As a state-owned enterprise, Embraer had long suffered under stifling bureaucratic processes. One long-time employee recalled, “Embraer was subject to many procedures, norms and government audits, which contributed to bureaucratizing the company, setting barriers to its efficient operations.”
Founder and long-time CEO Ozires Silva initially wanted to establish Embraer as a private firm, and resorted to government funding only after failing to persuade private investors to finance such a risky enterprise. Under Silva’s leadership, Embraer was not as bad as many other state-owned enterprises in Brazil: bloated infrastructure, over-politicized appointments and lack of long-term financing. But it still suffered from the bureaucracy that often plagues state-owned enterprises.
However, government influence prevented Embraer from promoting employees based on merit, responding quickly to changing market conditions, or developing sophisticated financial engineering strategies. Nevertheless, his successor dramatically increased the organization’s agility through a number of steps.
- Delayer and organize around customers. To reduce the distance from the top to the bottom of the organization, Botelho reduced the number of managerial levels from seven to five. By 1996, Botelho transformed the hierarchical structure into a matrix organization in which teams were organized around projects designed to increase autonomy, participation and flexibility. Project teams were organized to solve specific customer needs. Labor stations were made up of cross-functional teams working for specific customers. Top management constantly stressed that what mattered most were not the traditional “lines” of reporting but one line that went from customers to shareholders.
- Manage ad hoc projects and initiatives as a portfolio. During a transformation, many companies are overwhelmed by initiative overload that dissipates resources and stretches employees too thin. To coordinate various projects and initiatives, Embraer launched an Organizational Transformation Project around the implementation of enterprise resource management software. The project – based structure and increased employee participation – allowed Embraer to reduce time to develop new projects and increase its reaction speed to new information.
- Bring in new blood. Embraer’s senior executives further increased flexibility by replacing hidebound employees with new managers and workers. Botelho started at the top, and replaced most of Embraer’s senior managers, bringing half of them from outside and promoting the rest from within. Over time, he also shifted the composition of the workforce. At the time of the privatization, 80% of employees had worked for more than 10 years and 50% for more than 20 years. The initial headcount reductions targeted senior employees, who were eventually replaced with younger employees. By 2001, Embraer had more employees than it did before privatization (11,500), at an average age of 34 years. To attract new employees, Embraer adopted an aggressive profit-sharing program in which workers as a group could receive the equivalent of 25% of the dividends paid out to shareholders.
- Invest in training general managers. Embraer has further increased the flexibility of the workforce by increasing their average educational attainment. More educated workers can be transferred between functions more easily. In 2002, 37% of all employees had undergraduate degrees, and 7% held a masters or PhD diploma. The company also invested over $60 million over three years in training at all levels. The company established an in-house MBA course that trained 35 of the most promising leaders per year. A school specialized in aeronautical engineering was also established, where 200 recently minted engineers spent a year and a half on supplemental studies of aeronautics. The first class received 6,000 applicants, a number that increased to 9,000 for the second class.
Next up, surviving 9/11.