A Radical And Proven Approach To Self-Management
In our last blog post we described the pioneering and highly successful transformation of Spanish manufacturing company Irizar. Former CEO Koldo Saratxaga led the change and the remarkable story inspired many people around the globe. In fact, so many people wanted to witness the radically progressive company with their own eyes that at some point over 4000 people visited Irizar's factory annually.
So did all these visits create a viral effect of companies that followed Irizar's example? Did these visitors go back home and change the companies they worked for?
Unfortunately not. What happened was that many of the visitors just came up with arguments on why this approach would never work in their own company, in their specific environment. Koldo became more and more frustrated by the never ending list of excuses. At some point in 2005, he decided to prove all these people wrong. This is the story of how he transformed over 50 other organizations just like he did with Irizar.
Prove the sceptics wrong
In 2005, Koldo Saratxaga sets up a company called K2K Emocionando. The purpose of the company is to support organizations to implement a "new style of relationships" or ner (derived from the spanish "nuevo estilo de relaciones"). Ner embodies Koldo's business philosophy of which the most important aspect is the belief in people. The belief that people are responsible, sensible, and motivated by nature. Leaders should just create an environment for employees to excel.
Over the last 12 years, Koldo grew his team of rebels to seven. Or, as they would put it: "A crazy man taught 6 other crazy men and women". And in those 12 years, they have supported 51 clients in their transformation. Of those 51 clients, 22 chose to be part of a network called ner group in which their 2700 employees share experiences, successes, and failures of their radically different way of working.
Ner group includes organizations in the fields of engineering, manufacturing, law, creativity, cyber security, and education. The group has a presence in over 60 countries and it total revenues extend over €400 million.
A radical approach to change
The approach of Koldo and his team is as radical as it is successful. It's all based on a list of principles or values; values that haven't changed over 20 years time (including Koldo's period at Irizar). The best way to show how they put these values into practice is by walking you through their radical transformation process, step by step. But even before the actual start of the transformation, the process is already the most radical we've ever seen.
1. Ownership and CEO must go all-in
Before the team of K2K Emocionando starts any transformation process, they make sure that the ownership of the company is willing to go all-in into this new direction. They require a 100% buy-in from the owners of the organization and require them to commit to their change process. If not, they don't even bother to start.
When ownership shows commitment, the next step is to get the CEO involved and committed. But be aware: the word committed should not be taken lightly here! The CEO has to fully agree that if Koldo and his team believe that he or she stands in the way of a successful transformation (at any point in time), he or she can be replaced by K2K Emocionando. And they put their money where their mouth is. Because at several occasions they have actually replaced the CEO by either themselves or a more suitable person from within the organization.
One of the core principles of K2K's approach is that they never fire anybody except in a very rare situation (such as theft). People themselves, however, can decide to leave. But during their transformation process they simply do not fire anyone. Why not? Because both employment and trust are two crucial factors for them. They feel that if they would fire people, they would endanger both.
So what happens if the CEO does not commit to this? You guessed it, then they don't start the transformation process.
2. Let employees vote for change
The moment both the ownership and the CEO of the company commit to their proposed change, the next step is to get the employees involved. They shut down the entire organization for 2 days and give the employees the opportunity to visit companies that have already made the transformation in the past. This inspirational trip is done without the presence of K2K Emocionando. They believe it's important for the employees to talk to the other company's employees without them being there. They do this to ensure employees get an open and honest story from their counterparts.
They will only start the transformation process if more than 80% of the employees vote yes.
After these 2 days, it's time for the employees to show their commitment. In a general assembly they get the chance to vote (anonymously!) for change. It's just as simple as it is beautiful: employees can vote either yes or no. At this stage everything lies in the hands of the employees. K2K Emocionando will only start the transformation process if more than 80% of the employees vote yes.
One of the ner group companies we visited was Lancor, a local elevator engine manufacturer. We learned first hand how their employees experienced their voting process. The employees described it to be an exciting process that made them feel in charge of their own destiny. They learned what it could mean to become a more open and flat organization and how they could benefit from it. They learned that it wouldn't be easy, but that it could be a worthwhile process for them.
When it was time for the employees of Lancor to vote, a staggering 97% of them voted yes. The beauty for Lancor? There was no need to force change upon employees, they were already invested in the change process because they decided to start it themselves.
The result for Lancor? Employee engagement skyrocketed while revenues increased from €5 mio to €30 mio in just a few years time.
3. Collect feelings, dreams and fears
Once the owners, CEO, and employees have voted yes, the next step is to dive deeper into the organization. Pablo Aretxabala (one of the K2K colleagues): "We don’t want to know anything about the company before the general assembly. When we have the agreement of all the parts, the first thing we do is a lot of meetings with each person, one by one, or in pairs, to get to know their feelings, dreams and fears.
4. Create radical transparency
Once they have an understanding of the feelings, dreams, and fears of the employees, the next step is to make all employees understand how the business is run. Pablo: "While much of the world is about economy, most people don't understand it. Even in business, many people don't understand a balance sheet and a profit and loss account. How can these people be involved if they don't even understand the basics of running a company? This is why we teach them 'economics for dummies'."
Besides giving them basic financial training, they create a fully transparent environment. Company financials become transparent, just like team commitments and team results, and even salary levels become completely open. Why? To involve people in running their own company and to ensure a feeling of fairness.
Another important step for K2K is to lower the gap in salary levels. They don't lower anyone's salary, but they increase the salary of the lowest paid workers to ensure the gap is decreased as much as possible. If the company's financial position does not allow for such an increase in salary cost, this step is postponed to a later stage or will be executed in different phases. But once again, this is a never changing principle for K2K. In the end, the salary gap will be decreased to ensure top salaries are never more than 3 times higher than the lowest salaries.
To further increase transparency, the results of the teams and the company are made visible and posted on walls in the offices or on the production floor. This helps to align everyone in the organization to focus on the right targets. By the way, these targets are fully self-set by the teams. No individual targets and objectives can be found from that moment; all objectives become team objectives to ensure team play.
5. Give employees a financial stake in the outcome
The next important step is the abolition of paid overtime. When overtime is paid (and thus rewarded), employees have an incentive to work as many hours as possible. When a successful outcome is rewarded, employees will focus on being as efficient as possible.
Instead of paying overtime, at K2K's customers they provide all employees with a financial stake in the outcome. For private companies, 30% of the additional profits are spread among all workers. So for every €1 million in additional profits, the workers can divide € 300.000 among themselves. At Irizar we saw that this profit-sharing policy meant that many workers received an additional €25.000 (!) compensation per year for many years.
The beauty of this practice lies in its simplicity. All of a sudden individual interests are aligned with those of the organization.
6. Design a network of teams
Then they redesign the traditional organization into a network of teams. They start to organize teams around products, services, regions, clients, or processes. This is of course dependent on the type of organization and the environment it operates in. At Lancor, we saw that teams were organized around products (i.e. electrical motors), while at Heroslam (another company we visited) teams were organized around a part of the production process (i.e. the process of thread rolling tools).
From the moment the network of teams is installed, the teams become self-managing. Among others, this means that they select their own team leaders every 6 months. The team leaders are the ones who coordinate activities with other teams. Koldo: "At the moment teams don't choose their own leader we know that there is a problem in the team. Then we are going to talk to them until it is solved."
7. Focus on commitments
When workers are no longer focused on spending a certain amount of hours at work, the need for another type of commitment arises. At K2K, they implement commitment meetings in which the teams agree on the commitments for the upcoming week. Such meetings are a combination of Open Book Management, a colleague letter of understanding, and a Scrum sprint planning.
In most of the companies in ner group, they hold these team commitment meetings on a weekly basis.
8. Get rid of control mechanisms
Combine K2K's strong belief in people, the alignment of interests, and their focus on commitments, and it's easy to understand why they get rid of control mechanisms. The time clock is one of the first to disappear, but also all other kinds of tracking tools and approval forms are abolished.
It's great, but it's certainly not easy
We can go on and on to describe the beautiful practices and approaches of K2K and ner group. But let's take a step back and let the employees describe how they feel about the transformation process and the new way of working of their organizations.
When we visited the local manufacturer of thread rolling tools, Heroslam, we learned about the personal experiences of some of their employees. Leire Villoria Diez: "After we voted yes, we were very excited. The first three months we worked entire weekends where before nobody would even work on Saturdays. It felt a bit like leaving your parents house when you start living on your own. When you find an empty fridge, you can't go and complain to your parents. It's up to you to fix it yourself."
Her colleague Aitor Sanz adds: "I wouldn't go back, but you have to understand it's not easy. Having a boss who tells you what to do is a lot easier. The more you know the harder it is; sometimes ignorance is a bliss". Koldo adds to their experience: "Humans and conflict belong together, they cannot be separated."
In total, K2K has intervened in 51 organizations, finalizing the entire transformation process in 31 of them. Pablo describes: "Of these 31 companies, 22 are currently part of ner group and 9 others have continued their way alone, for different reasons. Of the 19 organizations that did not complete the transformation process, on 12 occasions the cause was the non-compliance of the agreements by the owners of the companies, in 4 cases the motive was related to changes in the representatives of the ownership (they became cooperatives), and on 3 occasions it were the union representatives who frustrated the process."
A powerful but challenging process
The process is not easy, but K2K showed over the years that a successful transformation, with the proper dedication, is possible. In fact, they showed it over and over again.
Not convinced yet? Let us list some more results:
- In every case they worked on, the economic results after the first two years of the change were better than before the change. This improvement depends very much on the particularities of each case, but the range is between 25% and 300%;
- Likewise, productivity improved substantially, on average 40%;
- Not one person was dismissed for economic reasons in any of the companies in which the transformation process was carried out;
- The average salary of ner group companies is 27.4% higher than that of Basque Country, and 41.1% more than in the Spanish state. And this without taking into account the distribution of results that are given at the end of the year in;
- The average absenteeism in ner group companies is 32.4% lower than the average in Spain and the accident rate is 7 times lower.
We rest our case.
We feel honored that, once again, we've had the privilege to witness an extraordinary approach to building better workplaces. An approach that should be known to the rest of the world, because it has the potential to disrupt even more organizations than it already has. Spreading the word through this blog is just a start..
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How are work outcomes affected by the treatment of those who do it? I have been exploring this question for ~50 years. In that time, one comment stuck with me more than any other. It was made in 1998 when I interviewed a group of men in Indianapolis who had redesigned most of the US city’s waste collection and disposal operations. “We are no longer expected to park our brains at the door when we come to work.”