Semco Case Study Analysis

Main elements of Semco Model

Discuss about the Leadership and Management of Semco Partners.

Semco Partners succeeded Semco Group led by Ricardo Semler. The company works as a consultancy partnership and evolved a model of joint venture which synthesized the company’s management skills with their partner’s technological expertise.

Ricardo Semler created a business model which gave employees prominence over the hierarchical ladder which came to be known as Semco Model after his organization. He implemented his theory in his company, Semco Partners which earned him worldwide fame. Ricardo encouraged a framework of corporate management where employees were given more importance and were allowed to participate in the management of the company.

The Semco Model proves its mettle when Brazil fell into inflation and the autocratic firms in the country became bankrupt. Ricardo allowed his employees to participate in the management of the firm and even allow them to approve the financial statements and an increased share in the profits. The employees, in turn accepted wage reduction and management fees since; they too became responsible decision takers.

The outcomes of the Ricardo Model as opposed to the autocratic model in those times were that the employees gained expertise in dealing with urgent situations and they learned better inventory management.  The Semco Model promoted healthy organizational culture which enhanced productivity and improved revenue (Betov and Szillat 2016).

The Semco Model by Ricardo Semler was a revolution that changed the management styles in the world. It became so effective that it was adopted by a group of supporters to protest against the ingredients in Afri-Cola in Germany. The soft drink brand was owned by Mineralbrunnen Uberkingen-Teinach and the company was forced to change the ingredients by the supporters. Premium-Cola has no office, bosses or salary structures. The members work as per their convenience and sell the cola drink in selected bars and clubs. Afri-Cola started as a small company but today has evolved into a medium sized company which is operated based on ethics. The company does not advertise the cola drink on digital media, instead it uses arts and images on the inner side of the bottles. This example of Afri-Cola once again proves that the Semco Model can be applied by consumers to force producers to change the ingredients of their products for the benefit of the consumers.

Maslow’s hierarchy of needs is a model pyramid which presents the needs of an individual stating with the most basic need of physiological needs of water and food. This is followed by safety needs, need for belongingness, esteem needs and self actualization (Lester 2013).

Risk of the Semco Model

Semco’s Model is aimed at giving control to employees which resulted in better security, belongingness and self esteem. These factors led to better organizational culture and increased performance which met the self actualization need, according to the Maslow’s theory.

Ricardo’s model also meets the Herzberg’s two factor theory which is made up of motivators like challenge, responsibility and awards and hygiene factors like salary, status and perks. Herzberg stated that the hygiene factors determine the motivators because they also affect job satisfaction (Lin et al. 2015).

Semco followed a democratic style of leadership where employees were given more importance compared to the autocratic style as advocated by McGregor’s philosophy (Gürbüz, ?ahin and Köksal 2014). The democratic leadership style gave importance to the employee needs and allowed them to work as per their convenience. Ricardo Semler always advocated that employees do not work only for money but also to increase their self esteem and achieve something.

Alderfer’s ERG theory stresses on three needs, namely, growth needs, relatedness needs and existence needs (L?z?roiu 2015). The company by Ricardo Semler, Semco did not follow the autocratic leadership style followed by other firms in Brazil. The firms instead, removed the strict corporate ladder that allowed employees to come closer to the management. He believed that employees are better at adapting to changes than management since; they execute plans and policies practically and are more knowledgeable about challenges involved in production. Ricardo assumed that employees themselves form groups to carry out their tasks if their esteem needs are satisfied. They get greater scope of participation which increases their feeling of relatedness and job security.

Semco Model allowed delegation of more power to the work force with an expectation of more responsibility and job satisfaction which will automatically increase productivity and reduced cost of management. The employees, when empowered feel more secure and automatically work towards achievement of goal which leads to their own growth. This goes along with McClelland’s theory which a stress on employee needs to need to achieve goal, affiliation and power (Miner 2015).

Semco Model derives its features from various leadership theories and motivational theories. It combines the self actualization needs of Maslow with Herzberg’s motivational needs. The style addresses growth needs, relatedness and existence needs along with needs of growth, relatedness to the company and existence needs coined in McClelland’s theory.

The Semco Model stresses on employee empowerment aimed towards increased productivity and profits. The participative management model applied by Ricardo, however suffers from the following advantages which gives rise to tension:

Ricardo Semler in his Semco Model gives total independence to employees to work as per their convenience. There is no dress code or corporate hierarchy to direct decision making in Semco Partners. This can create conflict among the employees as they are all at the same level and enjoy the same power. Lack of hierarchy also hampers conflict management because management intervention plays a very important role in solving and mitigating conflicts (Ali-Babaei and Shariatmadari 2014). Moreover, there is uniformity in production and performance techniques. All these factors contributes towards delaying decision making which may prove expensive.

Semco Model advocates equable rights for all which gives all employees equal access to information. Ricardo, in an interview, when asked to elaborate on the recruitment process followed it Semco Partners, revealed that first the candidates are allowed to meet the employee and taken on a company tour. This can be potentially dangerous for a big company like Semco, because a candidate, being an outsider cannot have access to employees and information. The fact that such an exposure may lead to leaking, misuse or manipulation of critical data overshadows the advantage that the candidate already knows the company by the time he joins. The hierarchical pyramid in an organization ensures protection of potentially important data by giving selected access to it as such data play a crucial role in deciding strategies. Hence, any unexpected leaking of data by candidates or by employees poses potential risk to the competitive position of the firm in the market (Webb et al. 2014).

Semco advocates total employee freedom in its operation which is totally a myth as such a framework is not feasible in reality. Ricardo, in the same 2004 interview told that the employees can choose their leaders and reporting officers but after that they have to follow a mandate. The bosses discuss with the fellow employees before firing an employee which puts the employee in question in the mercy of his colleagues. This is worsened by the absence of an HR department to look into employee issue and protection. Thus, contrary to what it appears, this system also allows space for authoritative decision making.

The hierarchical structure manages the information system, lays down rules, confirms implementation of strategies as per organization culture and contributes in conflict management. As However, Semco Partners has no corporate hierarchy and hence lacks the streamlining of strategies and their execution. Every employee has power to decide on the company’s decision and may use his influence over others to manipulate potentially important data necessitating a conflict.

Conflict is the clash of two opposing opinions when both of them cannot be feasible. It can happen between companies, management and subordinates and even between employees of the same level. The management decision and policies goes a long way in management of conflicts and ensure continuous production. Conflict management can take forms of competitiveness, collaboration, compromising, accommodation and avoidance.

Competitiveness takes place mostly among rival firms to decide their superiority in the market. The management, within the organizational level resorts to negotiation between conflicting parties and uses its power of persuasion to resolve the conflict and provides with alternatives that can be followed. Semco Model has no prominent management hierarchy which makes it difficult to follow this method, often used to counteract employees’ resistance to changes.

Collaboration is the method when all the decisions are considered and the best decision is chosen for application. This method goes a long way in solving extreme conflicts and can be used successfully in the Semco Model to address conflicts.

Compromise is the technique which requires partial consideration of all the alternatives to arrive at a decision. Semco can use this method to deal with conflict when a deadline approaches and the conflict proves to be a hindrance to the achievement of a target.

Accommodation can be used when conflict management is more important than the situation. This technique can be used to solve long drawn conflicts within an organization to bring peace. Here, the managers allow the subordinates to arrive at a conclusion which permits the employees to assert their justifications. Semco, being a employee centric organization can allow its employees to assert their opinion and then the superiors can arrive at a decision based on those opinions.

Avoidance is a situation when conflicting parties simply do not accept each other’s conditions and advices. This technique is used when the outcome is insignificant to the organization. This technique which is actually lack of response to conflict management also allows a subordinate to sharpen his leadership qualities.

Ricardo Semler went against the prevailing authoritative style prevalent followed style followed by his father and established a more employee centered work culture. His revolutionary initiative helped the company to recover from its losses and this paved way for the company to become a big consultancy firm. According to Ricardo, the consumers are not his customers but the companies serving those consumers are his clients. This points out to the company’s power to succeed in spite of limited public promotion. Ricardo undertook great risks while implementing his participative style of leadership.

The first risk that he took was to remove the conventional corporate ladder which was present in most of the companies. This transition took place when the Brazilian economy was facing a severe economic crisis which forced many companies into bankruptcy. Semler’s unique style of management was a breakaway from the conventional styles and yet produced superb results. Ricardo himself opined that the radical transition in leadership style required changing the entire process of work which seemed irresponsible and risky (Semco Partners 2017).

The second risk that Semler took was empowering his employees by allowing them to choose their bosses, decide the working hours and even allowed them to wear dresses they liked to work. This shows indications for avoidant leadership which could have led to subordinate stress (Skogstad et al. 2014). His efficient management style proves its metal when Paychex Inc entered into joint venture with Semco in Brazil in 2013.

Semco allowed employees to choose their own bosses, decide their working hours and dresses and had no hierarchy or HR department. This apparently leaves the chance of lack of accountability and standard of performance of the company before the stakeholders. However, the joint venture between Paychex and Semco proved the high standard of performance when the former collaborated with the later to enter Brazil which was its second international venture.

One of the biggest challenges of Semco Model of Management appeared when the economy of Brazil was hit and the then President imposed restriction on liquidity. This government policy demanded a radical change in management and pushed many firms into endangerment. Ricardo’s liberal gave the employees more power and hence increases their sense of responsibility and self esteem. They in fact, agreed to a cut in their wages and management fees to adapt to the economic crisis. Their shares in the company’s profit were increased and they gain approving authority of approving the company expenses. This participative style of management became so successful that it became theme of HR Learning and organization behavior studies. Authors like Eng Chew and Kenneth Anthony Dovey have drawn references from the organization in their work titled ‘Learning to create sustainable value in turbulent operational contexts: the role of leadership Practices’ (Chew and Anthony 2014).

Semco Model is even open to the job seekers and allows them to be induced to its environment and the employees. This helps them and the company to decide on the appropriate employment opportunity and a long term relationship. There is no conventional HR department to interview the candidates and decide on their job conditions and salary. The candidates are first taken on a tour of the company’s activities and employees. This is followed by several rounds of interviews given by several employees whose opinions are then taken into consideration to decide on a candidate’s eligibility and appointment. This transparent policy allows candidates and employees to be familiar and more open to each other. This promoted to better understanding and organization culture.

Ricardo’s Semco Model apparently has no control over an employee’s performance but that is not true as revealed by the founder itself. Candidates are first allowed to decide on their salary and managers after which they are entrusted with responsibilities and accountabilities.

Semco has no physical office, no code of uniform and no official hierarchy. It is a consulting firm which enters into joint venture with big firms from various fields and provides them expert consultancy services. This shows that a firm, in order to grow need not follow conventional leadership patterns. Semco’s strength lies in empowering employees with decision making power can make them feel more responsible towards the firm. This makes them more productive than employees who are dominated by their bosses. The successful application of this style of leadership in soft drink industry in Germany proves its applicability in even a different industry in a foreign country.

Conclusion:

Semco Model founded by Ricardo Semler is a revolutionary management and leadership style. It allows employees of the Semco Partners to take equal responsibilities in the management of the firm and develop their managerial skills. However, it can also be pointed out that though this model combines various other models, has its own defects and also leaves a scope for conflict. It can also be opined that the model helped Semco survive the economic downfall of Brazil when the firms following conventional authoritative models failed. It can also be pointed out that leadership and motivation styles depend on the situation and the desired outcomes. Leadership styles and pattern evolve over time and are extremely dynamic. Great leaders find new theories and even build their own revolutionary styles accommodating several theories.

References:

Ali-Babaei, M.S. and Shariatmadari, M., 2014. Exploring the Relationship between Management Skills and Employees' Conflict in Industrial Production Company of Kerman Keyvan Pomp. International Journal of Academic Research in Business and Social Sciences, 4(12), p.361.

Betov, A. and Szillat, P., 2016. Business leadership concepts exemplified by the two exceptional leaders Daniel Vasella and Ricardo Semler. Journal of Contemporary Economic and Business Issues, 3(1), pp.33-60.

Chew, E. and Anthony Dovey, K., 2014. Learning to create sustainable value in turbulent operational contexts: the role of leadership practices. The Learning Organization, 21(4), pp.243-257.

Gürbüz, S., ?ahin, F. and Köksal, O., 2014. Revisiting of Theory X and Y: A multilevel analysis of the effects of leaders’ managerial assumptions on followers’ attitudes. Management Decision, 52(10), pp.1888-1906.

L?z?roiu, G., 2015. Employee Motivation and Job Performance. Linguistic and Philosophical Investigations, (14), pp.97-102.

Lester, D., 2013. Measuring Maslow's hierarchy of needs. Psychological Reports, 113(1), pp.15-17.

Lin, X., Cai, S., Xu, D. and Fu, X., 2015. Judging Online Peer-To-Peer Lending Behavior: An Integration of Dual System Framework and Two-Factor Theory. In PACIS (p. 138).

Miner, J.B., 2015. Organizational behavior 1: Essential theories of motivation and leadership. Routledge.

Semco Partners. (2017). Company History - Semco Partners. [online] Available at: https://www.semco.com.br/en/about-us/ [Accessed 30 Jan. 2017].

Skogstad, A., Hetland, J., Glasø, L. and Einarsen, S., 2014. Is avoidant leadership a root cause of subordinate stress? Longitudinal relationships between laissez-faire leadership and role ambiguity. Work & Stress, 28(4), pp.323-341.

Webb, J., Ahmad, A., Maynard, S.B. and Shanks, G., 2014. A situation awareness model for information security risk management. Computers & security, 44, pp.1-15.