First Pharaoh in Charge of Royal Supplies

Maverick is an engaging account of the radical transformation at the Brazilian company Semco over a period of 13 years. Written by Ricardo Semler who took over from his father when he was just 21, the book brings about the best of corporate democracy, empowerment, teamwork and ownership.

Semco is a manufacturer of marine pumps when the economy in Brazil nosedives in the 80s. Noticing that his prodding of the top management is not yielding results, Semler fires over 60% of them on a single day. He then embarks on a journey that all of us are familiar with, viz. discipline, controls, rigor, cost centers and budget trackers. He also buys companies that manufacture marine and food services equipment. All of this gets Semco out of trouble & makes Semler happy; but it bothers him no end that workers still don’t trust the management & Semco continues to be late on its deliveries.

The causes the first phase of transformation. By focusing on the work environment he wants to create, Semler brings changes at the most obvious level to communicate that employees are trusted. Semco stops frisking them when they leave. It asks its workers to decide the color of the uniforms (horrified managers complain to Semler that bright orange may be chosen; he is prepared, but workers choose petroleum-blue). Employees are allowed to paint their areas (this sometimes results in garish hues) and cubicle walls are replaced with plants.

Such steps lead into the next critical phase where all decision-making is now taken only by committees comprising relevant stakeholders. Does it result in long winding discussions where nothing is decided for ages? Yes. Does it cause immense grief since all information is now open? Oh yes. Over time however, workers and managers realize that this is their company and their decision, and the wheels slowly start turning.

Manufacturing cells replace traditional assembly lines. Workers determine areas of improvement. Economies of scale are thrown out in favor of optimal unit sizes. Sounds like kaizen so far? Sure – and here’s more. Rules around travel, and eventually the entire rule book, are discarded. Employees are taught to read the balance sheet. There are no restrictions in speaking to the press. There are two open seats in board meetings for employees to sign up. Bonus payouts are distributed equally to all, meaning that the factory cleaner gets the same amount as an executive. Managers are reviewed every 6 months by their teams, and the results are posted openly. Salaries of managers are encouraged to be made public, and eventually they determine their pay hike. (This is not idealism as one would think. Since salaries are public, there is a strong incentive on the part of managers to be rational when it comes to choosing their hike.)

The final phase of transformation is completed when all hell breaks loose in Brazil. The country goes into a deep recession for two years. As everyone concludes that layoffs are inevitable, Ricardo Semler does his final act. He retains all functions such as design, engineering and assembly within Semco and outsources everything else to employees he plans to fire. Semco even leases them equipment so that capital costs for the subcontractors are minimized. The result is a larger pool of entrepreneurs and, hopefully over time, more Semcos.

Every book leaves the reader with something to marvel and ponder. This is what will get me thinking next. The traditional organizational pyramid has been built on the foundations of complexity and the need for control that came with the industrial revolution. But in Semco there are no controls & hence no pyramids. There are instead concentric circles. At the center are the Counselors who coordinate strategies & policies, and who typically are the equivalent of vice-presidents. The second circle are Partners who lead the business units. The last circle are Associates that includes everyone else. And floating somewhere are the Coordinators who perform the basic leadership roles at the unit level. This results in greater fluidity, job enrichment & above all, lasting peace since it is perfectly fine for Associates to earn more than the Coordinators. Semler posits that man has always adopted the four-layered organization from the time he was a hunter. The one who spotted the mammoth first was the Spotter. The one who ran the fastest behind it was the Runner. The one who threw the spear most accurately was the Marksman. And the one who managed to lead became the Chief.

And yes - individuals are free to print any title in their business cards that best describes their position. Semco does not interfere. Even if, as Semler says, the title is something fancy like the First Pharaoh in Charge of Royal Supplies.

Amen to a new way of working.