Reinventing the organisation to drive better customer and employee outcomes - Interview with Ricardo Semler

0:00So welcome to the next edition of the Punk CX podcast. With me today I have Ricardo Semler who I must admit I'm a massive massive fanboy. This is a real fanboy moment for me because I remember reading Ricardo's first book called Maverick back in the oh crumbs late 80s early 90s sort of thing such a long time ago and when I read it at the time it blew me away. If you haven't read it I'm not going to give you the insight to it right now but just go go get it go read it and find out it'll blow your mind. but he is back with a new book he is an author an entrepreneur as he says a failed retiree he told me before kind of like coming on the podcast and that's something to do with iconoclast but i'll let him kind of like uh explain that to you but ricardo it's such a pleasure to talk to you how are you doing wonderful wonderful i'm uh the expert terry is in in my back here you can see San Diego and the beach, which is not a lot of people have the talent that it takes.

0:59It's an art really, you know, get up slowly, go have a breakfast, go take, you know, go walk on the beach, go bike and so forth. And I just, uh, I wasn't able to do it. And I think that there's this delicate balance of intellectual stimulation and activity, which is, which is a tough one, which is a bit of a shame because. I'd love to be in a, in a phase where I have five kids and they're, they're all over the place so it'd be wonderful to do that but it's not something i know how to do and so just to give people a bit of a thumbnail sketch on kind of you that's almost a bit of the backstory can you give me a brief intro into you and the work that you do and and what you're doing now because it's like we go into the semco thing but how it's kind of morphed into kind of an institute and then and almost like a thrust and a campaign something before we get into the book that you've kind of just altered, I want to really dig into.

1:53Yeah. I mean, the past in two, three minutes worth is just somebody who came from a rock band for four or five years thinking that David Gilmour was the one I wanted to become at this age. And looking at the corporate world because of a small plant that my father had in which he was hoping I was going to take over, etc. But when I looked at that, I said, we're searching to people to see where they're taking things, were docking them pay because they were five minutes late. What the hell happened to, you know, the kind of things that I'd seen in synergy of working together in a rock band were completely gone.

2:31So we started questioning all that with a couple of people who thought the same way. And we said, do people really have to clock in? Do people really have to work this way? I remember we're talking about hybrid work now since pandemic, but we used to send telex machines. We bought 60 telex machines, which were 150 pounds each, and we would send it to people's homes so that they could work from home in 1980. And then we started a business called Homework in 86, which was 14 different places around town where people could go. And so it was an early co-work. Nice. And a lot of our businesses went nowhere.

3:13For example, we had aeolic energy business with turbines in 1988, which lasted two years and went bust and so forth. So these things were off timing. And one of the guys who worked for me always called me the king of bad timing. So everything that we did was kind of at the wrong moment. But anyway, so we started saying, why do people have to have offices? Why are there parking spaces? Why can't people go anywhere they want? Why can't people work any amount of hours? Why can't people set their own salaries if we give them all the information? And so there was a long cycle of this, which then went very well.

3:51The company went from 100 to over 5 ,000 people. And then slowly, after 20, 25 years, I said, okay, this cycle is kind of done. I then started moving into education because my feeling was that I was this one idea person who had one hammer and I just kept looking for nails in different areas. If you gave me a school, I said, ah, we need to do the same thing here, which is do away with the buildings, do away with the headmaster, let people do their own thing, let the kids find what they're interested in and so forth. So fast-frapping that to today, it's finally become clear to me that the pyramid is, and everywhere that it is, this pyramidal format that we have is at the essence of all of the evils that we have.

4:41And companies used to last 20 years ago an average of 61 years. They now last 22. This is a very unsuccessful endeavor of humanity business. People are very bad at business. Businesses last very long, very little before they are merged, bought out, sent out, and so forth. And the reason is the same as the U.S. armed forces have done nothing since the Second World War. And everywhere they've been, Korea, Vietnam, Afghanistan, Iraq, Iran, it's just been a disaster and it continues being. It will always be because there is a per-biddle rationale of I will deploy, I have a strategy, I know what I'm doing, you just follow orders and so forth.

5:23And at the companies, that's true as well. So now what I'm doing most of my time is convincing people that having a cohort of 10 people and nothing else, who can validate a rotating leadership every six months, let's say, and who can go back to the position that they were before. It doesn't have to be fired. There's a bonus for being a manager for a while, and then comes back in, that if you have enough of this, you have a Switzerland, let's say, instead of a Singapore. Yeah, absolutely. And the reason I wanted to talk to you today because you just recently written this new ebook called the end of the boss which i love it because that's going to make people feel nervous just by reading the actual the actual title but i wanted to ask you if you could tell me about the book and how it came out what are some of the main headlines have you like coming out coming out of the book of why the end of the boss is nigh as it were yeah one is that this kind of disruption ai being one of them disruption that's coming from the outside is really going to test what people at the top know extra well about strategy and leadership at Saturn is going to find that they don't, which we know already.

6:43They are articulate, they have some big idea, and they take something in a direction, but it doesn't respect who is the situational leader that would be best for anybody. So that, I think, has changed dramatically. and the boss is someone who has increased dramatically in importance and in pay because the pyramid doesn't work. Yeah. So the more the pyramid is clogged and information doesn't go up and down and people don't care anymore and so forth, the more the board or the shareholders say, we have to find a messiah here who's going to solve this. How much do you need? Here's$20 million. Here's$50 million.

7:24Please fix this shit. Right. And they're not able to, and then they say, okay, fire this guy, let's try again. Right. And this is the format that's in place. So busting this pyramid and saying that a rotating boss who's validated by people and something that has a given mission, like a cooperative or like Switzerland or something that we've decided we want to do together, has the chance to sustain and to be there. But now, if you look at Elon Musk's last pay package, he makes a heck of a lot more than the sum of all of his employees. So there's something a little bit wrong with that. And again, it's saying, here's a messianic figure.

8:11I read the prospect for SpaceX, and there's going to be a city for a million people in Mars. Okay. Maybe there will be some that you want to buy equity in that right now. No, I don't. But the question is, can you let someone go and the flight of fancy will take you places? Yeah. And so this pyramid, this whole structure is finished. And AI is doing what it can very quickly to make it lopsided. And it's eating into the pyramid and robots will eat from here and AI will eat from here and so forth. And so this is a time to exchange this. and change the idea of a boss being important for something that is a company mission that is something that's collective and that leadership can be rotated it can be validated all the time there's nothing wrong with leadership but there's no reason for it to be permanent or to be decided by 12 72 year olds in a meeting three times a year yeah absolutely and i think it's it's it's a great kind of point of it's like you know what's that old saying is the definition of madness is doing the same thing again and again again expecting different results and so i think that's what you're kind of like saying here and but i want to to if i may to give people a flavor of the book i want to dig into a few things that stood out for me and then when i went through it and first thing i wanted to ask was about there was about you talk about the relevance imperative in the book and i wanted to understand kind of like what's that kind of do because it particularly in the area that I kind of focus on, which is like the customer service, customer experience generally, then relevance is like hyper important.

9:55If you're not relevant, it just bounces off, right? So I zoned it on the word relevance. So I want you maybe to explain to me what is the relevance imperative? Yeah, and a good example is what we've been doing, for example, with our school system. There's something called project-based learning, PPL, instead of subjects and so forth. And we're talking about relevance-based learning, saying this, if what you're putting out to the kids that day or that moment is not relevant to their life, there is no retaining of any sequence. There's no importance to the kids. And so you cannot pull out Shakespeare without putting it together with Rihanna or Drake or something.

10:43Right. It's silly to do it because without that relevance and asking them what they're interested in and then finding something, knowledge is not magic unless. And in the company, the same way. You pull people out on Monday morning. You pull them out of bed to take a bus to go across town. And then you say, what am I doing? Oh, you're doing this and that. Is that relevant? Does that feel like it's meaningful? Is it relevant to your talent or something? Oh, not necessarily. And then you have people who are basically the vast majority are completely dissatisfied. There's nothing in the corporate life that is interesting or, um, I have five kids who are starting that whole moment.

11:30There's not a single one of my five kids who really knows what I do. I've never visited the company or know anything about it because I don't want to influence them. I mean, I also want them to think that business is a good place because you could make money. That's such a very small part of the significance of our life. And companies could be interesting and could be relevant. And so the issue is how do you design every job, leadership situation so that it's entirely relevant? And it's hard to do, but that seems to be the direction. And I think that is completely fair. particularly if you look at some of the research coming out of somewhere like gallop he talks about this global engagement index that they that they do and you look at how many employees are engaged versus disengaged and the the number of disengaged up or it's off the charts and i think that's that's the thing is you're absolutely right that people are looking for relevance and for meaning or for the ways that they can add value and and grow as kind of like kind of people because bottom line is people would like to not show up to go to work and be bored for eight to ten hours whatever they want to do something which has meaning for them not just be as you say just clocking in and clocking out i think it's a really kind of interesting idea that we have to kind of rethink things um around that making things relevant because it allows things to stick as it were and you get kind of more out of people and the way to do that is really Adrian, to have groups that you can relate to, not only of quality, but also of quantity.

13:07We don't function or we can't do anything without a small group, approximately 10 people, six to a dozen, in any part of our life. That's the size of religious groups. That's the size of army battalions. That's the size of basketball and football and rugby. it's worth. And that's the size of the family that you are able to deal with, the friend group that you're able to deal with. And so if that organization, the place where you work, is not broken up into groups of 10, and those 10 don't have all of the autonomy to do everything, in a group of 10, everybody knows everything. No reason for control.

13:46You don't have to know where people are working, what time they're showing up, et cetera. They know everything. and the right leader is situational. It's not the same person for years and years at a time. And so every six months, if you validate one of that, one of that group as being the leader and that person gets a bonus for six months or for a year to be leader, they can come back to the group and not be a leader, but somebody else will be in, and they haven't lost their jobs and being fired and created enormous trauma for everyone. Yeah. Yeah. And so I completely agree. I mean, what I wanted to do is circle back to the AI point that you made earlier.

14:25Because also in the book, you write that today's corporations are structurally unprepared for the forces reshaping work, particularly for AI and remote autonomy, to say nothing of rebelling Gen Z and Gen Alpha talent. I wanted to ask, can you help me understand what's going on, particularly around the Gen Z and Gen Alpha talent? And this kind of structural flow that CEOs must kind of confront in the like first in order to kind of like to prepare themselves for this kind of almost like tectonic plate shifting event that's kind of what's happening in front of our eyes. I have one Gen Z and I have four Gen Alphas.

15:05Okay. One of them, the whole thing can be encapsulated in the case of one of my 16-year-old son who just got fed up with school and he was doing fine. And then suddenly he got an F in physical education. He got an F in Spanish, which he speaks fluently. And he handed in a chemistry test full of doodles. So this was kind of a sign that he was... So he said, dad, I'm going to do this. I'm going to drop out and I'm going to do online schooling. Okay. So we started online school. And I said, how do you deal with the boredom and all that? On the online school, he said, oh, that's easy. Come and have a look.

15:47So he showed me his computer. He said, today I have Chaucer, Canterbury's Tales. So there's a 50-minute video. Then there's an essay I have to write. And there's a quiz. Oh, you're going to do that? No, no. no, actually I'm going to do animi because I've got this series I'm watching on animi. So Nexus is going to do this for me. Okay. So he presses a button and the AI asks him what grade he wants so that it doesn't look strange. So the AI watches the video, hands in a humanized essay that went through three AIs, answers all of the quiz, and then he gives a full stop. He stops his animi for a second to do a full stop after an hour and a half.

16:33So this is his school now. Okay. And so he doesn't have straight A's because it's going to look bad. So he's got mostly A's and a few B's and so forth. So after, and I'm just watching this and I say, okay, what's next? After about two months, he said, you know, Dan, I feel like a bum. I'm going surfing all day and with my kid. I don't know what to do. And I don't know whether I should go back to school. and so I've been helping him work on, he likes music dramatically, listened to 140 ,000 minutes of Spotify last year. So he wants to try a business in which he's getting Brazilian rappers and LA rappers to collaborate.

17:15Okay. I don't know. So my, my answer to that is that would you take someone like that and put them inside a job, even at Google or Facebook, et cetera, he's going to be bored to tears. And I think all these other kids around him, they, they're at a point where you say, like every generation says of the next one says, Oh, they don't really know what they want, but they're actually sure of what they don't want. And what they don't want is a corporate job. So that pyramid is not going to be fed by, by new people. You're not getting a lot of junior your lawyers because AI is doing most of it. These days, we had to put a very complicated franchise agreement together for Costa Rica.

18:02The first four or five minutes was me and uncle Claude saying, please spit out an entire agreement according to Costa Rica law with all the schedules. So he put together a two-headed thing, which took seven minutes. Right. Then I sent it to these, this big law office who were only specialized and franchised. And they came back after three weeks redlining AI's contract. I'd take this out. I'd use this word. So it's a crazy world that we're out there in which anybody can produce anything in any of these directions. It's already intellectually at a point where I have a hard time following some of the more philosophical rationale comes from there.

18:47And so the idea that Gen Z or Gen Alpha are going to say, where's my desk what time do i come in where do you want me to sit what do you want me to sit meetings it's so ridiculous that at this point you have people like zuckerberg paying a guy like alexander wang one person more than 22 000 engineers because he thought this guy knew everything about ai and a year later he said oh made a mistake there so now you have 22 000 kids looking and saying, shit, this is, is this what I want to do? So this, I think I'm very optimistic that AI and robotics and cloning and all this stuff will, will kick the tent pole of the pyramid.

19:30Yeah. And that, I think what I'm, I'm, I'm spending my time on. It's a, yeah, I think it's fascinating. And, and I think the, the, there's a, there's a quote in the book or there's two bits in the book, which I think sort of sum up almost the current kind of malaise, where you said a survey by McKinsey found that roughly 70 % of large scale organizational change programs fail to meet their goals. And that's like a common sort of famous transformation statistic. However, you went on to say that another McKinsey survey found that when frontline staff feel a sense of ownership about a change initiative, the success rate for transformations rises to 70%.

20:15And even when those employees actually drive change, as they did like, say, in Semco's case, the success rate jumps to 79%. Now, I want to just kind of put that on the podcast because I wanted to just let those kind of like words hang there. Just to think, okay, this is what happens when you get your people involved when you when you like you say when you drive that relevance where you kind of involve them in that sort of decision making where you give them autonomy where you kind of respect to their opinion when you lean into their perspective and things um and it kind of speaks volumes about organizational structure hierarchy trust involvement and all these different things uh so i just wanted to get that end of the recording i want to ask you if you have got any comments on that yeah well you know if you say do you think that boards and ceos of which most are smart know that yeah i'm sure they do know that i'm sure they believe that that an organization where people care is completely different etc but there is a mix of fear and a quarterly result, uh, rationale, which says I can't do these, these changes that won't, I don't have a guaranteed control over.

21:33And then with smart CEOs, again, you say, do you really think you have control over the company that you're looking at now or stuff is coming at you from all over the place, which could undo the whole thing. And you're just thinking about your tenure here. and they all say i i can't really do anything now for seven years from now which would save the company which is why the companies aren't surviving so i think everyone accepts that it's pretty it's relatively easy truth but that for people to be involved and interested etc it means you have to give up control and you have to give them information that they don't have and that combination is just too much for boards and CEOs, et cetera, because they, they feel they can't personally run the risk and it is a personal risk, which is why I talk about the end of the boss, because it is that it is only the boss that is holding everything back.

22:32And the thing, your proposal in the book is this new organizational structure, like you call it, you name it the the round pyramid. And I wanted to ask about that because you talked about the pyramid but then you talked about a round kind of pyramid. I mean, help me understand what's different about it, how it makes it work. Because, I mean, we've seen lots of different ideas, different approaches to how organizations are run. I mean, I love the example of what Toyota did back in with Taichi Ono back in the 50s and how control and ego prevented it from being replicated in kind of like Europe and North America.

23:14So tell me about this, the round pyramid and what makes it different. It's almost as if you looked at the pyramid from the top and then basically three concentric circles only so that you're avoiding all of this growth of hierarchy. You have groups of 10 people who hire independent giggers, who use AI, who do things, and who work from wherever the heck they want to, any way that they want. And this group of 10 has an area, whatever, has marketing or has a small industrial facility or has something of the sort. And these 10 know everything about each other. So there's no manual, there's no regulations, there's no rules.

23:56And every six months, they validate a leader with a closed list. That leader is there for six months, gets a bonus, then gets exchanged by another one, and off they go. They relate to other cohorts. Let's say there's 10 of these cohorts of 10 who does that. And they then choose a smaller cohort who helps, which we call stewards, which helps the mission happen, et cetera. And there's a last concentric circle, which is really the shareholders or the board who talks about this. Right. And end of story. So it is very simple. And of course, it's hard to do because somebody has to give up control and accept the idea that the person that they validated as the leader is the right person and not the person that you like most, that you trust, or that is part of your rationale.

24:49And so for that rotating acting CEO who's there for six months or maybe reelected once or come back after a year or two, this is basically a company that now has a central idea, a mission, a concept, et cetera. Everybody knows all the numbers. People change in leadership all the time. so that it's a very, very alive organization and it's constantly being adapted to the times. And so its chance of survival is dramatically different as it is with cooperatives. You have cooperatives, wonderful ones and enormous ones that have been in place for 50, 70, 90 years in which all the companies in their business have gone out of business.

25:34I don't know how many times already. When I read it, it reminded me of a, there's a story in the book, in a book written by David Graeber and his colleague, David, I forget his second name, there's two Davids. One was a professor at UCL, one was a professor at Imperial College, one was a professor in anthropology, and another one was a professor in archaeology. And they wrote this book and it's almost like rewriting, re-examining history. They told a story about when the Jesuits went to what is now America, North America, They encountered a bunch of the indigenous people that were living there, and they told a story about the Jesuits encountered this one leader called Kondurunk.

26:21And they were asking about how they organized sort of things. And it was exactly this. Kondurunk said, oh, no, we don't have kind of like permanent leaders and things. Leaders just emerge. Leaders emerge through the stories that they tell and kind of what they do. And when they no longer have relevance for the group, then another leader emerges and it goes on from there. Therefore, you're always focused on the group. And I just thought that was a fascinating kind of almost mirror through time in terms of the idea. But for people listening into this and thinking about, well, so the employees can hire and fire their own kind of like bosses and they get reelected.

27:05I mean, what's to prevent it becoming more of a popularity contest rather than a performance kind of driven thing? The assumption that these are adults who are leaving their home and going to do something and who have to have a budget and have their own money expectations, etc. To choose someone who's nice means that they pay for it with their, in our case, profit sharing and the loss of their salary and the risk of it not going places. I don't know any adults who would do that for a period of time. Sure. Or give up nights very quickly. I mean, I think that's the thing. The key point is when you treat people like adults, then they tend to act like adults, right?

27:50They're able to do anyway. It's we who took it away when we said, here's the key to the bathroom. How come you're doing this? How come you're five minutes late? Yeah. The crazy amount of attention that goes to the wrong place. And so just to bring this to life, i wanted to ask you if you can tell me the story about the botanic hotel and spa and how you've applied this to the round pyramid in practice i mean and what happened to sort of the customer employee and business outcomes that you do because ladies and gentlemen who are listening in this is one of those kind of like stories that you just think no and it's like yes this happened so ricardo if you can tell me that story that would be awesome it's it's it's just a good example because everyone understands the hotel, so that makes it easier than saying manufacturing complicated things.

28:41But when we started, we looked at this and we said, let's fix all of the things we don't like about hotels in this one hotel. So we don't like checking in, we don't like checking out, we don't like having to be the person who has to manage all of the departments because I have to call room service, then I have to call housekeeping for laundry, then I have to ask the concierge, then I have to stand in line to see the return. it's a crazy situation with hotels. They're completely geared towards the people who run them, the same way as schools are entirely geared to the adults and not to the kids at all.

29:14And so we said, how can we fix this? For example, I hate the idea of packing, putting this stuff out there and so forth. So we said, let's fix all of this. And the way to fix it was simple, was to set up a cohort, again, just the same old idea, of a couple of people who have, let's say, five rooms to take care of. And they are everything. They all housekeeping. They are all conserved. They've all been trained as sommeliers and as waiters, et cetera. And they will take care of those people during their stay. And they have one person who they've chosen as being the customer facing. The person has that person's phone at any moment to ask and nothing else.

29:59And they then do everything else. So they'll have, they had your luggage picked up from your apartment before you came. So that would all be steamed and put up inside your closet when you arrived. We had, we'd left 20 % of the rooms open so that nobody had a check-in time or a checkout time. You'd stay as long as you want. Never anybody saw Bill. There were no tips were prohibited. So there was a collective effort and we never talked about money. So everything that was in your mini bar, there was an honor bar for cigars and whiskey and so forth. And if you wrote a time, you wrote a time. If you didn't write it, we weren't going to go after you.

30:45And you'd leave and there was no checkout and we'd send you the clothes to your home the next day. So we set this up and originally it was about 20 rooms with 38 employees. And everybody who came in as consultants came to between 110 and 120 people is the staff that we needed. But we did it with 38. It quickly became Brazil's foremost luxury hotel. It was on all kinds of lists around the world, et cetera. And the interesting part is we sold it after 10 years when I moved here to San Diego. And Six Senses was involved as an operator and the new owner came in, et cetera. and from 38, they have the same number of rooms.

31:29They now have 110 employees in the departments. So it was a very simple exercise that for 10 years proved that it doesn't have to be that way. If you give up as you would in a company, you give up the idea of the hierarchy and the departments and a general manager who decides, et cetera, you're left with a very unique situation. I love it because I love also the idea that because in the book it also explains how the employees actually loved the job and they would stick around and you'd end up having the same people kind of like would stay around for it because they just they were so again that relevance sort of thing and involved they just loved the work it's almost like they're creating their own artistry in many ways and they're not doing the same thing twice and they're they're at the kitchen and they're concerts and they're trying and learn something new.

32:21But in any case, the turnover in the hotel business is 41%. And the turnover there was 2.5%. And so people really have no interest in leaving this at their own salary. They have a part of the revenue of the hotel, so they're interested in occupation. It kind of does away with all of the issues. It's just there on a day-to-day basis. You don't have to go there at all. It takes care of itself. has a five out of five rating after hundreds of people. And there's nothing to do because they'll solve it. The people there are interested. They make more money when occupation is good and end of story. And it's a no-brainer.