Innovation practices at Semco Organization

Innovation in Semco Organization

The new century is the century of advancements like never before. The world is changing at a rapid pace and individuals, communities and entire societies need to remain alert to all these changes and quickly answer the emergent requirements. While this necessity might not be as obvious for individuals, it has become a constant within organizational entities.

Economic agents are now faced with the necessity of continually monitoring the market place -- both national as well as international --, identifying the new elements and quickly adapting to them. For instance, they are required to better train and motivate the staff members and to better integrate them within the organizational context in order to best capitalize on their skills and intellectual capital. Additionally, economic agents need to continually assess the changing demands of customers and satisfy their modifying needs. To be one step ahead of the competition, it is even important that economic agents foresee customers' needs and satisfy them even before the very customers become aware of the existence of these needs.

At the level of the manufacturing process, it is required that the companies purchase and integrate the latest available machineries, which not only increase the efficiency of the operational processes, but also reduce the levels of waste and pollution in order to better protect the environment. The list of modern day requirements to which economic agents have to respond could go on for pages. Yet, the question at this stage refers to the very ability of individual companies to identify these needs and implement them. In other words, are economic agents able to implement innovation in order to consolidate their positions? The answer depends on the individual characteristics of each economic entity, but this current project focuses on answering the innovation question for Semco S.A.

2. Semco S.A.

Semco S.A. was founded in 1950 as a manufacturer of centrifuges for the oil industry. Throughout the years however, it has significantly diversified its operations and has expanded to the production of various other equipments. The company's growth strategy has included a series of mergers and acquisitions, but also partnerships with various global companies. Through this strategic approach, Semco has increased not only in size, but also in strength, expertise, skills or market coverage. The company takes great pride in the distinctive business model it implements. "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. Everybody is treated equally, from high-ranking executives to the lowest ranked employees. This means the work of each person is given its true importance and everybody is much happier at work" (Semco Website, 2009).

The Brazilian manufacturing organization holds true to the following ten business principles and values:

(1) Dependability and reliability

(2) Honesty and transparency

(3) the seeking of a balance between short tern gains and long-term gains

(4) the offering of high quality products at affordable prices

(5) the provision with various customer services

(6) the encouragement of creativity

(7) the encouragement of employee participation

(8) the maintenance of an informal and pleasant working environment

(9) the maintenance of a safe working environment, and finally

(10) the ability to recognize the mistakes and the realization of future improvement possibilities (Website of the Semco S.A.).

Semco S.A. is currently run by Ricardo Semler, the chief executive officer of the organization and its main shareholder. Under his leadership, the company has evolved and has come to implement a model of open management. Through this business model, people are empowered and stimulated to play a more active role in business operations and decisions. In other words, the business model at Semco is focused on building creative teams which capitalize on individually and creativity. This is only possible due to the transformational characteristics of the managers. As a parenthesis, the Semco managers are transformational as they stimulate their subalterns to grow professionally and develop their skills, rather than obediently follow instructions.

While the business model at Semco would initially seem bold, daring and innovative, it is in fact complex and tedious, and it stifles creativity and innovation in a series of other aspects. The following section details on this issue.

3. Approach to Innovation at Semco

Given the modifications of the past few decades, innovation is often associated with the advent of technology, the creation and introduction of the internet or the development of numerous hi-tech applications. In this scenario, an idea was generalized according to which innovations became synonymous with technology. While this perception is understood in the context in which, during the recent years, innovations in the organizational context were indeed introduced through newer and better technologies, it remains false. In this order of ideas, innovation represents an act of improving an older action, element, system and so on by adding a new feature. The Longman Dictionary of Contemporary English defines innovation simply as "a new idea, method or invention; the introduction of new ideas or methods" (LDOCE Online, 2010).

In terms of Semco then, the assessment of their innovation approach is pegged not only to the integration of technology, but also includes other elements, such as management control, problem solving, decision making or communications. A discussion of these organizational elements is revealed throughout the following paragraphs:

3.1. Management control

An important element to be noted about the managerial act at Semco is that each board member is given equal right and power to vote on organizational propositions and endeavors. While this system is highly democratic, it is also highly inefficient as it often delays the decision making process. In some instances, this has materialized in the loss of business opportunities.

Throughout the organization, the actual implication of the managerial team remains limited. The executives at the Brazilian Semco S.A. encourage their staff members to manage themselves. The managers even set their own salaries and the employees make their own working schedules. They do not have assistants and all the staff members share in the profit distribution; everybody knows how much the other earns.

In terms of managerial structures and hierarchies, Semler removed the large majority of them; there were twelve managerial layers initially (Thompson and Martin, 2009). Today, Semco S.A. reveals three layers of managerial structures and a chief executive officer. The organizational managers do not have executive titles and the company has renounced the job titles. The organizational leaders are selected through vote by the employees and they are continually evaluated. This model of apparent chaos was implemented in the beginning of the 1980s decade, when the Brazilian organization was facing major difficulties in production levels and competitive edge (Semler, 2001). All in all, the managerial act and the managerial control at Semco are limited in comparison to most organizations, and the philosophy behind them seems to be: "give people the freedom to do what they want, and over the long haul their successes will outnumber their failures" (a Great Supervisor, 2005).

At a general level, the managerial model implemented by Semco is by all accounts interesting, yet, it can then be stated that it lacks in innovative elements.

3.2. Decision making

As it has been mentioned throughout the previous sections, the business model at Semco S.A. is open and focused on employee empowerment and participation. At the level of the board, the decision making process is tedious as it implies the agreement of several managers. At the level of the employees, the process is tedious and complex as well, but it is also risky as not all employees are as able as the board members to make decisions. In other words, innovation is indeed implemented in the decision making process at Semco S.A., but the selected innovation is not adequate as it generates several disadvantages and limitations.

Some of the shortcomings of the collective decision making process at Semco S.A. relate to the following:

The process is "time-consuming […and it] may limit create inefficiency and limit management's ability top respond quickly to a situation

Social pressures to conform can squash disagreement and promote conformity

Domination of the group by one person or a few individuals may decrease effectiveness, and Responsibility is ambiguous" (Freeman, 1999).

Due to this style of decision making, coupled with the permissive approach to employee management, the creativity graph is impacted. At a first component of idea birth, a multitude of ideas exist. At the second level of idea growth and implementation, few ideas are actually implemented due to the required consensus. Finally, in the third stage of the creativity graph -- the death of the idea -- few lessons are learnt from the passing of the creativity component.

3.3. Problem Solving

Similar to decision making, the problem solving mechanisms at Semco S.A. are constructed on the principles of employee empowerment and participation. This often leads to deepened arguments and an inability to resolve disputes as agreements and common solutions cannot always be reached. Through the new business model implemented by Semler, the resolution of problems was sought within the individual conscience of each and every staff member. The levels of control and solution imposition are limited and the problems emerged are expected to be resolved by the parties in the problem. This system of problem solving is constructed on the principles of honesty and integrity, as well as trust in the organization (Andrews). In other words, such an environment was created in which finding solutions to problems is a mutual goal as the accomplishment of organizational goals is a common goal for both employees as well as leaders.

3.4. Communications

While there are indeed business operations which do lack in the adequate innovation, the same cannot be said about the relationship between the employer and the employees. At Semco, this relationship is constructed on nothing else but innovation. It implements a model in which the employees are encouraged to make more decisions, to become more involved and to even question the decisions implemented top down. "The entire company is organized around the principle that people need to decide for themselves how their work is organized" (Morris, 2006). These high levels of employee empowerment lead to tremendous organizational benefits. For instance:

Participation of employees could materialize in more input, which would lead to better decisions (Levine, 2006)

The reaching of higher levels of employee motivation and on the job satisfaction as the staff members feel that their input is considered valuable by the entity

The results materialize in lower levels of employee turnover (and the subsequent reduction of the adjacent costs), higher levels of organizational productivity, or the professional development of the staff members (Harigopal, 2006).

Yet, despite these advantages, fact remains that excessive levels of employee empowerment can also lead to certain disadvantages. Semco S.A. could for instance be faced with the following downsides of employee empowerment:

Insufficiently trained staff members could lead to the making of poor decisions, which could in turn negatively impact the organization

The necessity for the creation of a controlled environment in which employees make decisions requires additional financial investments, which could in turn imply the postponing of other innovation projects

Employee empowerment creates the sensation of employee authority, and when these promises of authority are not materialized, they can easily lead to dysfunctional employee behavior (Gronfeld and Strother, 2006).

While it cannot be argued that the company does not implement innovation in its relationship with the employees, it can however be safely argued that it has not innovated its relationship with the customers. Semco S.A. does not implement an adequate customer relationship management program through which to communicate with the customers and better serve their needs. The same can be said with the other categories of stakeholders -- such as business partners, purveyors, the general public and so on -- with which the organization maintains minimum and inefficient communications.

3.5. Technology

The use of information technology within Semco S.A. is fairly limited. The manufacturing equipments are rather old and their operational efficiency is decreased. In some instances, the Semco management encouraged staff members to open their own manufacturing plants (smaller family businesses) and contract work from Semco. The company would lease its manufacturing equipments to the employees became entrepreneurs and it would do this in advantageous conditions. In case the new business did not retrieve the desired success rates, Semco would take back both the equipment as well as the employees (Thompson and Martin, 2009).

While this endeavor is laudable as it supports the economic development in Brazil, it also reveals the low levels of technological innovation. In a context in which the company is focused on employee development and invests most of its resources in the creation of an open and friendly working climate, it tends to neglect the role of technology in the business process. And this is obvious not only in terms of manufacturing equipments, but also in terms of hi-tech equipments. The lack of adequate technological appliances within the entity materializes in poor communications with both customers as well as business partners.

4. Recommendations for Improvement

In the context of the previous assessment, the following recommendations for improving the innovation levels at Semco S.A. are made:

(1) Increasing the efficiency of the decision making and problem solving processes by integrating more performant tools, rather than combined consensus of both managerial team and employees. The integration of innovative decision making processes would lead to the making of more informed decision, constructed on objective facts, rather than personal preferences.

(2) Placing a greater emphasis on the relationships with the various categories of stakeholders. In terms of customers for instance, this materializes in the need to implement an adequate customer relationship management program, which would increase the levels of customer satisfaction and simultaneously decrease marketing costs (Sharp, 2003). Relative to the general public, a specific action could materialize in the offering of interviews to the local media channels, which could also improve the organization's reputation (Heath, 2005).

(3) Integrating more technological innovations in both manufacturing processes as well as administrative endeavors. The final result of this measure would be that of increasing the operational efficiency, as well as improving the relationship with the various categories of stakeholders as an improved medium for communication is accessible. Ultimately, all these innovations would materialize in increased organizational profits.

5. Lessons Learnt

Based on the situation presented at Semco S.A., several valuable lessons can be retrieved:

(1) the academic and/or theoretical model forwarded or implemented by theoreticians or practitioners are not applicable in all business contexts. This virtually means that it is necessary for the economic agents to develop and implement specific business models and strategies tailored to their particular needs and characteristics.

(2) the implementation and usage of the latest technological applications does not mean that the respective institution is innovative. Innovation should be present in all aspects of the business process, including the relationship with the various categories of stakeholders (such as employees, customers, the general public, business partners and so on).

(3) Communication is the key to organizational success and it has to be present in the relationship of the company with all categories of stakeholders, not just the staff members.

(4) it is crucial to motivate the employees by integrating them in the decision making process through employee empowerment, but a limit should be imposed in the sense of a clear delimitation of employee responsibilities and managerial rights to impose the strategic decision considered best for the organization.

(5) Whenever the organization reaches a state of imbalance or even outright decay and problems in the competitive arena, it is important for the managers to take a strong position. The more severe the problems, the more radical the solution. Still, like most other circumstances, it is necessary to adjust the solution to the unique needs and characteristics of the respective company and the industry in which it operates. Semco's revival through the implementation of the open management model was only possible in those specific conditions of the Brazilian market and the organization's features. Other companies might have to develop and implement their own suitable strategies.

(6) Despite the multitude of operations within an organization, success cannot be attained within the modern day community without the integration of the latest technological developments.

6. Conclusions

The modern day business community is faced with incremental challenges. It must for instance introduce new relationship standards with both customers and employees, but it must also become more environmentally friendly. In other words, it has to continually introduce new elements of innovations -- elements of innovation which go outside the field of technological applications. Yet, despite this recognized need for innovation, not all economic agents manage to actually implement the concepts. One such entity which has recognized the need but lack in adequate implementation is Semco S.A.