes, the company’s performance kept dwindling. Attempts such as brutal cost-cutting too did not salvage the situation. Finally, after experiencing severe stress for several months, Ricardo decided to drastically change his lifestyle along with that of his employees. The first thing he did was to eliminate needless layers of hierarchy; he trimmed down the hierarchy from twelve levels down to three levels. Today, a front-line lathe operator is only one layer away from the general manager of his division.

Next, he began consulting his workforce for all major decisions. Soon his company started showing signs of recovery and it became clear to him that the only way to drive his company to growth and success is by involving all his employees. He made up his mind to embrace what he calls “participatory management,” which essentially meant empowering employees and encouraging them to participate in running the business. His decision paid off, and handsomely at that.

In only a decade and a half, Semco grew from a five million dollar company with 100 employees, to a 220 million dollar company with 3,000 employees. And these employees are a highly motivated, self-driven and quality conscious lot. The management and workers are so empathetic towards each other and their communication so open that no union is required. Each worker is fully aware of his role in the organisation and is completely committed to company goals. And employee turnover is tending to zero. What brought such a change, you might wonder?

Utopian Workplace
Imagine working for a company where you decide your salary, set your sales and productivity targets, where you review your boss’s performance, where you could walk in at any time, where there is no dress code, where it is mandatory to take a vacation, where everyone knows what everyone else earns, and some workers can earn more than their boss. For most of us, this would be the ultimate workplace utopia. For employees of Semco, this is the way of life.

Semco, one may say, is the ultimate democratic organisation. Semco’s standard policy is no policy – instead of corporate governance, it advocates self-governance. All employees are treated like mature adults. Workers set their own production quotas as well as their own wages. Workers have access to all corporate records, and are taught to read financial reports. Profit-sharing is democratic too – profits shared are negotiated with workers, who then decide how to split the money.

Before people are hired for or promoted to leadership positions, they are interviewed and approved by everyone who must work for them. Every six months, managers are reviewed by workers and results are posted for everyone to see. Not only that – bosses with poor evaluations are actually fired! Each worker votes on major decisions, such as buying another company or moving a factory. Workers are responsible for their own quality control, eliminating the quality control department.

Because a large proportion of what all employees earn is a factor of the firm’s profits, employees tend not to abuse their freedom – they seem to know that if they do, the loss is theirs. Today Semco is reaping rich dividends in return for employee empowerment. The extraordinary manner in which the organisation is managed (or not managed), has earned Semco the distinct reputation of being the world’s most unusual workplace. Plus, it is one of the most sought after employers in the world and has steadily climbed to becoming one of the top five companies in its industry.

Ricardo on India
In an interview with The Economic Times last year, Semler advised that copying Fortune 500 companies is a bad idea for companies operating in countries like Brazil and India. He encouraged businesses to look for “new architectures” that can be “built around our cultural background.”

When asked how should one tackle resistance and go about changing mindsets, Semler replied, “You’ve to remember that the only resistance of any importance comes from the middle managers. About 80 per cent of the company, i.e., everyone who is not a manager or a supervisor, take to this like fish to water, in the sense that it doesn’t take very much to convince people that they should have more freedom to come and go when they want, dress the way they want, spend more time with their kids.”

Last words
In his book Maverick, Ricardo Semler, relates an incident when the wife of one of the company’s workers went to see a member of the company’s human resources staff. She was puzzled about her husband’s behaviour. He no longer yelled at the kids, she said, and asked everyone what they wanted to do on the weekends. He wasn’t his usual, grumpy, autocratic self. Ricardo concluded that as Semco had changed for the better, so had its employees.

Ricardo ends his book Maverick with these inspiring words, “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 organisations that accomplish that most difficult of all challenges: to make people look forward to coming to work in the morning.”

Like everything else, business management metamorphoses over time. By going against the time-honoured practices of managing a business enterprise, Ricardo Semler has sown the seeds for a metamorphosis that makes the autocratic and hierarchical style of management seem dated.

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