Adventures in Making a Business Profitable Part 2 (The Maverick Lessons)

A while back I talked about the influence of Al Dunlap on my early management experience (see Adventures in Business Part 1).  The cut and burn approach to making an unprofitable business thrive.  This of course was a very 1990’s approach – primarily a reaction to the extravagence of the 1980’s globalisation evolution which placed an abundance of capital in the hands of often un-talented entreprenuers who pursued growth by building massive and usually unprofitable conglomerate businesses, of which they new little about.  It was about making the hard decisions that restructure resources and strategy back to a core business which is in demand and costs less to run than the revenue it generates.  Obviously this is an ongoing process but if the business is in poor shape then it can be necessary to take a more acute approach.  As is common with most periods of economic decadence, when money is too freely available it gets into the hands of people who lack the talent to use it wisely.  So eventually the market draws its sword and the whole mess gets cleared up – be it often at the expense of many innocent members of society (another issue).

Shaping a business to operate profitably is one foundation of sustainability.  The next challenge is to motivate your staff working effectively to achieve the new business goals.  Not uncommonly, following a restructure, when you’ve set new goals, changed peoples roles and farewelled some of your employees, the culture is hit what I call post restructure traumatic disorder. Commonly, staff are overwhelmed with uncertainty about  their and the company’s future, may become afraid to speak freely, mistrustful and focus on doing what is necessary to keep their jobs.

My search for useful ideas on how to inspire these circumstances led me to Ricardo Semmlers extraordinary Maverick which is today one of the most easy to read accounts of a real life adventure in employee management at the company SemCo – owned by the author.  You need to read the detail to understand how and why it worked  but the gist of it is that Semmler handed the operational decisions to the employees in an extraordinarily democratic and open framework.  Employees set their own salaries, chose how to distribute the profits amongst each other the management structure was flattened, employees were handed joint responsibility for the manufacturing process and chose their bosses. Semmlers overarching premise is that company survival in a volatile economy depends on the quality of life for its employees and the rest – productivity, profits, product quality will follow.  Not surprisingly, the employees  had to learn how to work in this environment but less intuitive was the success the company had once they got the hang of it.  (Yes, I’ve vastly over-simplified it which is why you should read the book).

 

Semmler’s story is a slap in the face for much leadership theory, basically because rather than assuming that employee motivation and performance is the responsibility of a few select managers, it assumes that employees respond productively when they are allowed to organize and participate democratically in decisions about business operations.  The idea is of common to western Governments, but quite intuitively unbelievable in the context of a business where survival depends on risky decision-making must occur efficiently.  Its is all the more extraordinary that the owner of the business would conceive and place their capital at risk enacting such a plan. 

 

The problem with this as a manager in a traditional hierarchical company is that you don’t have the power to give the power away.  The Semmler solution started at the top and was largely designed by the owner who had total control over the decision.    In my case it was impossible to rid the shackles of the company’s rules and procedures, which govern the hierarchical reporting structure, the salary and bonus rules, and the human resource processes which govern much of employee management  (union agreements hiring and firing, performance and promotion etc.). 

 

I realized quickly two key facts.  Firstly, the extent to which the traditional organization frameworks contain and impede the way management is practiced to the extent that it suffocates flexibility and enforces a numb acceptance of the framework.  Employees lumber along the path set by the framework, and if they climb any part of it do their best to reinforce and preserve their position.   The second is that just how hard it is to change such a framework.

 

The only approach was to take from Semmler what I was able to, within  the constraints of the organization.  In retrospect, this involved some pretty fundamental ideas.   Firstly, legitimizing the opportunity and responsibility for everyone to make a contribution.  Getting rid of the inherent class system which ordained those  further up the management hierarchy with the right to be right.  The managers ego is often fragile because they just aren’t exposed to disagreement – the people below are just two scared to say what they feel (check the comments in well designed anonymous employee survey), and the manager is kind of enjoying the respect which she/he thinks they deserve.   Getting everybody to be unafraid to say what they really think is the first step to good decisions.  Getting managers to confront the critics and justify their decisions is critical to making sure the people in those positions (if you have to have them)  are actually make good decisions.

 

The second thing was to actually get people to think about their job rather than just do it.  To achieve this, I had to go hunting for good ideas in the beginning, and then back those ideas to become a reality.  When people saw that they were allowed and could take control they wanted to in many instances (though I introduced some training and discipline around the process.)

 

I was able to introduce a more equitable merit based salary structure and fought and one a performance based employee bonus.   We increased the transparency about our true performance, argued a lot about how to fix it from the mail room to the IT department to the customer service people and the accounts.  Staff who had never contributed anything started sharing ideas and resourced projects. 

 

 It was a long way from the Semmler strategy  but definitely inspired by the great man.   In the end customer retention and acquisition went up dramatically the business’s profit increased by about 200 per cent and employee turnover rate went down below 10 percent.

 

 As time went on the more I was in awe of his approach. I remain convinced that while many companies talk about leveraging the potential of their employees, few if any take the risk.  As a consequence, the true capacity of human ability and ingenuity  becomes lost amidst the mayhem of bureaucracy, politics and survival.  Most people end up coming to work just to pay their mortgage, and miss out on the exhilaration of being part of a successful winning company.  And in the end, the company matures, withers and dies, or goes up in a puff of smoke the next time the economy takes a down turn.