< What Happens When You Run a Company With (Almost) No Rules?

GUY RAZ, HOST:

It's the TED Radio Hour from NPR. I'm Guy Raz, and on the show today, getting organized - stories and ideas about how and why we organize. So think about some of the most top-down organizations you know - the military, political parties, multinational corporations and maybe the place you work.

RICARDO SEMLER: There are too many similarities between the way we run businesses and the way people run boarding schools.

RAZ: This is Ricardo Semler, and Ricardo is a businessman.

SEMLER: Here are all the rules. Here's how you follow them. This is what you can do. This is what you cannot do before you do this, do that...

RAZ: Which, he says, is just what his father's company was like started when Ricardo first stated to work there.

SEMLER: A pyramid hierarchy - president, vice president, directors and so forth.

RAZ: The company made pumps and propellers for ships. This was in Sao Paulo, Brazil, in the late 1970s.

SEMLER: The people who were there were very far from feeling free or looking happy about what they're doing. It's something where people end up bogged down very quickly by the organizational boxes they've been put in by the people they have to ask authorization from, the people they have to ship papers out to.

RAZ: And this is more or less how the company operated until Ricardo took it over in his early 20s.

SEMLER: And I said I don't want to spend 50 years of my life making people come on time and then giving them a gold watch for having done so for 30 years. There must be a better way of organizing. I started asking questions, basically asking, why do we want to know how many hours a week people work? Why can't people know what our profit and strategies are and so forth? And as we asked these questions, it became obvious that the answers were just old-fashioned and not current anymore.

RAZ: So Ricardo Semler decided to radically reorganize the company. His first day on the job, he fired most of the managers. He ripped out the punch clocks for time cards and he started to create a system of self-organization. And over time, the company, which is called Semco, became hugely successful from 140 employees to thousands. They make rocket fuel; they build factories; they manage ATMs all across Brazil. And Ricardo Semler has turned his ideas on radical reorganization into a movement. Here he is on the TED stage.

(SOUNDBITE OF TED TALK)

SEMLER: This is a complicated company with thousands of employees, hundreds of millions of dollars of business. We looked at it, and we said, why do we want to know what time you come to work? Why are we building these headquarters? Is it not an ego issue that we want to look solid and big and important? So first of all, we're dragging you two hours across town because of it. So we started asking questions one by one. How do we find people? We go out and try to recruit people. We'd say, look, when you come to us, we're not going to have two or three interviews and then you're going to be married to us for life. That's not how we do the rest of our lives. So have your interview and then come back. Spend an afternoon, spend a whole day, talk to anybody you want, make sure we are the bride you thought we were and not all the [expletive] we put into our own ads.

(LAUGHTER)

SEMLER: Slowly, we went to a process where we'd say things like, we don't want anyone to be a leader in the company if they haven't been interviewed and approved by their future subordinates. Every six months, everyone gets evaluated anonymously. And this determines whether they should continue in that leadership position, which is many times situational, as you know.

RAZ: All this sounds like a recipe for anarchy.

SEMLER: Yeah, but when you think about it, Guy, the very sophisticated organizations are either self-managed or are managed by relatively chaotic outlooks. When you think about how geese fly north, how ants go from left to right, how traffic manages itself, how the world economy manages itself, there ain't no leader there.

RAZ: OK, but how do - like, how do all the teams in the company, like, know what they're supposed to do and when it has to get done?

SEMLER: It's - when you're imagining a business that you know very little about, let's say you're looking at a biscuit manufacturing business or running ATMs, it sounds very far-fetched. When you look at your own life, people know a heck of a lot more than people who've been in that business than they even care to reveal at the first moment. When you start putting people together and say, OK, guys, what are we supposed to do? Well, what are we trying to do? We're trying to deliver eight pumps with 300 kilowatt motors to a shipyard in Korea by next May. OK, so who's going to do what? And in two minutes it's all very clear. The only difference is that they all have a tremendous commitment to make that delivery, and they'll make it on time.

(SOUNDBITE OF TED TALK)

SEMLER: Over time, we started asking other questions. We'd say things like, why can't people set their own salaries? There's only three things you need to know - how much people make inside the company, how much people make in - somewhere else in a similar business and how much we make in general to see whether we can afford it, so let's give people these three pieces of information. So we started having in the cafeteria a computer where you could go in and you could ask what someone spent, how much someone makes, what they make in benefits, what their company makes, what the margins are and so forth. As this information started coming to people, we said things like we don't want to know how much holidays you're taking. We don't want to know where you work. We had at one point 14 different offices around town, and we'd say go to the one that's closest to your house, to the customer you're going to visit today. Don't tell us where you are.

RAZ: I mean, the thing is, is that when you organize something, it's like - it's a method to establish some kind of control. But it's almost like you organized your company to cede control.

SEMLER: Yeah because the idea that having control generates security is a very silly idea, you know? You think about any kind of organization that's definitely in place - you know, think the U.S. government, you think Congress, you think an enormous company - do they really have any idea what's going to happen 90 days ahead of time?

The amount of things that are completely out of control are enormous. And so a board meeting is very much in order, and people start at 2 p.m. and end at 6:30. And 6:30, all their cars are waiting. They go out with their little files and they say, guys, we did a great job. We're now going this direction.

But deep down they know that there's an enormous amount of BS in that. They really have no idea of what their competitors are going to do, what the economies going to be. And so the idea that they are in control is a complete fraud, which everyone plays along with because it's in everyone's interest to pretend.

RAZ: Ricardo Semler, he's the chairman of Semco Partners, but no longer CEO. Like all of his employees, he gets graded on his work. And about a decade ago, he was actually voted out of the top executive position, a decision he says he's totally fine with. Here's how he ended his TED Talk.

(SOUNDBITE OF TED TALK)

SEMLER: I used to - I taught MBAs at MIT for a time. And I ended up one day for a time and end up one day at the Mount Auburn Cemetery. It was a beautiful cemetery in Cambridge. And I was walking around. It was my birthday, and I was thinking, what do I want to be remembered for? And I did another stroll around, and the second time, another question came to me, which did me better, which was, why do I want to be remembered at all?

(LAUGHTER)

SEMLER: I always come back to variations of the question that my son asked me when he was 3 - Dad, why do we exist? And so what we've done all of these years is very simple is use the little tool, which is ask three whys in a row because the first why you always have a good answer for. The second why starts getting difficult. By the third why, you don't really know why you're doing what you're doing. And so what I want to leave you with is the seed and the thought that maybe if you do this, you will come to the question, what for? And over time, you'll have a much wiser future. Thank you very much.

(APPLAUSE)

RAZ: You can Ricardo Semler's entire talk at ted.com. On the show today, stories and ideas of how and why we organize.

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