By guest author Vineet Nayar
[Vineet Nayar, vice chairman and CEO of India-based HCL Technologies (HCLT), had no illusions about the fact that by the spring of 2005, the company was slipping: "HCLT was like [a] childhood friend who suddenly looked old. Once one of India’s corporate stars, HCLT was growing more slowly than the market leader in its industry [...] and slower than its immediate rivals, losing market share and falling behind in mindshare, too.” One day, says Nayar, HCLT decided to change. He discusses how the company went about its transformation in his book, Employees First, Customers Second, which was published in 2010 by Harvard Business Press and available from the press; on Amazon, Powell’s Books, and Flipkart; and in bookstores.
On this Employees First, Customers Second approach, Nayar writes, “The conventional wisdom, of course, says that companies must always put the customer first. In any services business, however, the true value is created in the interface between the employee and the customer. 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.”
The EFCS approach has four parts: * Mirror Mirror: Creating the Need for Change * Trust Through Transparency: Creating a Culture of Change * Inverting the Organizational Pyramid: Building a Structure for Change * Recasting the Role of the CEO: Transferring the Responsibility for Change
Over the next two weekends, we’ll present excerpts from each of the four steps.]
Employees First, Customers Second – Mirror Mirror: Creating the Need for Change
The process we followed to get employees to see our situation at point A is one that eventually came to be called Mirror Mirror.
Mirror Mirror is a communications exercise that involves talking with employees throughout the organization about the truth as they see it and getting them to acknowledge the reality, the elephant in the room, that everyone knows about but which has never been publicly acknowledged. It is a matter of getting the members of the organizations to look at themselves in the mirror and describe carefully and truthfully what they see.
You cannot do this by sending out a memo and telling people to face up to reality. The process must be pursued, in person, face-t0-face, together. So, the day I assumed my new role as president of HCLT, I got on a plane and spent the next two weeks visiting our facilities and talking with as many people at all levels of the company as I could. [...]
When I saw our employees looking into the mirror, a strange thing happened. I found that many of them were actually staring into the past, as if they were looking into a rearview mirror at the landscape we had already traveled through.
At first, I didn’t understand. [...] It took me a while to realize that far too many people at HCLT were focused on the past. They were seeing twenty-seven years of achievement. Exciting leaps of growth. National recognition and pride. No wonder the company was steeped in nostalgia for the landscape of yesterday. That may have been the only view that provided much pleasure and comfort. The present was too frustrating. The future was too unknown.
Isn’t this true of many companies today? Perhaps your own?
We at HCLT had to stop looking into the past.
But how would I stop it? Should I be brutal and yank away the mirror? Should I say, “You look in the mirror and think that HCLT is still the leader. But, in reality, HCLT is no longer the front-runner it once was”?
No. That would simply be behaving like a traditional, authoritarian CEO. Besides, that approach would only depress people, hurt them, shock them into inaction rather than action.
I had to strike a delicate balance. [...] The only solution I could think of was to create a vision that our people could look forward to, an image much more attractive than what they saw when looking backward, and so appealing they would get excited about what was to come.
But what would that image be? What should our future look like?

Trust Through Transparency: Creating a Culture for Change
Once you have created the need for change, there is often a significant gap between the intent to change and the actual act of changing. [...] One reason for this gap is a lack of trust among employees and management, a condition that is, unfortunately, quite common today. To transform a company, people must align themselves and work together toward one goal, but this will not happen without a culture of trust.
There are many ways to build trust, and many other writers have discussed them. At HCLT, we focused on one specific trust-building action: pushing the envelope of transparency. As we did, we found that most people within the organization know very well what’s wrong with a company, sometimes even before management does, or at least, before management is willing to admit it. When you bring this information out into the open and make the challenges public, employees feel included. They start to see that the problems of the company are really their problems, too, not just those of management. They realize that if management is willing to share important information, even the bad stuff, and encourages open conversations the facts, its intentions could be trusted. Very quickly, you will start seeing some positive action at the grassroots level even before management can decided on actions and solutions. Many times, we saw employees start working on problems without being asked to do so.
[As part of this section, Nayar discusses the nature of trust.]
I have thought a lot about trust over the years, as I have worked with people who say, “I want you to trust me.” Or, “We must build a trust relationship.” These statements puzzle me. What are they actually proposing? I have also done a great deal of reading about trust. David Maister, for example, writes about the management of professional service firms, where trust between consultants and clients is extremely important and quite personal. One of the books he coauthored is The Trusted Advisor. Maister says there are four dimensions of trust: * Credibility: Credibility comes form professional expertise. If the person possesses deep knowledge and follows good practice, you feel trust in what he or she says or does. [...] * Reliability: Reliability is revealed through actions over time. If you have observed a person’s actions and respect them, you probably trust that the person will do what he or she says, the person is dependable and will behave in a certain ways. [...] * Intimacy: This aspect of trust is about emotions. You instinctively feel that you can or cannot disclose many kinds of issues with a certain person. [...] * Self-orientation: The self-orientation dimension is Maister’s fourth aspect of trust. This one, though, reduces the trust quotient. It is about your motive and the things you care about. Can I trust you to think beyond your own self-interest? [...]
If I think abut my trust quotient at the time of the Blueprint meeting and evaluate it on Maister’s four elements of trust, I am not surprised that I saw a lack of trust in the eyes of my hundred senior managers. In that moment, I realized that our first job would be to build trust throughout the organization.
Inverting the Organizational Pyramid: Building a Structure for Change
Even when people see the need for change, after a culture of trust has been created, and employees have started taking actions towards positive change, structural flaws can still get in the way of optimal results and it’s important to remember that the success of a single initiative is not the same as sustainable change. HCLT and many other companies around the world try to conduct new-age business with centuries-old structures—hierarchies and matrixes that many thought leaders consider obsolete.
At HCLT, our biggest problem with the organization structure was that it did not support the people in what we call the value zone: the place where value is truly created for customers. In a services company in a knowledge economy; the value zone is often buried deep inside the hierarchy and the people who create the most value for the company work there. Paradoxically, these value-creators are almost always accountable to bosses and managers—typically located at the top of the pyramid or in the so-called enabling functions—who do not directly contribute to the value zone. But, because these “superiors” hold formal authority and the value-creators are accountable to them, they occupy a zone of power.
So, to shift our focus to the value zone, we turned the organization upside down and made management and managers, including those in the enabling functions (such as human resources, finance, training, and others) accountable to those who create value, not just the other way around. Without making this structural shifts, change is much more difficult, if not impossible. And only by making adjustments to the organizational structure does the change become sustainable and able to outlast the leader who initiated the transformation. [This chapter] gives important details about inverting the organizational pyramid. [...]
A Lesson from the Poultry Farm
During my school years, I took a summer job on a poultry farm near my home. I worked with a number of friends, and our job was to gather eggs from the henhouses, which were on one side of the farm, and carry them to the storage sheds on the other side. The poultry manager gave us detailed instructions about how we were to do the job. Each of us would gather a basket of eggs in one of the henhouses, carry it to one of the storage sheds, then go back for more, crisscrossing the farmyard until all the eggs had been collected and deposited in the storage sheds.
We followed orders for a day or two. Then, being pretty smart young kids, we decided this egg-handling methodology had its limitations. It was slow, boring, and inefficient. We got paid once the job was done, not by number of hours worked. If we could deliver all the eggs in a shorter time, we could get off work earlier and spend our free time playing soccer or doing whatever else we liked.
We started experimenting. What if we carried more eggs per handful? What if we used one of the henhouses as a central depot, collecting all the eggs there first? What if we divided the labor—some of the workers collecting while others delivered?
After about two weeks, [...] it became clear that each method had its advantages and disadvantages, but none of them really made much difference. We were still carrying eggs in the same way that people had been carrying eggs for decades, centuries, maybe even millennia. [...]
On my last day of work that summer, I had a revelation about that job. I realized that tinkering with the process of egg carrying or just trying harder would never change the fundamental nature of the work or the operation of the poultry farm. We were stuck in an archaic structure, and until that changed, nothing else would or could change.
The same was true of our experiments at HCLT [...] We had tinkered with the process and put ourselves in the mood for change, but we were still carrying our eggs in pretty much the same way we always had.
[Vineet goes on to describe how, by looking at four trends in information technology—IT becoming more central to business strategy; IT was more valued when it developed technologies to improve processes; increased complexity in customers' businesses meant customers had to focus on implementation and execution; and system integrators were under increased pressure to perform better—HCLT restructured itself.]
Recasting the Role of the CEO: Transferring the Responsibility for Change
There has been a lot of debate about the role of leadership, particularly after so many companies got into such trouble during the recession and even as entire countries have struggled under poor leadership. Leadership is fundamental to a company, and the role of leadership is perhaps the most difficult to define in companies that compete in a knowledge economy. One of the structural flaws of traditional management systems is that the leader holds too much power. That prevents the organization from becoming democratized and the energy of the employees from being released. If your objective is to create sustainable change and to prevent your company from periodically falling out of the race, you must think carefully about the role of the office of the CEO and not just the role of the person who holds the job at the moment.
During this phase, I learned that as CEO, or as any leader or manager, you must stop thinking of yourself as the only source of change. You must avoid the urge to answer every question or provide a solution to every problem. Instead, you must start asking questions, seeing others as the source of change, and transferring ownership of the organization’s growth to the next generation of leaders who are closer to the value zone. Only in this way can you begin to create a company that is self-run and self-governed, one in which employees feel like the owners, are excited by their work, and constantly focus on change and disruptive innovation at the very heart of the value zone. Indeed, as I explain in chapter 4, the greatest impact of EFCS is that it unleashes the power of the the many and loosens the stranglehold of the few, thus increasing the speed and quality of innovation and decision making where it matters most—in the value zone—every day. [...]
By midwinter of 2006, people throughout HCLT had started to believe in the enormous potential we had as a company. They saw that our commitment to transparency and our efforts to invert the pyramid were making a tangible difference. We were now regularly and successfully competing with the best global players, just as we had vowed we would at our Blueprint meeting. This was satisfying, to the leadership team, and to employees throughout the company.
Yet, as I had with each previous phase of the process, I began to look ahead and worry. Just as we had intended, we were starting to speed up our growth. We were taking on hundreds of new people. Although we were still a relatively small company, at under $1 billion in annual worldwide revenue, we were quite diversified [...]
As we grew, how could we sustain our focus on EFCS? Wouldn’t individual units start to rebuild their own traditional pyramid? Wouldn’t new layers of management seek to gain power by aggregating information? How would new people coming on board to understand the importance of trust and transparency? [...]
[But] this quest for transparency had served to centralize power in the office of the CEO even more than before. But, as I had learned [...] much more knowledge existed outside my office than within it. It dawned on my that I had a lot of questions to ask of others [...] I was struggling with a lot of issues at the time, many of which I simply could not solve by myself. Rather than hide my struggles or pretend I had the answers, why not seek help from the organization? Wouldn’t that take a chip out of the marble facade of the office of the CEO? [...]
Toward Self-Direction
[...] Over the years, I have watched and studied other institutions, from philanthropic organizations to religious groups, searching for clues and models that might be applied to business. I have concluded that when people feel passion and responsibility for what they do, not only can they transform a company, they can also transform themselves.
Once we transfer the ownership of our collective problems from the supposedly all-powerful CEO to the employees, people want to transform and deal with their professional and personal lives in a very different way than they ever did before. Suddenly, they see the company as their own enterprise. They start thinking like entrepreneurs. Their energy quotient leaps up. And when that happens with a critical mass of employees (usually, 5 or 10 percent is all you need) throughout the company, it creates a kind of fusion—a coming together of the human particles in the corporate molecule that releases a massive amount of energy.
[To read more about how Vineet helped to bring about such change in HCLT and how you can apply the Employees First Customers Second model in your company, see his book Employees First, Customers Second: Turning Conventional Management Upside Down.]