Why Indian Outsourcer HCL Technologies Puts Employees First

Since taking over as CEO of HCL Technologies in 2005, Vineet Nayar has been promoting his idea of corporate differentiation: “Employees first. Customers second.”

It’s a practice that’s worked well for HCL Technologies, whose revenues have grown from $762 million in 2005 to $2.7 billion in 2010. Nayar has worked hard to actively engage employees in the outsourcing company’s strategy and future. He went so far as to invert the company’s hierarchy so that management is accountable to employees, and he describes the reorganization in his book Employees First, Customers Second: Turning Conventional Management Upside Down.

CIO.com talked to Nayar about his “employees first” strategy, how it plays out in the IT outsourcing industry and how it benefits customers.

CIO.com: What does “employees first” mean? You say it’s about more than higher salaries or pizza parties on Fridays.

Vineet Nayar, CEO of HCL Technologies: What we’ve done is to invert the pyramid and create a star organization. Our management is accountable to employees as much as employees are to management. We do that in many different ways.

One way is our 360 degree performance reviews. My colleagues in management and I are reviewed by [the HCL parent company’s] 70,000 employees, and we make the results available on the intranet for all to see.

If an employee has any kind of problem—a transfer request, harassment by a manager, a complaint about strategy, an A/C that’s broken—they can create a trouble ticket that must be closed within a certain period of time.

We have created an environment that pushes the envelope of transparency in order to increase accountability and trust. We have democratized the organization.

What have you learned from being evaluated by your employees?

The external environment keeps changing. So the expectations for me keep changing. One year, employees will say the vision articulation is poor. The next year, the execution is poor. The third year, the decision making is poor. The fourth year, innovation is poor. Employees look at the environment around them and judge me based on [that]. That’s why it’s such a beautiful instrument. It keeps us honest and measures us against the current environment rather than some absolute environment.

Does the transparency you espouse internally extend to your customer relationships? How does that set you apart from other IT outsourcers—IBM, HP, Infosys, Wipro?

Global outsourcing vendors do not demonstrate transparency or flexibility. They are contractually driven.

We’re customer-focused, not contract-focused. We give customers transparency in pricing, in what our input costs are. We open our books. We offer transparency in performance: how many people are working on an account, what’s going right and what’s going wrong. We offer a huge amount of flexibility to scale up or down. We’re interested in developing long-term relationships, not meeting contractual requirements.

Within reason, we work with our customers. The reason we have been able to grow to a $2 billion company [during a recession] is because we present ourselves as the complete opposite of the competition.

Have you found that your customers have reasonable expectations of you?

The customer is very dependent on you [as the service provider]. The only reason they would be on the other side of the table from you is if you are hiding something or you’re not performing. As long as you’re performing, very few customers would shoot themselves in the foot by aligning against you. Most of our customers have been very reasonable—and very generous. They get engulfed in this [employees first] policy and are hugely involved in enabling and energizing our employees.

Have you thought about monetizing this management philosophy by helping your customers adopt the “employees first” approach?

We conduct workshops free of cost for boards and executive teams related to this philosophy. We offer our “employees first” tools and software to our customers free of cost. But that’s not our business.

The theory behind sharing this is that the customer will begin to see us not as an IT company, but as a thought leader. When they think of HCL, we want them to think of innovation.

If you think about Apple, for example, they have defined their core value not as customer centricity, but innovation. As long as they keep innovating faster and better, their products will find the customer. No one buys an iPad because they need it. (I’m still trying to figure out what to do with mine.) They buy it because it’s from Apple.

HCL Technologies has 55,000 employees worldwide. How do you institutionalize and sustain the “employees first” philosophy on such a large scale?

There’s a huge investment in this, particularly as we expand into new geographies and hire new people. We spend a tremendous amount of time on induction. I’ve been traveling for a month and a half talking to employees and customers, explaining what we’re doing, why we want to do it, and who our role models are.

Who are your role models?

The evolution of the family unit is one of my inspirations. Families used to be a command and control structure. Today, it’s a collaborative relationship where parents say, “I’m your friend,” and everyone has a voice. If we can harness the energy of youth and enable them to contribute, that will unleash a lot of energy.

Second, I look to religion. If you think about religious institutions, people go there, they give their money to them, and they come away feeling good. At work, people go there, we pay them, and they come away feeling bad. Why is that? What higher order do [religious institutions] appeal to so that you feel good there when you feel bad here?

You’ve talked about having held up a mirror to employees at HCL when you took over in order to motivate them, but, from a financial standpoint the image was pretty rosy: The company’s compound annual growth rate was 30 percent. What flaws were you pointing out?

I had to tell our employees we will be obsolete if we don’t change. The customer is not asking for the value we used to deliver, they’re asking for new value. And we’re not ready.

It’s easy to gloat about the fact that we have been successful. My job is to say you are one inch from being obsolete. It’s not about that 30 percent growth. I have to create dissonance. We went from 30 percent growth to 35 percent growth, but what’s more important is to look in the mirror and see where you are aging. It can’t be a one-time exercise. It has to [occur] annually, weekly, daily. The mirror says it all.

How do you go around telling employees that despite their hard work, they are on the edge of obsolescence, without crushing morale?

It’s a challenge. It can sound like moaning or groaning if you don’t create a positive culture around it.

You have to decide what business you’re in and what you feel good about—the past or the present. A diamond cutter gets excited seeing a rough diamond. Steve Jobs isn’t excited about the iPad; he’s thinking about the new stuff. You climb the Himalayas not to say you’ve arrived, but because you enjoy the experience of climbing the mountain. You have to be excited about taking on challenges. Slowly the company is changing itself, and employees are excited to be the first on the block to do something.

You say CEOs are becoming irrelevant. But judging by their salaries, they’re still valued many times over the “average” employee.

What CEOs do today is irrelevant. CEOs are very important. They’re the head of the institution and have to have a lot of competence to be there. They are a company’s most valuable asset.

But they have to understand that if they continue to run their companies the way they always have, they will be obsolete. If you’re doing the same thing you did five years ago, is it relevant anymore? You are still the organization’s most valued person, but what the company expects from you today may be very different.

I’ve talked to 56 boards in the last six months about our management philosophy. It think [the fact that they ask me to come] shows that companies want to move away from the command and control structure to a more collaborative environment. CEOs are very smart. They understand that what they’re doing is irrelevant, and they’re starting on this journey of self discovery. That’s encouraging.