HUMAN RESOURCE MANAGEMENT

FACULTY: Dr. SURUCHI

PANDEY

TOPIC: SEMCO- A ‘MAVERICK’

ORGANIZATION

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 SUBMITTED BY : ANKUR SHUKLA (B-07)

SYNOPSIS

COMPANY HISTORY & BACKGROUND:

Semco Partners is the successor to Semco Group, a centrifuge manufacturer founded in the
1950s by Antonio Curt Semler. In the 1980s Antonio’s son, Ricardo Semler, took over the
firm, modernized management practices, and expanded the company’s range by moving
heavily into the service sector, including environmental consultancy, facilities management,
real estate brokerage, and inventory support.

During this expansion, the company worked with a variety of technology partners and
developed a sophisticated joint venture model that combined Semco management practices
with the partners’ expertise and product lines. This fusion of skill sets created the business
model that has been so successful in the Brazilian market.

ORGANIZATIONAL STRUCTURE:

Ricardo Semler started out with a functional organizational structure at SEMCO. Under this
structure, decision-making took a long time and each department took independent decisions,
sometimes which were not in the interest of other departments. Then the company shifted to a
matrix structure. But unhappy with its effectiveness, Semler changed the structure of
organization once again. This time, the company was divided into autonomous business units,
each headed by a General Manager. According to Semler this would result participatory
management. After this Semco adopted a kind of lattice structure. Semco also established
factory committees in the various business units.

This resulted in environment of trust and cooperation and employees started taking a number
of work-related initiatives. These radical changes made the middle managers feel threatened
about their power and authority. The empowered workers started multi- tasking for work
place improvement and cost reduction. Employees divided themselves into three units of 150
people each with independent responsibilities in the area of work and set their own work
practices. Around two third of Semco’s revenue came from such units.

ORGANIZATIONAL CULTURE:

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At Semco there is No Power-packed job titles. Employees including top level managers
themselves do all the work (photocopying, faxes, letter typing, parking also is based on first
come first serve basis). Ricardo Semler (CEO) himself says that he has “No idea about what
business Semco is in”. There is No organizational structure/chart; No fixed CEO; No VP’s;
No CFO’s or COO’s or CIO’s. There is NO long-term strategic business plans, NO career
plans, NO job descriptions or dress code for the employees.

Replication of business units into smaller units created common set of values, philosophy and
culture. The organization was bounded by set of three core values: Employees participation,
Profit sharing, free flow of information. Semler paid the 1/4th of divisional profit to workers.
In the early 1990’s during the time of recession, pay cut proposal was introduced, i.e. profit
shared by workers increased from 23% to 39% then they were ok with cut in pay.

In Semco, the employee had an option to select one of the nice compensation options, it
encouraged them to innovate and take risk. New ideas and risk taking ventured were fully
supported by the organization. Depending on the role the employee plays in project,
employee had freedom to select its own job title, its choice of work and what role they play
was also in hands of their immediate leader.

At Semco, “Lost in space” programme in which a new employee can try different job roles in
the first 12 months to decide which department he want to work in. There are lot of schemes
in SEMCO, like Voucher system where employee can buy back his Wednesdays for
exchange of 10% salary. The performance of the employee was measured on the basis of
their contribution to the bottom line. Resources were utilized very effectively, if a project or
unit was not generating good revenues it was shut down in next budgeting session. At
SEMCO, there were no fixed revenue targets, each unit did best to maximize the profitability
and keep its customers happy. This culture resulted in Semco resulted in eliminating massive
layoffs.

In SEMCO, any new business idea had 3 step entry i.e. first, it should be of high level of
complexity (to avoid competitors getting into the same), second, it should be a high end
product/services (to build a good reputation) and third, it should be making SEMCO a major
player in the industry. And SEMCO maintained uniformity at all its units for its customers to
relate to the different unit easily.

LEADERSHIP AND CHANGE MANAGEMENT:

Semler can be credited with sustaining radical changes in SEMCO. He created an

environment where employees can think, create and innovate easily and continuously. All the
employees were told to clear out unnecessary files and keep only those that were required.
Semco was transformed to a culture based on democracy and shared leadership. Semco
allowed its employees to change to departments where they were comfortable, resulting in
individual units becoming the reason of growth of the company. One of the reasons for the
growth of the company is Semco’s managers adaptability to change. Semco maintained the
privacy of the employee with their data and work.

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MAKING NEWS:

The SEMCO way of running an organization is slow but steadily accepted as a very effective
way of running a business. Semco believes in treating people as adults, and it has created a
benchmark. The BBC series “Re-engineering the business’ included SEMCO’s management
structure in one of the five most successful management structures across the globe. CIO
magazine selected SEMCO among the most successful re-engineered company in the world.

SEMCO has been profiled into more than 200 magazines across the globe. Semler played a
very major role in the way SEMCO became no one choice for its stakeholders.

PRESENT SCENARIO OF SEMCO:

Mr. Semler, 46, is the leading proponent and most tireless evangelist of what has variously
been called participative management, corporate democracy, and “the company as village.”
As proposed 45 years ago in a book called The Human Side of Enterprise, by Douglas
McGregor, one of the founders of the field of organizational development, participative
management says that organizations thrive best by trusting employees to apply their creativity
and ingenuity in service of the whole enterprise, and to make important decisions close to the
flow of work, conceivably including the selection and election of their bosses.

In the last two decades, Semco, a maker of industrial machinery like giant oil pumps and
restaurant dishwashers, has operated as a real-world laboratory for Mr. Semler’s radical
approach to leadership. For the most part, the Semco experiment has been a huge success. An
investment of $100,000 made in Semco 20 years ago would be worth $5.4 million today — a
rare record of profitability that by all accounts stems directly from the participative
management approach that Mr. Semler champions.

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SWOT ANALYSIS OF SEMCO:

STRENGTH:

 No power packed job title among employees.

 High Margins of profit.
 Employee satisfaction: Very low employee turnover over a decade (1994-2004: 1%)
 Strong relationship with its existing suppliers.
 Diverse product portfolio.
 No fixed revenue targets.

WEAKNESS:
 Lack of work force diversity (Most of the growth of this company is in domestic market)
 Lack of critical thinking (New projects started by the units are not critically analysed and
suffer and failure of such project causes financial loss).
 No structured hierarchy.
 High number of employees in units (making it difficult to handle all the operations properly)
 Employees who did not contributed to bottom line up to the expectations were asked to
leave.

OPPORTUNITIES:
 “Lost in Space” a session under which newly recruited employees were given 12 months in
which they didn’t have any responsibilities, after 12 months they were given option to
choose the department their interest fits in.
 Voucher System
 Compensation system (Employee has an option of selecting either one or combination of
compensation plans laid down by the company)
 New plans were encouraged and supported by the company.

THREATS:
 Employee empowerment led to threat of managerial positions.
 Lack of individualistic growth.
 Not static and dogmatic methodology.
 Chances of Financial losses are high as new units can be formed easily based on ideas.

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 QUESTIONS FOR DISCUSSION:
Q1) Did Semco succeed only because it was operating in an economic environment which was
dynamic? Will the Semco culture fit in any business segment and in any business environment?

A1) Semco succeeded not only because of operating in a dynamic economic environment but
because it was ready to adapt the changes. When Ricardo Semler took over his fathers’ company
he knew, he had to do something with the conventional structure being followed in the company.
He tried lot of structures like lattice way but kept on evolving the work life culture. He made a
people-oriented company where employees were empowered. They were given freedom to ask,
innovate, create and implement with full support of organization. He gave them rewards,
compensation, opportunities, and even freedom to select the department they want to work in.
This just motivates the employees to work with higher proficiency and hence improving the
productivity. Semco is into many products (over 2000) and maintains great relation with its
existing customers and is expanding its business day by day. For e.g. over 25 years ago, Semler put
a computer in the company cafeteria that revealed how much revenue the company was taking
in, the profit margins from that revenue, how much employees inside the company made, and
how much employees in similar positions made. Armed with that information, the employee was
then allowed to set his or her own salary. Did people pay themselves ridiculous amounts? No, it
turned out that information and peer pressure kept pay at industry norms. This is how unorthodox
his way of running business was. And this made him different from the rest and succeed.

Semco cultures is very unorthodox, if someone from third party sees it, he may or may not like it.
Running such a business is again on a different level. The kind of understanding and commitment
towards work and your colleague, towards staff and operations should be on a really high level.
So, I don’t think fitting SEMCO culture in any business will make it a success.

Q2) What are the ways in which a unit leader can make an organization grow? What were the
leadership traits Semler displayed in guiding Semco at various stages of its growth?

A2) At Semco, employees are given freedom to create, innovate the products and services offered
by the Semco. Employees have the freedom to question and get clarity. Any employee who get
the idea by any requirement in the company can start up a new unit and become unit leader. Any
new business idea had 3 step entry i.e. first, it should be of high level of complexity (to avoid
competitors getting into the same), second, it should be a high-end product/services (to build a
good reputation) and third, it should be making SEMCO a major player in the industry.

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 A unit leader must keep following points in mind to grow the business:

1. Know what your company offers and how do you retain its reputation or improvise it.
2. Stay focused on the long-term goal while meeting the short-term goals.
3. Remember the people work for people, not companies.
4. Value your work-force and keep them happy by giving them good opportunities and
rewards for their work.
5. Challenge your work and always keep improvising.
6. Forget the “build it and they will come” mentality.

Semler must be credited for the growth of SEMCO. From a company following
conventional way of structures to company with No Power-packed job titles. Employees
including top level managers themselves do all the work (photocopying, faxes, letter typing,
parking also is based on first come first serve basis). Ricardo Semler (CEO) himself says that
he has “No idea about what business Semco is in”. There is No organizational structure/chart;
No fixed CEO; No VP’s; No CFO’s or COO’s or CIO’s. There is NO long-term strategic
business plans, NO career plans, NO job descriptions or dress code for the employees. Semler
always promoted the flexibility in the work life. He changed the structure of his company to
very unconventional way, where any one can work in the way he wants. Any one can assign
positions to himself if he thinks he can handle it. Salary is also based on the direct contribution
in the bottom line.

Semler in his TED talk said “We looked at it and we said, let's devolve to these people, let's
give these people a company where we take away all the boarding school aspects of, this is
when you arrive, this is how you dress, this is how you go to meetings, this is what you say,
this is what you don't say, and let's see what's left. And so, the question we were asking was,
how can we be taking care of people? People are the only thing we have.” This is the only
reason that SEMCO grew from $32 Million in 1990 to $212 Million in 2003.

Q3) Is there a need of alignment between organizational structure and organizational

culture? How did alignment between the two happen at SEMCO?

A3) Organizational culture includes the shared beliefs, norms and values within an
organization. It sets the foundation for organizational structure. For a structure within an
organization is to develop and be implemented successfully, it must fully align with the
organizational culture. Thus, initiatives and goals must be established within an organization
to support and establish an organizational culture that embraces the organizational structure
over time. When culture aligns with strategy implementation, an organization is able to more
efficiently operate in the global marketplace. Culture allows organizational leaders to work
both individually and as teams to develop strategic initiatives within the organization. These
may include building new partnerships and re-establishing old ones to continue delivering the
best possible products and services to a global market.

At Semco, there was no conventional structure to be followed. Semler time to time used to
adapt changes in the functioning of company. He always tried new ways in which
organization can be grown, for e.g. Employee empowerment, employees were their own
boss i.e. from deciding which department they want to work to deciding their own salaries
everything was crystal clear and in front of everyone. Semco aligned its unconventional
structure to employee empowerment and hence increasing its organizational culture. This

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resulted in high turnovers and very low employee turnovers.

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