21st Century Leadership

Employees First, Customers Second – A Summary of Vineet Nayar’s Book

In the spring of 2005, after being at the head of HCL Technologies (HCLT) for just a short time, Vineet Nayar realised that the company was in trouble. It was one of the five major IT services companies in India with thirty thousand employees, operations in 18 countries, revenue of about $700‐million and a healthy annual growth rate of about 30% over the previous 5 years. However, it was growing more slowly than the market leaders in its industry and slower than its immediate rivals, losing market share and falling behind in mindshare too.

The book ‘Employees First, Customers Second’ tells the story of how HCLT – now a company of 55 000 people and around $2,5‐billion in revenues – made the decision to change and how its transformation was accomplished through the unique approach of Employees First, Customers Second (EFCS).

Who creates value within the organisation?

Conventional wisdom says that companies must always put the customer first. In any services business, however, true value is created at the interface between the customer and the employee. So by putting employees first, you can bring about fundamental change in the way a company creates and delivers unique value for its customers and differentiates itself from its competitors. Through a combination of engaged employees and accountable management, a company can create extraordinary value for itself, its customers and the individuals involved in both companies. Thus, when a company puts its employees first, the customer actually does ultimately come first and gains the greatest benefits.

Leaders need to look closely at the employees who are creating the most value for customers. These are the people who make up the key members of the teams that do the real work within the organisation – serving customers, delivering products and working through problems. These are the value the company offers to customers. Taken together, they create the value zone within the company. Without them, the company would have nothing but a shell with layers and layers of management or aggregators with controls and processes that had nothing to offer to the customers.

Leadership needs to realise that management does not live in the value zone, but often gets in the way of creating value by wasting precious time and energy requiring value creators to make endless presentations to them about irrelevant things and write reports about what they had or had not done. Not only does management need to stop wasting the time of value creators, but it needs to find a way to put the value zone at the centre of the organisation.

Most organisations have a traditional hierarchy structure, with few on the top and most on the bottom. The value zone, where the essential work of the company is accomplished today is not in the technology or specific pieces of the products produced by the company. Customers can choose from many technologies and products from a variety of suppliers. The value zone in today’s economy lies in the way the technologies are brought together and implemented – the how of your offering. But the people who do this are not properly respected or supported within the archaic pyramid structure that was designed to exalt those with hierarchical power rather than those who create customer value.

Companies need to find a way to move the focus away from ‘the what’ of their product offering to ‘the how’ of delivering value and a way to serve the value zone, instead of the other way around. This happens by inverting the organisational pyramid, making management accountable to the value zone with employees first, customers second and management third. This kind of transformation will set a company apart from its competitors by throwing off the baggage of the past and help it to become more engaged with its employees.

The book describes four phases of the EFCS journey, including:

1. Looking in the mirror – Creating the need for change
2. Trust through transparency: Creating a culture of change
3. Inverting the organizational pyramid: Building a structure for change
4. Recasting the role of the CEO: Transferring the responsibility for change

1. Looking in the mirror – Creating the need for change

In early 2005, faced with decreasing market share and losing its most talented employees to its competitors, HCLT faced a fundamental question – is the company in enough danger that it should attempt to transform itself before it’s too late? Or should it just ride out the storm and hope for things to get better?

In life, we want to plot out point A – where we are, and then point B – where we want to go and how to get from A to B. But many people and organisations skip the part about plotting point A – where we are currently, and rush off to think about where they are going. The first step in the process of change always needs to be to define point A and see the truth and reality of where you are. A company’s performance is just one aspect of where it is. This position needs to be placed in relation to the entire landscape of the industry in which it operates and to see how it is evolving.

Often the landscape has shifted so much that the original point A has fallen off the edge of the map. You need to analyse the fundamental changes in the industry and translate this knowledge to your employees to help them see the truth of this new point A for the industry and your company’s position within it. Companies often will choose not to change because they have become tolerant of gradual change that did not match the rapid change of the industry. The pride we take in our work and in our past can make it difficult to hear the truth, let alone accept it. But it is very important for employees to participate and agree on point A in order to move to point B.

The process of getting employees to see the company’s situation at point A is a communications exercise that involves talking with employees about the truth as they see it and getting them to acknowledge the reality that everyone essentially knows about, but has or has not been publicly acknowledged.

In trying to engage staff members to get on board with a new strategy for change, you will often encounter 3 types of people: The transformers, the lost souls and fence sitters. The transformers have been waiting for a long time for change to come and are often aggressive and even angry with the company and its situation. They want change, and they want it fast, as they are frustrated with the lack of change that they have thought necessary over time.

Lost souls are the ones sitting with frowns on their faces feeling that whatever is proposed is hopeless and wrong. They are convinced that there is nothing you can do, and no plan you can follow that would ever change anything.

Fence sitters are the largest group who speak up the least and rarely ask questions, and who adopt a watch and wait philosophy.

Another factor that will work against bringing about change is called the ‘Excuse Culture’ and refers to the situation where although people can take an honest look at the truth of the company’s situation, they feel no obligation to do anything about it. They have become complacent and comfortable with their reality and believe that everything and anything that is wrong is the fault of circumstances beyond their control – they have an excuse for everything.

Often times, employees get stuck in the past and the memory of what the company was. Leaders looking to bring about change should try not to damage the great pride that employees feel about the company and its past glories, as pride can be a great source of strength when coupled with a desire to change. However, the leadership needs to be able to create a vision that people look forward to – an image that is even more attractive than what employees are looking backward to see, and so appealing that they will get excited about what is to come.

This process of holding up a mirror and looking at the reality of the organisation as a starting point for change is one element in a continuous cycle of change that companies need to undergo in order to keep up to date with their world. It should happen periodically throughout a company’s life, not just once. It is the key to creating the necessary aspiration for change, by helping the organisation to see the reality of its situation, to create dissatisfaction with the status quo and to build a hunger for change in the company.

2. Creating a Culture for change

The Employees First, Customers Second (EFCS) strategy adopted by HCLT in 2005 was a bold, risky move that had no guarantees of success. However, after analysing the changes in the industry and admitting their worsening business performance, the leadership decided to go with this bold approach ahead of a more conservative one that would have only brought about marginal organisational change. The essence of the strategy involved three main thrusts:

1. Firstly, to offer flexibility and transparency of a kind customers have never seen before.
2. Secondly, to sharply focus on value centricity, meaning to put all the company’s energy into increasing the value it is creating for customers, rather than trying to build the volume of business it does with them.
3. Thirdly, and most importantly, to set a new standard for the value the company can actually deliver, by unleashing the positive energy and passion of the company’s employees, which will create a boost in the value zone that will become the company’s major differentiator.

a) The trust quotient

The first challenge the company faced after deciding on this bold, risky plan was the trust quotient. While many people might be convinced by an idea through the stirring speech of a great orator, they probably will not trust that the idea can be executed. Over the past decade, we have seen many business executives and managers who have lied and stolen and betrayed the trust of their people and their companies. The distrust of people in positions of authority and power extends into every walk of life. The trust quotient, particularly regarding business leadership, is at an all‐time low around the world. If you are a CEO or senior executive, you must not allow yourself to think that you are immune to this problem. If your organization has more than a couple of hundred people in it, most of them don’t know you. You know you are trustworthy, but they do not.

People also lack trust in each other and their colleague’s ability to execute on the strategy. Before embarking on any new change strategy, it is important to build organisational trust, not just in the leadership or the strategy, but in each other.

b) The Nature of Trust

According to David Maister, there are four main dimensions of trust:
1. Credibility – This comes from professional expertise. If the person possesses deep knowledge and follows good practice, you feel trust in what he or she says and does.
2. Reliability – is revealed through actions over time. If you have observed a person’s activities and respect them, you probably trust that the person will do what he or she says, the person is dependable and will behave in certain ways.
3. Intimacy – this aspect of trust is about emotions. You instinctively feel that you can or cannot discuss many kinds of issues with a certain person.
4. Self‐orientation – this aspect is about your motives and the things you care about. Can I trust you to think beyond your own self‐interest?

In order to cultivate a culture of trust, an organisation needs to build transparency. There are 5 main reasons to build transparency in an organisation.

1. First, transparency ensures that every stakeholder knows the company’s vision and understands exactly how his or her contribution assists the organisation in achieving its goals.
2. Second, transparency helps to ensure that every stakeholder has a deep, personal commitment to the aims of the organisation.
3. Third, for the Gen Y members of the workforce, transparency is a given. They post their life stories in public domains and expect nothing less in their workplaces.
4. Fourth, in a knowledge economy, we want customers to be transparent with us, to share their ideas, their visions for the future and their strategies for solving core problems.
5. Finally, when external people are brought into the company to work on a specific project, the only way that outsiders can get up to speed quickly and be as effective as possible is through the sharing of information and complete transparency about the strengths and weaknesses, the issues and concerns of the assignment. The more transparent the process, the more trust the outsiders will feel in the organisation and the less time it will take to learn about the organisation.

c) Giving everyone access to information

There are a number of ways to build transparency in an organisation. One of the ways employed by HCLT was to open the window of financial and non‐financial information. This allows everybody in the organisation to see all the business units and the company’s financial data. When this is done, people are able to see which business units are doing well compared with other units. Employees gain a true picture of the overall performance of the company. Also, allowing everyone access to information takes away some of the power of managers over the average worker in the company because a managers authority often lies in his or her control of information.

The effect of this increased transparency is that people are able to benchmark and compare their performance with that of others, and work harder to improve their performance. At HCLT it led to quicker action at grass roots level and motivated teams to do well as they felt their work was being recognised.

d) Opening up the office of the CEO

Opening up the office of the CEO was another method employed by HCLT to increase transparency in the organisation. This involved providing people in the organisation with a way to interact with the CEO and get the answers they wanted from the leadership. HCLT achieved this through an online forum where any employee could post a question which the CEO or a member of the leadership team would answer. Everyone was able to see the question, the questioner and the answer. In this way you can create a type of open office environment where answers not only come from the CEO, but responsibility for fixing problems was taken on by the employees themselves. By allowing questions to be asked, you improve the likelihood that answers will emerge from someone somewhere. By being open and acknowledging the imperfections that exist in the company, it shifts the conversation away from what is wrong to what can be done about it.

e) Employees First Customers Second

In today’s world where companies face extraordinary challenges, they need integrated solutions for complex processes. They need transparency and flexibility in order to increase agility. In order to do this, companies need to move away from the supplier, vendor or outsourcing model and pursue value‐based relationships with suppliers who understand their business goals. To be this kind of supplier HCLT realised that it had to create a whole new business model. It changed the way it built and sustained value in its partnerships with clients. It had to think beyond the technology solutions themselves and focus on how the solutions are implemented and the sustained business benefit clients derive. In other words, shift focus from the stuff we are selling to the results we could help customers achieve.

This strategy started the company’s turnaround in mid‐January 2006 when it won the largest IT services outsourcing deal ever for any Indian company. The deal was a co‐sourcing partnership that enhanced the capabilities, innovation and agility of the client and demonstrated the true value that HCLT people could deliver to customers. Other customers soon began to select HCLT on the basis of its new partnership approach and the transparency of its engagement models.

Each company should undergo a mirror exercise on a regular basis to identify the true situation within the company. Then each company should find its own methods and catalysts, like those employed by HCLT, to increase transparency and trust and cultivate a culture for change. Catalysts are simple actions, rather than elaborate programmes of organisational transformation that go on for years, but they can help transform a company culture into one that is constantly changing.

3. Inverting the Organizational Pyramid – Building a structure for change

While HCLT had accurately identified the key trends characterising their market and the opportunities that these opened up for the company, it was still operating as an old hierarchical structure with senior people on top, a thick layer of middle managers, and enabling function staff and the frontline workers with the least power at the bottom.

The senior managers, sitting at the top, removed from the real action, are the ones who can exercise the most power and often risk everything that is happening in the value zone. Bosses genuinely believe that by virtue of their position, they have a better view of the landscape and are best situated to make decisions that will benefit the entire organization. This is conventional wisdom and will not lead to a new strategy to provoke fundamental change.

In the traditional organisational pyramid, employees in the value zone have to report to a manager who does not add value to their job. Managers, who add little value to the customer, wield more power than the employees who directly add value to customers. Also, employees have to waste a lot of time completing tasks orchestrated by enabling functions like HR, who have an inordinate amount of power, considering the value they add to the customer. HCLT realised that very little about the archaic pyramid made much sense, given the trends it had identified and the aspirations it had defined for itself in the IT landscape. And so it began to consider the radical idea of the inverted pyramid where bosses were accountable to the value zone as much as the value zone was
accountable to the boss. And bosses were not just accountable to their own teams but to all the other team members in the value zone whom he/she may be positively or negatively influencing.

HCLT found that employees in the value zone were as accountable to enabling services such as finance, HR, training and development quality and administration, as they were to their immediate managers. While these functions were supposed to be supporting the employees in the value zone, the reality was somewhat different. Employees had virtually no power over the enabling functions, and if they had any problems they would have to go to their managers for help. Managers served as go‐betweens and arbitrators who sorted out problems between employees and support staff –herein lay their power, not in value creation, but in relieving bottlenecks.

a) The Smart Service Desk

In response to these internal problems, and as a way to try and introduce some form of inverted accountability, HCLT introduced the Smart Service Desk (SSD). It was based on a problem management system like the one in place at many organisations for dealing with customer complains, but was designed to deal with the problems, queries or requests for information from employees. An employee could open a ticket in the system which would then be directed to any one of the enabling functions, such as HR, finance, administration, training and development, transport or for senior management including the CEO. Then the system automatically assigns it to a support executive in the appropriate department who will investigate the issue and take action to resolve it.

The system is transparent and an employee can track the status of the ticket at any time. In most business organisations, the response from the enabling function staff to employee’s requests varies depending on who the employee is and how much power he or she has in the organisation. This variance frustrates frontline employees who do not necessarily get the same respect as those higher up and receive different, less helpful responses from enabling functions. The SSD initiative levelled the playing field as it did not matter where the employee was in the hierarchy, his or her issue would be heard. This reduced frustration and changed the employee’s perception of the company, which significantly increased their satisfaction at work.

b) The 360 Degree survey

Despite the positive change brought about by the SSD, HCLT recognised that the traditional organisational pyramid needed to be shaken up a bit more, especially around the area of management control. The company already employed a 360 degree performance review process, but each manager was reviewed by a relatively small number of people in his/her immediate zone of control, and there was nothing in the review about contributing to the value zone.

HCLT decided to open up the peer review process to allow anyone who had given feedback to a manager to see the results of that manager’s review. Managers were encouraged to make the results of their review public, starting with the CEO, which brought about a willingness in managers to use the feedback to bring about a change in their management style. HCLT also opened up the peer review process by allowing all employees whom a manager might affect or influence to participate in the review, even if they were not part of the managers direct control circle. There was no restriction on who could give feedback to any manager, thereby weakening the boundaries between the parts of the pyramid and the traditional hierarchy was weakened. People who worked outside the boundaries of the pyramid were recognised, encouraged and rewarded.

The final modification HCLT made to the 360 degree survey was to redefine it as a developmental tool rather than one of evaluation. It would be a way for the manager to gain useful feedback about his or her performance that could be used by that person to help them change. The survey was disconnected from the HR department and its activities were driven by the talent transformation and intra‐preneurship development team, which aimed to help managers discuss their own set of professional development goals. This shift to thinking about honest feedback as a method of development rather than of judgement or evaluation proved critical to the company’s ability to move away from the command and control environment towards one of trust, alignment and a
focus on the qualities and actions that could help people in the value zone.

Again, these tools identified by HCLT, and used to create some inversion of the traditional hierarchy in business, were nothing more than catalysts. They had little effect on the organisation in and of themselves, but the messages they sent out, and the secondary effects they had, mattered much more. Overall the SSD communicated that accountabilities are not determined by ones position in the traditional hierarchy. The 360 degree survey communicated that a manager’s value is measured by his or her span of influence and not by the zone of hierarchical control they have.

The results included that people’s fear of change began to dissipate, and they no longer looked at management or the CEO with trepidation and concern. People began to stretch themselves more and attempted more. Failure became acceptable. The responsibility for actions and results was not the CEOs alone but everyone was accountable together.

4. Recasting the role of the CEO: Transferring the Responsibility for change

Once a company has undergone significant change, like that experienced by HCLT, how can it continue to sustain its focus on EFCS. Wouldn’t the large organisational success and growth mean the rebuilding of the traditional pyramid with new layers of management seeking to gain power by limiting access to information? And how do you adequately educate new people on the importance of trust and transparency in the organisation These were questions faced by HCLT by the end of 2006.

The solution lies in whether your organisation is a spider or a star fish. A spider is an eight‐legged creature, but if you cut off its head it will die. However star fish also have a number of legs but if one of these is cut off, the body will grow a new leg and the severed leg will grow a whole new body. This is because spiders are centralised creatures and star fish are decentralized, with every major organ replicated across each of its limbs.
Similarly, if your organisation remains highly centralized, with the office of the CEO at the centre of everything, it is acting like a spider. Organisations need to become more like the starfish and transfer more of the responsibility for change to the employees. Only in this way can an organisation continue to focus on the value zone and put employees first as the company continues to grow and change.

a) Additions to the online communication portal

The role of the CEO in a decentralised organisation is not the source of all change, but a stimulator and enabler of change, with the staff taking on the responsibility for change. In order to do this HCLT decided to add a new module to its online communication forum allowing the CEO to post questions and problems for the organisation to help solve. It was a way to open up the office of the CEO and expose what the organisation was struggling with instead of hiding or pretending that the CEO had all the answers. The result was many interesting points, ideas and suggested remedies raised by staff that helped the CEO understand the problems better and develop his thinking. This conversation started to shift the responsibility for actions that could create change away from the CEO to other people throughout the organisation and problem solving became a dialogue rather than a

The company then also started posting policy ideas and opinion polls about various issues for employees to comment on. The goal was to get the whole company talking and listening to one another and for the management to justify and communicate their decisions when they were at variance with majority views.

b) Engaging the whole person

What sets a company apart today is not the tools and technologies they deliver, as they are all very similar to those of other companies. It is the people in the value zone that really sets a company apart. If the staff in the value zone will walk the extra mile on a project and get excited about sharing their knowledge even beyond what is in the contract, and whether they engage their whole selves in their work – that is what sets companies apart today.

But most employees are not concerned about the changes in the industry landscape or about corporate transformation and initiatives. They care about how this affects them personally – what it means to them, their careers and their families. So the emphasis of communication with employees should always be more about what they consider important rather than a forum to market the companies new initiatives. If companies can engage their value zone staff around what is important to them, such as their passions, beliefs and ethics, they would be more likely to take responsibility for change.

c) Employee Passion Indicative Count (EPIC)

HCLT was looking to learn about what people in the value zone were passionate about. What made them jump out of bed in the morning, what made them try new things and what would make them take on responsibility or accept tasks that were not strictly specified in a contract document. So they developed the Employee Passion Indicative Count (EPIC) which surveyed staff members on three themes: self, social and secular. The goal of the survey was to identify the core values that are of most importance to people and that drive their potential to act passionately both personally and professionally.

Once employees passions had been identified HCLT tried to find a way to embed these passions into the organisational structure. They did this by creating employee communities called Employee First Councils organised around a specific area of passion. The councils operated like virtual clubs spanning all organisational boundaries. Council leaders are elected by the employees. The councils allow people to enhance their persona at work making employees more engaged at work and provide a new way to spread learning throughout the organisation, and bring the whole person, as well as their families, into the culture of the company. Some of these councils have even formed around a specific business related passion, such as a particular technolog,y and have come up with proposals for new business ideas. These communities of passion – built around personal interests and business issues – had the desired effect on the structure of the company and helped to further
transfer the responsibility for new idea generation beyond the office of the CEO and the leadership team and into the communities of people collaborating and creating alternatives outside the boundaries of hierarchy. This was another catalyst used by the organisation to help the company become more like a starfish.

Overtime HCLT pursued many other catalysts and initiatives for transferring responsibility for change from the office of the CEO. The three main reasons for transferring the responsibility for change away from the office of the CEO to the employees include:

1. Concentrating power in the office of the CEO drains power away from the value zone. The CEO is too far away from the value zone to really understand it and if he/she tries to drive what happens there, they might drive it into the ground.

2. The second benefit is speed. The speed of thought, of change and of implementation gets suffocated by too much hierarchy. Take away the hierarchy and the ability of the value zone to act speedily increases.

3. The third reason is knowledge. The complexity of the knowledge and service economies today is too great for one CEO to possess. The CEO must be in the business of enabling the people who do have the knowledge to do what they are good at, rather than taking decisions using incomplete, imperfect and outdated knowledge.

The CEO will not be the one who thinks of the best and brightest ideas. The role of the CEO is to enable people to excel, help them discover their own wisdom, engage themselves entirely in their work and accept responsibility for making change.

When we transfer the ownership of collective problems from the all‐powerful CEO to the employees, people want to transform and deal with their professional and personal lives in a very different way. Suddenly they see the company as their own enterprise. They start thinking like entrepreneurs. Their energy quotient leaps up and creates a fusion with others that releases a massive amount of energy. The ultimate goal of all of the initiatives undertaken by HCLT was the creation of a self‐governing, self‐organisation company.

In Conclusion

‘Employees First, Customers Second’ should be seen as a cycle of activity, a journey that begins over and over again. Each time it is played out it comes up with new catalysts that continue to push the boundaries so that the company can change further. This is essential because the world of business is changing in fundamental ways, including rapidly evolving customer needs, greater regulation, a leveling of the competitive playing field and the ever‐changing nature of risk and ethics. All business leaders are navigating through the multiplicity of forces as never before. What is important is to be alert to the nature of the value zone and be aware of the distribution of power there, as well as be conscious of how accountabilities add value or create obstructions. Above all, be motivated to turn conventional management wisdom upside down and have management serve the value zone.


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