Rethinking the Value Zone: Why Focusing on its Employees First was the Right Move for HCLT

Guest Post by David Burkus

burkus_new_management_fbad_buynowIn February 2006, Vineet Nayar, the president and CEO of HCL Technologies, one of the largest IT service providers in India, made a shocking announcement to a global meeting of their biggest customers. In short, he told them that they were no longer his top priority. In fact, HCLT had decided to fire some of its customers.

Specifically, Nayar was announcing a reorganization of HCLT’s structure and its priorities around a new strategy that he labeled “employees first, customers second.” As shocking and counterintuitive as the announcement must have sounded to the 300 customer representatives, the decision was the end result of a long period of thought and reflection both by Nayar and his own senior leadership. HCLT needed to change to stay competitive, and Nayar’s bold plan was to focus less on competing for customers in the short term and more on serving employees in order to win in the long term.

From 2000 to 2005, the company started losing ground to its competitors. Although, as a company, HCLT was still growing 30 percent a year, its competitors were growing even faster, at 40 to 50 percent, and HCLT was falling to the bottom of the rankings. In 2005, when Nayar was moved to the helm of HCLT, the company was stuck in the middle of the pack and facing lots of problems, including low morale and a turnover rate of 17 percent—far higher than its competitors.

The impetus for Nayar’s transformation came from two separate customer interactions he had. The first meeting was with the CIO of a global company for which HCLT had just successfully completed a significant and time-critical project. Nayar entered the conference room to find that the CIO and HCLT employees were already assembled.

To his surprise, the CIO nearly ignored Nayar’s entrance. “I was expecting to get a big smile and a handshake from him, to accept a pat on the back, and to hear champagne corks popping,” Nayar recalled. Instead, the CIO focused his attention on Nayar’s employees. He praised their hard work, the quality of their service, and how enjoyable it was to work with them as a team. Then he briefly turned to Nayar to say how lucky Nayar was to have these employees on board at HCLT. “I was surprised and touched by the emotion in his voice.”

In the second meeting, Nayar was again assembled with HCLT employees and another of their corporate customers, but this time to debrief on a failed project. Nayar expected to apologize, explain the reasons for the failures, and then outline a plan to correct their mistakes. But before he could apologize, the customer spoke up, looking Nayar directly in the eyes. “Vineet, your people did everything they could. The problem was that your organization didn’t support them properly. If it had, I’m sure they would have been able to meet our objectives.” Nayar was surprised by how angry the customer was with him and HCLT, but struck by the fact that he held no animosity toward the team he’d been working with.

These two memorable interactions, along with a host of others, led Nayar to rethink how HCLT was creating and capturing value. He reflected on what he called the ‘value zone,’ the place where value was created for customers. If HCLT was truly a service-based business, then the value zone needed to be on the front lines, where employees interacted directly with customers. Those employees played the most important role in bringing real value to customers, and the rest of HCLT, he realized, should be thought of as ‘enabling functions.’

As the company grew, its focus had shifted. Layers and hierarchy had to be constructed to manage the larger company. Support functions had to be added to help frontline employees do their best work. Eventually however, power shifted from the frontline employees to the hierarchy and support functions. Since managers had the power, frontline roles were being held responsible to the management positions that had been designed to aid them. Information flowed down, and accountability flowed up. If HCLT was going to refocus itself on the value zone, then it needed to turn its hierarchy upside down.

Turning the hierarchy upside down required making managers accountable to frontline employees and ensuring that those in the support functions actually supported the frontline employees, instead of insisting that they follow the hierarchy’s rigid systems. Due to the sheer size of HCLT, Nayar focused his attention on two areas to ensure that the management and support functions served the front line: reversing accountability and building transparency.

Nayar sought to reverse accountability by making sure that the hierarchy was responsible to the front line, not the other way around. Nayar wanted the entire chain of command to support the frontline employees — not command and control them. This tactic for reversing accountability was borrowed directly from HCLT’s existing customer service system. Called the ‘smart service desk,’ it worked by creating tickets for customer issues and using them to track progress as the issues worked their way through HCL to resolution.

HCLT created a similar system for frontline employees. Whenever employees had a problem or just needed more information, they could open a support ticket that would be sent to the relevant department or support function for handling. A support ticket might need to travel through multiple departments, but that movement was tracked through the system. Most importantly, only the employee who created the ticket had the authority to close it. HCLT even changed the performance metrics for its support functions to include how many tickets were opened, how many were closed, and how long it took to resolve issues. Beyond just ensuring that frontline employees had the resources they needed, the support ticket system sent a clear and direct message to both the front line and the support roles about who was accountable to whom.

In building transparency, Nayar was targeting the veil between frontline employees and managers. Managers had access to information about the front line, but that information didn’t flow in the opposite direction. To make information more transparent, Nayar created an open 360-degree feedback system. This process allowed anyone who had a significant interaction with a manager to be a part of the evaluation. “Any employee could choose to do a 360-degree evaluation of any of the managers they believed had an influence—positive or negative—on their ability to do their job.” Moreover, the results of those evaluations were also open. “We decided to allow anyone who had given feedback to a manager to see the results of that manager’s 360.”

This change took some time to be accepted by HCLT’s 2,000+ managers, all of whom were given the initial choice to open their feedback for viewing. In the first year, only Nayar and a few other corporate officers made their feedback public, but eventually the majority of managers followed suit. “If they didn’t, it suggested they had something to hide.” By making their feedback public, managers were publicly declaring their acceptance of the feedback and committing to change—all in the service of better supporting frontline employees.

In addition to making feedback transparent, Nayar also sought to bring strategic discussions out of the boardroom and to involve all employees. This began as a series of informal discussions with employees and developed into a regular series called ‘Directions.’ Prior to these events, Nayar and the senior leadership team created a video outlining the company’s strategy. Then the team hit the road and traveled for two weeks of meetings with employees. The goal of Directions was to ensure that all employees were fully informed on the company’s objectives and how their work contributed to those objectives. In addition, Directions ensured that all employees were speaking the same language and were given a chance to have any of their questions answered personally. He also created an online forum where employees could post any question they wanted and receive a personal response from Nayar himself.

It took time and a lot of focus, but eventually things began to turn around. Eventually, HCLT had not only inverted its hierarchy but completely reversed its situation. By 2009, the company was ranked as the best employer in India. And that recognition came with some great benefits: HCLT’s annual revenue almost tripled and its market capitalization doubled. In 2013 Nayar retired from the lead role at HCLT, but the concept of employees first, customers second, remains at the core of the company’s management philosophy. And it continues to fuel HCLT’s success. In 2014 the company saw revenues of nearly $5.7 billion.

Flipping hierarchies and putting customers second can be extremely difficult to put into practice, particularly in a large business. Nayar succeeded by demonstrating that his loyalty was to his employees first, trusting that they would then be more loyal and caring to HCLT’s customers. It’s a counterintuitive idea, but one that more and more CEOs are embracing.

David Burkus is the author of the forthcoming Under New Management. He is host of the Radio Free Leader podcast and associate professor of management at Oral Roberts University.

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