Self-management, utopia, dystopia, or just a management paradigm
It was in 1980. when Ricardo Semler became the CEO of Semler & Company (later Semco), a company founded and developed by his father. Ricardo started working for Semco a few years back but did not like the traditional hierarchical structure in his father’s company. Often, he argued with older Semler about the management style and business strategy of Semco. When he threatened to leave the company, his father resigned and left the company to Ricardo.
On his first day as a CEO, Ricardo fired two-thirds of the top management. That was the first step in the long journey that made Semco one of the most loved employers in the world, but also a very successful company.
According to Ricardo’s words:
Semco has no official structure. It has no organizational chart. There’s no business plan or company strategy, no two-year or five-year plan, no goal or mission statement, no long-term budget. The company often does not have a fixed CEO. There are no standards or practices. There’s no human resources department. There are no career plans, no job descriptions or employee contracts. No one approves reports or expense accounts. Supervision or monitoring of workers is rare indeed.
So, how did all of this influence the performance of the company? Revenue grew from USD 4 million in 1982 to USD 212 million in 2003. The average growth rate in the last 20 years have been around 46.5% and the employee churn rate was less than 2%
You can read more about Semco in Ricardo’s books: Maverick and Seven-Day Weekend.
You might have heard about Buurtzorg, a Dutch home care company, often used as a case study of successful self-management. It has around 14 thousand nurses, around 50 administrators, 18 couches, and 0 managers. Nurses work in self-organized teams of no more than 12 people. Each team Is responsible for taking care of 50 to 60 patients.
Administrators take care of the bureaucracy requested by the system, coaches help with conflict resolution and similar problems, but the power of decision stays within the team. Buurtzorg consists of more than 1000 teams that independently decide on purchases, employment, planning, and every other aspect of their work.
Results?
According to the KPMG study:
Buurtzorg patient ratings on measures pertaining to physical care, staff quality, information, and participation were in the top 10 of 370 home health agencies.
Buurtzorg ranked 7th of 360 home health agencies on whether patients said they would recommend their provider to family and friends.
In 2012, Buurtzorg ranked 1st among all home-care organizations in patient satisfaction in the national quality-of-care assessment.
Patient satisfaction was measured at 9.1 out of 10 in a study conducted from 2008 to 2010.
In 2009, Buurtzorg had the highest satisfaction rates among patients anywhere in the country.
Buurtzorg Nederland was named the best employer in the Netherlands in 2010, 2011, and 2012 by Effectory, a Dutch company that collects, analyses, and uses feedback from employees and customers.
Netflix, as one of the largest tech companies, is a very visible example of what happens if you give employees a lot of freedom to decide and treat them as adults. The famous Netflix culture deck is one of the most viewed presentations ever (more than 15 million people viewed it). Sherill Sandberg said that it:
may well be the most important document ever to come out of the Valley
These are all single companies whose owners or management decided to take a new approach to management and organization. More on this in future posts.
But, did you know that there was a country in Europe that made self-management the only official way of managing a company?
The country was called the Socialist Federative Republic of Yugoslavia. This is a country I was born in. Unfortunately, it doesn’t exist anymore. Nor does the socialist self-management experiment.
Yugoslavia came out of World War Two as a communist country. Elections were held in 1945 and the People’s Front (consisting of the Communist Party and similar organizations) won the support of more than 90 percent of voters. Pro-monarchy opposition boycotted the elections.
First few years, Yugoslavia was organized like other communist countries with a centralized state organizing the political and economic life with a top-down 5-year plan approach.
But tensions between Stalin (Soviet leader) and Tito (Yugoslav leader) started to emerge. Stalin treated Yugoslavia like just another Soviet satellite country. Tito had other plans. Tensions started in 1946. when Stalin wanted to build 4 Soviet military ports in Yugoslavia and Tito did not allow for that.
Tito was not the only communist leader in Yugoslavia but he was a dominant one. After WWII there were 4 major communist leaders in the country (called the Big Four): Josip Broz Tito, Aleksandar Rankovic, Edvard Kardelj, and Milovan Djilas. If Yugoslavia was a software project Tito would be called a Benevolent Dictator For Life since he was first among the equals and ruled the country until he died in 1980.
Tensions between Stalin and Tito culminated in 1948. when Cominform, the international communist association dominated by the Soviet Union, expelled Yugoslavia.
After the split, Yugoslavia could no longer count on Soviet loans and equipment desperately needed to repair the country after the war. They needed new friends to get funding. Also, the Communist Party needed a revised ideology to consolidate the membership base. A lot of Party members still regarded Stalin as a hero and Soviets as pioneers of communism. It was dangerous to be openly pro-soviet at the time. You could end up in jail for several years. Also, it was dangerous for your family, friends even coworkers.
There is an interesting story about the fear of being connected to pro-soviet thinking. When Tito visited Montenegro, one of the republics in Yugoslavia, he insisted on meeting Dr. Bosko Gluscevic, one of the leading Montenegrin economists. Montenegrin Party leaders were afraid that Gluscevic, who was not afraid of expressing his opinion, will put them all in jail. But Tito insisted and Dr. Gluscevic was having lunch with him and Party leaders. During the lunch, Tito asked Gluscevic: “Bosko, I heard you spent some time in Russia. What did you learn there?“. Heavy silence and fear filled the room. Everybody was waiting for a dangerous answer. And Gluscevic answered: “I learned that one kilometer is not a large distance, that one liter of vodka is not too much to drink and that two women do not mean cheating.“. Tito laughed and said: “You learned all the right things“. Nobody went to jail that day.
The new economic model in Yugoslavia was called workers self-management. It was defined mostly by Edvard Kardelj, leading Party ideologist and Foreign Secretary at the time. It was legally introduced by Law on company management in 1950 and added to the Constitutional Law in 1953.
Legally, ownership of the assets (means of production) transferred from state to public. Every worker was, at least in theory, owner of the ideal part of the factory she worked in (not for) and was entitled to share of the profit. Companies were managed by workers’ councils and technocratic management. Workers’ councils decided on employment and lay-offs, investments and profit-sharing, working conditions, all the important parts of the work.
Self-management was not an original idea. Roots of the self-management concept could be found in the work of John Stuart Mill, who believed that worker-run cooperatives would eventually displace traditional capitalist firms in the competitive market economy due to their superior efficiency. Also, anarchist Proudhon developed an idea of mutualism, defined by the mutual relationship among individuals in the system, in contrast to the parasitism of capitalist society, which involved cooperatives operating in a free market economy.
Kardelj was developing the concept of self-management together with his friend Boris Kidric, also a Party leader, who has written about similar concepts in the 30s. We need to acknowledge the fact that, before WWII, the Communist Party was illegal in Yugoslavia and prominent members were often arrested. Tito, Kardelj, Kidric, and their comrades spent a large part of their youth in prison, but they were loyal to the idea of communism.
Kardelj was also under the heavy influence of Scandinavian social democracy, especially the Swedish model. In 1954, during his visit to Oslo, he gave a speech that detailed the elements of “socialist democracy“ in Yugoslavia and explained the logic of allowing some market elements in the socialist economy. This speech made him very unpopular in the Soviet Union since it directly attacked the soviet model of the state-controlled communist economy.
Was this model successful?
The average yearly GDP growth in the period 1956–1965 was almost 10%. Yugoslavia started as an underdeveloped agricultural country devastated by the war and ended up being the 24th country in the world (measured by GDP). Besides the economic growth, huge advances have been made in overall quality of life, especially, education and healthcare, both free in the socialist society. High growth continued until the oil crisis of 1974. Foreign debt was not extensive, at least not compared to the combined debt of countries that emerged from Yugoslavia (around USD 25 billion in the late 80s compared to around USD 150 billion now).
There were also, some serious structural problems with the model. Sometimes, there were clashes between workers and management. In the INSA watchmaking factory in Zemun, Serbia, management ordered and installed the watchmaking robot to improve efficiency. But workers, in fear of losing their jobs, threw the robot out of the window and destroyed it.
The self-management concept was in line with the Marxist idea of a dying-out state. But the Communist Party was not willing to regulate itself out of existence. Also, workers were not educated enough to manage day-to-day operations and complicated aspects of business like finance and legal. Therefore, they needed professional managers. Party used this to control the economy.
While workers did manage most of the company, self-management rarely went beyond it. Self-governance in the political sense, while advertised, did not really work. Communist Party controlled all aspects of society. Even workers’ councils were often controlled by the Party and, in almost all cases, technocratic management was elected from the Party members.
There is a joke told by Slavoj Zizek, a famous Slovenian philosopher, about the difference between Soviet-style bureaucratic Socialism and Yugoslav self-management Socialism:
in Russia, members of the nomenklatura drive themselves in expensive limousines, while in Yugoslavia, ordinary people themselves ride in limousines through their representatives.
Party members formed a new class which, to use the Marxist term, represented the logic of capital, while workers’ councils represented the logic of workers.
During the 60s and 70s, Yugoslavia was a role model of a socialist economic model that actually worked, so many scholars and politicians visited the country to learn from the model. Milton Friedman, Ernesto Che Guevara, Michael Lebowitz, and some others expressed their views on self-management socialism.
Milton Friedman said:
Even two communist countries, Russia and Yugoslavia, offer a similar, though less extreme contrast. Russia is closely controlled from the center. […] Yugoslavia started down the same road. However, after Yugoslavia under Tito broke with Stalin’s Russia, it changed it course drastically. It is still communist but deliberately promotes decentralization and the use of market forces. [….] The inhabitants of Yugoslavia are not free. They have a much lower standard of living than the inhabitants of […] Western countries. Yet Yugoslavia strikes the observant traveler who comes to it from Russia, as we did, as a paradise by comparison.
On the other hand, Che Guevara characterized the Yugoslavian economic system as:
managerial capitalism with the socialist distribution of profits
Michael Lebowitz, professor emeritus of economics at Simon Fraser University in Vancouver, Canada, and the author of several books including The Socialist Imperative, The Contradictions of “Real Socialism”, and The Socialist Alternative, summarised good and bad things about self-management socialism.
Good things were:
- high growth rate,
- high investment rates,
- high workers engagement, and
- discipline.
Bad things were:
- high unemployment,
- high company leverage,
- inequality, and
- decentralization.
Yugoslavia was probably the most successful socialist experiment. It was destroyed by incompetent leadership in the late 70s and 80s which led to civil war and disintegration.
But the idea of self-management, especially on the company level is as relevant as ever. I will explore current self-management practices in future posts.
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