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
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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
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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.
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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 threemember 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).
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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
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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
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Semco’s Cultural Innovations

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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/
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