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          The Success Story Behind the
         World’s Most Unusual Workplace
                              RICARDO SEMLER

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                                                                                                                      Maverick - Page 1

                                                            MAIN IDEA
The heart of the Semco philosophy is:
1. Every company should trust its destiny to its employees.
2. Employees should be treated like responsible adults rather than like children who have to have everything spelled out for them.
In addition, Semco’s principles are:
1. Throw away all rule books. They discourage flexibility and comfort the complacent. Encourage people to use their common sense.
2. Employees work best and most productively in an environment in which they are self-governed and self-managed.
3. Sharing information rather than making money is the reason for existence for a successful company.
Semco has managed to achieve two objectives that often conflict -- to make money and to improve the lives of the people who work
for it. And, significantly, Semco has developed a more humane, more trusting, more productive, more exhilarating and more rewarding
place to work.

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2
1. COMPANY PHILOSOPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 3
1. Business Focus
2. The Use of Good Common Sense
3. Transparency
2. COMPANY MANAGEMENT            . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
1. Corporate hierarchy
2. Reduction of Support Staff
3. Reverse Evaluations
4. Optimum business unit size
5. Management by wandering around
3. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 5
1. Job security
2. Job rotation
3. Hepatitis leave
4. Flextime
5. Strikes
4. EMPLOYEE INCENTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6
1. Profit sharing
2. Risk salary
3. Salary surveys
4. Self-set pay
5. Training
5. DEMOCRACY IN THE WORKPLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 7
1. Democratic system
2. Factory committees
3. Family silverware
4. Manufacturing cells
5. Satellite program
6. Working at home
6. CONCEPTS AND IDEAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 8
1. Cleanout
2. Corruption.
3. Headline memo
4. Lost in space
5. Nucleus of technological innovation
                                                                                                                       Maverick - Page 2

                     INTRODUCTION                                     Semco was now number 1 or number 2 in every market in which
                 SEMCO and Ricardo Semler                             it competed. Even more impressive, the company is debt free.
                                                                      In fact, the company has continued to grow almost as quickly as
Background                                                            it’s corporate culture has continued to attract attention. By 1993:
Semco (a contraction of Semler & Company) was formed in                 Semco’s revenues had risen 600%, despite the fact Brazil was
Brazil in 1952. The company’s founder was Antonio Curt Semler,          in the middle of a sustained recession.
an Austrian engineer drawn to Brazil by the commercial                  Worker productivity has risen 700%.
prospects such a vast, undeveloped country represented.
                                                                        Profits have increased by 500%.
By the end of the 1960s, Semco employed 110 people and had
                                                                        The company has a back-log of 2,000 people who would like
annual revenues of $2 million per year. With the birth of the
                                                                        to become employees.
shipbuilding industry in Brazil, Semco diversified into becoming
a major supplier of marine pumps.                                       Executives from some of the biggest and best known
                                                                        companies in the world make regular inspection tours to
The shipbuilding boom in Brazil, however, was over by 1980
                                                                        Semco’s head office to see what the company is doing.
when Antonio Semler passed control of Semco over to his
20-year old son, Ricardo. By this stage, Semco’s exposure to
the shipbuilding industry was very high, with more than               Key Thoughts
90-percent of Semco’s business in marine products such as
pumps, components for propellers and water-oil separators for         ‘‘No, Semco isn’t a model, with programs to be followed with
ship motors.                                                          precision, so many recipes for participation, productivity and
                                                                      profits. Semco is an invitation. I hope our story will cause other
When Ricardo took over Semco, most of the first year was spent
                                                                      companies to reconsider themselves, and their employees. To
trying to raise sufficient cash to keep the business afloat.
                                                                      forget socialism, capitalism, just-in-time deliveries, salary
Gradually, however, Ricardo started assembling a new
                                                                      surveys and the rest of it, and to concentrate on building
management team around him who were from outside the
                                                                      organizations that accomplish that most difficult of all challenges:
industry and who were unafraid to try new ideas. To allow these
                                                                      to make people look forward to coming to work in the morning.’’
ideas to take root, Ricardo Semler fired most of the management
                                                                                             -- Ricardo Semler
that had previously worked for Semco, and hit the road to try and
drum up some new business -- hoping to persuade some                  ‘‘People often assume that at Semco we have strict selection
companies to let Semco manufacture pumps and mixers in                procedures to ensure those who come to work for us are
Brazil under license.                                                 philosophically attuned with our system. In fact, it’s the other way
In those days, the company competed aggressively for                  around. We look for competence, and ignore all else. Many of
business. When Alcoa built a vast aluminum mill in northern           our employees regularly question our concepts. There are even
Brazil, Semco was ultimately able to land a contract to supply        pockets at Semco that are autocratic, and people who like to
mixers for the manufacturing process.                                 work in that kind of environment have slowly migrated there. But
                                                                      how can we lock out people who don’t think the same way we
By 1983, Semco had turned around and was starting to make
                                                                      do without becoming like people who say things like, "This is not
money, and made its first acquisitions -- buying Flakt, the
                                                                      the way we do things around here".’’
Brazilian subsidiary of the Asea Brown Boveri group and
                                                                                              -- Ricardo Semler
Baltimore Aircoil, a subsidiary of Merck Sharp and Dohme.
As Semco continued to grow through acquisitions, Ricardo              ‘‘When I took over Semco from my father 12 years ago, it was a
Semler started to develop a set of set of corporate principles that   traditional company in every respect, with a pyramidal structure
impacted on the corporate culture within the company. His             and a rule for every contingency. But today, our factory workers
central theme was that traditional companies were not organized       sometimes set their own production quotas and even come in
effectively, and that the key to productivity was to create an        on their own time to meet them, without prodding from
atmosphere in which employees were treated like responsible           management or overtime pay. They help redesign the products
adults rather than like children where everything had to be           they make and formulate the marketing plans. Their bosses, for
spelled out. Ricardo Semler’s enthusiasm for this concept was         their part, can run our business units with extraordinary freedom,
to launch him on a crusade that would eventually impact on every      determining business strategy without interference from the top
part of Semco’s operations.                                           brass. They even set their own salaries, with no strings. Then
Before long, Semler launched a major campaign to rid Semco            again, everyone will know what they are, since all financial
of irrelevant rules and regulations. His philosophical basis was      information at Semco is openly discussed. Indeed, our workers
that rules:                                                           have unlimited access to our books (and we only keep one set).
1. Diverted attention away from important matters.                    To show we are serious about this, Semco, with the labor unions
2. Provided a false sense of security for managers.                   that represent our workers, developed a course to teach
3. Created unnecessary work for the bean counters.                    everyone, even messengers and cleaning people, to read
4. Taught men to stone dinosaurs and start fires with sticks.         balance sheets and cash-flow statements. For truly big
                                                                      decisions, everyone at Semco gets a vote.’’
In fact, Semler considered a desire for rules and the need for                                 -- Ricardo Semler
innovation to be diametricly incompatible, and before long he
launched a major company initiative to completely reengineer
By 1988, Semco was the fastest growing company in Brazil.
Sales had increased from $4 million in 1980 to $35 million in
1988, while the company grew from 100 to 830 employees.
                                                                                                                        Maverick - Page 3

                           1.                                            company. The solution? Do away with arbitrary rules and
                   COMPANY PHILOSOPHY                                    replace them with committees of workers that decide what is
                                                                         and is not reasonable behavior in the work place.
Main Idea                                                                Let the committees look after the interests of the workers.
1. Business Focus                                                        Reinforce the role of the committee members by giving them
   At Semco, everything focuses on the four business activities          paid time off work duties to serve on the committee. It’s
   that make the company money:                                          amazing how many good idea people will come up with when
   1. Manufacturing                                                      they finally start to realize they’re in charge and they can
   2. Selling                                                            make a meaningful contribution that is actually followed
   3. Billing                                                            through on.
   4. Collecting                                                     3. Transparency
   Anything that isn’t directly associated with these four               If everyone in the company is to contribute meaningfully, they
   activities is deemed a distraction and is eliminated if at all        have to understand the financial aspects thoroughly and
   possible.                                                             accurately. The only way to do that is by sharing everything
2. The Use of Good Common Sense                                          with them.
   The abiding corporate principle at Semco is that employees            Most companies feel full disclosure will give competitors vital
   and management are expected to use their common sense.                information and cause trade secrets to become diluted in
   Therefore, there are no dress codes, no regulations on travel,        effectiveness. In practice, however, the advantages of
   no internal departments to check if employees are obeying             openness and accuracy far outweigh the potential
   the rules, etc.                                                       disadvantages.
3. Transparency                                                          In addition to making the information available, employees
   Semco makes public all corporate information -- from                  have to be trained on how to interpret it. That will mean
   salaries to strategies to productivity statistics and profit          seminars, training courses and other forums at which their
   margins. Employees are taught how to read financial                   analytical skills can be developed. The result? Employees
   statements. Employees are free to question managers on                will be much better equipped to take an active role in making
   any aspect of the business at any time. Employees can talk            management decisions -- even the hard ones that impact
   to the media whenever and wherever they like.                         directly on their own employment conditions.
Supporting Ideas                                                     Key Thoughts
1. Business Focus
                                                                     ‘‘We found that in an office without secretaries it paid to reflect
   Many companies seem to be shrines to managerial egos              before adding to the paperwork. We still make extra copies if
   rather than narrowly focused on the sole reason for forming       there is a chance someone will feel left out. (By the way, when
   a company in the first place -- to make more money by             we distribute a memo, we always list everyone getting it in
   working together than the employees could make by working         alphabetical order, to avoid silly guessing games about
   individually.                                                     prestige). But generally, the fewer copies the better. And we think
   To avoid the tendency to award unnecessary perks and              three times before filing anything. Read it, understand it, act on
   privileges to the chosen few, Semco has no executive dining       it and throw it away -- that’s our motto now.’’
   rooms, fancy office furniture or even designated parking                                  -- Ricardo Semler
   spaces. The company has also completely eliminated:
   - Secretaries                                                     ‘‘We simply do not believe our employees have an interest in
   - Receptionists                                                   coming in late, leaving early and doing as little as possible for as
   - Personal assistants                                             much money as their union can wheedle out of us. After all, these
   as these are dead end jobs that don’t train employees with        same people raise their children, join the PTA, elect mayors,
   the skills required to be able to provide more value to the       governors, senators and presidents. They are adults. At Semco,
   company -- thereby earning a higher salary.                       we treat them as adults. We trust them. We don’t make our
                                                                     employees ask permission to go to the bathroom, or have
   Everyone at Semco takes a turn working at the reception           security guards search them as they leave for the day. We get
   desk. Employees fetch their own guests from the reception         out of their way and let them do their jobs.’’
   area. In addition, every employee sends their own faxes,                                 -- Ricardo Semler
   makes their own phone calls, does their own filing and
   photocopying. The result? Less paperwork, less filing, less       ‘‘The origins of corporate secrecy can be traced to the insecurity
   busy work and more direct communication between                   of executives who possessed the technical skills to scale the
   managers within the company.                                      corporate pyramid but weren’t mature enough to handle the
2. The Use of Good Common Sense                                      height. They wanted to be seen to be different from those who
                                                                     had not attained their perch. By keeping their salaries secret,
   Most rules in the work place are totally arbitrary -- they were
                                                                     they felt they would keep themselves apart from others. The
   either developed by insecure managers who liked the idea
                                                                     problem with secrets is that people just assume the worst,
   of specifying how employees should act as it made them feel
                                                                     whether it’s about profit or salaries. The truth may not always be
   powerful or by unions who were trying to gain control over
                                                                     pretty, or easily explained, but it is always better out in the open.’’
   some aspect of their workers’ lives.
                                                                                              -- Ricardo Semler
   Companies that are unencumbered by traditional thinking
   are looking for ways to make peace with employees and
   provide opportunities for employees to interact with the
                                                                                                                    Maverick - Page 4

                          2.                                           increases in efficiency far outweighs the loss in corporate
                 COMPANY MANAGEMENT                                    manpower.
                                                                    3. Reverse Evaluations
Main Idea                                                              Twice a year, Semco managers are evaluated through a
1. Corporate hierarchy                                                 multiple choice form which the employees fill out
   Semco’s management has been slashed from 12 layers to               anonymously. The form has questions on technical ability,
   just three. All employees have one of just four titles:             competence, leadership and other aspects of being a good
   Counselors -- who coordinate general policy and direction           boss.
   Partners -- who run business units                                  Before any new boss is appointed at Semco, the employees
   Co-ordinators -- the first level of management                      (as a group) get to interview all the candidates and make their
   Associates -- everyone else.                                        decision on whom they want to follow. That way, they have
2. Reduction of Support Staff                                          nobody but themselves to blame if they fail to support their
   Semco has reduced its corporate staff by 75-percent,                business unit leader effectively and consistently.
   eliminating entire departments.                                  4. Optimum business unit size
3. Reverse Evaluations                                                 At Semco, no business unit has more than 150 employees.
   Every 6-months, all Semco managers are evaluated by the             Building a larger, centralized organization breeds a
   people they manage using an anonymous multiple choice               bureaucracy and alienation. In a small business unit, every
   questionnaire. And, before they are hired, managers must            associate knows what everyone else is doing -- and how they
   be approved by everyone who will work for them.                     contribute.
4. Optimum business unit size                                          Therefore, Semco splits business units that grow larger than
   Large organizations are inefficient. Whenever a Semco               150 into smaller units all the time. That way, business units
   business grows to more than 150 workers, it is split.               stay at their optimum size.
5. Management by wandering around                                   5. Management by wandering around
   Semco is designed to encourage people to mingle. Offices
                                                                       Semco is consistent in removing barriers between workers
   don’t have walls, and every possible barrier to open
                                                                       and encouraging them to interact with each other, in order to
   communication is eliminated.
                                                                       let new ideas and new initiatives come to the surface
Supporting Ideas                                                       unhindered. Towards that end, the company takes
1. Corporate hierarchy                                                 extraordinary lengths -- there are no walls in the offices,
   Almost every corporation uses a pyramid structure. Semco,           people are only separated by plants. Managers are
   instead, uses this corporate structure:                             encouraged to be out of their offices as frequently as
                                                                       possible. Departments are mixed together in the same
                                      Counselors (about 6)             building.
       SEMCO                          Develop policies and          Key Thoughts
                                      set strategies
                                                                    ‘‘The pyramid, the chief organizational principal of the modern
                                     Partners (7 - 10)              corporation, turns a business into a traffic jam. A company starts
                                     Business unit leaders          out like an 8-lane superhighway -- the bottom of the pyramid --
                                                                    drops to six lanes, then four, then two, then becomes a country
                                                                    road and eventually a dirt path, before abruptly coming to a stop.
                                                                    Thousands of drivers start out on the highway, but as it narrows
                                      Associates (100’s)
                                                                    more and more are forced to slow and stop. There are
                                      All other employees of
                                                                    smash-ups and cars are pushed off onto the shoulder. Some
                                      the company
                                                                    drivers give up and take side roads to other destinations. A few
                                                                    -- the most aggressive -- keep charging ahead, swerving and
                                     Co-ordinators                  accelerating and bending fenders all about them. Remember,
                                     (6 - 10 for each unit)         objects in the mirror are closer than they appear.’’
                                     First line of management                               -- Ricardo Semler
                                     - foremen, supervisors,        ‘‘A manager imposed from on high starts with the count against
                                                                    him. Why not let the people elect their own boss? In a plant where
2. Reduction of support staff                                       everyone has a financial stake in success, the idea of asking
                                                                    future subordinates to choose bosses seems an utterly sensible
   At Semco, employees take more responsibility for their own
                                                                    way to stop accidents before they are promoted. It’s a wonder it
   actions. Therefore, there is no need to have legal,
                                                                    isn’t done more often.’’
   accounting, data processing, training, quality control or
                                                                                           -- Ricardo Semler
   marketing expertise available at head office. These
   corporate positions can be eliminated entirely. Individual
   business units then acquire whatever specialist services they
   need in these areas at a much lower cost.
   The key lies in the fact that as workers exercise more control
   over their jobs, there is a reduced need for supervisors. The
                                                                                                                    Maverick - Page 5

                            3.                                         people can stop the day-to-day rush and think through their
                        EMPLOYEES                                      working lives and their own personal objectives.
                                                                       Most people resist this idea initially, so to stimulate their
Main Idea                                                              thinking, they’re asked to consider what would they do if they
1. Job security                                                        contracted a serious disease like Hepatitis and were forced
                                                                       to spend two or three months recuperating. Once they
   Semco never offers employees a guaranteed lifetime job.             answer that question, they’re then told to go ahead and do it
   People know they have to deliver or move on.                        -- but not to forget to come back once their period of
2. Job rotation                                                        recuperation is completed.
   Employees are encouraged to move on to another job within        4. Flextime
   Semco every two to five years. It stops them becoming               Many companies allow office workers to decide what hours
   trapped in a job and encourages the development of new              they work. Relatively few extend this same courtesy to
   skills.                                                             factory workers. Semco does, however. Every factory worker
3. Hepatitis leave                                                     still works 8-hours per day, but can arrive at any time
   Semco employees are encouraged to take a 2-month                    between 7 and 9 am, and leave accordingly.
   sabbatical every couple of years to learn new skills, redesign      Again, it comes back to the concept of treating workers like
   their job or to rest. They are told to imagine they have            adults. In situations in which a plant’s operation depends on
   hepatitis and have to take 2 months off to recover.                 groups of employees working together simultaneously,
4. Flextime                                                            employees are left to organize themselves along any lines
                                                                       they choose. In most cases, Semco factory workers tend to
   Factory workers and office workers set their own hours of
                                                                       prefer a 6:30 am start and a 3:00 pm finish so that travel to
   work, using just a group schedule to keep everything
                                                                       and from the plant can be more comfortable and less
   organized efficiently.
5. Strikes
                                                                    5. Strikes
   Semco still has strikes, but the striking workers are still
                                                                       At Semco, strikes, while not encouraged, are considered to
   treated like adults and workers who strike are never fired in
                                                                       be part of the democratic process at work. During strikes:
   retaliation -- their right to strike is respected.
                                                                       1. Employees are treated like adults
Supporting Ideas                                                       2. No one is punished for striking
1. Job security                                                        3. No records are kept of who went on strike and who did not
   For many years, Japanese companies and some U.S.                    4. The police are never called to break up a picket line
   companies offered guaranteed employment for a person’s              5. Benefits continue to be paid, as if the worker was absent
   entire working career. Yet, when hard times came, these             6. Workers and union leaders are allowed access
   same companies were ultimately forced to break their word           7. The rights of those who choose to work are respected
   and lay off employees.                                              8. No employees are fired for organizing a strike

   At Semco, a sense of business reality reigns. Company            Key Thoughts
   personnel are kept fully informed about the company’s            ‘‘Almost all businessmen think their employees are involved in
   trading prospects, profitability and so on. The company has      the firm and are its greatest asset. Almost all employees think
   an incentive not to lay off workers who have valuable            they are given too little attention and respect, and cannot say
   experience, but no guarantees can be given. This is, in          what they really think.
   reality, a more powerful position for workers to be in than      How is it possible to reconcile these two positions? The sad truth
   blindly believing the company will continue to employ them       is that employees of modern corporations have little reason to
   under all market conditions.                                     feel satisfied, much less fulfilled. Companies do not have the
2. Job rotation                                                     time or interest to listen to them, and lack the resources or the
   The advantages of having people rotate areas of                  inclination to train them for advancement. These companies
   responsibility within Semco are:                                 make a series of demands, for which they compensate
   1. People get to learn new skills                                employees with salaries that often are considered inadequate.
   2. The tendency to engage in empire building is reduced          Moreover, companies tend to be implacable in dismissing
   3. Employees get a broader view of the company                   workers when they start to age or go through a temporary drop
   4. Management are forced to train more people for each job       in performance, and send people into retirement earlier than they
   5. Opportunities to advance are created for employees            want, leaving them with the feeling that they could have
                                                                    contributed much more had someone asked.
   In practice, Semco has found that between two- to five-years     The era of using people as production tools is coming to an end.
   is a good cycle for everyone to change responsibilities. Any     Participation is infinitely more complex to practice than
   longer than that and employees are in danger of becoming         conventional corporate unilateralism, just as democracy is much
   complacent or stagnant.                                          more cumbersome than dictatorship. But there will be few
3. Hepatitis leave                                                  companies that can afford to ignore either of them.’’
   Professionals within the company -- defined as anyone with                                -- Ricardo Semler
   a mid-level job or higher -- are actively encouraged to take a
   few weeks or even a few months away from their regular
   duties every year or two. It’s designed as a period where
                                                                                                                    Maverick - Page 6

                            4.                                         surveys to determine what comparable businesses are
                    EMPLOYEE INCENTIVES                                paying their workers. The only problem is that these surveys
                                                                       lack credibility.
Main Idea                                                              To offset this, at Semco, salary surveys are compiled by
1. Profit sharing                                                      management and the factory workers. As a result, everyone
                                                                       participates in the data gathering exercise, and therefore
   At Semco, the company negotiates with the workers what              everyone trusts the survey results.
   percentage of corporate profits will be available for profit
   sharing bonuses. The workers then decide how to apportion        4. Self set pay
   those funds amongst themselves.                                     At Semco, some employees set their own salaries taking into
2. Risk salary                                                         account four factors:
                                                                       1. What they could make working somewhere else
   About 1/3 of Semco employees have the option to risk                2. What their friends with similar backgrounds were making
   25-percent of their salary. If the company does poorly, they        3. What others in Semco with similar responsibilities made
   may get nothing for the risk portion of their salary. If the        4. How much money they needed to live
   company does well, they might double that 25-percent
   proportion. It allows employees to take whatever degree of          This was successful at Semco because:
   risk they feel comfortable with from year to year.                  1. Everyone knows how much everyone else is making
                                                                       2. Top managers are paid only 10-times an entry level salary
3. Salary surveys                                                      3. People realize someone with a high salary will be the first
   Semco employees visit comparable companies and analyze              to be eliminated should the business enter a difficult trading
   their salary scales. That way, everyone trusts the data that        period.
   is gathered.                                                        To date, everyone down to coordinator level sets their own
4. Self-set pay                                                        salaries. Semco hopes that all employees will be able to set
   About 1/4 of Semco’s employees set their own annual                 their own salaries in the near future.
   salaries. In the future, the company hopes to extend this idea   5. Training
   to factory workers as well.                                         In some companies, training is doled out paternalistically --
5. Training                                                            with the company dictating what training courses should be
   Semco has no compulsory training programs. Employees                attended and so on.
   are asked to consider where they’d like to be in 5-years and        At Semco, employees take the initiative to develop new skills.
   what skills they require to get there. They then request the        They identify training programs they would like to participate
   training they require, with approval to come from the               in, and apply to their business unit for funding. The
   business unit.                                                      expenditure item is then discussed openly and reasonably
Supporting Ideas                                                       by the unit. Upon approval, the company then pays for the
                                                                       training, and allows the employee time off work to attend.
1. Profit sharing
                                                                       As a result, the process is more open, less susceptible to
   Before a profit sharing program can work, people need
                                                                       manipulation and accessible by all.
   information about how the company derives its profits. The
   company then decided that its profits would be allocated:        Key Thoughts
   -- 40-percent for taxes                                          ‘‘As principal shareholder of Semco, I have to admit I initially
   -- 25-percent for dividends to shareholders                      thought 23-percent was awfully high. At other companies, it runs
   -- 12-percent for reinvestment                                   between 8- and 12-percent. But I kept telling myself I stood to
   -- 23-percent for profit sharing with the employees              make at least as much money in partnership with a motivated
   Each business unit then decides how to allocate the profit       workforce as I would as the sole beneficiary of the fruits of less
   share amongst its employees -- which in practice always          inspired workers. What would you rather have, the tail of an
   ends up being an even split, which makes profit sharing more     elephant or an entire ant?’’
   valuable to those on lower salaries than on higher salaries.                            -- Ricardo Semler
2. Risk salary
                                                                    ‘‘In good times and bad, self-set salaries have encouraged our
   By making up to 25-percent of salary a risk component,           workers to take that rarest of corporate perspectives, a long-term
   employees can tailor their salary package to suit their own      view. And they have the added virtue of eliminating complaints
   individual requirements. For example, those with large           about pay, which is always among a company’s most
   families tend to be risk averse, and would place no              contentious issues.’’
   component of their salary at risk. Those with lower fixed                                -- Ricardo Semler
   costs, however, will view this as an excellent way to make
   more money as the company prospers.                              ‘‘If you haven’t guessed by now, Semco’s standard policy is no
                                                                    policy. Most companies have entire departments that generate
   It also helps the company as the cost of labor fluctuates with
                                                                    mountains of paperwork trying to control their employees. We
   the profitability of the company. When business is good,
                                                                    have absolute trust in our employees. In fact, we are partners
   everyone makes more money. When business is slow, labor
                                                                    with them.’’
   expenses are lowered.
                                                                                           -- Ricardo Semler
3. Salary surveys
   When most companies are re negotiating the employment
   packages for their workers, they use government sponsored
                                                                                                                   Maverick - Page 7

                         5.                                            is older than 50-years old. Other than that, they can do
            DEMOCRACY IN THE WORKPLACE                                 anything they like to improve the performance of the
                                                                       business unit.
Main Idea                                                           3. Family silverware
1. Democratic system                                                   Employees are actively encouraged to apply for jobs with
   Representative democracy is at the heart of Semco’s                 greater responsibilities they can grow into. To encourage
   corporate culture. No major decisions are made without              this, Semco even gives them preferential treatment over
   every interested party getting a vote in the decision.              more qualified outsiders. It’s part of the company culture.
   Subordinates vote on their bosses through regular surveys.       4. Manufacturing cells
   There are no executive perks -- not even dining rooms or            Workers who have more autonomy and more responsibility
   reserved parking spaces.                                            tend to be happier and more productive. The manufacturing
2. Factory committees                                                  cell structure achieves those objectives, as workers can see
   Each business unit has a committee onto which groups of             the results of their labors rather than seeing them disappear
   workers representatives are elected. These committees               down the line.
   meet with management and can declare strikes, audit the             In addition, manufacturing cells enable people to cross-train
   records and question all management decisions.                      -- to master more than one production job in the overall
3. Family silverware                                                   process. Manufacturing cells can also take responsibility for
                                                                       production quotas, for developing product improvements
   Employees are given preferential treatment for new                  and other practical matters. In all these areas, the workers
   positions. An employee that meets 70-percent of the criteria        rather than the managers are the most directly concerned,
   has preference over an outsider that meets 100-percent of           and are, therefore, given the most power to influence
   the requirements.                                                   proceedings.
4. Manufacturing cells                                              5. Satellite program
   There are no assembly lines at Semco. Production                    People act differently when they are their own bosses. Their
   machinery is clustered into cells, so workers can see the           priorities are aligned in completely different directions from
   finished product. That provides autonomy, responsibility and        those of employees. To encourage this, the satellite program
   greater job satisfaction.                                           encourages workers to buy their production machinery and
5. Satellite program                                                   become a supplier to Semco (and other companies).
   Wherever possible, workers are encouraged to set up their           To assist, Semco offers:
   own businesses supplying to Semco and other companies.              1. Favorable finance arrangements on equipment
   That transforms them from employees to business owners.             2. Training courses on business planning and other topics
6. Working at home                                                     3. Contracts to buy products and services
   Everyone who can work effectively and productively from             In addition to helping employees build businesses of their
   home is encouraged to do so. That provides flexibility and          own, the satellite program also helps Semco by providing
   enhances productivity.                                              flexibility in forward planning and an opportunity to focus on
                                                                       design rather than manufacturing. It also positions the
Supporting Ideas
                                                                       company favorably to be able to ride out market upturns and
1. Democratic system                                                   downturns.
   Semco carries the concept of democracy throughout the            6. Working at home
   entire corporate structure. Company employees are given
                                                                       Semco actively encourages workers to work from home. In
   numerous opportunities to influence the direction the
                                                                       some cases, employees work part of their week at home and
   company takes, and their role in that direction.
                                                                       part at the office. As long as suitable conditions for
   Again, this is an extension of the concept employees are            concentrating on business issues exist, the company is all
   actually responsible grown-ups, who don’t need to be                for telecommuting or working at home.
   supervised in arbitrary and meaningless ways.
                                                                    Key Thoughts
2. Factory committees
                                                                    ‘‘Workers in our manufacturing cells have a way of managing
   Each business unit has various logical groups of workers --
                                                                    more and more of the manufacturing process. Workers also
   machinists, office personnel, maintenance workers,
                                                                    recruit and expel new members of their teams. Today, anyone
   stockroom personnel, draftsmen, etc. To represent the
                                                                    who applies for a job as a machinist at Semco will be interviewed
   varied interests of all these groups, each business unit forms
                                                                    by a group of machinists, not an executive, which is the worst
   a committee onto which representatives of each group are
                                                                    thing that can happen to him, because he might be able to talk
                                                                    his way past a manager but not past people who know all about
   The committee members are encouraged to speak freely --          machinists and may one day be his coworkers. If they say yes,
   being guaranteed they can’t be fired while on a committee or     the person has the job. I’ve not heard of a case in which the
   for a year afterwards. Committees can then get involved in       shop-floor workers have opposed someone and a manager has
   whatever aspect of the company’s operation they choose --        gone ahead and hired him. Nor do I know of a case in which
   and the management are required to answer any questions          someone is approved by everybody on the shop floor but
   they pose and to meet with them regularly.                       rejected by the manager. In our system, it just isn’t possible.’’
   The only restriction -- a committee can’t recommend the firing                          -- Ricardo Semler
   of anyone who has been with Semco longer than 3-years or
                                                                                                                        Maverick - Page 8

                           6.                                          5. Nucleus of technological innovation
                   CONCEPTS AND IDEAS                                     This business unit has no boss and no employees. The
                                                                          engineers in the team are free to look at any aspect of
Main Idea                                                                 Semco’s business and suggest changes. Twice a year, they
1. Cleanout                                                               report progress to the Partners, who then decide whether or
                                                                          not the unit should continue.
   Twice a year, Semco shuts down for an afternoon and
   everyone throws away every piece of obsolete equipment or              To encourage innovation, the engineers are given an
   unnecessary paperwork.                                                 incentive -- in addition to their salary, they got royalties on
                                                                          the new products developed, a percentage of the cost
2. Corruption                                                             savings they achieved or a share of the profits earned by new
   Semco refuses to accept work place corruption in any way,              products. They can also sell consulting services to anyone
   shape or form.                                                         that is interested.
3. Headline memo                                                       Key Thoughts
   All Semco memos are limited to 1-page and have a headline
                                                                       ‘‘Corporations have notoriously short life spans. Even in the
   at the top that gets right to the point -- like a newspaper.
                                                                       stable and relatively prosperous United States, a company has
4. Lost in space                                                       a less than 5-percent chance of being in a better position 50
   Every good year, several promising new employees are                years from now. These cautionary tales illustrate what I believe
   recruited for a think tank -- no responsibilities, no boss, no      is the biggest challenge any business faces: change. Semco has
   job descriptions -- as long as they work in 12 departments in       succeeded despite some of the harshest economic conditions
   their first year.                                                   imaginable because we have learned to see the need for change
                                                                       and have been smart enough to seek our employees’ help in
5. Nucleus of technological innovation
                                                                       implementing it.
   A small group of technical employees who are free of                To survive in modern times, a company must have an
   day-to-day responsibilities and are expected to think. They         organizational structure that accepts change as its basic
   are even paid according to what they deliver.                       premise, lets tribal customs thrive and fosters a power that is
Supporting Ideas                                                       derived from respect, not rules. In other words, the successful
1. Cleanout                                                            companies will be the ones that put quality of life first. Do this
                                                                       and the rest -- quality of product, productivity of workers, profits
   Most employees have a compulsion to collect whatever may            for all -- will follow.
   be useful in the future. To offset this, have a twice annual day    At Semco, we did away with strictures that dictate the flows and
   on which everyone stops to unclutter themselves. Semco              created fertile soil for differences. We gave people an
   does this, and finds it sharpens the thinking, clears the clutter   opportunity to test, question and disagree. We let them
   and refocuses the business.                                         determine their own training and their own futures. We let them
2. Corruption                                                          come and go as they wanted, work at home if they wished, set
   Semco has zero tolerance for corruption, and has turned             their own salaries, choose their own bosses. We let them change
   officials who have attempted to extract bribes over to the          their minds and ours, prove us wrong when we were wrong,
   authorities. In return, the company has generated a vast            make us humbler. Such a system relishes change, which is the
   amount of attention from other government inspectors. It            only antidote to the corporate brainwashing that has consigned
   causes delays and additional headaches, but also sends a            giant businesses with brilliant pasts into uncertain futures.
   signal the company operates above boards and ethically at           Semco is more than novel programs or procedures. What is
   all times.                                                          important is our open-mindedness, our trust in our employees
                                                                       and distrust of dogma. We are neither socialist nor purely
3. Headline memo
                                                                       capitalist, but take the best of these failed systems and others to
   Every written document in Semco is 1-page long, with a              reorganize work so that collective thinking does not overpower
   headline at the top that gets right to the point. It eliminates     individualistic flights of grandeur; that leadership does not get
   unnecessary paperwork, avoids ambiguity, stops meetings             lost in an endless search for consensus, that people are free to
   dragging on too long and focuses attention on critical issues       work as they like, when they like; that bosses don’t have to be
   rather than writing skills.                                         parents and workers don’t act like children.’’
4. Lost in space                                                                                -- Ricardo Semler
   Each year, some entry level employees are given an
   opportunity to work for the company unrestricted by job
   descriptions and bosses. They are expected to come up with
   some business idea that will generate enough revenue to
   cover their salary. They are also required to work in a broad
   range of departments -- 12 over the course of the year. If they
   see a position they like, they are then free to negotiate a more
   permanent arrangement with that department.                                     © Copyright 1998 All Rights Reserved
   The program lets Semco unearth some exceptional people,
   and exposes the company to some new and original thinking.

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