We are at the halfway mark with Ricardo Semler?s book Maverick. This week we look at chapters 16, 17 and 18. I have been asked once again, why I write on business management in a forum, which focuses on investment. Ala Forest Gump, I will?once again?give you my explanation. Investment is by its very nature long-term. When you invest your returns will be determined by the intrinsic value of a business and the price you pay for that intrinsic value. Intrinsic value is not a static figure, but will change over the time. Intrinsic value is determined by the current and future business operations of the company in which you want to invest. It is all about business and nothing else. I cannot understand why the vast majority of talk around an investment is always on anything but the business. It is usually about the stock market, interest rates, wars in distant places, the impact of the Yen, etc. I couldn?t care less. The rumblings of a distant thunderstorm do not bother me, because frankly I have no control over whether it is going to rain or not. What concerns me more is whether the new house I just bought is sitting slap bang in the middle of a riverbed.

I am discussing business management, because investment is all about business. The rest is just rumblings in the background over which I have no control.

Chapter 16:Inmates take over the asylum.

It was just another example of what can happen when you reject Taylorism. ? Ricardo Semler

A good illustration of how far democracy progressed at SEMCO by 1986 was the division of the Santo Amaro plant. SEMCO did what all businesses do. Management set out to find the most suitable site and kept news about the planned move from the workers, because they did not want to disrupt the workforce. How childish is that. How can you not tell grown men and woman about planning to move their plant, because the shock will most likely be just to unbearable for them to handle? So SEMCO did what it does best. Empower the workforce. Management got all the workers together and gave them all the relevant facts about the planned move and involved them in the process. From the decision to where the new premises is going to be, to the layout of the buildings.

Not only did SEMCO end up with a more sensible location, but also with a more efficient production system compared to with what management would have come up on its own. In the process the plant switched from a Winslow Taylor/Henry Ford assembly line system to a manufacturing cell system. Taylor (preceded Ford) came up with the idea that one guy shovels coal into a bucket, another picks up the bucket and passes it onto another, the third carries it five metres to a guy on a ladder, the guy on the ladder takes it down, passes it on?you get the idea. Ford did the same, but put the bucket onto a moving line, so nobody has to walk anywhere. If you feel you don?t have any job satisfaction try tightening the same bolt on the same car for months on end. With the manufacturing cell a group of workers take responsibility for the assembly of a product (i.e. a dishwasher) from start to finish. They get more control over the process, inventory, quality, etc. However, the most important is that they get the satisfaction that comes with a finished product. There is no better form of quality control than pride!

Chapter 17:Sharing the wealth

How much of our profits would we return to those who helped make them? We weren?t about to pick a number out of the air, or let our workers do that, either. So we negotiated ? Ricardo Semler

You cannot share the work without sharing the spoils, can you? Due to the democratisation of the workforce SEMCO?s fortunes improved dramatically. So Ricardo Semler decided that SEMCO had to be more progressive in sharing the wealth. Once again it included the workforce. I was tempted to focus on the formula and try to get a sense of the most logical one. Then I realised I was missing the point. It is going to be different for every company. It is the profit of the workers; so let them decide how they are going to share it. This is what SEMCO?s workers decided. Please, note once again that this what worked for SEMCO?s workers, this is not a one size fits all solution. That is what is so great about it.

SEMCO has pre-tax margins of between 20% and 30% versus an industry average of 7%-8%(Phew! Can you sense me drooling?). 40% of taxes need to be paid and then it was decided that 25% would go for dividends and 12% for reinvestment. By the way, that is a very low capital expenditure figure and alludes to the strong free cash flow that SEMCO must produce. That left 23% for the workers. They decided that each quarter 23% of the profit made by each INDIVIDUAL unit would be passed onto that unit and it could divide the profits as it sees fit. Now how about this? Each unit decided to split the profit evenly. That means top management in that unit receives exactly the same profit sharing cheque than the lowest paid worker in that unit. Not the same percentage, the same amount! This might not work for you, but then you don?t work at SEMCO do you?

Chapter 18:Miles of files.

Read it, understand it, act on it, and throw it away, that?s our motto now ? Ricardo Semler

You don?t like paperwork do you? Nobody likes it, but why do we generate so much of it? Computers just made everything worse. Maybe not in terms of paperwork, but definitively in pieces of equally useless information. Has anybody ever stopped and asked why? SEMCO did. The outcome was that it got rid of most of its support staff. There are no secretaries, not even for Ricardo Semler. Memos are limited to one page only, but Ricardo Semler warns that it took some getting used to. SEMCO now believes that anything that cannot be explained on one page is not worth explaining. Pardon my French, but it kind of teaches you to cut out all the bullshit and get to the point. It is much more profitable and not as messy!

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

Mr. B

(cv sig-13.7%/6)

mail_mrb@yahoo.com

Posted: 2003/07/07 09:06 View Archive