In the chapter on “Leadership tips for a product manager” in my book Product management: How to increase your software’s chances of success I talk about two leadership tips that a product manager, or any leader, should use to help his team perform better:
In order to explain the context, it is essential to be transparent, explain the company numbers, explain the motivations behind each decision, add the team to the decision process. I always try to at the team in the decisions and, in order to do this, it is very important to be transparent about the context in which the decision will be made.
One example I like to give is team structure management, which I will talk about in more detail in the part about Tools. To define and evolve the team structure, I usually do this together with the leaders of my team. We meet periodically – monthly or more frequently, if necessary – to assess the team structure, whether we need to bring more people to the team, and whether we have the budget to bring them in. This kind of conversation can only be done if I clearly show what budget is available. In other words, transparency is required.
Transparency in the management of companies seems modern, but it has existed for some decades. I will tell you about two interesting cases from the 1980s, one at an American company Springfield ReManufacturing Corp (SRC), and the other at a Brazilian company called Semco, both industries. Therefore, the vanguard of participatory management.
Just as there is the concept of open source for software development and distribution in conjunction with its source code, there is a concept in administration called open-book management. This concept was created by Jack Stack, who wrote the book The Great Game of Business: The Only Sensible Way to Run a Company on how he applied this concept at Springfield ReManufacturing Corp (SRC), an equipment manufacturer in Springfield, Missouri.
The concept is simple. The company’s financial reports must be open to all employees so that they serve as input for more conscious decision-making in their daily lives. The basic rules are:
Obviously you can’t practice open-book management overnight, but this concept makes a lot of sense for any company. In its simplest form, it is a way of running a company that makes everyone focus on helping the business succeed. The goals and responsibilities of employees are directly linked to the company’s success. Jack Stack teaches all employees what is critical to success and how they can make a difference, both individually and as part of a team. Employees know and understand how each one contributes to the company’s financial performance, in order to truly understand the functioning of the business.
SRC was created in 1983 when 13 International Harvester employees bought a portion of that company that rebuilt truck engines, with $ 100,000 of its own money and $ 8.9 million in loans, with the aim of saving 119 jobs. The stock price in 1983 was $ 0.10 and increased in 1988 to $ 13 per share. In 2015, the share was worth more than $ 199.
In August 2008, I had the opportunity to meet and talk to Clóvis Bojikian, HR director at Semco since the early 1980s. He worked with Ricardo Semler to implement the participatory management structure that made Semco one of the largest Brazilian companies success in the world.
I will briefly tell you what Clóvis said:
Clóvis started by telling us a little about Semco, a successful company for 25 years. Its main product was marine hydraulic pumps. The main concern was the diversification of the product portfolio since the shipbuilding industry was struggling. Diversification was being done through:
With this diversification, in 20 years, the company has grown from 300 to 4,000 employees.
Clóvis graduated in pedagogy. Some time later, he studied business administration. He first worked as director of the “Colégio da Aplicaçãona USP”, a very famous experimental school in the 1960s where new teaching methods were tried, one of the most advanced schools of his time. He left due to some pressure during the military dictatorship that started in 1964. Then he joined Ford, at the time with 4,000 employees, as an HR manager. Ford was acquiring Willys, a car manufacturer with 16,000 employees. There was little freedom for the HR professional to work (“on a winning team nobody wants to make changes”), so he decided to leave and join KSB Hydraulic Pumps, where he could try out some ideas he had. But due to a CEO change, freedom has decreased. At that time, Clóvis went to talk to Ricardo Semler, it was “many hours of conversation”, as Clóvis pointed out. Ricardo was only 22 at the time and had just assumed the presidency of Semco. He was looking for an HR professional who could help him implement the participatory management concepts he was thinking about. Clóvis, 48, loved this conversation and the synergy with Ricardo and decided to assume the responsibility of managing Semco’s HR.
Semco is a factory and, like any other factory, workers did not like to go to work. Every week they counted the hours until the next weekend. That was Clóvis’ main challenge: “How do we motivate people?” Some findings from Clovis:
And his conclusion, based on these findings, was that:
The most motivated people are the ones who participate the most.
This is easy to understand. People who are “in charge” are the people who participate most in business by making decisions and following the results of their decisions. More participation means more interest and more motivation.
To exercise participation, Clóvis recommends starting with simple situations that are not essential to the business. He gave two examples from Semco:
Employees’ restaurant: employees usually complained about the restaurant to HR personnel. This complaint was documented and analyzed by HR, but action was not always taken. One day, HR decided to return the complaint with a question: “What would you do to change that?” The claimants were dazzled and, on the recommendation of HR personnel, formed a committee to study what could be done better. The committee ended up having very good ideas and returned to the HR staff, who asked: “Did you talk to the restaurant staff about your suggestions?” They went to the restaurant, discussed the suggestions, and again went back to the HR people, who just said, “Okay, go ahead and implement your suggestions”. Since then, the restaurant has been managed by the restaurant itself, with support from the staff committee, without interference from HR personnel.
Employee uniform: the inventory of employee uniforms was running low and a new purchase was needed. Instead of just placing an order with the supplier of more uniforms, they decided to make an election with the employees to decide the color of the uniform. Remember, we are talking about the 1980s, elections were not very common at that time in Brazil. Some directors did not like the idea of â€‹â€‹the election because it would take time and probably be a mess, but the fact that democracy was being exercised in a situation unrelated to the main business started the experiment. Two colors had many votes, and the officials themselves proposed to hold a second election, using only these two colors. Finally, one was chosen.
Traci Fenton of WorldBlu, an organization that fosters participatory management, once remarked that this is the concept of leadership distribution, distribution of decision making in a way that makes sense. This shared decision-making process can be slower. But the execution is much faster. And the reason for that is that people participated in the decision. They have ownership in that decision. They want to see success. And that’s what makes execution so much faster. And this is where most companies fail to execute.
Some time later, employees began to define their own production goals, which are usually higher than those previously defined by executives.
This shows how, when we start exercising participatory decision-making with issues unrelated to the core business, it is easy and natural to start moving towards decisions closer to the core of the business.
In Brazil, there are holidays on Tuesdays, Wednesdays, and Thursdays that people like to connect at the weekend to have a longer holiday. The famous “holiday amendment”. It is usually the company’s decision to define who will amend the holiday and who will work on that holiday to offset an amendment from a previous holiday. After the experience of the previous participatory decision-making process, the employees themselves started to decide and control their holiday amendments.
The next step at Semco was the design of the new roles, responsibilities, and compensation plan. It was written entirely by employees with the facilitation and help of HR personnel. When the plan was finally implemented, not only did everyone know the wages of others, but everyone understood why those wages were that way and were in full agreement with that.
Another interesting example of participatory decision-making was the hiring of a new manager. Instead of being interviewed only by HR personnel and the director, the manager was also interviewed by other managers and the team he would lead. The chosen manager had a great start, as he was known not only to his director but also to all the people he would work with. Semco also conducted 360Âº assessments for employees to analyze their leaders.
To enable employees to understand more of the entire business, they decided to move from the assembly lines to small cells responsible for the entire part. At that point, Semco considered that it had a participatory management structure and decided to move on to the next step.
And Semco was ready for the final step, profit sharing. Semco’s owners decided to give twenty-one percent of the profit to employees and everything else was decided in a participatory manner. Employees created a set of principles. One of the basic principles goes something like this: “It is not enough to be transparent, you need to educate”. The idea is that not only are all company numbers open to all employees, but all employees must be trained to be able to read those numbers. The income statement, P&L and cash flow require some knowledge to be read and understood. This is the basis of the open-book management that I mentioned earlier.
Every month they hold a meeting at Semco to discuss the results and some very interesting situations happened during these meetings. One day, an employee questioned why executives always had to stay in five-star hotels. Wouldn’t it be possible to stay in four-star hotels from time to time? In another monthly report review, another employee noted that Semco spent money painting the factory in a month when employees had some free time and they could have painted the factory themselves.
At that point, Semco implemented flexible work schedules and workplaces, even allowing work to be done at home. I remember again that this happened in the 1980s, more than 30 years ago. Since everyone has an interest in the company’s success, it is possible to implement this policy. Of course, it should be adopted where it makes sense. For example, it doesn’t make sense for a receptionist to work from home. But if there are two receptionists to cover a certain period of time, they can and should decide with each other when each should be present.
At one point, Clóvis told about a crisis at Semco, in the years of President Collor (1990 – 92), when the market was abruptly opened to foreign companies. This impacted Semco and forced them to do a downsize, which is always painful. Clóvis discussed with employees how they wanted to do the downsize and the employees said they would provide a list of people who should not be fired either for age or personal reasons and told managers that, by preserving the people on that list, managers could select who should be waived on the basis of technical criteria. Two things we can see in this episode:
At the end of the conversation, Clóvis commented that it takes courage to implement participatory management in a company. Mistakes will happen and we must learn from them, but the end result, a company full of employees happy to go to work every day, is worth all the risks.
I asked him to tell us about a mistake or a time when he thought that perhaps this whole process of participatory decision-making might not be a good idea.
He told us a very interesting story about the payroll time clock system. All employees had to check in on arrival at work, check out and check in during lunch and check out again at the end of the working day. But it was a control of what is regular, and what a company really needs to know is what is irregular (overtime, delays, absences). HR opted to change the time clock system so that the employee only reports overtime, delays, and absences. Most importantly, the employee should report directly to the system. She didn’t need to explain anything to the boss. In the first month, everything went well, but in the second month there were frauds, people did not report irregularities in working hours correctly. They were taking advantage that no one was checking the information. Very concerned, HR personnel discussed the matter with a group of employees in charge of this new system. The answer was, “Leave it to us!” After this conversation, the system worked very well with no reported or perceived fraud. Clóvis commented that the collaborators realized that “the more freedom we have, the more responsible we have to be” and acted accordingly, to maintain their freedom.
Without transparency it is not possible to define the context. In my experiences, I have always sought to increase the transparency of information about the company (how are the numbers, what are the processes) and the participation of people from my teams in the decision-making process.
When seeking to increase the transparency of information about the company, helping people to understand the numbers as well as the company’s processes, I want to give the team all the necessary information so that they can know the context where they are inserted and thus understand the motivation and the impact of your work. It is very difficult for someone to do quality work without being clear about why that work needs to be done and what impact it will have on the company, its employees, and its customers.
When I seek to increase the participation of people on my teams in the decision-making process, I do so for two reasons. First, I believe that everyone has the right to make decisions about their own work, which is why the transparency of information about the company is so important. Without this information, it is difficult for anyone to make good decisions. The second reason is that when people are involved in the decision-making process, their commitment to the result is much greater. Consequently, the chances of getting good results increase considerably when people participate in the decision-making process.
In the next chapter, we will understand why diversity is so important for the success of the product development team.
So, did you miss something in this chapter? What else would you like me to cover?
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