I recently did some research to try and get a snapshot of the entrepreneurial landscape in South Africa. In surveying over 100 South Africa entrepreneurs who had all started their businesses in the last 12 years, one question I asked was: “If you were to do it all again, what would you do differently?” By far the most common response to this question centred on the management of people: “I would invest more in training”, “I would put incentives in place to motivate employees”, “I would do more to make this an attractive place to work”. These responses reinforce the basic principle that business success is about people and if you can manage in such a way that people are motivated, inspired and energised, then your business is likely to fly.
But, for many, management has become such a mundane term, when one thinks of management one thinks of budgets and controls and targets. Yet management can also be an exciting domain, an area of a business in which one can really innovate to make the organisation an exciting place to work, to get the best out of employees and to make a big difference in the day to day lives of others.
One of the people who has done a superb job in implementing innovative management practices is Ricardo Semler. He is the majority shareholder of a Brazilian industrial company called Semco. Semco used to a be a company that was not too different from most other manufacturing companies. It had a tight organisational chart, an annual planning cycle, a strict multi-layered hierarchy and it was very vulnerable to swings in the volatile Brazilian economy. Semler was put in charge at the early age of 21, when he and his dad had different views on the way forward for the company. For four years he set targets, cut costs and drove the workforce, the management and himself really hard to make the company profitable.
At the early age of 25, Semler collapsed in one of the plants due to acute stress. It was this event that caused him to realise that although he had turned the company around, it had become an unhappy place to work, and he had exhausted himself and his employees in the process. He looked for a different way. “If only I could break the structure apart a bit, I thought to myself, I might see what was alienating so many of our people. I couldn’t help thinking that Semco could be run differently, without counting everything, without regulating everyone, without keeping track of whether people were late, without all those numbers and all those rules. What if we could strip away all the artificial nonsense, all the managerial mumbo jumbo? What if we could run the business in a simpler way, a more natural way?” he thought to himself.
It was in looking for answers to these questions that he began to toy with the idea of participative management.
The notion of participative management is built on the premise that ordinary people don’t have to be managed with the “carrots and sticks” of incentives and controls. Instead, people are naturally capable of self-direction and self-control, even in a corporate or bureaucratic setting, if they’re committed to the organisation’s goal and if they are treated as mature adults who can learn from their actions and errors.
Semler toyed with these ideas and concepts and then took the bold step of implementing some of them in the plant. He started small; first he fixed the canteen, a source of endless complaints. He asked employees for help in improving it, and wound up turning over food service management to a group of the workers themselves. The complaints stopped. Then he got the employees to decide on uniforms and colours for the factory walls. To overcome traffic challenges in Sao Paulo he empowered the employees to devise a system of flexi-time so that they could travel in during non-peak times, a concept that would be very attractive to employees in many South African cities. The system continued to open up under his leadership and eventually employees were deciding on remuneration levels and they had full access to all the information in the organisation.
This participative and open system enabled the organisation to weather some terrible storms in the early 1990s. In 1990 the Brazilian finance minister seized 80% of all the available cash and introduced a period of economic bedlam in an effort to curb inflation. Employers could not make payroll, consumer spending vanished, business spending disappeared and bankruptcies soared. Semco had a few months of zero sales and did everything it could to cut costs and reorganise the workforce but it was not enough. Ultimately everyone decided they had to cut the workforce, but instead of sending employees off with nothing, they encouraged them to leave the payroll and to set up their own satellite enterprises doing work for Semco and others in time.
They provided seed capital, leased machinery and taught the ex-employees skills in cost control, maintenance, finance and inventory management. This enabled Semco to cut wages and inventory costs and as the economy started to pick up, all parties benefited. Three years later, over half of the work that was done inside Semco was now done by satellite enterprises and many ex-Semco employees were thriving entrepreneurs.
The Semco experiment has been a massive success. The company has grown profitably at 27% per annum for the last 15 years, a record of success that is almost unheard of in the volatile Brazilian economy. Semler attributes the success of Semco directly to the participative management style that he champions.
Thinking out the box is easy; acting out the box is difficult. Ricardo Semler has done an amazing job of implementing his out the box management practices at Semco. In doing so he has made the business an amazing place to work and has rewarded shareholders with excellent growth in an unstable economy. He has also written a number of best selling books, including Maverick and The Seven Day Weekend. On 10 July he will be appearing in South Africa.
Semler was the catalyst who enabled a management system that is built on three core principles:
- Employee participation
- Profit sharing
- Open information systems