Peter Drucker dreamed of an idealized "plant community". With his disappearance in 2005 has the moment arrived to anoint a new successor to the respected management guru? With the publication of "Employees First, Customers Second", Vineet Nayar could be mistaken for a dreamer were it not for his status as the head of one of the most respected firms in India, one recognized by Fortune as possessing managerial methods among the "most modern in the world". He was among the attendees of the recent Rencontres internationales du management 2011 held under the auspices of ParisTech Alumni in partnership with Intermines.
The title for this third edition of the forum was “India – France : Managing Investments and People” and along with Vineet Nayar invitations were extended to three other contributors who expanded on the theme through an exploration of the particularities and synergies that exist between the two countries in the realm of management of personnel and investments: Blaise Jaeger, Senior Vice President at Thales, former ambassador and Strategic Advisor for the confederation of Indian industry in France, Ramesh Mulye, and Bertrand Collomb, honorary Chairman of Lafarge and Director of the strategic advisory board for ParisTech.
Special emphasis was placed on the need to look beyond the traditional stereotypes of India because while problems are indeed glaring (poor infrastructure, bureaucratic inefficiency and persistent poverty), India also possesses incredible human potential in the ranks of its rising class of the highly qualified. Lafarge has increasingly made a point of expanding the career prospects of its Indian engineers beyond the local hierarchy and now offers them truly international horizons.
True to its role as one of the primary emerging economies India’s growth has occurred at breakneck speed and, as noted by Ramesh Mulye, the country has increasingly begun to make serious investment beyond local frontiers. It is noteworthy that in recent years, Indian foreign investment in Great Britain is superior to that of what flows in the reverse direction. The subcontinent can no longer be solely regarded as a developing economy or the “back office of the world” but must be considered as a truly global contender in possession of a distinct model with lessons for all.
Along with vast conglomerates such as Tata, for whom power is based on the immensity of their market, global leaders such as Mittal have based their success on the purchase of failing concerns and a thorough restructuring, allowing for an increase in value added by the acquisition of technological leaders such as Arcelor. Common ground can be found between the two giants in the fact that shareholders are largely concentrated and based on family ties which has allowed for greater flexibility in approaching risk and constructing long-term strategy. It would seem that the most striking innovations are occurring in the technology sector however and it is on this subject that Vineet Nayar can draw on his years of experience to paint a clear picture of more recent trends.
“Motion within motion” was the motto of Captain Nemo, son of mythical Indian Rajas as the fictional character of the celebrated Jules Verne novels, and is strangely apt as a description for what is occurring in the Indian technology sector over a century later. Indeed, it is the mingling of a number of elements that have made this environment among the most dynamic on the planet.
First, the majority of actors are subcontractors and while B2B networks can allow for the creation of durable relationships with a wide range of customers, in a market as crowded as India’s no advantage can be maintained without constant innovation. As contracts come up for renewal the bidding process can often resemble a race to the bottom in terms of cost.
Second, the entrance of new competitors is incessant and has been boosted by the return of significant numbers of engineers from the United States. Many have drawn on their experience to create start-ups and are beginning to attract clients away from more established firms.
Third, as a consequence of extremely rapid technological evolution knowledge must be constantly updated and renewed.
The fourth element is somewhat paradoxical and is rooted on the rather robust health of the market and its rapid growth. In order to remain a viable actor and stave of relative decline a gradual growth is no longer sufficient and constant acceleration is the order of the day.
It was in contemplating this crucial fourth element that Vineet Nayar had the inspiration in 2005 to submit his vision to a drastic makeover. It was shortly after his appointment as CEO of HCL Technologies, a respected firm with a global presence and 700 million dollars in annual revenue, that the breakthrough moment arrived. While HCLT had demonstrated a Compound Annual Growth Rate (CAGR) of 30% over the preceding five years, a number of competitors were achieving 50%. The suspicion was that a healthy public image was masking a relative loss of competiveness and the demand was for a bold reaction.
His book is in large part an illustration of the response and the success that followed this moment of reinvention. The first step was to integrate the issue into the collective consciousness of the enterprise, through a series of internal meetings, and to create a shared vision of the relative decline. The pace of change was then accelerated through a complete overhaul of organizational methods in order to encourage the emergence of a more agile and dynamic enterprise.
Six years on the results have been no less than spectacular. Recapturing its role as the market leader in IT services HCLT has quadrupled its profits and continued to grow even in the darkest days of the recent global economic crisis.
Standing in direct opposition to more conventional wisdom, the successful transformation was more than a simple exercise in repositioning (new products, new approaches, new markets) and instead consisted of a complete reevaluation of all previous assumptions on organizational hierarchies. The question according to Mr. Nayar is not so much: “What do we do?” But rather: “How do we do it?”
In the case of HCLT, an initial moment of clarity led to the implementation of a new system of management known as “employees first, customers second” (EFCS) that quickly allowed the company to distinguish itself from competitors. Conscious of the potential for misunderstanding for those unfamiliar with this novel concept Mr. Nayar explains: “Conventional wisdom holds that a company always put the customer first but in the world of services, whatever the sector, the real value is created through the way in which employees interact with the customer. Privileging the role of the employee acts as a catalyst for a fundamental change in the nature of our relationships creating sources of value tailored to each individual customer.” This approach empowers the customer in the value zone and allows them to reap greater benefits from the process and “in a way that is far more effective than would be possible along the path of more conventional relationships between ourselves and the customer.”
Employees are empowered through the construction of a shared vision of the need for change, and by laying a foundation which rests on trust and transparency. Inverting the organizational hierarchy, and a redefinition of the leadership role—into one that “ceases to be viewed as the sole source of change” and in which questions are asked more than responses given—completes the picture.
In some ways the method hinges on successfully grafting the spirit of a dynamic startup onto the tissue of large enterprises. The key values are: energy, speed, innovation, and the elimination of barriers between leaders and their teams.
The first, and perhaps most significant, step of the model requires building consensus that change is indeed required through a thorough review process. A significant number of businesses, observes Mr. Nayar, mark down objectives (a point B) without ever really understanding the point from which they are departing (a point A) or how they will arrive at their destination. This phenomenon is especially true when the enterprise appears to be functioning well and Mr. Nayar notes that in some cases point A is completely absent from the map. It was this complete lack of coherence between the point of departure and the destination that he sought to address when taking over the leadership of HCLT and it is the same challenge that must be faced by all companies operating in sectors where success is largely determined through effective innovation. There have been massive shifts across all sectors of the economy since the dawn of the new millennium and the primacy of information technology has changed the rules of the game completely, whether at Boeing or Amazon, or in the complete reinvention of less obvious players such as Li & Fung, a global value chain management firm. The most immediate consequence has been a transformation of the previously peripheral role of the Chief Information Officer (CIO) ; no longer a mere conduit for decisions taken elsewhere the CIO has become an increasingly central source of innovation.
None of these events have passed without significant consequences for HCLT, for whom the CIO remains a natural partner. A recognition of the new reality, and the profound structural shifts occurring at the heart of firms everywhere, depends on the creation of a solid collective consciousness. This aim can never be achieved through coercion and must evolve organically through a conversation, a debate, where communication flows freely through channels between employees and management, and all voices are heard and valued. Admitting weakness is difficult and presenting evidence on the risk of relative decline within an enterprise can be perceived as a critique. When he first opened the floor to debate in 2005 Mr. Nayar perceived a certain reticence but was able to identify a number of “transformers” many of whom had been waiting for years to express that they felt “suffocated by the organization.” At the same time he identified another group who, while well aware of the dysfunction and risks to the enterprise, remained mired in pessimism and an “excuse culture”. Many employees would bask in the glow of past glories thus eclipsing any desire to take an honest look in the mirror and examine the true reflection.
The creation of a culture of trust based on transparency is the spark that ignites a conversation that is constructive and audacious: practical in the face of real problems and engaged in finding their resolution. Honest communication creates trust which adds credibility to the propositions being made as well as those making them. Accountability arises from intimacy and Mr. Nayar has gone so far as to suggest that the ties that bind his organization together are almost indistinguishable from those found in the family. Far from reflecting a desire to fall back on the paternalism of the past where father knows best, the comparison is made to reflect our understanding of the modern family where roles are more fluid, where authority derives from a shared sense of purpose built in the face of adversity, and where individual members are empowered through confidence and autonomy. Transparency is the necessary precondition for trust.
“Why do you have such large windows?” Nayar once asked a friend while visiting one of the typical houses that line the canals of Amsterdam. “It makes you keep the house clean,” was the response. The culture of transparency leads to windows that open onto what would otherwise remain hidden, whether financial of strategic, and provides encouragement for open and honest discussion.
We know the importance played by transmitting and retaining information across the management hierarchy. Through the cultivation of transparency Mr. Nayar has taken the typical pyramid structure and turned it completely upside down. As an illustration he gives the example of an online forum, accessible to all employees, that allows for questions to be addressed to members of management. The goal is to help clear the air and ensure accountability. “This system is important because it shows the manager is accountable to the employee and not always the reverse. This in turn encourages employees to feel more like stakeholders which is reflected in their relationships with our customers.”
The success of the entire process revolves around making use of the “value zone” to “liberate the passion” of frontline employees. The impetus for this development arose from Mr. Nayar’s recognition of the increasingly significant role of members of Generation Y in the growth of the IT sector. As they enter the workforce new concepts of transparence, sharing, indeed the underlying structure of a successful business are being called into question. What he effectively realized is that the new generation is the most inventive, most instinctive in their understanding of the implications of new technology, and can best “feel” the innovations that will drive the future. These employees are the best placed to serve the interests of the customer in terms of reducing cost or increasing profits.
The consequences for management are clear: “A company exists to create value added for its customers. Frontline employees, and their interactions with the customer, create value. The main priority for management is to therefore motivate employees at the heart of the value zone.” The logical conclusion is that management should focus on empowering employees and delegating responsibility for change to those responsible for actually carrying it out. Going one step further, accountability should work both ways and questions should be posed about the strategic decisions of the leaders in turn allowing them to refine their own vision. Teams represent “passionate communities”, self-governing and with the power to create internal exchange functions that work, allowing for an entirely new perspective on how to ignite the spark of creativity.
While the term empowerment is commonly used in political science to denote the creation of shared communal responsibility in the face of the decentralization of public services Vineet Nayar stresses the distinction between his model and compares it more to that formulated recently not so long ago in the pages of C. K. Prahalad’s The Fortune at the Bottom of the Pyramid. In this book, the late professor evoked the untapped market potential of those at the “bottom of the pyramid”. In a wider sense the rise of this new model for management has the power to shake the more rigid and structured command and control approach to its core and is a sharp break from the organizing principles that exist in many enterprises which, lest we forget, are modeled along military lines. In some ways it makes perfect sense that a rupture would occur in India, a country that continues to display one of the most hierarchical societies in the world through its caste system, and where Vineet Nayar derived the essence of his philosophy. It is indeed possible that the unique conditions of the subcontinent, where the tension between the “vertical power” of India’s past collide so dramatically with the internet driven “horizontal” approach of Generation Y, have created a perfect storm that calls into question whether companies as they have been will continue to exist.
Due to the specificities of the market for services in which HCLT operates, further exploration is required to determine whether the model can be applied to other industries or sectors of the economy. Yes, the model serves as a case study at the Harvard Business School, the institution responsible for publishing the original edition of Vineet Nayar’s book in June 2010. Yes, multinationals such as Google and Starbucks have grafted the methods contained in its pages onto their own enterprise strategy. The common thread for these companies however is they are all operating in the tertiary sector of the economy which begs the question: what lessons, if any, can be drawn for manufacturing and industry?
For examples of a successful translation of the inverse pyramid into new areas of the economy we can look to the automotive subcontractor Bretagne Ateliers, where the traditions of solidarity and cooperative capitalism were are firmly inscribed, but which found itself facing fierce competition and increasingly stringent demands for perfection. Looking further abroad it should be noted that one of the cardinal tenets of Toyotism is a willingness to include employees in the dialogue that leads to a determination of company policy.
In a larger sense, and in the Bertrand Collomb penned preface of Mr. Nayar’s book, a great deal of faith has been placed in the universality of the EFCS model based on transparence, trust, respect. Mr. Collomb has drawn directly from his own leadership experience to observe a common thread observing “we are always surprised by the capacity for progress and the passion that drives our most trusted employees, even in the most difficult situations.” The appearance of HCLT could in many ways be a prefiguration of the company of tomorrow, placing renewed emphasis on the value of a truly human capital.