Employees First, Customers Second

Vineet Nayar: I think the fundamental questions we asked ourselves in 2005 is that we are standing on a ledge of a building and the building is on fire, and by the way that is true with most companies today, and the only truth about today, the companies and us in 2005, is that we did not notice that the building was on fire because we were locked up in our concept of the past. So when we decided that the only way to get out of the position is to transform, we had two choices; one, what we do, doing a wait, and doing a wait on a new paradigm on how we run our companies, and we believed that if we adopt the Blue Ocean Strategy in rethinking how we run our company we could actually create a completely different shift. Then we thought about what are the fundamental four questions we need to ask about innovation, and the first question we asked is "What is the core business we are in?" And the answer to that is that we are in the business of creating innovation and value for our customers, which is different and more than our competitors can achieve.

The second question is "Who is creating that innovation and value for the customer?" It is getting created in the interface of our employees and our customers. Who's creating it? The employees are creating it. So then the fourth, fundamental question was that "Hence what should the core business of the company be?" And the answer to that question was to encourage, enthuse, enable the employees to create the value they create for the customer, and that is the genesis of Employees First, Customers Second. So in 2005 it was an idea, and then we went through multiple experiments to implement it, and that was the final phase. The result came actually in recession, so from 2005 to 2010 we became the fastest growing company, Business Week, Fortune, all that, recognized that, but in recession we stayed true to our Employees First, Customers Second philosophy, that resulted in our growth of 20% year on year in recession and a net head count addition including in the US and Europe, and that became the real proof point of Employees First, Customers Second.

Rachel Salaman: How do you know that that growth was down to your Employees First, Customers Second?

Vineet Nayar: I think this question was very relevant from 2005 to 2008, because there was a mix of strategies, mix of environment, and therefore we could not clearly say that our outgrowing our competition was because of Employees First. When recession came in there was no new service, there was no new product, it's just the fact and the budget for our customers were going down. So in a scenario where the budget for our customers is going down, why would they take money out of somebody else and give it to us so that we can grow? That can only happen if they love the employees and the employees are creating huge value in that zone, value zone, and it still is the answer to their problem and not the problem itself, and in my mind all that can only happen if it is the Employees First working in that value zone rather than any other idea.

Rachel Salaman: In the book you say that your customers didn't really mind when you told them you were putting them second to employees, why did you feel you had to tell them that?

Vineet Nayar: I think the issue is that when we said employees first and we had to say customers second, the idea originated from the customers, the idea said that the only reason we buy from HCL is because of the passion in the eyes of employees, and when I started hearing that more and more, and when customers started participating in the employees more and more, it suddenly dawned on me that it is not Vineet Nayar or it is not my managers who are creating the magic, the magic is being created by these employees, and these employees is the true value the customers see. So when we said that therefore me, as management, will be accountable to our employees, who are the most important thing we deliver to you, the customers loved it, and therefore the first time we talked about this concept of employees first and customers second, in that order, was in a conference, and I said very clearly to the customers, "We will play no golf with you, we will do less dinners with you, but we will take care of your most important asset, which is your employees," and the customer loved us for that.

Rachel Salaman: Your implementation of this strategy, Employees First, Customers Second, had four phases, the first one you call Mirror Mirror, what did that entail?

Vineet Nayar: I think what really happens is that if you take any large revolutions, like Martin Luther King, Mahatma Gandhi, Nelson Mandela, in my mind they did three things, they did three phases, which is very interesting. Phase One is they created dissatisfaction with today, Phase Two is they created a romance of tomorrow, which is very compelling, so that you will leave what you are doing today and want to go to the next phase, and Phase Three is the defined small catalyst action to go there. Phase One is Mirror Mirror, how do you create dissatisfaction with today, otherwise all of us are locked up in a rear-view mirror. We're happy where we are as a company, it is fine, in 1932 I did this, in 1964 somebody did this, and therefore we are this 100 year old company and extremely proud of what we are. It doesn't matter we are irrelevant today, it doesn't matter we're losing market share and mind share because we are this traditional 100 year old company. That happened to it still and that is happening to a lot of companies. So how do you keep yourself current? How do you convert recession kind of threats into opportunity? By putting a mirror off truth in front of you and saying "Honestly, tell me where you are," and when you honestly admit that, then the transmission and change is very easy.

Rachel Salaman: So how do you do that?

Vineet Nayar: I think the way you do that is by speaking the truth. I give an example that, you know, for a long time I had not aged, I am still young but I believed I had not aged, and therefore you spend a lot of time, you know, fighting that argument that maybe you are becoming old, your hair may be getting white, and the day that crossover happens, that what I do is more important, what I say is more important, rather than how I look is more important, the moment that crossover happened, it happened because I admitted to myself the truth of the situation. So we share all our data transparently to everybody, we admit very clearly in our company and celebrate our weaknesses, we openly talk about it, we do not slice and dice the data for it to look good, and therefore the basis of our organization is on truth, and therefore nobody has an alternate view that there is a different truth, and therefore the mirror is shining very strongly on the management, on the financial numbers, on the employee performance, on relative performance, and our market share, our relative market share, everybody knows everything in our company.

Rachel Salaman: In the book you say that during this initial phase you came to understand the influence of the Generation Y employees, the people who are around 30 or under, could you explain what that influence was?

Vineet Nayar: So what was happening during this transition phase is in my house two teenagers were growing, and these teenagers were teaching me a lot. I come from a command and control of house where, you know, my father told me to do engineering and that's exactly what I did, and I tried to tell that to my son and he said "That is exactly what I will not do," and I asked him why, he said "Because you told me to do that." So I could see that the Generation Y of today is different, it's not about good and bad, it's different. Now what is the difference? Different is 50% of the world population is Generation Y, Generation Y is more collaborative than competitive, their way of consumption is different, their way of learning is different, their ability to engage on eight different tracks simultaneously is different, the way they get influence is different, and the moment they come into an organization we say "Forget about Generation Y, you were collaborative, now we want you to compete," because we draw this bell curve which HR manager has drawn and then the top 5% and the bottom 10%, "We're going to evaluate you, right," so the environment is very different. Now if the world's future lies with Generation Y, because that is the only human capital raw material which is coming into your organization, should Generation Y adjust to the organization or should the organization adjust so that we can capitalize on this human capital? That was a point I was making in Generation, and within my house and all my friend's houses we were changing ourselves, we were telling our sons and daughters that we want to be your friends, right, tell us everything, the first time you have a girlfriend or boyfriend come and tell us, and everything is okay and we will collaborate, then everybody will have equal voice in the family, and we will go to the office and we will completely disbelieve that philosophy and we will behave in a very autocratic fashion. And that's the reason I said "That's double standards," because they see my kids are going into the company and they expect the same way of behavior as is happening in the family to happen in the organization. That was the importance of Generation Y, changing organization structures.

Rachel Salaman: And how did that realization change your company?

Vineet Nayar: I think the first realization that changed the company is that true value is being created at the bottom of the pyramid, as I said earlier, in the value zone, the employees are creating it, and therefore it is important to make management accountable to the employees in the value zone. So the way you have to imagine this is there is a pyramid organization which is for control, right, because the organization has to stay in an environment and therefore they have to behave responsibly, and therefore there is a control pyramid. Then you invert the pyramid and create a value pyramid. In value pyramid the management is accountable to the employees, because the management has to be in the business of encouraging, enthusing, enabling the creation of value by the employees in the value zone. So you create an inverted organization, and then what you do is you create concentric circles around each employee so that the employee is participant in a job, he's participant in area of interest, he's participant in an area or learning, and therefore there are multiple things an employee is doing, and he's breaking the hierarchy and participating in six or seven or eight different interest groups, so that he's passionate about coming to the company and he just doesn't come to the company for employee satisfaction. So that is the changing journey we have implemented and are continuing to implement, so that our organization gets more ready, its more social media, social network, more Facebook kind of an organization, so that it can enthuse, empower, unleash the potential of Generation Y to the problems our customers are facing.

Rachel Salaman: One of the innovations that you implemented which is related to this is the You and I portal. What was the thinking behind that, and what effect did it have on building trust within the company?

Vineet Nayar: So once we decided that we have done Mirror Mirror, and the fact that we are not looking the prettiest of all, it was very clear to us that we need to change. I come from an agriculture background, and I knew that you cannot sow rice when its time for wheat and you cannot sow wheat when its time for rice. So the readiness of the swell, to plant something, is very, very critical. I was very clear that the organization is not ready, as most organizations are not ready, the trust-caution between the employees and the management is at its poorest, and it was at its poorest in 2005. How do you create trust? You create trust in multiple ways, but I believe that you can create trust by pushing the envelope of transparency. If you can demonstrate huge amounts of transparency you will be able to create large amounts of trust, and in my mind there were small catalyst actions which enable you to do that. So the first catalyst action which I thought about was the fact that if I can, in an open environment, all employees can ask questions with their names and I can answer the questions, and the entire Q&A is available publicly to all employees, the first thing which would happen is that the employees will feel that the management is willing to answer to the question. Now I made a wrong assumption, as it is true with many other things I have done, I always get things wrong first, and then somebody corrects it and gets it right, and then I take the credit.

So what assumption I got is that it will have a mix of positive and negative questions, so therefore the feeling which will be communicated to the company is a lot of positive and negative combined, but what happened was there was an onslaught of negative questions, right, huge number of negative questions came in, and I was very depressed because I was working very hard and the huge amount of negative questions coming in, and I said that even people who are positive will start turning negative, and therefore it's a ridiculous idea, and I wanted to pull the plug on the idea. Then I asked myself a couple of fundamental questions; number one, if I am committed to Employees First, then is this not Employees First, and if this is the real environment on the ground then why am I going to pull the plug, question number one. Question number two is, are employees such a fool that the fact that he sees some negative comments and he'll get demotivated? So I went out and talked to a few employees and said "What do you feel about all the negative comments coming on You and I?" He said "It's very motivating." I said "Why is it motivating?" He said "First, all the conversation and gossip has gone away from the canteens and moved into You and I, number one. Number two, you are coming out and saying "I don't know? for most of the answers because they're tough, tough things to solve, and you're transferring the ownership to the employees to change.

"Number three, which is most important, is that any time somebody makes a negative comment on the portal, a group of people climb on him and say "Hey, you talked about that and this is our perspective on this.? So actually we need", this is a very interesting comment, "Actually we need, you think your answer is important, but it is the most inconsequential thing which happens in You and I portal. The moment that employee asks the question, there are multiple people who go and give their perspective to him, so actually by the time you answer, because you are too slow, right, the employee's already got the answer he's looking for." So these are what I call multiple perspectives to this, but you have to experiment with new ways to build transparency, and You and I was one such way to build transparency.

Rachel Salaman: Another one during this phase of building trust was opening up the financial books. What were the issues around that?

Vineet Nayar: See, the issue around that is I believe in a high performance organization. The intrinsic desire for anybody who comes into your organization is to perform. I don't know why we assume that we need to either pay people more or use a stick or give motivation speech for people to perform. People come to spend eight hours or 10 hours in an office because they want to feel successful. Now, how do you make people feel successful? By showing them whether they are or they are not, so that they don't assume that they are and they are not, so that's a first. Number two, what really happens in the organization is they are part of a bigger organization, they're not part of a small team, so they want to know whether the organization is successful or not successful, and they also want to know whether there are some other teams which are successful or not successful. So in my mind it was very clear that even if competition gets a wind of the data, what are they going to do about it? If we are the biggest in media publishing entertainment, we are very big and very good and we are modern infrastructure management, are very good at asset implementation, and the competition comes to know about it, what are you going to do about it? You can't do anything about it. So yes, some information will leak. Let me make a point out here, with any catalyst action which we have implemented in HCL, you yourself can come up with 10 different ideas to do it, so by all means do not implement things which we have done in HCL. The point is, the bigger point, that the only way you can create trust is by transparency. We use the financial data because we thought it was the most important thing, of creating the transparency, and it was, it turned out it was, because the employees did not feel that we are open enough, and we thought that we are in a position when we do that we will cross the hump. We did that, and I think we took the risk, and I think it turned out to be a good risk to take at that particular time.

Rachel Salaman: You talked earlier about the third phase of the process, which is called Inverting the Pyramid, about making managers accountable to employees. One of your innovative tools that you used to achieve this was a system called The Smart Service Desk, can you describe how that works?

Vineet Nayar: So what really happened is that the whole organization structure idea started with armies when they wanted to run and acquire a lot of territories, and the commander of the army figured out that he has only one sword and the soldier which he commands has 10,000 swords or 50,000 swords, therefore he redefines his business, not to be the best fighter but to be the best strategist and in the business of enthusing, enabling, encouraging the soldiers to outfight everybody else. So you always have seen in history smaller armies beat the larger armies because of the motivation of the employees. We adopted that structure in learning commercial organizations like ours, how we created this department called The Enabling Departments, and the whole business of enabling, enthusing, encouraging the troops, which his the most important thing in life, we forgot about it and we just wanted to command and we just wanted to take all the benefits of that command, because I've worked 20 years to get into my seat and I'm going to demand the rights of that seat, and the work we needed to do for the troops, we gave it to the enabling functions.

The moment we created enabling functions, enabling functions created power centers around themselves, rightly, some rightly because of the new control regimes, some wrongly because nobody else wanted to do it and they created a department, they started adding more people. From an employee point of view the service which he was supposed to get from the organization started reducing. So first the commander was giving him the service, then his deputy commander was giving him the service, and now suddenly the enabling leader was giving him the service, and then suddenly it came down to some low-level guy in the enabling function who, at his whims and fancies, will give different quality of service to the employee. We said "The first thing which we have to do is we have to make the entire enabling function and the management accountable to the employee, how do we do it in a sophisticated fashion?" Since we are an IT services company we wrote a small tool, where an employee can log onto the network, enter a trouble ticket, that ticket will open on HR or finance or administration or training or talent or wherever it is, and now those guys start running; they have to close the ticket in a particular period of time and then send it back to the employee, the employee says whether he is happy or not happy. All that data is electronically available for us to do the analytics of it.

There is an interesting story behind this. The first time we did this 30,000 tickets came out, and I was extremely happy of the fact that a lot of these transactions would have gone unsolved and now we are solving it. Then one employee really pointed out to me is that 30,000 tickets means that its not that we're solving too many problems, we have too many problems, and that is the time we moved towards zero tickets, so that if there is a group of issues they should not reoccur, and we moved a lot into analytics. So we are almost a real-time organization right now, we have the pulse of the people, we have the pulse of the issues, and we have proactiveness in the way we deal with our employees so that issues do not come up.

Rachel Salaman: You also did some innovative work around feedback systems, what did you think was wrong with the existing system and how did you improve it?

Vineet Nayar: So I don't know how this started, but suddenly being a manager, the ability to have control on the employee became very important. Your ability to hire him, fire him, promote him became very important, and then came this. How do you do it? You want to justify your actions, you brought this appraisal system or performance measurement system, and when the performance measurement system came in you brought all kind of analytics tools around paragraphs and charts and quadrants and all that stuff happened, and you justified your decisions based on that and not really realizing whether you have the full human being considered while you're taking a decision. In all this evaluation your contribution and your value-add and your teaching to the employee and you're helping him to become successful was there, but it was largely getting ignored. So we said "There are two parts to an evaluation," evaluation is critical because that's the way you create high performance organization.

At the same time development is also very critical, so how do we develop the manager to deliver higher value to the employee so that the employee becomes successful? So only if a manager gives more value to the employee, the employee's performance will increase. So we fundamentally declared in HCL, "We're not in the business of measuring performance, we are in the business of creating performance?, and for that we had to re-do the manager evaluation. So we said "Who is the right person to value the manager?? His customers, which is the employee. So we said that if the 360 degree feedback in our company is purely a developmental feedback and we do not use for evaluation, and that 360 degree is done by the employees and the results are openly shared with the employees, we would create an environment which is like a democratization of the organization, where the manager feels responsible for creation, enabling, enthusing, the creation of value to his employees. He gets measured by the employees on that attribute, it is openly shared with the manager and the employees, so they're on the same page, and it will lead to development of the manager and it will lead to him focusing on what we want him to focus, is enabling and enthusing the employees. So my 360 degree is open to all 60,000 employees across the 26 countries, and the results are published on the web for everybody to see, whether I am or I am not creating the value, and that is true with 3,500 of my colleagues who do the same, and it has resulted into tremendous learning for me and tremendous learning for my managers, and for the employees to feel that the management is accountable, and we have started walking the path to democratization of the organization.

Rachel Salaman: Did you run into any difficulties with that, for example, if one manager got particularly bad feedback that was then published?

Vineet Nayar: I think, you know, like many other initiatives, this one also we got wrong before we got it right. So the premise of the argument of this was to find people who are not creating value and help them create more value by giving them feedback, and it was an absolute nonsense objective. 95 percent or 90 percent of the people got great feedback, right, these 95 percent of the people suddenly felt hugely good. Why? Because they were never appreciated. For the manager to get such a great appreciation from the team he works with, that you create such a significant value, was huge motivation. So 90-95 percent of the managers who got great feedback felt energized, enthused, and doubled their effort to create value for the employees. Now there were managers who did not get good feedback, right, and there were people who were not creating the value.

You must remember, 360 degree is about value creation, not about populist. They were faced with two choices; number one, they change their management way of working so that they can create more value, or they come to the realization that they are individual contributors and unnecessarily they're trying to be managers because that is the whole mentality which everybody wants, and because it was purely a developmental feedback and as an organization we were not doing anything, and a talent manager would come in and help them think about that. Over a period of time they either changed the way they created value, or they communicated well with their employees because communication was a problem, or they just migrated in saying "I want to be an individual contributor and I don't think I can be in this business of enthusing, encouraging, enabling employees?.

Rachel Salaman: The final phase in this process was recasting the role of the CEO, your own role, why did you feel you needed to do that?

Vineet Nayar: I think one of the realizations in the Mirror Mirror exercise for me is that I definitely do not have answers. So let me go back. The value is being created in the interface of the employees and the customer, that is a value zone. It is furthest away from a CEO like me, right, it's very far away, and therefore our ability to win or lose based on the value being created in that zone, which is very far away from me, my ability to interfere or add value in that zone was very limited. Once I realized that, I realized the power which the office of the CEO has, not just the CEO, the office that the CEO has or a lot of managers have is too high, right, to be able to do anything about it, and the moment you exercise the value you take some value away from the value zone. So we should actually be in the business of surrendering that value, right, surrendering the power, and making sure the people look inside rather than look up for solution. I realized that every time people will come and ask me a question, in their eyes they had a lot of respect for me. Now even if I don't have the answer, you know, I have this halo around my head where I will give them an intelligent answer, and most probably that will be a wrong answer, and the right answer is "I don't know, you go and figure it out, tell me what is it that you need for me to help you figure it out?. And that is where the concept came, is that the only way organization can be a starfish and not a spider with one head is by enthusing, enabling, encouraging the employees to think solutions on their own and look within for solutions and take those decisions through collaboration rather than look up, and that's why we said "Transfer the ownership of change to the employees."

Rachel Salaman: And how did that actually work in practice?

Vineet Nayar: I think it worked in practice by first me posing problems to the employees and saying "I have problems and what are your solutions?" Number two, me and my manager team not venturing into answering questions. Number three, we're delegating a lot of power to our employees so that they can take decisions which are good for the customer and good for value. Number four, increasing tolerance for failures and ensuring the people who make mistakes are not bad people, it's just the fact that they're experimenting with new things.

Rachel Salaman: Did you ever worry that you might look less qualified for your role if you were open about the things you were struggling with, if you asked people lower down the hierarchy for advice?

Vineet Nayar: I think it is very important for you to look unqualified. How do people start asking you questions? You go home, right, your teenager kids don't ask you for advice because they believe that they can do it on their own, and you feel good about it because their confidence level is high and they're taking ownership of a decision. You want the same to happen in the organization. If you're going to appear to be all this intelligent, you are going to appear that the guy has all the answers, then people will come to you for the answers, whether you like it or not, and I believe, like in social networks, you have to create checks and balances through collaboration. You have to create checks and balances, you have to create innovation, but you can create that through collaboration within those circles of influence rather than everything coming up. And I truly believe that the halo around a CEO is not justified, and a servant-leadership style of management will get you more. In the end the core business we are in is to grow, and if looking like a fool helps you grow, that's it, that's the way to do it.

Rachel Salaman: Would this approach work for all types of organizations, or are there some that aren't suited to it?

Vineet Nayar: I am not qualified to comment on it. I don't know. All I'm saying is this is an idea which was implemented in one situation across 26 countries for 60,000 people, and it worked. By no means I am saying it will work for everybody, I am just hoping, by reading this book, you may get your own ideas which is applicable for your environment, which you can implement to make it happen. I want to make one very important point; this book is not for CEOs, this book is for young managers who want to implement a change in their working environment so that they can out-perform the other teams. So this is for young managers to think about it, and they have to adopt their ideas after reading this book.

Rachel Salaman: Vineet Nayar talking to me in London. The name of Vineet's book is "Employees First, Customers Second: Turning Conventional Management Upside Down." Vineet also has a website, it's www.vineetnayar.com.

I'll be back in a few weeks with another Expert Interview. Until then, goodbye.