To Succeed, He Threw Out the Management Books

Throwing handA book flyingIn 1980 when Ricardo Semler took over SEMCO, a manufacturing plant with 100 workers and $4 million in annual earnings, it was nearly bankrupt. By 1989 he had introduced many radical changes, and his outline of those and the results were published in Harvard Business Review (HBR). When Semler first took over, he tried to run the company as already organized. After working 12-18 hours a day, seven days a week, still feeling like it was not enough time, at age 25 he passed out from stress. He had physical symptoms of illness and nearly had a nervous breakdown. Besides realizing the job was impossible as structured, Semler wrote, “’SEMCO appeared highly organized and well disciplined, and we could still not get our people to perform as wanted.’”[1]

After bringing in consultants and trying a variety of standard improvement processes like TQM, Semler in effect threw out the management how-to books. By 1989, he said in HBR, he had wiped out most of the management levels; eliminated set working hours (even in his factories); abolished “norms, manuals, rules, and regulations”; “done away with security searches, storeroom padlocks, and audits of the petty-cash accounts of veteran employees”; stopped tracking employee expenses; and begun sharing all company financials with all employees. When the company needed a new plant building, top management (called “counselors”) let employees lead the hunt, vote on which to buy (over the counselors’ objections), design the layout, and hire a famous artist to paint it!

SEMCO had 800 employees by 1989 and was “one of Brazil’s fastest-growing companies, with a profit margin in 1988 of 10% on sales of $37 million.” He said it was regularly named as a best company to work for in Brazil, and they didn’t bother advertising jobs because word-of-mouth brought an average of 300 applicants per position.

Many success stories stop at this snapshot in time, with no evidence on how the successes held up. In this case we have a rare before-and-after comparison with outside corroboration, thanks to a TED Talk Semler delivered a quarter century later, and two academic studies I cite below.

Semler reported in 2015 that the company had not only retained most of those innovations but added more. Two seats at board of director meetings were left open for the first two employees to show up—janitorial staff appeared at a meeting and had equal voting rights to the people in suits. SEMCO’s hiring processes allowed any employee to interview new prospects, and those prospects were told to come back and “spend a day, talk to anybody you want. Make sure we are the bride you thought we were and not all the bull… we put into our own ads.” They allowed employees to see everybody else’s salaries—and set their own! Once sales or production objectives were met, people were told to “go to the beach.” Otherwise they would mess up other groups who had made plans based on those numbers.

The result? By 2015 the company had 5,000 workers, low turnover, was making hundreds of millions of dollars annually, and had bought other firms.

As echoed by a couple of management professors, SEMCO’s success was built on an unusual philosophy of management. “Another way of saying this is that a philosophy is a foundation that gives perspective, and through which the uncertainties and contingencies of everyday organization can be faced through a set of principles,” wrote Steven Segal and Kyle Bruce of Macquarie University in Australia. “It is the paradigm through which practices, routines and behaviours make sense.”

However this was not a prewritten philosophy, they add: “It was not through armchair speculation that he developed it, but in the context of the lived experience of action that he developed a democratic philosophy through which organizing took place at SEMCO.”

I admire Semler’s decision-making primarily because he gave most of it away to his employees—and that worked. The company became successful, workers were happy, and he is mentioned often as an exemplar of progressive management. His decision-making can be boiled down to asking three “why’s,” he said in his TED Talk: “Because the first why you always have a good answer for. The second why, it starts getting difficult. By the third why, you don’t really know why you’re doing what you’re doing.” No doubt he borrowed this from the “Five Why’s” of Six Sigma, but his results indicate three are enough to change an organizational culture.

This approach, and the courage to question everything he had been taught, led to a highly successful management philosophy so radical most leaders remain afraid to try it 30 years later. “But the fact is that it takes a leap of faith about losing control,” Semler said after his talk. “And almost nobody who is in control is ready to take leaps of faith.”

I hope you can gather the needed courage to take a flying leap—in that good way!

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[1] Quoted in Segal & Kyle, 2017.

Sources:

  • Jiro Takaki, Toshiyo Taniguchi, & Yasuhito Fujii. (2016). Confirmation of Maslow’s hypothesis of synergy: Developing an Acceptance of Selfishness at the Workplace Scale. International Journal of Environmental Research and Public Health, 13(5), 1. https://doi.org/10.3390/ijerph13050462
  • Segal, S., & Kyle, B. (2017). Breaking the chains of ignorance: Manager-philosophers in recent management history. Journal of Management History; Bradford, 23(2), 118–132. http://dx.doi.org.csuglobal.idm.oclc.org/10.1108/JMH-02-2017-0006
  • Semler, R. (1989). Managing without managers. Harvard Business Review, (September–October 1989). Retrieved from https://hbr.org/1989/09/managing-without-managers
  • Semler, R. (2015). How to run a company with (almost) no rules. Retrieved from https://www.ted.com/talks/ricardo_semler_how_to_run_a_company_with_almost_no_rules

 

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