#91: Employees First, Customers Second

Employees First, Customers Second: Turning Conventional Management Upside Down, by Vineet Nayar (Boston: Harvard Business Press, 2010)

Summary:
"When Vineet Nayar took the helm of HCL Technologies (HCLT) in 2005, the company's legacy of success was threatened by global shifts in the IT services market that left HCLT struggling to keep up with its bigger rivals. Five years later, the company had become one of the fastest growing IT services partners on the planet, world renowned for its radical management practices.

"What did HCLT do to effect such a transformation? As Nayar describes it in this refreshing first-person narrative, the secret to the company's success was to put employees first -- especially those working in the 'value zone,' described as the interface between the customer and HCLT. To do so, the company did not institute any employee-satisfaction programs, undertake any massive restructurings, or pursue any major technology initiatives. Instead, it employed a number of relatively simple catalysts that produced big (and often unexpected) results. The transformation advanced through four phases:

• Mirror Mirror: Nayar traveled around the world, bluntly speaking the truth about the company's situation and turning employees' eyes away from the past and toward a better future.
• Trust Through Transparency: A culture of trust was created by opening the books, sharing information that would make other companies cringe, and enabling employees and managers (including the CEO) to ask questions of each other.
• Inverting the Pyramid: The company redefined processes to make the supporting functions and the management accountable to the employees -- who, as a result, both improved their effectiveness and built new passion for their work.
• Recasting the Role of the CEO: Nayar sought to transform the company into a self-governing organization by transferring the responsibility for change from the office of the CEO to the employees in the value zone.

Nayar candidly admits that he did not have a grand plan when he started out, and that these phases became clear to him only after the transformation, but argues that any of these ideas and practices -- 'the world's most modern management,' according to Fortune -- may be successfully adopted by any company in any industry anywhere in the world, with similar results."

Table of Contents:

• Introduction
• 1. Mirror 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
• 5. Find Understanding in Misunderstanding: Renewing the Cycle of Change

My Take:
Wow. While this isn't my favorite genre, I've certainly read enough in the leadership and management section to have a sense of what to expect, and honestly, my expectations aren't usually all that high. A valuable reminder or two, perhaps even some point I hadn't thought of before, but usually nothing earth-shattering.

Employees First, Customers Second was different, probably in large part because its author isn't some ill-defined management guru but an actual CEO who (if the book can be believed) transformed his company by implementing four simple but revolutionary steps, all of which flow from the premise that a business's true value in the 21st century derives not from the R&D or manufacturing divisions, but from the front-line employees who interact most directly with the customers:

"The conventional wisdom, of course, says that companies must always put the customer first. In any service business, however, the true value is created in 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 customer, and the individuals involved in both companies."

The Mirror, Mirror section is pretty straightforward and, while it may not be common among new CEOs, it's certainly not unheard of. Remember the old MBWA (Management By Walking Around) fad from 20-some-odd years ago? Well, essentially, this is what Nayar did on becoming CEO: traveled around the world, met with employees at most or all of HCLT's many locations, and told them the truth as he saw it about where the company currently stood. In his case, this meant admitting that the firm that had previously been an industry leader in India had fallen in the early 2000s to the middle of the pack, and continued to lose market share by resting on its laurels. This chapter concludes with an insightful and humorous observation on what it really means to be a great leader:

"I thought about my three heroes -- Mahatma Gandhi, Nelson Mandela, and Martin Luther King Jr. -- and how they had created transformation in their societies. ... These great leaders did not formulate strategy by retreating with their top people to a private place and then emerging to make a pronouncement to the masses. No, they walked the roads of their countries, met their people, and talked with them ceaselessly. During that process, they held up the mirror to their societies and helped their people see and articulate what was wrong. The leaders were able to make people intrinsically unhappy with the current state of affairs without demeaning their accomplishments or dishonoring their past in anyway. ... They also worked with their people to create an idea of the future, the point B that made people aspire to change. The resulting combination of dissatisfaction, continued pride, and excitement was a very, very heady potion and difficult to reject."

It's in the next section where things start to really get radical, though. Believing that in order to successfully implement major changes and innovations, all ideas, no matter where they come from within the company, need to be aired and debated, he opened up HCLT's financial information to everyone in the organization. (Exactly what was and wasn't made public wasn't specified, but I'm enough of a privacy-mad American to assume individual salaries weren't published. Hey, who knows?) He also initiated an online Q & A forum different from many others in that questions weren't censored; all questions were visible to everyone, along with all the responses. Interestingly, while the deluge of questions and comments initially made Nayar feel like the company must be in serious trouble, his direct reports indicated that they were seeing a very different picture; now that the company seemed to be acknowledging and addressing its problems, employees were spending much less time gossiping and more time talking about what was being posted, offering one another different ways of looking at situations, working on potential solutions, etc.

From here, he went on to do what the book calls inverting the pyramid: making such "enabling functions" as HR and finance, and even the CEO's office, accountable to the front-line employees. Specifically, they instituted an internal service ticket function that works like this:

"An employee can open a ticket for one of three categories of issues -- a problem, a query, or a work request -- and the ticket can be directed to any one of the enabling functions, including HR, finance, administration, training and development, IT/IS teams, transport, and others. Employees can also open a ticket on most members of senior management, including me.

"Once the employee has filled out the ticket, the system automatically assigns it to a support executive in the appropriate department. He or she will investigate the issue and take any action necessary to resolve it. The support executive commits to a set of accountability measures for each ticket, including how long it should take to complete. The metrics are based on a number of factors, including the complexity and urgency of the request. If the support executive does not resolve the issue within the specified time, the ticket is automatically sent to the executive's manager, and so on up the line.

"The entire SSD process is transparent so that an employee can check the status of his or her ticket at any time. Once the issue is resolved, the support executive closes the ticket. If, however, the employee is not satisfied with the resolution, he or she can refuse the closed status of the ticket. It will remain open and the clock will keep ticking. The employee can also rate the quality of service provided by the support executive."

In addition, the company extended the 360-degree feedback process many companies use to allow not just a manager's direct reports, but anyone whose job might be influenced by a manager's actions, to offer feedback on that manager.

The final action step -- recasting the role of the CEO -- was a bit unclear to me, but essentially, Nayar envisioned HCLT as a leaderless organization, as described in Brafman and Beckstrom's The Starfish and the Spider:

"Cut off the leg of a spider, and you have a seven-legged creature on your hands; cut off its head and you have a dead spider. But cut off the arm of a starfish and it will grow a new one. Not only that, but the severed arm can grow an entirely new body."

Perhaps the best summary of the leadership model for which Nayar strives is this one, from the end of Chapter 5:

"The CEO can no longer be the one who scribbles strategy on a paper napkin over dinner. He or she cannot be the one who stands in front of a crowd to motivate it with fabulous oratory. The CEO will not be the one who thinks of the best and the 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."

The book's final chapter addresses some of the more common objections one might have to the EFCS philosophy; namely, that it won't work when times are hard and isn't necessary when times are good; that customers won't see any value as a result; that large-scale changes are needed; or that EFCS has no impact on the company's bottom line. (Needless to say, he suggests that all 5 comments are untrue.)

If it's not already obvious, I really enjoyed this book; it was a quick, easy read with a lot to chew on for a manager or aspiring manager of pretty much any organization.