Why HCL leads the world – it’s ‘Employees First, Customers Second’.

I just finished reading Vineet Nayar’s important book,  ‘Employees First, Customers Second’ – Fortune magazine has hailed his company, HCL Technologies, as having the ‘world’s most modern management’.  The book covers the transformation of HCL into a global IT services powerhouse from the time Nayar took the helm as CEO in 2005. HCL is famous now for the democratic nature of its business. However, that is simply the What of the book – the revelations are in the Why and the How of the transformation. Here are my notes from Nayar’s story.

1. Why was a transformation necessary?

This is a good question because when Nayar took over in 2005, HCL was experiencing 30% annual growth. So, problem, what problem? However, Nayar has a healthy paranoia about business, believing that ‘unless a company becomes obsessed with constant change for the better, then gradual change for the worse goes unnoticed’. On a practical level, he observed evidence of complacency in HCL at the time and noted that its then growth rates were consistently behind its competitors.

Nayar believes that the asset base of knowledge-economy companies increasingly resides in the talent and creativity of its employees. In particular, for a service company like HCL, he identified the ‘value zone’ of the company as the interface between HCL employees and its customers i.e. where the knowledge and service which the customer values can be found.

2. How was the transformation accomplished?

With the value of hindsight, Nayar partitions the transformation into four stages. In practice, at the time, he and HCL were undertaking courageous organisational and behavioural experiments. Nayar proceeded with his innovations when he expected the benefits to outweigh the risks. At all times, he paid great attention to communicating broadly, at all levels of the organisation, and to getting feedback prior to implementing changes. Here are the stages HCL went through:

(i) Mirror-Mirror: Creating the need for change. Nayar insisted that HCL conduct an honest self-assessment and to look for things with which it was not satisfied in the company. In planning a move from point A to point B, he stressed that it is essential to truly know where you are starting from. Secondly, prior to moving forward, people require a vision of a better future to give them the confidence and the motivation to support the move. In HCL’s case, the vision was to move from being a discrete IT services supplier to a global IT integration company fit to compete with and succeed against industry giants like IBM and Accenture.

(ii) Trust through transparency: creating a culture of change. Nayar identified trust as a pre-requisite for any change program and identified building transparency throughout the organisation as the means to achieve it. HCL took transparency to unprecedented levels for a company of its size. For example: (a) employees were granted access to team level financial data across the organisation; (b) employees were empowered to pose questions to anyone in the organisation and to expect their questions to be answered, all in a transparent online forum; (c) a true 360 degree feedback process was established and, because it was focused on developmental opportunities rather than performance appraisals of individuals, employees were confident enough to post their survey results online; (d) ultimately, employees company-wide were given access to the policy and strategy formulation processes.

(iii) Inverting the organisational pyramid: building a structure for change. Nayar discovered that the then hierarchical structure of HCL was an impediment to success. He maintains that centuries-old hierarchies and matrixes are not fit for purpose in the knowledge economy because the value of such companies is not centralised or their value may not reside in their technology but rather in how it is delivered. According to his philosophy, functions like management, HR, finance etc. should be enablers for the people in the value-zone of the organisation. HCL changed their structure to make the enabling functions accountable to those who were creating value for the  company. He called this ‘reverse accountability’. HCL also took a radical approach to 360 degree surveys. Nayar was dissatisfied with conventional 360 degree processes because participants are either wary of the process or do not participate in a sincere way. HCL’s approach was different because: (a) they redefined it as a developmental process rather than an evaluation process; (b) they allowed anyone in the organisation to provide feedback to anyone else ; and (c) Nayar and the senior management team published their reports online to encourage transparency.  In following this approach, Nayar felt he was tapping into ‘the wisdom of crowds’ in getting broad feedback about development opportunities for individuals.  HCL made sure that this developmental 360 degree process was disconnected from the HR department and the performance appraisal process. Instead, it was conducted by a new entity called the Talent Transformation and Intrapreneurship Development team.

(iv) Recasting the role of CEO: Transferring the responsibility for change. Having come this far and having delivered exceptional growth to the company and value to its clients, Nayar focused on the sustainability of change. In this step, HCL achieved something remarkable by tapping into the values of the employees. Nayar realised that if he could engage people around their passions, beliefs and ethics they would be more likely to take responsibility for change. He was interested in engaging with the whole person. HCL worked to identify the core values of its people using custom surveys.  It then set up boundaryless Employee-First Councils organised around specific passions or interests. For example, councils were created around issues related to health, art, CSR, music etc. All the councils were run by employees. This process and the councils turned out to be hugely popular with staff – people welcomed the opportunity to be able to express themselves more. There was an unexpected pay-off for HCL too. Some councils were organised around business-related passions such as technology and many valuable business ideas were generated. Nayar realised that HCL had stumbled upon an unanticipated benefit: ‘unstructured innovation’.

This is a summary of the main points in the book. Great credit is due to Nayar and HCL for pushing the boundaries and empowering their employees to take responsibility for the success of the business. HCL’s courageous approach has paid off and it underpins the world-leading success it has achieved over the last seven years. By way of interest, I noted that HCL has been a Worldblu (www.worldblu.com) certified company since 2010.

‘Employees First, Customers Second’ is brief, just 208 pages, and is a brisk, uncomplicated read.  I am curious if we will see other large companies having the vision and courage to follow HCL’s path to success.

– Gerard

Twitter: @gerard_cpd