Own functions and administrations

Introduction:

Organizations can be public or private companies, corporations, firms, enterprises, authorities or institutions that determine their own functions and administrations. They consist of people who are trying to influence others to achieve certain objectives that create wealth or well being through a variety of processes, technologies, structures and cultures.

Organizations transform and develop whenever they respond to changes in the internal or external environment. Stakeholders are those individuals or groups who rely on the organization to pursue their own goals and in turn the organization relies upon them. They can be internal or external influences. The internal environment includes employees, trade unions and shareholders. The external environment is comprised of the social, legal, economic, political and technological factors. Stakeholders have different expectations, which can cause a conflict of interest; therefore, organizations must counteract various forms of pressure. They therefore need to respond quickly to these forces in order to survive and flourish. (Senior, 2006)

Organizations do not exercise a lot of control over certain factors such as customers, suppliers, competitors and pressure groups, but instead they try to exert some influence. Therefore, it is crucial that the pressures affecting an organization should be managed well. At one end of the spectrum the organization's business strategy has a proactive and planned approach to dealing with pressures. At the other end they respond with knee-jerk reactions to unforeseen and unexpected pressures. It is therefore important that staff is developed to its full potential in order to cope with any existing or imminent pressures and organizations may be expected to fairly reward the employees for what they do in this respect. (Campbell, 2002)

Many organizations these days have mission statements, goals and objectives in place, in order to respond to the anticipated internal and external pressures, as well as having a strategic plan of how to achieve them both in the long-term and short-term. When preparing to face these pressures, the organization can choose to follow a number of strategies including consolidation, growth via market penetration, development and product development and contraction or closure. (De Kare-Seilver, 1997)

Brief Case Study:

This assignment will examine how Semco (Semler & Company) have sought to improve their performance by rethinking their strategies and approach and by introducing changes to key aspects of its internal environment. It is a paternalistic organization that is based on the typical organizational structure adopted by Brazilian companies. Initially it was very similar to the historical Latin American enterprises, which employed pyramidal hierarchy where all the staff had to report to the top management, which meant that they all reported to a single person who was the sole proprietor of the company. (www.coinsight.com)

Austrian born engineer Antonio Curt Semler moved to Sao Paulo in 1953, having been influenced by the rapidly expanding economy of Brazil. He had gained wide experience after working for a manufacturing plant called Duo Pont in Argentina. He founded Semler & Company and began manufacturing centrifuges.

Since then he single handedly managed the organization, without partnering or merging with any other firm. He independently ran the organization and since he was the absolute authority he held unrestrained power and was answerable to no other person. The main reason he was following this autocratic control approach was due to him being the only person in his family and because he strongly inter-linked personal possessions with business matters so he had no one he could really trust to support him in his venture. (www.coinsight.com)

Antonio focused all his company resources, finances and machinery in supplying pumps to the government. This strategy of focusing everything on one business area facilitated his company in generating quality products and as a result they became a market leader within a decade, acquired money-spinning contracts and in due course succeeded in attaining favor with the Brazilian government. By then Semler & Company became a major supplier of National Shipbuilding Plan. (www.coinsight.com)

In 1982, Semler & Company was completely restructured when Ricardo Semler, the son of Antonio Curt Semler, took over control of the organization. His outlook and interpretation of the organization was the complete opposite of his father's. Ricardo believed in a participatory management style where all the employees could contribute and put their views across and he worked towards implementing this and eradicating the old autocratic style of management. (www. wikipedia.org)

Ricardo also felt there was an urgent need to introduce changes, as there was a sudden dip in the Brazilian economy, which affected Semler & Company and the company began encountering major setbacks. They had formerly experienced major sales from shipbuilding products but were then hit hard due to the recession of the Brazilian economy. Antonio Curt Semler contradicted his son's proposed ideas, as he believed that this change in their approach would lead to the demise of the company. He had successfully followed the same autocratic approach for a long time and had managed to earn a good reputation without any difficulty; therefore he was certain that any change in management style would ruin everything he had worked so hard to achieve. Disagreement grew to such an extent that Ricardo threatened to leave his father's business. Antonio backed down and then made the decision to resign as the Chief Executive of the Organization and handed over complete authority to Ricardo who went on to operate the business with great success. (www. wikipedia.org)

Types of Analysis:

Before an organization decides on the changes that it should make in order to improve its performance, an analysis should be completed to understand how the organization currently functions as this will help them discover what areas need to be altered. This will indicate changes that should be made in the internal environment. An example of this type of analysis is SWOT analysis. (Strengths, Weaknesses, Opportunities and Threats). (See appendix)

Analysis should also be carried out to identify what factors in the external environment are affecting the organization. SLEPT or PEST(EL) analysis is an example of this type of analysis which helps the organization scan its environment. Another external influence that affects the organization is their competitors. (Graetz, 2002) (See appendix)

Semco (Semler and Company) did not actually follow either of these types of analysis in full, however, they did use some of these points to help them make changes in their organization which resulted in them greatly advancing and improving.

Key Strategies implemented in the organisation:-

Change can modify all aspects of the organization including the structure, culture, strategies, control systems and work groups. Processes, communication, motivation, problem solving and leadership can also be affected. Managers may also have to change their approach to how they plan, organize, lead and control as a reaction to change. In times of recession or decline it is extremely important for an organization to adopt the best strategy that not only helps it to maintain its status quo but also aids it in improving its performance. (Mangham, 1986) For this, a number of strategies can be adopted which may include consolidation, growth, contraction or closure. These strategies may result in an organization expanding or reducing its related activities, to be able to penetrate into new markets or to develop products. As a last resort, an organization may close the whole business if they have no other alternative. (Burnes, 2004).

Change in organisational culture:

Downsizing of top management:-

Ricardo implemented his own strategy and eliminated the majority of secretarial positions by firing two-thirds of the top management staff. This downsizing had to be carried out so that he could then instill a democratic management style in which there would be opportunity for cooperation from all staff by free and equal participation in the decision-making processes of the organization or group. He pursued this approach to completely eliminate the autocratic leadership style that had previously been carried out, as he thought that it had hindered the progress of the organization by curbing staff creativity and motivation. It became clear that the strategy he adopted for his organization was one comprising of a reduction in activities. In other words, it was a strategy of contraction in the early stages of change. (www.leadersinlondon.com)

Staff involved in decision-making

He also renamed the organization so that it became known as Semco. This change in named was an outward sign that the organization was entering a new business era. There was also an obvious need to drastically change the culture inside the organization, especially in the attitude of the employees. The earlier rigid management structure resulted in lifelessness causing lack of enthusiasm amongst the workers who had become despondent. As Ricardo tried to encourage his staff to participate more in the decision-making processes there attitudes began to improve and as a result this lowered the resistance to change. (www.leadersinlondon.com)

Diversification in business:

Furthermore, Ricardo addressed issues to help increase growth. This was accomplished through the planning of product diversification. Product diversification strategies lead to the expansion of his enterprise into new business areas. The business was still related to the existing products; however, there was an expansion in the supply chain to order material for the introduction of new products. After making these initial internal changes, he further focussed on how he could extend and improve the nature and vision of the organization by exploring the external market. By adopting new strategies, the organization continued to achieve competitive advantage, was largely unrivalled and has therefore not been beaten or surpassed. (www.leadersinlondon.com)

Change in the Internal Environment:-

Structural change within the organization:

The formal structure of the organization was also targeted for change. Several forms of structure could have been implemented such as small, functional, and multi-divisional or H-form but Ricardo opted for the matrix structure. (Kreiter, 2002) The incorporation of the matrix structure provided the means for the organization to be able to share authority between the plant manager and the director at headquarters. Heads of Departments (HoD) were then responsible for the organization of the department and plant managers for all aspects of the project. Lower level managers reported to their plant manager and to the director at headquarters.

Unfortunately, there were some drawbacks in this structure too caused by overlapping due to the dual role and interdependence between departments being recognized by two lines of authority. However, Ricardo felt that this form of structure would help managers when resolving matters as they could overcome situations by tackling the same problem from different perspectives as per the information provided by the HoD and the plant managers. However, tensions and problems emerged through confusion in responsibility and long decision making times and managers became overly cautious to take risks and were unwilling to learn. (www.thunderbird.edu)

In order to overcome the shortcomings of this structure the lattice structure began to be introduced, which involved self-managed groups who decided their own goals and budgets. This increased employee productivity and unit production costs fell to a great extent. There was poor feedback to this style of management too and as a result, one-third of middle managers of Semco resigned. Continuing the era of changes in their management in a difficult transitional period, Ricardo resorted to implementing a profit sharing plan to motivate employees. In order to achieve his plan he organized a committee that was selected democratically. This in turn led to employee satisfaction, which was Ricardo's ultimate objective. (www.thunderbird.edu)

Ricardo compares his new organizational structure to a bottom-heavy bottle of Portuguese rose rather than a bottle of Bordeaux, which is hierarchical in nature. Due to external environmental influences when the government imposed restrictions on access of liquidity, Ricardo had to adhere to the conditions put forward by employees which had begun the era of major cultural shift towards a democratic worker management. Employees formed autonomous teams, which resulted in them becoming more independent in decision-making matters and hence brought about a more knowledgeable and cross-trained staff as they took the ownership to handle multiple tasks. Flexibility guided by rational thinking became imperative rather than the exception. Managers could be best described as facilitators rather than like autocratic leaders. (www.coinsight.com)

Ricardo adopted a permissive atmosphere where everybody was given opportunity to question and criticizes the upper ranks. He devised three concentric circles of management, which had previously been twelve layers of the bureaucratic style of management. There was also a free flow of information amongst people inside the organization as they were allowed to attend meetings previously attended by mainly senior members of staff. Employees had the right to decide their salaries and all the salaries were transparently posted. According to the Brazilian law, if employees are cheated regarding their salaries or if they are overpaid then they would be unemployed for the rest of the year until it was rectified. When the new budgets were decided employees could bid for positions and they were judged on the basis of their aptitude and expertise. (www.thunderbird.edu)

What the Organisation Wished to Achieve:

What the organization actually wished to achieve can be found by looking at the reasons for Ricardo's efforts to change the internal environmental components. Ricardo boldly altered his organizations' strategy in order to bring about a revolution in the management styles and tactics. This resulted in a more participatory style of management where all the employees could have equal contribution in the company's matters and affairs. Ricardo trusted his employees' views and therefore encouraged the democratic worker management style.

He wanted to enlarge his business and hence launched a product diversification strategy to expand his business focus to enable it to manufacture various products. This then would help to establish a business that was unrivalled. He was in opposition to the autocratic style of management, as he believed it curbed employees' performance and confined them to specific tasks thus hindering their creativity. He believed in building such an organization where people would approach their work with a keen sense of responsibility and accountability. As a result of his improved management style he managed to survive during the backdrop of the inconsistent financial system that was experienced in throughout Brazil. Within the first fifteen years of Ricardo taking over the management of Semco, the sales grew three folds. (www.coinsight.com)

Problems under investigation:

Any organization that is trying to implement changes will undoubtedly encounter problems at different stages. In the first instance these were due to the scoured four currency depreciation's of traced unemployment, hyperinflation and a virtual termination of all industrial production. It was in 1990, that Semco faced a major challenge due to hyperinflation in the Brazilian economy due to which many companies had to file for bankruptcy as the Brazilian government imposed restrictions on access to liquidity. Instead of declaring themselves bankrupt, Ricardo integrated a cost cutting strategy by cutting costs to a great extent. Ricardo managed to overcome this crisis from the external environmental influence to a certain extent by splitting his employees into groups of autonomous teams delivering services to their respective clients and placing a hold on forthcoming orders.

The main solution put forward sort out the financial problems was to cut the salaries of the employees. This option would have to be pursued if the company wanted to survive during the period when the government had made changes in the law. However, to sustain the company's reputation Ricardo had to adhere to the conditions put forward by the employees. They negotiated to have an increased share of up to 39% of company's net income until they had been put off their current salaries, a decrease in management's salary to 40% and the right to contribute in approving any expenses. This led to a revolutionary cultural change in Semco marking the beginning of an entirely different management style where workers could participate equally in planning, decision-making and the implementation of the plans. (www. wikipedia.org)

This democratic style of management indicates that the workers allow themselves to be accountable and accept responsibility for what they did. Also, they actively participate in the improvement process, target setting and performance monitoring. There are a number of management styles that can be implemented including autocratic management, conflict management style, democratic management style, participatory management style and leadership style. The role of the manager in this democratic approach changed from being one of sole responsibility to then being more of a facilitator for the work of the employees and they in turn started participating in the decision making process of their superior. This strategy, which was implemented as a result of external environment influences, affected the internal structure and culture.

Changing the culture within in an organization can prove to be difficult, as people who have worked there for a long time will be used to the norms and values upheld by the organization and to change that you have to change people's mindsets. When an organization has experienced success by carrying out their business in a certain way for a long period of time then the employees might not see the need for change and be opposed to it. They may feel that they are under scrutiny and no one ever wants to be told that they are doing things wrong. Employees therefore need to be assured that change is not as a result of them doing something wrong but is part of trying to improve the organization's overall performance.

Managers at Semco became facilitators initiating workers in further training and therefore increasing their potential and valuing them as necessary resources. This in turn resulted in a more knowledgeable staff trained for various departments so that they were able to perform multiple duties. Their remarkable performance delighted the managers as they surpassed the required targets and set standards. Due to the employees now being able to participate in decision making, they came up with new innovative ideas and were able to take the initiative to implement them successfully. Inventories fell to 65% and they attained improved quality, faster delivery and made fewer errors. The success and many fortunes experienced by Semco are well known in certain business circles and as a result over 500 companies have visited them to discuss their tremendous achievements.(?)

Conclusion:

In conclusion, the intense recession in the Brazilian economy during the early 1990's resulted in many businesses declaring bankruptcy, as this was the only way to overcome the governmental influence due to new restrictions in the laws on borrowing. This appears to be the catalyst that sparked Semco (Semler and Company) to recognize the urgency to adapt to become a more flexible organization.

Ricardo Semler incorporated cost-cutting strategies as one way to overcome disaster. As a result workers agreed for redundancies and salary cuts but expected something in return. Having been given control of the business from his father Ricardo observed great apprehension, unresponsiveness and a lack of gusto in the dispirited workforce at Semco (Semler and Company) and therefore felt an urgent need to change its management system and culture. There was a breakdown in communication and virtually no participation from the workers in the decision making process, due to his father previously being in charge and following an autocratic leadership style of management where he made all the decisions. This had erected barriers and hindered workers.

Ricardo adopted a matrix structure, which was not a success, so he created a lattice organisation. He changed the structure of the organization, from a paternalistic and pyramidal hierarchy to a more flexible democratic style as believed in a participatory style of management where employees should be given equal authority to make decisions as this motivates them and enhances their creativity.

This was a great success as employees realized their sense of responsibility and took ownership of the consequences of their decisions hence the unit production costs fell considerably. However, initially managers and employees could not cope with this responsibility and accountability and started resigning. Ricardo therefore initiated an employee profit sharing plan, which in turn reduced employee complaints. These changes lead to better and more open communication amongst the managers and the workers and productivity soared.

Upon taking office Ricardo began dramatically remoulding the organization. However, these changes were not brought about in a day as he went through various stages following different approaches and at times the external environmental influence also forced him to commence changes which affected the internal environment. The ability of this organization to progress and adjust in order to survive the pressures brought about by these changes allowed the organization to succeed in a volatile economy, instead of becoming bankrupt like other organizations during this period of uncertainty.

References

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• Campbell, D.J., 2002. Business Strategy: An Introduction. London: Butterworth-Heinemann.
• De Kare-Silver. M., 1997. Strategy in crisis: Why business urgently needs a completely new approach. London: Macimillan.
• Graetz, Fiona., 2002. Managing organisational change, Milton: John Wiley & Sons.
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