Taking over a company when it’s going through a slump is a bit like being a racecar driver. You need to “speed up to get past competitors and find open room to maneuver”. And when HCL Technologies CEO Vineet Nayar took over the helm of the company in 2005, that was his strategy. He reinvented the organizational structure to the extent that during the global economic meltdown, HCLT followed one of the unusual practices of going up to their employees to ask them how to cut costs. His book Employees First Customers Second describes the philosophy that reinvented the organizational strategy of the company – and brought them back on track. Excerpts from an interview.
What was the inspiration behind the “Employees First, Customers Second” (EFCS) philosophy? What drove you to think about ‘unleashing the power of many’ versus the ‘stranglehold of a few’ in your organisation?
Any start-up begins with this concept. It was this core idea that saw the birth ofComnet, which I started with a group of very smart people and is now a huge sucess. However, when an organisation grows bigger, it forgets the reason why it became successful to begin with – boundless behaviour with all as equals. If the true value in our industry gets created in the interface of employees and our customers, why should management hold the power to deny and judge rather than the responsibility and accountability to enable, enthuse and encourage the creation of value in that value zone?
Employees First, Customers Second: Harvard Business Press, 198 pages, Rs595.
Look at the success of Virgin, Starbucks, W.L. Gore and Southwest Airlines, who run their companies keeping “employees first” in mind and have created a niche in highly commoditised markets. The question we asked ourselves at HCL was whether we could innovate in the way we run our company and thus create a unique competitive differentiator. If we could have more and more of our employees feel passionate about what they do and how they do it, if we could help them become better leaders, could we out-grow our industry peers. It turned out the answer was yes.
Could you give us examples of some of the exercises you undertook to gain an insight into employee behaviour (for example, “mirror mirror”)?
If you indeed want to change, the willingness and desire to give up your comfort with today’s position is critical. How many of us are trapped in the rear view mirror – the glory and achievements of our past? The comfort of size, scale and past performance prevents us from seeing, from seeking out, the reality of our growing irrelevance. The people around us do not help, as they, too, view us in the light of our hallowed past, which reinforces a desire to maintain our current status.
So how do you see your true situation? How do you create a desire to instead reinvent yourself in order to become relevant to the environment of today and tomorrow? By first looking honestly in the mirror and seeing that smaller companies with new innovative business models are outsmarting you every day, then realizing that this is the only truth that matters. Mirror Mirror is series of steps we take to encourage an extremely open and honest conversation between and among employees at all levels of the company ? primarily in large-group meetings, but also in smaller groups and in informal one-on-one conversations. I led the first series of Mirror Mirror meetings and the role of the leader in these get-togethers is to speak the truth as clearly and as honestly ? sometimes brutally ? as possible. There are two goals. First, to get a critical mass of people to generally agree on the company’s situation, which means, for many, letting go of their comfortable ideas of how great everything is. Second, to bring people to the realization that the situation must be changed. We continue the Mirror Mirror exercise even today, asking tough questions of ourselves and questioning how relevant our success of last 5 years is to the future.
Has turning the organizational pyramid upside down been an easy process?
We haven’t exactly turned the pyramid upside down. I have used that language, a bit provocatively, I must admit, to dramatize what we have done and are trying to do. What we have, in fact, done is to create two overlapping organizational mindsets at HCL. We have not destroyed the existing top-down hierarchical structure, because it is still necessary for all the reasons it has always been necessary ? to control and guide the company. The second structure, the upside-down one, is the value-creation pyramid and in that one, the employees on the frontlines come first. So what we have is really a structure that ensures two-way accountability. Employees at all levels of the organization are accountable to their managers for achievement of goals. And, managers throughout the company are accountable to the employees in the value zone and must support them and enable them so they can create the optimum amount of value.
Walking the talk: Nayar has turned conventional management wisdom on its head in his book. Madhu Kapparath/Mint
Traditional roles have also been upended in the area of organizational change. Employees at all levels need to be not only responsive to change but also responsible for it. I truly believe that those at the grassroots of an organization are as much harbingers of change as leaders at the top. In that sense, it’s a bit like a democracy.
Has the transformation we’ve achieved been easy? Yes and no. There are smart people – what I call transformers – who “get it” early. They see the logic of the approach and drive high performance based on this new realisation that their performance and future is in the hands of the employees. Once they succeed, the people I call the fence sitters see their success and get on the train. A few people – say, the last 2-5% of the workforce – will never see the logic. They have a different point of view – which may in fact be a valid one – and so never get on to the train. It’s a slow process, to be sure. But we’ve found that the results are worth the patience.
How can pushing the envelope of transparency help an organization?
You can never grow a plant until the soil is ready for it. You may have a bright idea and want to implement it. But the organisation may not be ready for the idea because there isn’t enough trust between you and your employees. There are many great ideas that I have seen fail in organisations because they were launched without adequate collaborative trust being created. Top management tried to force a change because they felt it would be “good for all” – but unfortunately things don’t work that way. Thus, a second step you need to take – after you have used Mirror Mirror to create the “need for change” – is to create an “environment for change.” How do you create trust? What, in fact, is trust?
We struggled a lot with these questions until we just focused on one element of trust –transparency. We asked ourselves, can pushing the envelope of transparency create trust? And we found it could. Remember, we are a large company, with units around the world. Many of us had never worked together directly before and did not know each others’ strengths and capabilities. By opening up, sharing information, washing our dirty linen in public and shining a light on all corners of our organisation, we were able to give more and more people a much clearer picture of where our strengths and weaknesses lay ? we revealed ourselves to each other. We found that this openness had an almost miraculous effect on our ability to trust one another. And once enough people trust each other, they reach a tipping point and are able to accomplish amazing things, much more than they ever thought possible.
However, one must be aware that this is not a onetime exercise – you have to work at it constantly.. If change is not the organisation’s passion, you will waste away a great start and convert it into an initiative, rather than a cultural transformation. One additional word of caution – organizational transformation is a journey, not an endpoint that can be perfectly realized. But I believe that if you keep at it, your message will reach more and more people with each passing day.
HCL Tech’s transformation process has included the simple acts of looking into the mirror, and translating intent into action. What ails most Indian companies today – the inability to be self-reflexive and ask those tough questions, or the inability to act on their insights?
I would not want to generalize too much about what ails all Indian companies, because companies in different sectors have different issues and because so many Indian companies are doing so remarkably well. Neither am I claiming that the approach we have followed is the right one for all companies. We are experimenting with a new idea that is a work in progress. Because it seems to be working for us, I think it’s worth a close look.
But each employee and management team has to decide what is their secret sauce for success – has to decide what they are most passionate about. We found ours in the idea of “employees first” but others may find it in something else. Management and change is a complex topic. You don’t want to make a mistake of getting married to one idea – in our case declaring success because of our recent record of growth and being a “No. 1 employer.” Conversely, don’t make the mistake ofdeclaring failure and giving up, just because some people do not agree with you or have not seen the full impact of the changes yet. Change and new ideas need managers with courage to see them through.
Indian companies have some very smart people and I am sure they will figure out what is good for their organizations. All I would say is that individual middle-level managers should look closely at some of the ideas of the EFCS philosophy and ask themselves “Why not?” rather than “Why?” Doing so, adopting some of the ideas, could make a big difference in their professional lives, irrespective of what their companies do.
How did the innovations at HCL Tech 2005 onwards, help, if at all, during the downturn?
It is really one of our proudest achievements that HCL Technologies was among the very few IT services providers in the world that continued to grow throughout the years of the recession. I believe our ability to do so – at more than 20%, year on year – was a direct result of the EFCS approach. When the economy started to go south, many global corporations assumed that management had all the answers and some assumed that employees were part of the problem.
We took a different view. Consistent with the EFCS approach, we turned to our employees and said, “What can we do to get through this? Give us ideas about how to cut costs, increase revenue, retaincustomers.” And we received thousands of suggestions from employees, including ways to reduce headcount by laying off those who were taking a free ride. From those suggestions came a number of initiatives that we shared with our employees and executed on. As a result, trust increased rather than decreased, uncertainty and fear were reduced by transparency and thus loyalty and engagement grew stronger. When things started to get better, while many companies found themselves dealing with a dispirited and fearful workforce unwilling to trust the management again, we found ourselves in much better shape and that helped us grow still further.
Do you think Indian organisations will benefit from the EFCS philosophy?
I think it is not just Indian companies and neither is it just companies. I actually believe young managers leading teams and forming their leadership styles will gain the most from it, as they are yet to form a firm view on how they wish to convert their teams into high performance units. These ideas could be a start in their journey.
Yes, I also think organisations could benefit from the EFCS philosophy if they believe that they face the same problem: old organizational structures, management approaches, and business models that are outdated and largely irrelevant. EFCS is a philosophy, an approach to management, that seeks to bring about a different kind of organisation with greater freedom, collaboration, innovation, and flexibility. It’s important to understand that it is not a rigid set of rules or practices. Every company must answer the key question that underlies EFCS for itself, and that question is: Where is value created in the company and who creates it? Once that has been determined, the specific ways in which the value-creating employees are supported and enabled will likely look different.
If you do indeed start walking down this path, though, keep walking and don’t look back. It gets better and more exciting with each passing day.