New Company Structure

The great thing about fact-based decisions is that they overrule the hierarchy. Let us take a look at the potential of a well-organized structure. There is no doubt that a well-organized structure prevents chaos, ensures continuity of operations and an easy flow of communication and ideas within large systems. Nevertheless, introducing too many management layers and especially maintaining too rigid procedures often results in too much time being wasted on an organization dealing with itself rather than doing business. That is why some companies took to radical change: radical change of an organization’s processes to enable them to be truly customer-oriented rather than self-oriented.

One man has tried out most ways of structuring a business mentioned in the previous issue. And in the end he did it his way: Ricardo Semler, the head of a Brazilian company Semco ‘abdicated his throne’ by undertaking changes that took away his power and authority and thus created an innovative environment where employees could innovate continuously. The workers set their own wages and productivity targets and select their managers. He put into practice what management theorists call adhocracy: a type of organizational structure which is, among other things, characterised by minimal hierarchy, work through project teams and low standardization of procedures, because they encourage innovation. The organization is held together by the three core values: Employee Participation, Profit Sharing and Free Flow of Information. These three values stem from the belief that participation in design and implementation of work procedures will give employees control over their work; profit sharing will bring in a sense of ownership; and the availability of information as and when needed will help the employees understand and improve their work practices.

The other company working along similar lines does not need a special introduction. Here is an account of a software developer working at Microsoft: ‘Microsoft gives software developers a lot of personal freedom over both the work and the work environment. I order my own supplies, customize my office as I see fit, schedule my own trips and meetings, and select my own training courses. For the most part, I determine what I work on and when I will get it done. Except for semi-annual reviews, there’s almost no paperwork for a software developer at Microsoft. That works if people do not take unfair advantage of the great personal freedoms.’

In both companies employees are aware of the fact that they can earn, save, or cost the company millions of dollars through their work. It could be that that responsibility alone motivates them to perform more. So we cannot say there is no management but rather the organizational culture is such that it provides employees with the working environment which requires them to be highly self-managed. And by organizational culture we understand ‘the specific collection of values and norms that are shared by people in an organization and that control the way they interact with each other and with stakeholders outside the organization.’ As one expert put it: The way Ricardo Semler runs his company is impossible, except that it works. And the figures speak for themselves: Semco’s workforce has gone from a few hundred to 5,000 and the profits just keep going up. Semco is also one of the most sought-after employers in Brazil and the same is, of course, true for Microsoft.