HCL’s CEO on its ‘Management Makeover’

Posted by Gary Hamel on August 24, 2010

A couple of weeks back I provided you with a synopsis of Vineet Nayar’s new book, “Employees First, Customers Second,” which has been recently published by Harvard Business School Press. In it, Vineet, CEO of HCL Technologies, talks about the progress his company has made in making managers more accountable to those on the front lines. Having posted my summary, I invited you to submit your questions to Vineet, and many of you did, along with plenty of piquant comments. Herewith, Vineet’s reply. He begins by providing a bit of context, and then takes on a few of the most-asked queries.

Vineet Nayar on the challenges of leading a management makeover

Transforming an organization takes you on an interesting journey, without a map. There are wrong turns, surprising discoveries and moments of both exhilaration and discouragement. Not everyone agrees on the destination – at least in the beginning – much less on how to get there. When you reach an important milestone, you risk mistaking it for your goal. Instead of stopping at that point, you need to review what you’ve collectively learned – some of it the result of passionate debate – and continue on the quest to make your organization far better than ever seemed possible.

This is the journey we’re on with “Employees First, Customers Second,” or EFCS. It is based on the realization that value – for both customers and company – is created by employees working in the “value zone,” where employees and customers interact. One consequence of this realization: Managers need to be accountable to these customer-facing employees, just as employees are accountable to managers.

It’s gratifying, and perhaps not surprising, that a concept as radical as this inspires often passionate discussion and debate within our company and without. Let me address five important questions that emerge from that dialogue:

Is EFCS responsible for HCL’s strong financial performance?

There is no doubt that HCL has recorded strong financial results during the past five years – the same timeframe during which we adopted the EFCS approach. While it is always difficult to prove correlation and causality, I would say that EFCS is largely responsible for our surge in revenue and profit growth since 2005, which transformed HCL from a laggard compared to others into a leader. The other factors that point in this direction are results of independent survey on both employee and customer satisfaction. From being nowhere in the Best Employer survey ranking in 2005 we were rated amongst the best employers in various parts of the world by various agencies including No 1 in Employee Satisfaction across all industries in India in 2009 by Hewitt. Our customer satisfaction index, based on factors such as loyalty and value received for money spent, rose 43% between 2008 and 2009 and additional 21% in 2010 based on independent survey done by Feedback Consulting. HCL was also rated as the Number 1 outsourcer in a survey produced by The Black Book of Outsourcing.

However the strongest indicator of the power of EFCS is our performance during the economic downturn. One of our proudest achievements is that HCL was among the very few IT services providers in the world that continued to grow throughout the years of the recession. HCL grew 17 % and 24% in FY09 and FY10 respectively. 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, retain customers.” We received thousands of suggestions from employees, and from those suggestions came a number of initiatives that we shared with our employees and executed on. Uncertainty and fear were reduced by transparency. And though some unproductive employees were laid off, we increased overall headcount, including in the U.S. and Europe.

As economic conditions began to improve, many companies found themselves dealing with a workforce that was generally dispirited and fearful, while ours was engaged and ready to pursue new growth opportunities.

Is EFCS an unqualified success?

Of course not. I often say that EFCS is a work in progress, a “trial and error” initiative from which we continue to learn many lessons.

Do some of our managers’ fall short of the EFCS ideal? Undoubtedly. They are human beings who make mistakes, though many will learn from these mistakes and grow as managers.

Our attrition rates are not as low as we would like, though they are better than most in the industry as per the latest results announced by our peers and us this month. Over the past five years our attrition rates have been coming down, and we expect this to continue going forward.

Does every single person buy in to a change of this magnitude? That’s never going to happen, particularly in a global organization of 64,000 employees which added 8,000 new people in just the last 3 months.

There will always be an array of responses to change, from people who seize the opportunities change presents to those who focus on its shortcomings. In the case of the change around EFCS, some people, who I call transformers, “got it” early. They saw the logic of the approach and the power in the realization that the company’s performance and future aren’t in the hands of managers but of employees.

Then there were those – people I call the fence sitters – who began to see that EFCS was yielding positive results for the company and for individual employees and so joined the transformers in supporting it. But a few employees – say, the last 2%-5% of the workforce – will never see the logic or the benefits. They have a different point of view and will never get on board.

As I said, EFCS is a work in progress – a point that we perhaps don’t make often or strongly enough, in our desire to highlight its successes. Plus, we add thousands of new employees a year, including managers from other companies with different mindsets, who are still learning and adapting to the philosophy of EFCS.

Transformation doesn’t happen overnight. But initial results make me confident that EFCS is a process worth our patiently pursuing. We are not in pursuit of perfection; our focus is simply to get better with each passing day.

Are employees really empowered?

I believe that you can divide employees into two groups: those motivated by what they receive from their employer and those motivated by what they are allowed to do by their employer.

EFCS isn’t an HR program that offers employees special benefits – say, jobs that are customized to each worker’s strengths, preferences and interests. Rather, it is an attempt to revamp the organizational structure so that employees, particularly customer-facing employees, can exercise the power and responsibility needed to solve vexing customer problems. Employees have to seize the opportunity this presents, though; it won’t be handed to them by their managers.

Employees also are empowered to initiate change. I mentioned above the various ways in which employees react to change. But I would argue that employees, at all levels, need to be not only responsive to organizational change but also responsible for it. For example, our annual planning process for FY 2010 included a review of business plans for HCL customer accounts not only by top management but by 8,000 people throughout the organization. Under the program, dubbed My Blueprint, the plans were available on a portal where customer-facing employees, who would be charged with implementing those plans, could comment on them. This produced a flood of feedback and prompted the re-engineering of several plans.

I truly believe that, as in a democracy, those at the grassroots of an organization are as much the harbingers of change as leaders at the top. Everyone isn’t always in complete agreement about the need for change or how to carry it out. But, again like a democracy, they’re charged with being active participants in the process.

What about compensation?

EFCS doesn’t directly address compensation. We did not start off by looking at salaries, benefits, incentives and all the other components of employee compensation. We began by asking more fundamental questions about the relationship between the employee and the company, including: Who creates value in the company? Are the value-creators supported as well as they could and should be? Do our employees feel that their work is important? Do they feel their efforts are valued by their peers, their managers and their customers? Do our employees bring their whole selves to work? Are they given the opportunity to use their own minds and engage their hearts in solving work problems?
The EFCS initiative is meant to provide employees with something more meaningful than financial incentives awarded for the completion of specific tasks or meeting defined objectives. It is meant to help them develop themselves as people and to make them feel pride in doing work that creates real value for the company and its customers.

That has a number of consequences. For example, we have come to think very differently about performance reviews. Rather than see them as evaluations — or, worse, judgments — of the employee’s work of the past year, we now think of them as opportunities to discuss development.
EFCS has also changed our thinking about the growth and development of managers and executives. The My Blueprint initiative, described above, broadened the review of more than 300 business plans from the senior leadership team to the people best positioned to know whether they would work – and gave everyone an opportunity to see and learn from the thinking of managers throughout the company. In that sense, EFCS, as a management initiative, has had more effect on the development of our employees than any HR program or policy could have.

That said, employees are rewarded for their ideas and initiatives, particularly those offered on the customer’s behalf. One particularly innovative example is our “Value Portal,” a platform where employees can suggest ideas that will benefit customers and which includes what I believe is a unique rewards program. HCL-ites collaborate in small teams to develop solutions for customers. These are refined and further developed by a team of senior executives, whose members represent all vertical business units and horizontal organizations. The best ideas are offered to customers and implemented with their agreement.

The employee idea generators receive points at each step of the process they reach – for example, when they submit an idea, when it is chosen for development by the executive team, when it is offered and accepted by the customer. The program is run in collaboration with I Mint, a multinational reward redemption company. Employees can redeem their points online for a variety of products and services, ranging from TV sets to gym memberships.

Can EFCS work if the CEO is not leading the change?

This is a key question. Although I have served as the champion of the EFCS change program at HCL Technologies, it is not in the sense that you might imagine. Yes, the original seed of the idea came from me, but it has been developed, detailed and put into practice by a large number of people throughout the company, starting with HCL’s 300 most senior managers, and then involving almost everyone. EFCS was not a top-down program, complete with directives and criteria and all of that; there was no traditional roll-out level by level; I did not present myself as the ultimate judge of whether or not we had succeeded. The transformation eventually has come to have the quality of a “movement” to it, rather than of a top-down campaign.

So, yes, this particular transformation had a leader and that leader was the CEO.

However, one of the goals of the EFCS approach is, as I have mentioned, to transfer the responsibility for change away from the office of the CEO and to the employees. That means that, ultimately, leaders can and will emerge who have the ability and the will to create change.

We are seeing that happen now throughout our company, and at others around the world, and I believe that the idea of institutional leadership — in which people at all levels take responsibility for change initiatives of all shapes and sizes — will continue to grow.

In addition, it’s important to remember that the EFCS journey was a management initiative that we pursued in support of a business strategy. Our strategy was to shift our business offering away from the provision of short-term, project-based, discrete IT services and to become a global partner with end-to-end service capabilities. In order to achieve that, we saw that it was crucial to enhance our ability to create value in the value zone – the place where customers and employees interact. Thus was EFCS born.

One final thought:

Change management is a complex and evolving topic. You don’t want to make the mistake of getting married to one idea or declare victory too early – simply because you’ve outgrown your competitors or garnered a few rewards.

Conversely, though, you don’t want to make the mistake of prematurely declaring failure and giving up, just because some people do not agree with you or have not seen the full impact of the changes yet. As I said, EFCS is evolving and maturing. A transformation initiative of this kind isn’t a one-time exercise – it requires constant care and feeding and courage to walk the path which you believe to be right. I believe that when you sit back and think about it, you’ll agree with me that this is the right path to walk.

Note: Vineet Nayar is CEO of HCL Technologies. HCL Technologies is also a founding sponsor of the Management Exchange, a new initiative which Prof. Hamel is helping to lead.


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