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Marshall Goldsmith

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Changing the Hierarchy - A Conversation with Vineet Nayar of HCL

Posted: 10/15/10 04:31 PM ET

Vineet Nayar, CEO of HCL Technologies, has written a book that describes how he defied conventional wisdom that says companies must put customers first, and helped make HCLT one of the fast growing and profitable IT service companies in the world. In doing so, he has grabbed the attention of the business community, and turned the hierarchical pyramid upside down by making management accountable to employees, not the other way around

Following is an excerpt from a recent conversation I had with Vineet Nayar, CEO of HCL Technologies and author of the recently published Employees First, Customers Second.

Why did you write Employees First, Customers Second?
One of the central tenets of the Employees First, Customers Second philosophy is that leaders, including CEOs, often cause more harm than good by trying to "lead," a term that traditionally means making all the key decisions on company direction, strategy, etc. The major shift introduced by EFCS is that while, sure, managers still have authority to make final decisions, those decisions must be informed by knowledge that only customer-facing employees have. So the job of management should be to do everything we can to enable those employees in the value zone -- the ones who create real value for the customer every day -- to have all the support they need to not only meet customer needs, but also to anticipate them and be creative in developing and implementing solutions for them. I believe this is a critically important point in this day and age. It's at the core of why I felt I had to write this book.

The approach that I believe is needed is, fundamentally, a much more democratic way to structuring and running a company, and it was to get this idea across -- or at least, to give it a fair hearing -- that I wrote the book.

What is the one thing you want readers to take away from this book?

I hope that readers will agree that existing command-and-control structures used by many companies should go the way of the dinosaurs. The top-down pyramid is inflexible, it inhibits creativity and the flow of information through a company, and it's extremely costly when you consider the opportunities lost due to the delays and mistakes in execution that result from having layers of bureaucracy that don't add value to the deliverable. Maybe the solution is an Employees First one; maybe it's something else. But the traditional organizational pyramid needs to become, like the Egyptian pyramids, relegated to history. If I can convince readers to think about this, and about how EFCS has the potential to make a difference to employees and customers both, and to debate its merits against other possibilities, then the book will be a success in my view.

Could you expand a bit on what you mean by saying EFCS is more democratic? Isn't that a strange term to be applying to any business entity?

Absolutely, it's strange! But it's also the best way I can think of to describe the EFCS philosophy. It is more democratic than the traditional command-and-control, top-down pyramid organizations we've seen in companies for the last several hundred years. In an EFCS-oriented company like HCL Technologies, the CEO is more like a U.S. president: someone whose job is to serve the people -- in this case, employees -- instead of just calling the shots like a despot who thinks he's omniscient. This may seem a minor change, but it's really a fundamentally different way of conceiving how modern companies should be structured.

Whom do you most hope to reach through the book?

My primary target is young managers, because they still have the time, the flexibility and -- I hope! -- the open-mindedness to consider a different way of thinking about and doing things. Also, I think younger managers are from a generation for which EFCS will seem almost natural rather than odd. That's because transparency is a huge part of EFCS, and this generation is the most transparent in history, in terms of their willingness to let the world in on what they're doing. I'm referring here to the Gen Y'ers, for whom Facebook, MySpace, Twitter and all the rest are second nature. They expect to be able to learn everything about the people they work with, and for you to be able to learn everything about them. For them, that kind of transparency is the basis for trust.

We employ that same idea in EFCS, where transparency -- about a company's strategic plans, how well its support functions are working and how well its executives and other managers did on their annual 360-degree reviews--is the key to building employee faith and common cause with the organization. While this kind of transparency in a corporate setting probably seems crazy to many old hands, to today's Gen Y managers, it makes perfect sense.

Despite your book's title, shouldn't employees and customers be at least equally important?

Everyone I've talked with has asked that question. Everyone, that is, except HCL's customers, who have seen EFCS in action and can appreciate its benefits. The fact of the matter is that, at the end of the day, the customer is better served under EFCS than the old top-down approach, because these days, how a company delivers its goods to its customers is often even more important than the particular products a company sells. While I won't say this is universally the case, it's certainly true in industries, like technology, where products have largely become commoditized. When that's the case, the value zone becomes everything, because that's where your employees can learn what it is, now, today, that the customer needs to be ready for next year, the year after that, and so on. In an EFCS company, those employees are empowered to do whatever is needed to respond to that need, instead of just pushing whatever products happen to be their company's flavor of the week.

Isn't the advice in Employees First primarily valuable only to tech companies, where technologies change rapidly, as opposed to other kinds of service companies like hotels, or old brick-and-mortar manufacturers?

While the effects of rapid change may be most evident in technology companies, I don't think they are limited to the tech industry at all. Think about medical products manufacturers, pharmaceutical companies, automobile manufactures and the like. All of them live and die by customer needs and preferences and all can have very long -- and expensive -- times to market for new products. In these situations, and in many others I believe, an EFCS approach will deliver tremendous value by bringing more knowledge to bear on these challenges -- knowledge and creativity that can only be found by customer-facing employees empowered through an Employee First approach. I'm not saying this is a panacea for every company or industry or problem, but it's a powerful approach that I believe far more companies would benefit from than not.

Are there geographies where you think EFCS has more resonance? Any where it does not apply?

From my own experience at HCL Technologies, it seems to work across all geographies and customer sets. We're fortunate in that HCL has operations in dozens of countries around the world, including all across the United States and Europe, and clients of all sizes and shapes. We've seen the principles EFCS working across all of these markets. The proof? We have not lost a single client since we began to follow the Employees First approach in 2006. And our growth, which reflects the attractiveness of our ideas to prospective customers, has been among the best in the industry. In fact, from 2005 through 2009 we increased our number of $20 million-plus customers fivefold, and we won 70% of our new deals against the Big Four global IT companies -- IBM, Accenture, HP/EDS and Fujitsu. So from our own experience, you have to say that EFCS has been a success across everywhere we've tried it. In addition, a number of the world's most successful companies -- like Google, SAS and Southwest Airlines -- have implemented employee-centric policies that resemble aspects of EFCS. So the effectiveness of the fundamental basis of the approach seems difficult to argue with.

What's been your biggest challenge in putting the EFCS program in place? What continues to challenge you?

In our case it was probably convincing people that we actually needed to change the way we were doing things. At the time, back in 2005, HCLT was, as it remains today, a leading IT company. We were enjoying an extended period of robust growth, but we were vulnerable: we were slowing down and our competitors were speeding up. We'd become complacent and happy to sit on the laurels of our past successes. In other words, we were doomed and didn't know it.

Again, though, if you've read the book, you know that some employees in the book were worried but had been afraid to speak out. Those folks -- primarily employees in the value zone -- knew we'd lost our edge. My biggest challenge was finding this out -- through a process described in the book called Mirror Mirror -- and then convincing those satisfied with the status quo that we had to change, even when, on the surface, everything looked okay.

In the book you talk about making "360-degree" reviews public, for everyone else in the company to see. Have you experienced any blowback from that decision?

We gave our managers the option of making their reviews available on our employee intranet, and most of them have elected to do so -- as I do. Not surprisingly, when everyone who gave you feedback in a 55,000-plus employee company can see your review, you get some feedback that bruise the ego, and some that may even be unfair. But on balance, the benefits gained from this kind of transparency in terms of increased employee loyalty and commitment to the company, and in constructive professional development for the manager, far outweigh, in my view, any negatives.

Don't you worry that if you truly succeed in turning the pyramid upside down, you will be out of a job?

There's a sense in which that's actually the goal of EFCS, at least in the ideal. Do I expect it to happen? Probably not, at least not in the short term, because in reality, as I mentioned earlier, someone needs to be at the helm to "guide" the ship -- that is, to ask the right questions and help make sure that resources are flowing towards the value zone -- even if that someone is only effective if his crew, the employees, are behind him. That's certainly the case with me. I do post my 360 feedback ratings for all HCLT employees to see, and I've promised that if my ratings drop below a certain point then I do loose the employee mandate and should, thus, not continue in my position as a CEO.

 

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