Innovation at Semco S.A.: Management, Technology & Strategy

Introduction

The new century is a 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 these changes and quickly respond to emerging requirements. While this necessity might not be as obvious for individuals, it has become a constant reality for organizational entities.

Economic agents are now faced with the necessity of continually monitoring the marketplace — both national and international — identifying new developments and quickly adapting to them. For instance, they are required to better train and motivate 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 evolving needs. To stay one step ahead of the competition, it is even important that economic agents foresee customers' needs and satisfy them before customers themselves become aware of those needs.

At the level of the manufacturing process, companies are required to purchase and integrate the latest available machinery, which not only increases the efficiency of operational processes but also reduces waste and pollution in order to better protect the environment. The list of modern-day requirements to which economic agents must respond could fill many pages. Yet the central question at this stage concerns 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 competitive positions? The answer depends on the individual characteristics of each economic entity, but this paper focuses on answering that question for 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 expanded into the production of various other types of equipment. The company's growth strategy has included a series of mergers and acquisitions, as well as partnerships with various global companies. Through this strategic approach, Semco has grown not only in size but also in strength, expertise, skills, and 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) seeking a balance between short-term gains and long-term gains; (4) offering high-quality products at affordable prices; (5) providing various customer services; (6) encouraging creativity; (7) encouraging employee participation; (8) maintaining an informal and pleasant working environment; (9) maintaining a safe working environment; and (10) the ability to recognize mistakes and identify future improvement possibilities (Semco S.A. Website).

Semco S.A. Overview

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 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 that capitalize on individuality and creativity. This is only possible due to the transformational characteristics of the managers — who stimulate their subordinates to grow professionally and develop their skills, rather than obediently follow instructions.

While the business model at Semco initially seems bold, daring, and innovative, it is in fact complex and, in certain respects, tends to stifle creativity and innovation. The following section details this issue.

Given the modifications of the past few decades, innovation is often associated with the advent of technology, the creation and spread of the internet, or the development of numerous high-tech applications. In this context, a generalization emerged according to which innovation became synonymous with technology. While this perception is understandable — since in recent years, organizational innovations have indeed been introduced through newer and better technologies — it remains incomplete. Innovation represents an act of improving an older action, element, or system 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 the company's innovation approach is pegged not only to the integration of technology but also includes other elements such as management control, problem solving, decision making, and communications. A discussion of these organizational elements follows.

An important element to note about managerial practice at Semco is that each board member is given an 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 involvement of the managerial team remains limited. The executives at Semco S.A. encourage their staff members to manage themselves. Managers even set their own salaries, and employees make their own working schedules. They do not have assistants, and all staff members share in profit distribution; everybody knows how much the other earns.

Approach to Innovation at Semco

In terms of managerial structures and hierarchies, Semler removed the large majority of them — there were originally twelve managerial layers (Thompson and Martin, 2009). Today, Semco S.A. has three layers of managerial structure and a chief executive officer. Organizational managers do not hold executive titles, and the company has abandoned formal job titles. Organizational leaders are selected by employee vote and are continually evaluated. This model of apparent organizational fluidity was implemented in the early 1980s, when the Brazilian organization was facing major difficulties in production levels and competitive edge (Semler, 2001). All in all, managerial control at Semco is limited in comparison to most organizations, and the philosophy behind it 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 be stated that it lacks innovative elements in the conventional sense of structured managerial improvement.

As discussed in the previous section, the business model at Semco S.A. is open and focused on employee empowerment and participation. At the board level, the decision-making process is tedious as it requires the agreement of several managers. At the employee level, the process is equally complex and also risky, as not all employees are equally equipped to make high-stakes decisions. In other words, innovation is indeed present in the decision-making process at Semco S.A., but the specific innovation selected is not entirely adequate, as it generates several disadvantages and limitations.

Some of the shortcomings of the collective decision-making process at Semco S.A. include the following: the process is "time-consuming [and] may create inefficiency and limit management's ability to 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 cycle is affected. At the first stage — idea birth — a multitude of ideas exists. At the second stage — idea growth and implementation — few ideas are actually implemented due to the requirement for consensus. Finally, in the third stage — the death of the idea — few lessons are learned from the passing of the creative concept.

Similar to decision making, the problem-solving mechanisms at Semco S.A. are built on the principles of employee empowerment and participation. This often leads to prolonged disputes and an inability to resolve disagreements, as common solutions cannot always be reached. Through the open management model implemented by Semler, problem resolution was sought within the individual conscience of each staff member. Levels of managerial control and imposed solutions are limited, and problems are expected to be resolved by the parties involved. This system of problem solving is constructed on the principles of honesty, integrity, and organizational trust (Andrews). In other words, an environment is created in which finding solutions to problems is a mutual goal, as the achievement of organizational objectives is shared by both employees and leaders alike.

While there are indeed business operations at Semco that lack adequate innovation, the same cannot be said about the relationship between employer and employees. At Semco, this relationship is built on a foundation of innovation. The company implements a model in which employees are encouraged to make more decisions, become more involved, and even question top-down directives. "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 generate significant organizational benefits. For instance:

Employee participation can materialize in greater input, leading to better decisions (Levine, 2006). It also produces higher levels of employee motivation and job satisfaction, as staff members feel their contributions are valued by the organization. The results include lower employee turnover — and the subsequent reduction of associated costs — higher levels of organizational productivity, and the professional development of staff members (Harigopal, 2006).

Yet, despite these advantages, excessive levels of employee empowerment can also produce certain disadvantages. Semco S.A. could, for instance, face the following downsides: insufficiently trained staff members could make poor decisions that negatively impact the organization; the creation of a controlled environment in which employees make decisions requires additional financial investment, potentially delaying other innovation projects; and employee empowerment creates a sense of employee authority that, when not meaningfully fulfilled, can easily lead to dysfunctional employee behavior (Gronfeld and Strother, 2006).

While it cannot be argued that the company fails to innovate in its relationship with employees, it can be argued that it has not adequately innovated its relationship with customers. Semco S.A. does not implement a sufficient customer relationship management program through which to communicate with customers and better serve their needs. The same can be said of other stakeholder categories — such as business partners, suppliers, and the general public — with which the organization maintains minimal and inefficient communications.

The use of information technology within Semco S.A. is fairly limited. The manufacturing equipment is relatively dated, and its operational efficiency is reduced. In some instances, the Semco management has encouraged staff members to open their own smaller manufacturing plants and contract work from Semco. The company would lease its manufacturing equipment to employees who became entrepreneurs under favorable conditions. If a new business did not achieve the desired success, Semco would take back both the equipment and the employees (Thompson and Martin, 2009).

While this endeavor is laudable for its support of economic development in Brazil, it also reveals low levels of technological innovation. In a context in which the company is focused on employee development and invests most of its resources in creating an open and friendly working climate, it tends to neglect the role of technology in the business process. This is evident not only in terms of manufacturing equipment but also in terms of high-tech appliances generally. The lack of adequate technological infrastructure within the entity results in poor communications with both customers and business partners.

In light of the preceding assessment, the following recommendations for improving innovation levels at Semco S.A. are proposed:

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

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