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HCL: Extreme Management Makeover

Posted by Gary Hamel on July 6, 2010

How’d you like to put a question to one of the world’s most inspired management innovators—a CEO who’s challenged a host of management orthodoxies? At the end of this post, I’ll explain how you can do just that.

As regular readers of this blog will know, I believe that many of the tools and methods we use to manage people at work are ill-suited to the challenges of succeeding in today’s “creative economy.” All too often, legacy management practices reflexively perpetuate the past—by over-weighting the views of long-tenured executives, by valuing conformance more highly than creativity and by turning tired industry nostrums into sacred truths.

Fair enough, you might say. Everybody knows there are downsides to management-as-usual, but are they any alternatives? We can dream about organizations where employees eagerly challenge their superiors, where honesty trumps deference and where the pyramid has been turned upside down—but then again, we can also dream about world peace and cold fusion. That doesn’t mean they’re achievable.

This sort of skepticism is understandable. After all, the technology of management varies little from firm to firm. Given that, it is easy, and rational, to assume that the management status quo is also the status optimus—that while there may be other ways of planning, coordinating and controlling, there aren’t any better ways—at least not for organizations that must contend with demanding investors and customers.

Nevertheless, before surrendering to this premise, we should remind ourselves that dogma often masquerades as truth, and that we are often comforted by the deception. There are many who would prefer a lazy ramble along the gentle contours of the tried-and-true then a hard scramble up the rocky incline of the untested and unproven.

Vineet Nayar, however, is a scrambler, and since taking on the top job at HCL Technologies (HCLT) in 2005, he’s been working to foment a genuine revolution in its management practices. (A note: HCL Technologies is also a founding sponsor of the Management Exchange, a new initiative which I’m helping to lead.)

I first met Vineet in the Spring of 2008, when he accepted an invitation to participate in a conference I was organizing in California. Half a minute into our first conversation, Vineet boldly proclaimed:

“We must destroy the concept of the CEO. The notion of the ‘visionary,’ the ‘captain of the ship’ is bankrupt. We are telling the employee, ‘You are more important than your manager.’ Value gets created between the employee and the customer, and management’s job is to enable innovation at that interface. To do this, we must kill command-and-control.”

Vineet’s fervor was palpable—and a little weird. Revolutions don’t usually start with the monarchy. I couldn’t help but wonder, was he actually backing up his revolutionary rhetoric with action? Over the following months, I was able to dig deeper into HCLT’s pioneering management model and I discovered the answer was “yes.” But why believe me? Vineet has written a short and illuminating book on HCLT’s radical management makeover—so you can judge for yourself. In the meantime, here’s my take.

“Employees First, Customers Second” chronicles a journey that most management experts would have regarded, at the outset, as a quixotic—how can you create a company that feels more like a community than a bureaucracy and operates more like a democracy than a hierarchy?

The story, of course, didn’t start with a grand quest—it started with a practical problem—how do you kick growth into high gear? In 2005, HCL Technologies was a 29-year old, Indian-based IT services company with $700 million in sales and 30,000 employees. Over the previous five years it had been growing at 30% per annum—not too shabby by most benchmarks, but not fast enough for HCLT to keep pace with its primary competitors.

As a first step in diagnosing the company’s sub-par growth, Vineet met with thousands of HCLT’s employees in groups large and small. He launched each meeting by acknowledging what many had been reluctant to admit—HCLT was slowly becoming irrelevant. With each point of lost market share, it was going out of business. Having disrobed the elephant, Vineet asked his listeners to be equally forthright in analyzing the company’s shortcomings. The exchanges were brutally frank and as they unfolded, two conclusions started to take shape in Vineet’s mind.

First, HCLT was in a service business and it was first-level employees, not managers, who played the most critical roles in creating value. As Vineet saw it, the world was filled with customers who had knotty business problems, but those problems could only be solved by creative and highly engaged team members. For HCLT, the “value zone” lay at the intersection of employees and customers. That’s why the most important decisions for HCLT’s future were the ones taken each day by front-line employees.

Second, as Vineet would later write, HCLT’s top-down management model “exalted those with hierarchical power rather than those who created customer value.” This meant that the company’s management processes were better attuned to the needs of control-obsessed executives than of customer-obsessed employees. “The archaic pyramid … was shackling people and keeping them from contributing all they could and in ways they longed to.” This was particularly true for HCLT’s young, tech-savvy employees. Having grown up on the web, they valued collaboration and mistrusted hierarchy.

In retrospect, these conclusions were hardly earth-shattering. Front-line employees are critical in any business that delivers a complex service, and bureaucratic processes always stifle imagination and initiative. Yet in most companies, these realities don’t turn sober-suited executives into rabid management heretics. Usually, CEOs opt for half measures—they encourage middle managers to spend more time with customers, jack up rewards for employees who exceed expectations, dump more money into training and push for more knowledge sharing among client teams.

Vineet, on the other hand, knew this wouldn’t be enough to turbocharge growth. There was only one course to follow—it led uphill and was pockmarked with unanswered questions. HCLT would have to invert the pyramid. Anything less would be quickly imitated by competitors. Although he hadn’t thought through the particulars, Vineet got to work selling his vision. In setting after setting, he made the case for “employees first, customers second.” HCLT, he argued, needed a new management philosophy based on the principle of “reverse accountability.” Managers should be accountable to those in the value zone, just as employees were accountable to their managers.

At first, many wondered whether EFCS was simply a morale-boosting bromide concocted for internal consumption. A big wodge of that skepticism disappeared, though, when Vineet took the podium in February 2006 at a gathering of HCLT’s largest clients. He laid out the logic for putting employees first, and argued that the new approach will ultimately pay big dividends for customers as well. That evening HCLT’s share price went down by 8%, but thousands of employees who had heard the speech by webcast went to bed knowing that ECFS was more than a slogan.

Over the next five years, Vineet and his team would clamor up the path of management innovation one craggy step and jagged handhold at a time. Among the most important (and estimable) changes were . . .

– Transparent Financial Data. Vineet realized it’s hard to feel empowered if your manager has a lot of data you don’t. With this in mind, HCLT’s IT team created a simple widget that gave every employee a detailed set of financial metrics for their own team and other teams across the company. Suddenly, poorly performing teams had an incentive to improve, and high-performing ones to stay on top. Another benefit: employees now had positive proof that the company was willing to trust them with strategic information. “Need to know” had become “right to know.”

– U&I. Early on, Vineet and his leadership team set up an online forum and encouraged employees to ask tough questions and offer honest feedback. Nothing was censored on the “U&I” site; every post, however virulent, was displayed for the entire company to see. Vineet recalls that in the beginning, “virtually 100% of the questions were dirty questions. ‘Why do you guys suck?’ ‘Why does your strategy suck?’ ‘Why aren’t you living up to your values?’’ While some managers bemoaned the fact that the all of the company’s soiled laundry was now online, employees lauded the forum as a symbol of HCLT’s commitment to transparency and as another way to hold top management accountable. The U&I portal had another value: it was also an early warning system for critical issues facing the company.

In 2009, Vineet opened up a “My Problems” section on the U&I site where he could solicit advice on the crucial issues he was wrestling with. His logic: while he wanted managers to feel more accountable to the front lines, he also wanted employees to feel a sense of responsibility for tackling the big thorny issues that faced the top management team.

– Service Level Agreements. Powerful corporate departments, like HR and finance, often seem more interested in enforcing blanket policies than in making life easier for employees. When Vineet would ask front line employees, “What have the enabling functions done to help you create value in the value zone?” he was usually met with silence. When it came to interacting with these functions, most employees were mere supplicants—a situation that was hardly empowering. The solution: a web-based “Smart Service Desk” where any employee could open a “service ticket” if they had a complaint with an internal staff group. Once opened, the ticket could only be closed by the concerned employee, once their issue had been resolved.

For their part, the staff functions were charged with ensuring that open tickets were dealt with on a timely basis. Once issued, a ticket can only be closed by the concerned employee, and if that doesn’t happen within 24 hours, the ticket gets escalated up the line. At the start, the system was flooded with 30,000 tickets per month—a number which has subsequently declined. At HCLT, the Service Desk system has produced three key benefits: first, it has made staff departments more accountable to those in the value zone; second, it has leveled the playing field for employees—everyone’s concerns now get handled quickly and efficiently, regardless of rank; and third, it has generated a raft of data that has been used to improve HCLT’s internal policies.

– Open Evaluations. Just about every company has its own version of a 360 feedback process. Nevertheless, Vineet saw several problems with HCLT’s off-the-shelf approach. First, it didn’t focus explicitly on how managers were impacting those in the value zone. Second, employees fearful of retaliation often pulled their punches when reviewing their supervisor. And third, the fact that feedback could only come from one’s immediate colleagues tended to reinforce long-standing organization silos.

Today, HCLT employees are able to rate the performance of any manager whose decisions impact their work lives, and to do so anonymously. These ratings are published online and can be viewed by anyone who has submitted a review. This visibility challenges managers to be more responsive and exercise their authority judiciously. The number and organizational scope of the reviews a manager receives are also a good indicator of an individual’s zone of influence—is he or she adding value across a wide swath of the company, or only within a narrow sphere? Importantly, this “feedforward” process isn’t connected to compensation and promotion decisions. It is purely developmental. Nevertheless, there aren’t many hiding places left at HCLT for mediocre managers.

– MyBlueprint. With HCLT’s growth now accelerating again, the company’s planning process was starting to become unwieldy. As the CEO, Vineet was being asked to weigh in on hundreds of unit-level plans each year. Recognizing the limits to his time and personal expertise, Vineet challenged his colleagues to develop an online, peer-based evaluation process. The solution: MyBlueprint. In 2009, three hundred managers posted their business plans, or “blueprints,” online. Each document was accompanied by an audio presentation. More than 8,000 employees were then invited to jump in and review the plans. The result was a torrent of advice and counsel. The horizontal nature of the process helped highlight opportunities for cross-unit collaboration and gave business leaders the chance to learn from interested peers throughout HCLT. At the conclusion of the exercise, nearly everyone agreed that the new process had been vastly more valueable than the old, top-down review.

– Employee First Councils. The goal here was to help employees connect with team members who shared similar interests and passions. Supported by a web-based platform, the new initiative rapidly spawned a host of communities around cultural, recreational and job-related issues. Each Council was asked to elect its own leader, and today, more than twenty-five hundred employees serve in that role. Vineet’s team also launched thirty-two issue-specific councils focused on key business and technology issues, such as cloud computing. These loosely structured teams quickly demonstrated their value and have become a critical source of new ideas and strategic insights. When one of the councils reaches a consensus around a particular recommendation, it is transferred to a dedicated group that pushes the idea towards execution.

In one recent conversation, Vineet talked to me about the logic for the online communities: “We wanted to overturn the notion that there’s one person who can make a key decision, who has the power to say yes or no. Instead, we wanted to gravitate towards communities of interest—these could form the basis of a parallel organization. Three years after launching this concept, 20% of HCLT’s revenue is coming from initiatives launched in these communities of interest.”

While EFCS is still a work in progress, the notion of reverse accountability is now firmly rooted within HCLT. There’s still a hierarchy, but its role has been dramatically diminished.

Says Vineet, “We all believe that democracies are good and totalitarian systems are bad, and yet we tolerate dictatorships within our companies, even though the people at the top don’t have enough information to know what needs to be done. At HCLT, we have been trying to democratize our company.”

Does management innovation pay? Everyone I’ve spoken to at HCLT seems to think so. They credit “Employees First” with much of the company’s recent success. Since 2005, HCLT’s revenues and earnings have tripled, a peer-beating accomplishment. In FY 2010, which ended in March, HCLT out-grew its major Indian competitors by 21 percentage points. Between 2006 and 2008, employee satisfaction grew by 70%, and in 2009, HCLT was ranked as the best employer in India in a biannual survey done by Hewitt Associates, an HR consultancy.

Of course, none of this guarantees that HCLT will continue to thrive in the years ahead. There are lots of ways a successful company to can screw up—and not even a killer management model can protect a corporation from all of them.

Nevertheless, if a $2.5 billion company can invert the pyramid and live to tell about it, then we have to admit that there really are alternatives to the management status quo—and that’s amazingly cool. Turns out, we don’t have to content ourselves with a management model that was designed to serve the interests of ancient military commanders and smokestack-era CEOs.

Two quick, concluding thoughts: Vineet is right: The world has become too complex for the CEO to play the role of “visionary-in-chief.” Instead, the CEO must become a “management architect”—someone who continually asks, “What are the principles and processes that can help us surface the best ideas and unleash the talents of everyone who works here?” Today, as never before, the world needs leaders who refuse to be seduced by the fatal allure of the familiar.

Second, it really is possible to change the management DNA in a large, established company—and this is where Vineet’s book really shines. It not only covers the what of management innovation, but also provides deep insights into the how. When you dig into “Employees First” you’ll learn that it’s possible to reinvent management without blowing up the existing management system, without having a detailed master plan at the outset and without taking inordinate risks. If you’re a would-be management renegade—this means you’ve just run out of excuses.

So, dear reader, having read about HCLT’s extreme management makeover, what questions would you like to put to Vineet? Post them below, and I’ll pick five for Vineet to answer in my next blog post.

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