?And Timoshenko eventually made a surprising selection for the job of chief engineer, the person who would be his right arm-the utterly flabbergasted Almir.? -Ricardo Semler

SEMCO introduced a system whereby subordinates choose their bosses. However, one has to understand that this happens against a background of everybody having a vested interest in their boss being the right person for the job. You see, profit sharing is big at SEMCO. Units, big and small, share in the profits - in direct proportion to their profitability. Therefore, units are financially motivated to select whoever is going to help them make the most money for SEMCO. SEMCO employees are not going to choose someone just because they are a nice person. They are more interested in their manager helping them earn a bigger paycheck. It thus follows that any prospective manager has to prove that they are the right person for the job. This changes the dynamics of the hiring process, doesn?t it? Here follows an example of a scorecard that SEMCO employees compiled to help them decide whether a person has the right credentials to lead them.

The subject reacts to criticism:

a. Poorly, ignoring it

b. Poorly, rejecting it

c. Reasonably well

d. Well, accepting it

When the subject?s department achieves a high level of productivity, he/she usually:

a. Takes credit for other people?s success

b. Gives credit to those who did the work

c. Gives credit to the team as a whole

The subject conveys to his team feelings of:

a. Fear and insecurity

b. Indifference

c. Security and tranquillity

The subject:

a. Constantly reminds everyone he is the boss

b. Occasionally reminds everyone he is the boss

c. Rarely makes a point of being the boss.

The type of environment in which a questionnaire like this can exist is the reason why Timoshenko chose Amir to be his right hand man, despite the fact that Amir was Timoshenko?s loudest critic during the job interviews. Simply, Timoshenko was incentivised to put personal differences aside and choose Amir because he was the best man to assist him. In a most companies where turf battles take precedence over corporate profitability this would never happen. Most likely, Amir would have been fired.

Chapter 23: More than a job

Simpliciano Domingos de la Sierra (a.k.a Shrimp) started out at SEMCO before Ricardo Semler took over from his father. Previously a staunch union man and critic of SEMCO, he gradually bought into the philosophy of the company and became one of its most resolute proponents. He once got up in a union meeting professing that he would rather work for less money at SEMCO than work elsewhere because SEMCO workers felt like they were someone.

Some readers have criticised this series for not sticking to the investment talk of previous series. However, I believe this series IS about investment. The first question one should always ask when investing in a company is what its competitive advantage is. If you have a loyal workforce that is willing to work for less money, just because you treat them right, then the competition have a problem. This is especially true in SEMCO?s industry because labour is a large part of the company?s cost structure.

This is illustrated even further by the Shrimp?s story. At a time SEMCO was experiencing financial difficulties and had to cut costs. The Shrimp went back to a lower paying position he had previously held but decided that it was not for him. Shrimp held discussions with SEMCO and they helped him to set up his own business, supplying parts to SEMCO, by giving him a firm order book.

The same kind of thing happened to ?Dr. Disagreement? (Alipio Camargo). He took over a department and made it so efficient (by reducing staff from 44 to 11) that even his job wasn?t needed anymore. He told management as much and that he would leave unless they could find him another job in SEMCO - but that he would prefer the latter option. Luckily they did. This type of behaviour is rare and, therefore, if you find it you?d better take a good look at the company to establish whether it offers any investment opportunities. This kind of thinking, if it is part of the wider culture, can add a good couple of metres to a company?s moat.

Chapter 24: Rounding the pyramid

The pyramid, the chief organizational principal of the modern corporation, turns a business into a traffic jam. A company starts out like an eight lane superhighway ? the bottom of the pyramid ? drops to six lanes, then four then two, then becomes a country road and eventually a dirt path, before abruptly coming to a stop. Thousands of drivers start off on the highway, but as it narrows more and more are forced to slow and stop. There are smash-ups and cars are pushed off on to the shoulder. Some drivers give up and take side roads to other destinations. A few ? the most aggressive ? keep charging ahead, swerving and accelerating and bending fenders all about them. Remember, objects in the mirror are closer than they appear. - Ricardo Semler

The key to Ricardo Semler?s style is his refusal to tell anyone what to do. His style is to prod and nudge people in certain directions and then let them come up with the ideas themselves. In 1986 the food service equipment plant became bloated under a particular manager. It was quite clear to everyone that there was an extra layer of management that had to go. When the marketing manager of the unit left to go and work for her father, everyone wanted to know who was going to do her work. Ricardo Semler simply let things be and her workload was absorbed by the other four marketing people without any fuss. Less was more!

Ricardo Semler replaced the pyramid structure with one of circles. 6 or so ?Councillors?, including Semler himself, occupied the innermost circle. Councillors took care of long-term strategy, deal making and other medium- to long-term business.

A second circle consisted of ?Partners?, who each had a number of ?Associates? (the third circle) they teamed up with.

There are a number of ?Coordinators? floating around the third circle. The coordinators are anyone with a basic leadership role, such as the traditional sales, marketing and production supervisors, foreman, etc.

On Mondays, partners and coordinators meet, after which the coordinators brief the associates. Anything that is unresolved gets discussed on Tuesday during a partner (or representative of the partner) meeting and a councillor will be present if requested. So, the longest anyone will wait for a major decision at SEMCO is two days. A large company that can achieve that moves at the speed of light! This strategy is not easy to implement and needs a lot of groundwork before it can even be attempted. However, the fruits will be apparent for all to see!

Whatever you are up to, I hope it is profitable and ethical!

Mr.B

(cvsig-13.7%/6)

mail_mrb@yahoo.com

Quote: "Bear markets change human behavior along with asset prices. Pride is no longer fashionable; modesty is trendy. Winston Churchill's acid description of Clement Attlee applies to investment professionals today: "Attlee is a very modest man. And with reason." ." -Clipper Fund 3/28/03 Letter to shareholders

Posted: 2003/10/07 07:46 View Archive