The Liberation Of Factory Workers: From Near Bankruptcy To Double-Digit Growth
We created our Bucket List to show that there are organizations out there that have found a solution to boring and uninspiring workplaces. For one-and-a-half years we have visited such organizations and learned from their extraordinary stories. But still, every now and then, unknown stories pop-up and continue to amaze us. This happened to us again last week, when we visited Bilbao (Spain).
In Bilbao, we learned how Koldo Saratxaga, the former CEO of the Basque luxury coach manufacturer Irizar, saved the organization from near bankruptcy and turned it into one of the world's most renowned luxury coach manufacturers. It's a brilliant and informative story about a true workplace pioneer.
From near bankruptcy to double-digit growth
When Koldo joined Irizar in 1991 the company was in deep crisis. Before Koldo became CEO, Irizar’s leadership had changed twice within one year time and employee morale had hit rock bottom. Additionally, Irizar was on the verge of bankruptcy. The future and survival of the company was in serious danger. Koldo: “Sales were tiny, losses were enormous, and the image was at rock bottom.” He knew it was time for a radical change. And a radical change he made. For the 14 years (1991 – 2005) Koldo was in charge, Irizar’s transformation and development has been spectacular (which is why it was also published as a Harvard Business School case-study). We met with Koldo during our visit to Bilbao.
By implementing a system focused on people, strong customer loyalty, and a radically empowered workforce, Koldo managed to provide Irizar with a 23.9% annual growth over 14 years. Over time, revenues grew from €24 million to €310 million during his tenure.
The organizational growth was impressive with Irizar opening new production plants in different countries like China (1995), Morocco (1997), Brazil (1998), Mexico (1999), India (2001) and South-Africa (2002). They managed to ramp up the production of coaches from 226 to 1600 coaches a year. Not only by increasing production capacity but also by reducing the production time from 38 days to 14 days. The million dollar question is how Koldo achieved such spectecular growth.
Irizar Group is a Spanish-based builder of luxury coach vehicle bodies, established in 1889. It is located in a small village called Ormaiztegi (Gipuzkoa) in the Basque Country. With over 3,000 employees, the Irizar Group is now the market-leading builder of coach vehicle bodies in Spain with a market share of over 40% and a turnover exceeding €550 million a year. Irizar Group's coach bodies are available in many parts of the world and the group operates through five coach and bus production plants around the world (Spain, Morocco, Brazil, Mexico and South Africa).
1. A strong sense of purpose and values
For Koldo it was important that his people were building the future of Irizar instead of just chasing a set of dictated targets. Koldo: "For us, it's more important to analyze what comes next knowing that we'll construct a future in the new reality."
So he implemented a new mission mainly to create employment and wealth through growth in the luxury coach market. This growth shouldn't be made by exploiting people but rather by smart strategic thinking. And their long term strategic thinking was not a collection of quantitative KPI's but a set of nine common values that were used as guidelines to guide the organization.
Their value set included things as;
- Customer satisfaction guarantees our future, and must therefore be our main priority;
- Achieve the maximum degree of professional competence at all times;
- Work as part of a team, contributing ideas;
- Trust in others and be worthy of their trust;
- Communicate and inform openly. Obtain and share knowledge;
- Respect customers, suppliers, colleagues, the local community and the environment;
- Coexist in freedom accepting responsibility and being accountable for the outcome of our actions.
Plan of Ideas and Objectives
Next to their strategic thinking and the common set of values, Koldo introduced a set of yearly critical success factors which he called 'Plan of Ideas and Objectives'. These factors assessed specific aspects of knowledge, service level, market share, satisfaction and financial situation of each customer. The progress on the strategic thinking and the 'Plan of Ideas and Objectives' was reviewed three times a year, with all the staff. Before approving both documents, Koldo encouraged everyone to discuss the documents extensively to ensure a clear and common understanding.
2. Turn hierarchy into a network of teams
Next, he transformed their outdated management system that was composed of a traditional hierarchical structure and a clear top-down decision making process. Koldo introduced a model at Irizar that was completely different from any other model in their industry. An almost flat organization which consisted of three main groups:
- A group in charge of manufacturing. (650 people)
- A group in charge of customer relationships. (45 people)
- A group coordinating the entire organization. (9 people)
These groups consisted of multidisciplinary self-managed teams for all business functions, some kind of minifirms inside Irizar. In total there were more than 120 minifirms which consisted of about 4 to 5 people and a team leader. Team members were assigned to projects and team leaders were chosen by the team members themselves. Teams were supposed to perform a specific task within a certain time frame and were encouraged to start every new project with an 'open mind'. Team members were often part of more than one minifirm.
The physical space transformed as well, reflecting the new flat organizational structure. The manufacturing and service facilities were relocated to one floor and all people mixed together on one level. The building didn't have offices anymore, just meeting rooms which any team member could use.
The approach forced Koldo to get rid of all departments, such as the R&D department. Koldo: "The people in the R&D department were outside of reality, living day by day, and they found it difficult to connect with others in the organization. They had their own space and their own department with their own key. Their speed was never in line with the outside environment. Their capacity to adapt, to understand the client, to know how, when, why, what for, was much less. So we cut it off at the pass. They understood and were grateful a few months after we made the decision." From that moment, Koldo needed everyone in the organization to contribute to research, development and design of innovative ideas.
3. From time clocks to freedom and trust
The minifirms enjoyed a high level of autonomy, and were given freedom to make decisions on their projects. They would, for example, set their own objectives and time schedules. There was no control to clock people in and out of the factory. Everyone was trusted to make an 8-hour workday and attendance was only known by your closest colleagues.
They stopped paying overtime since the minifirms set their own objectives (and time schedules) and were now solely responsible for their own performance. Koldo: "Our model at Irizar was partly chaos which generated order and self-organization. But more importantly, our model was based on interpersonal trust. To control the arrival and departure of each person is easy, but not at all effective."
Koldo simplified the compensation policy into one with only three wage levels. Every team member involved in manufacturing received the same salary, regardless of experience or age. The highest paid person within the company could earn a maximum of three times the salary of the lowest paid one. Bonuses and commissions were banned. But, the team members did share in the profits of the organization, which were evenly split over everyone. For many years this profit-sharing policy meant that many members received an additional €25.000 (!) compensation per year. On the other hand, in the case of a loss (which didn't happen in the 14 years Koldo was CEO) team members would have to share that loss either by investing personal funds or agreeing to a reduction in wages.
4. Distribute authority and create radical transparenc
Koldo continues: "At Irizar everyone had huge spaces of freedom but also responsibility. Everybody is the owner of his or her own work, relationships and decisions." In other words, the minifirms enjoyed great levels of autonomy and authority but were also held accountable for their own results. Evaluations were solely based on team performance, and individual evaluations were avoided.
Koldo used the power of transparency and forced the minifirms to make all their objectives and results public within the organization. Within Irizar constant communication - both internal and external - was strongly encouraged. Nothing should be hidden from staff. This meant leaders published their ideas, decisions and other news in a monthly internal magazine.
A recipe for success
As mentioned before, the success of Koldo's approach was immense: from near bankruptcy to 24% annual growth over 14 years and an increase in revenues from €24 million to €310 million euros. But for Koldo this wasn't enough. After his period at Irizar, he started his own company (K2K Emocionando) to support other organizations to transform the way they work. In just over 10 years, Koldo and his team have helped to transform 50 organizations in the region of Bilbao.
Some of the results have been just as spectacular as Irizar. In our next blog, we'll discuss the radical and successful approach of K2K Emocionando. We'll also include what we learned from our visit to two of the companies they supported in their transformation. Stay tuned for more...
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I think you should read the next blog post (www.corporate-rebels.com/ner-group), you're not the only one who came up with reasons why it shouldn't work and was subsequently proven wrong. Or check out any of the more than 50 stories of companies that have done similar things (including examples in London and New York).
I totally agree with what the guy did, my comment (which I admit was a bit too strong) was meant to suggest that it was not necessarily a good example as it would be a lot easier in the Basque country, where the largest corporate concerns tend to be co-operatives, and in other cultures, the problems would be very different and much more difficult. I look forward to reading it.
The truth is that the Basque Country is full of cooperatives, very few (if any, really) are self-managed. The cooperative movement is full of principles praising transparency and other democratic measures, but most of the cooperatives (especially those belonging to the Mondragon group) are quite hierarchical even if workers vote (in reality similar to shareholders in listed companies).
I didn't know this, but Pablo (working at K2K) and Koldo told me so last week in Bilbao, when a group of self-management believers or practitioners were attending a business visit to meet some coordinators of companies operating under the NER group.
What Koldo did in 1991 was radical and innovative in the Basque Country, or everywhere. And given the small number of companies who have adopted true self-management, it's still radical (Semco-like) today.
In a previous post we introduced the concept of “middle-manager-less-organizations” (MMLOs for short). These companies run their businesses successfully without a middle management layer. Large and small, they point the way forward for organizations wanting to go beyond the traditional hierarchical/bureaucratic model, a way of organizing that is increasingly outdated and has deep roots in ‘industrial age thinking’.
In 2005, Vineet Nayar became the leader of Indian IT and consulting company HCL Technologies. As a result, 25,000 people looked up to him and waited for his direction. But there was a problem. "I knew in my heart that we as leaders had done nothing to win the trust of our employees."