Innovation Case Example: Semco Innovating the entire organization

What is Being Innovated? Most of the discussion up to this point has been on innovating the organization’s products and services However, to create an agile process-centric organization, it is also imperative to innovate the organization’s processes and culture One early proponent of this was Ricardo Semler, who wrote the book Maverick: The Success Story Behind the World’s Most Unusual Workplace The book is about Semco, a Brazilian industrial equipment manufacturer that supplied marine pumps to the shipping industry and centrifuges for the vegetable oils industry BA 553: Business Process Management

Ricardo Semler: Background At 18, Semler went to work for his father’s company, Semco He got his MBA from Harvard at 20, and was one of the school's youngest ever MBA recipients Ricardo’s father handed over control of the company to him when he was 24 Semler instituted dramatic changes in the company’s processes and culture, which enabled the workers to innovate the products and move towards a service offering BA 553: Business Process Management

Semco: Results Achieved , taking the company from $4M in revenue in 1982 to $240M in revenue in 2007 Semco, a Brazilian company with 3,000 Stakeholders, made washing machines in 1951, but is now in multiple industries including real estate, banking, and web services In a 10-year recessionary period in Brazil, Semco's revenues still grew 600%, profits were up 500%, productivity was up 700%, and for the last 20+ years, employee turnover remains at an incredibly low 1-2% per year. http://www.inc.com/chuck-blakeman/companies-without-managers-do-better-by-every-metric.html. BA 553: Business Process Management

Semco and Innovation In most companies, bureaucracy is a barrier to innovation. Semler said, “The desire for rules and the need for innovation are, I believe, incompatible.” At Semco, employees are encouraged to spend 15% of company time to work on projects of their own choosing. In addition, Semco introduced a work unit called the Nucleus of Technological Innovation (NIT). This work unit, comprised of a three- member team, is charged with: “inventing new products, improving old ones, refining market strategies, uncovering production inefficiencies, and dreaming up new lines of business … By the end of the first six months, NIT had 18 projects underway, and over the next few years they uncorked an array of inventions, changes, and refinements (one of my favorites is a scale that weighs freight trains moving at full speed).” (HBR, p.6). Maresco, P. A., & York, C. C. (2005). Ricardo Semler: Creating Organizational Change Through Employee Empowered Leadership. Academic Leadership–The Online Journal, 2(2). BA 553: Business Process Management

Semco’s Infratructure Innovations On his first day, Semler fired two-thirds of management and eliminated all secretarial positions He dismantled managerial structure to eliminate "corporate oppression" and encourage core business values of employee participation, profit sharing and a free flow of information He then tried the matrix management structure, but found it too constricting, and designed the lattice organization Under this program, self-managed groups of six to ten manufacturing employees were placed in charge of all aspects of production. To promote a sense of true ownership of the process, the groups were charged with setting their own budgets and production goals. Tying salaries to monthly budget and production performance aligned employee and organizational goals. With the implementation of the lattice, unit production costs fell dramatically while employee productivity soared Some items from this slide and the next: Killian, K. and Perez, F. (1998), “Semco Unique Self-Organization”, Thunderbird: American Gradate School of International Management, http://www.scribd.com/doc/294210/Semco-unique-self-organziation BA 553: Business Process Management

Semco’s Process Innovations Semco is often called one of the most interesting companies in the world. And it is actually so. There are no job titles, no written policies, no HR department, or even, the present time, no headquarters There is still a CEO, but half a dozen senior executives pass the title every six months. All other employees are Associates. People set their own salaries and working hours Semco uses the idea of “open book management”: every employee receives the company's financial statements, so that all team members can better participate in decision-making Under Semco’s profit-sharing system, about 25% of a unit’s profit is disbursed to employees, and each employee gets an equal amount (not a percentage based upon their salary) “The key to management is to get rid of the managers. The key to getting work done on time is to stop wearing a watch. The best way to invest corporate profits is to give them to the employees.” This slide and the next are from Maverick! and from Semco’s website: http://www.semco.com.br/en/. Additional content from http://www.good2work.com/article/5487 BA 553: Business Process Management

Semco’s Cultural Innovations Freedom and personal responsibility: A company based on innovation, Semco does not follow the standards of other companies with a predefined hierarchy and excessive formality. At Semco, people work with substantial freedom, without formalities and with a lot of respect At the Semco Group, each person controls their own working hours. This is a method of transferring responsibility to each person Leadership: Many positions of the company involve the use of authority. Pressure, tactics that involve people working while afraid or any type of disrespect are considered incapable leadership and improper use of authority Everybody is treated equally, from high-ranking executives to the lowest ranked employees. Every six months team members fill in a questionnaire and say what they really think about their immediate superiors "The purpose of work is not to make money. The purpose of work is to make the workers, whether working stiffs or top executives, feel good about life.” Quoted in interview with CNN: http://edition.cnn.com/2004/BUSINESS/06/29/semler.profile/ BA 553: Business Process Management