A Fine Balance: Semco's Foray Into Self-Management With Minimal Hierarchy

The latest fad to hit the business world seems to be self-management. Every company wants to join the bandwagon and call themselves a “fully self-managed organization”, a “team of teams” or a “flat organization with no bosses”. While it’s not hogwash, neither is it the entire truth. Today, a fully self-managed organization is still more myth than reality. Of course, there are certain companies within specific contexts that have been able to function as truly self-managed organizations. But implicit hierarchies continue to exist even within such organizations.

On the other hand, an organization with a minimum level of hierarchy, that is mature about how flat it can stretch itself, is closer to reality. Such organizations are neither completely flat nor conventionally hierarchical; their minimal hierarchies work like subsets in a Venn diagram, intersecting when necessary while existing and functioning independently. They have the best of both worlds, where dramatically reduced power distances and responsibility for results co-exist. And although they have a minimal hierarchical skeleton, the organization is nimble enough to respond rapidly to fluid market environments; it innovates strategically; and holds itself together with a central purpose.    

Semco Wasn’t Always Like This

The decision to flatten the organizational structure at Semco wasn’t an easy one. In fact, it was met with a lot of resistance from the management because until then Semco was a highly hierarchical and traditionally-run organization. Back then, every building at Semco housed several departments and every department broke down into multiple segments.

The company’s intense period of expansion brought about several mergers and acquisitions and every new company that joined the Semco Group brought with them their own organizational complexities. So, it was a real nightmare when it came to titles and structuring - so much so that there were eight levels of hierarchy at Semco. As is normal in any hierarchical and traditional setup, the leaders at Semco were also prone to playing corporate games guided by inflated egos.

All that took a huge hit when Ricardo Semler announced his decision to flatten the organizational structure. When he made the announcement at a convention meant for all employees, people reacted with shock and utter confusion. Nobody could fathom a workplace without clearly defined titles and they began talking amongst themselves wondering who would be the manager or the boss.

Lateral Growth Over Vertical Ascent

And for the managers, it was a really difficult decision to swallow because they were no longer sure about their future in the company. In fact, many people chose to leave the company because it wasn’t aligned with their career plans or their aspirations to climb the corporate ladder and eventually land plum top management positions. With Ricardo announcing that there will only be three levels of hierarchy at Semco, they felt like there was no room for their career plans or vision.But, in reality, the restructuring didn’t mean that people could no longer grow or develop themselves. They could grow, but just not vertically. Instead, they could now grow horizontally, absorbing new functions and responsibilities, moving between departments and always getting the respective increases in salary.

The salary ranges, which were earlier associated with titles and positions on the hierarchy, were also revamped to reflect an individual’s contributions and their impact on the company’s progress. So people, within the new structure, may belong to the same hierarchical level but they earned what they deserved.

The Physical Environment As A Catalyst

After Ricardo’s announcement, the first steps to implement the decision were quite physical: They broke down the walls that separated people into cubicles and offices. They created an open concept office, with floating desks and flexible working arrangements. These actions organically removed the need for corporate bureaucracies and silly procedures to seek information because people could now directly access the person who had the answers.

 For instance, a person might have emailed the sales director’s assistant, copying his own manager on the email, if he needed some information from the sales director. In the new setup, there was no need to do that because the sales director probably sat just a few desks away from the person seeking information.

The physical changes to the work environment naturally busted bureaucracy and enhanced transparency among different departments. It also got rid of unnecessary fears of subordinates bypassing middle managers to seek out information from top management. Overall, it was a great catalyst that quickened the reduction of hierarchies at Semco.

Balance, Kindness, Common Sense

Of course, the open floor setup caused some initial chaos and drop in productivity. For instance, the CEO may have been consulted on matters that really didn’t need his input just because he was much more accessible now. So it might not have been the best use of his time. However, the chaos settled down overtime when people started to self-regulate in terms of relevance.

With a little kindness, leaders were able to redirect people to others better suited to answer their questions. And it prompted them to think twice before disrupting someone’s workflow - a learning process that Semco employees quickly mastered. An organization that is almost flat is a tougher act to balance: They need to offer autonomy and dignity to their people, while retaining a minimum semblance of organizational structure that holds it all together.

It can work only when there’s alignment between all stakeholders and their expectations from each other; when there’s no doubt about the roles and responsibilities of people; and when it’s safe to fail and feedback is constantly available.

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