Semco+-+An+Extraordinary+Brazilian+Company

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This page is based on texts (Semler 1989 and 2000) about Semco that reflect its situation a couple of decades ago. However, information available from the business’ website - []  - suggests that it is still employing the radical and innovative practices it first introduced in the 1980s and described and discussed on this page. =History =

Semco SA is a Brazilian business, first established in the 1950s, involved in the manufacturing over two thousand different products - industrial pumps, cooling towers, marine engines and industrial mixers – and also the provision of environmental, IT and property management services. It saw its revenues grow from $32 million in 1990 to $212 million in 2003. It employs about 3,000 employees (with an extraordinary low turnover rate of 1% from 1994 to 2004.) These figures suggest that Semco has been a remarkably successful business – especially in the context of the rather chaotic and turbulent Brazilian economy and society.

But how has the business achieved its success? What is Semco’s secret?

=Transformations =

In the 1980s Ricardo Semler took over the management of the business from his father, Antonio Semler, a traditional and rather autocratic manager. At this point the business was very close to financial disaster and Ricardo reasoned that, in order to save the business, he needed to introduce sweeping changes to how the business was run and managed. What is the nature of these changes?

Semler argues that the core values guiding the massive changes he introduced at Semco are democracy, profit-sharing and information. These are all interdependent in sense that each value can only be realised if the other two are able to operate effectively and efficiently.


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Democracy
Semler recognised that it is extremely difficult for people to exercise some degree of democratic control over a large and impersonal organisation involving several hundreds or thousands of people. As a consequence, he endeavoured to keep all production units at Semco to about 150 people – despite some obvious inefficiencies of having to duplicate some facilities and a loss of economies of scale. The benefits are, however, that people do not feel like small cogs in big machines and they have a sense that they are able to control what’s going on.

Semler also changed the management structure from a more traditional and complex pyramid structure to a simple circle structure, thereby improving lines of communication and accountability in the business. In this organisational circle there are three concentric circles


 * The central circle – the five people (or the counselors) who integrate the business’ activities and give some strategic direction
 * The second circle – the heads of the eight principle divisions in the business (or the partners)
 * The third circle – all other employees (or the associates), who have nobody reporting to them, but may work in teams and report to team leaders (or the coordinators)

Whilst these managers undertake broadly traditional managerial functions, they are nevertheless accountable, via various mechanisms, to the people they manage. For example, people are not hired for, or promoted to, these management positions until they have interviewed and accepted by all of those people they will be managing and twice a year subordinates evaluate the performance of both their line managers and the overall management of the business.

All significant and important business decisions involve the entire workforce. Semler cites – with some pride – the example of the decision to relocate the factory of Semco’s marine division, where the workforce took a decision that went against the strongly held and expressed convictions of the counselors Furthermore, when the workforce entered the factory they both designed the layout of its manufacturing facilities and its overall décor – again ignoring at times recommendations from the business’ managers. But on reflection, Semler can acknowledge that the right decisions were taken – since both productivity and profitability for the division increased substantially after the move.

Semler firmly believes that employees should be treated like adults and should be in a position to control as much as possible those factors that directly affect their work environments. With this believe in mind, Semler abolished all manuals, rules and regulations when he took over the business, insisting that employees should rely on their common-sense and their own judgement to get things done. There are no dress codes, no security searches or rules for expenses at Semco. There are no clocking-in times and people come and go according to their own schedules. In order to get things done they coordinate with each other. Jobs are rotated every five years to prevent boredom and to increase employees’ skills sets.

Profit-sharing
Semco has a radical and highly unusual profit-sharing scheme. 23% of the after tax profit for a division is given to workforce to decide what they want to do with it without interference from the business’ managers. All employees in that division then meet and reach their decision. The outcome has generally been an equal distribution between all employees in a division, but occasionally the money has been used in other ways.

<span style="font-family: Arial,Helvetica,sans-serif;">Information
<span style="font-family: Arial,Helvetica,sans-serif;">Semler believes that, in order for employees to be involved in decision-making, they need to have access to the relevant information. Thus, Semco operates with the principle of complete transparency, where all relevant information is readily available to all employees.

In order to ensure that this principle can operate effectively within Semco, Semler has ensured that all employees attend classes to learn how to read and understand the business’ financial statements. Furthermore, these statements have been simplified so that they can be readily digested by everybody. Information about pay scales of all employees is known by everybody.

=<span style="font-family: Arial,Helvetica,sans-serif;">Conclusion =

<span style="font-family: Arial,Helvetica,sans-serif;">So, Semler thinks that the secret of Semco’s success is to be found its commitment to these three values:

‘And that’s all there is to it. Participation gives people control over of their work, profit sharing gives them a reason to do it better, information tells them what’s working and what isn’t.’

Here's a clip from youtube - caring Capitalist - that provides an excellent overview of Semco.

=<span style="font-family: Arial,Helvetica,sans-serif;">Questions =

<span style="font-family: Arial,Helvetica,sans-serif;">Could it work anywhere else? Is Semco's success all down to Semler's drive and charismatic personality and its unique circumstances, which cannot be duplicated elsewhere?

=<span style="font-family: Arial,Helvetica,sans-serif;">Further Information =

<span style="font-family: Arial,Helvetica,sans-serif;">Semler, R (1989) ‘Managing Without Managers’, __HBR__ Semler, R (2000) ‘How We Went digital Without A Strategy, __HBR__