Semco Management Systems

Topics: Ricardo Semler, Semco, Profit Pages: 7 (2537 words) Published: December 23, 2012
Semco a Brazilian manufacturer of pumps, mixers, valves, catering and other industrial equipment, is a manufacturing and engineering company based in São Paulo. The majority shareholder is Ricardo Semler, son of the founder. After taking over the reins of leadership at the age of 21, Semler took his first decisive act. He dismissed the entire executive level. His father had given him the company early, so Semler could make mistakes while his father could still fix them, but bound by his promise to be only a silent consultant, Semler's father had to let him try. Surprisingly, both Ricardo and his father succeeded in their personal objectives. His father was able to let Ricardo make the company his own while Ricardo was able to make the company a place where everyone participates. "I try to create an environment in which others make decisions. Success means not making them myself." He began by attacking what he calls "corporate oppression" (Semler 1993). Time clocks, dress codes, security procedures, privileged office styles and perks, along with other manifestations of the driving culture came under attack. His reduction in hours of work and the desire to make himself dispensable encouraged greater delegation and a drive towards arrangements where factories and offices became more self-managing. Ricardo Semler recalls the early years in his article “Why former employees still work for me” (Harvard Business Review, Jan 94): “At Semco we had several months of zero sales. Worse, back orders were cancelled or we found our customers had gone out of business. We had to rent warehouse space just to store all the unsold goods. We cut costs. We organised workers into teams and sent them out to sell replacement parts directly to ships and restaurants. We cut down on coffee breaks, locked up the copiers, cancelled orders for new uniforms, turned off all the lights we could find, scrimped on telephone calls. None of it was enough, and anyway, I don't really believe in cost cutting. Finally we called the workers together in-groups of a hundred and discussed what we should do. They came up with lots of ideas, and we tried them without success until we reached a point where no one had anything else to propose. Then suddenly the shop-floor committee came to us and said 'OK, we'll take a 30% pay cut, but on three conditions': - We increase their profit sharing by 15%, until they got back up to their former salary levels. - Management take a 40% pay cut. - A member of the committee would co-sign every check. By the second month we were actually covering expenses. In their drive to save, the workers took on more and more of the former contract work. They did security and cleaning, drove trucks, even cooked the food in the cafeteria. We made a small profit in the worst economic times any of us had ever seen. We began to face the fact that we had to cut our permanent staff and contract more of our work. Instead of giving contracts out to strangers, we decided we could just as well give contracts to our own employees. We would encourage them to leave the payroll and start their own satellite enterprises. We eased the transition in every way we could. We created a team of executives to teach cost control, pricing, maintenance & inventory management. To provide seed money, we gave people lay-off payments on top of severance pay and all the other legally required benefits. No one had to start a satellite. Today, about half the manufacturing we once did in-house has gone to satellites and we think we can farm out another 10% to 20% in the coming years. Semco has abandoned a great many traditional business practices. Instead, we use minimal hierarchies, ad hoc structures, self-control, and the discipline of our own community marketplace of jobs and responsibilities to achieve high quality, on-time performance. Does it make me feel that I have to give up power and governance? You bet it does. But do I have more sleepless nights than the manufacturer...
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