Saga of Semco continues

I blogged about Semco SA yesterday, but it was a shallow, dull post merely outlining the ways in which the management philosophy has improved operations for the Brazilian manufacturing and environmental/IT services company. Some more interesting details:

  • Due to management style clashes with his father and founder of the company, current CEO Ricardo Semler threatened to leave the company in 1982. Rather than see this happen, Antonio Semler quit as CEO and vested majority ownership in his son. On his first day as CEO, Ricardo fired 60% of all top management.
  • Adopted a lattice organizational structure, which places 6-10 workers in a team responsible for a task and imbues a sense of ownership and financial responsibility within the team.
  • The Brazilian economy tanked in the early 90s, and workers at SEMCO agreed to wage cuts (their share of profits increased to 39%), management salaries were cut by 40% and employees were given the right to approve every item of expenditure. This allowed the company to ride out the recession and resulted in employees learning more about the business and providing useful suggestions to improve operations.

My summary: Ricardo Semler simultaneously worked to enable his employees to give him useful advice while providing them with the incentive to provide that advice enthusiastically.

The former through the openness of the organization which allows workers to learn how it operates in greater detail than in traditional businesses.

The latter not merely through profit sharing, but also by treating their workers with respect and giving them greater responsibility.

Unorthodox management style is paying off for Semco

Semco is a Brazilian company that has recently taken digg by storm and is making waves amongst more real world folks too. The company is turning pretty much everything we know about how to run a business organization upside down, and getting great results doing just that.

The long and short of it:

  • Employees set their own working hours and choose their salaries and the leader they want to work under
  • All meetings are voluntary and open to everyone
  • Employees hire their own bosses, rate them twice a year and the ratings are published
  • Employees can take early retirement, meaning they get one day a week off in return for working one day a week after they retire

The company’s CEO has set happiness as job #1 for the company – not profits. Employees are treated like adults and are trusted to make responsible decisions. It’s a really cool way to run a company, and it definitely sounds like somewhere I’d like to work.

I think the accounting industry should take a closer look at the way this company operates, especially given how few and far between good CAs are in today’s market.

Improving cash flow through better payables management

There are several ways in which a business can improve their cash flow situation by optimizing their payables management. Mostly this relates to timing issues – when to pay your suppliers.

Pay invoices on or close to the due date. Supplier terms are typically the only source of interest-free credit your business is going to get, so use it. Accounts payable is like a short-term loan to your business. The exception to this is when it saves your business money to pay multiple invoices with a single cheque – some of the invoices will be paid a little early. The secret is to figure out how much it saves you, and adjust accordingly.

Pay early enough to get the trade discount (if available), but no earlier. Some suppliers offer a 2% discount if paid within 10 days, otherwise within 30 days. Take them up on their offer, even if you need to borrow the cash for the 20 day difference. The discount rate of 2% over such a short period is equivalent to approximately 36% per year! Note that this doesn’t apply if you’re not going to have the money in 30 days anyway, because you’ve got bigger cash flow problems.

Pay invoices when they are due. Save late fees and preserve your business’ good standing with suppliers. Switching to a new supplier will end up costing you more than you’d save by stretching out payables to 60 or 90 days. Again, if you’re not going to have the money in 60 days anyway, you’ve got bigger problems.

Negotiate volume discounts with suppliers. There’s an equilibrium to be struck here because there are costs associated with storing and ordering inventory that will negate any volume discounts if you order too much.

Accounting is prestigious

A recent Harris Poll has concluded that 47% of Americans see accounting as having “considerable to great” prestige, and another 40% of the population attributing “some prestige” to the profession. Although it isn’t clear whether you have to have a professional designation to be considered prestigious.

Firefighters, doctors and nurses are in the lead with a lot more respondents (63, 58, and 55% respectively) giving those jobs great prestige ratings. I guess that doesn’t really surprise me.

Dan at Tick Marks alerted me to the survey, and he’s got a good point: “The medium-low prestige rating may reduce the number of teenagers considering accounting as a career choice.” Friggin’ teenagers.

Emerging markets are exciting, but risky

I’m in full study mode now, preparing for the final exam on the way to a Chartered Accountant (CA) designation here in Canada.

I wrote a case yesterday about a company that needed a certain high tech piece of equipment to compete in a globalizing and consolidating industry, and was considering two opportunities.

They could either directly purchase the equipment and stay in Canada, or buy a state-owned company in a South American country who already had the piece of equipment.

Buying in Canada would cost more initially and the projected return of the South American option was significantly higher as well.

The critical point of the case, however, was the riskiness of investing in the country. There was no privately-owned land in the country, and there was no guarantee the company wouldn’t be appropriated by the government later.

Also important to understanding the case was that the bank wasn’t likely to approve the needed financing without some kind of a collateral, and the assets in the South American country weren’t good collateral, for the reasons noted above.

Sound like a country you’ve heard of? Made me think of Venezuela and Bolivia. And it made me wonder how much investment those two countries are forgoing to pursue the dream of a “socialist paradise.”