CHAPTER FIVE

Find Understanding in Misunderstanding

Renewing the Cycle of Change

Perhaps it is easier to misunderstand the Employees First, Customers Second concept than it is to understand it. There are many ways to not see it for what it is.

So, in this final chapter, I want to talk more about what EFCS really is and what it isn’t; what it can do for you, your company, and your employees; and what it cannot do. This is, perhaps, an inversion of how you might expect a book like this to be structured (but, after all, the main theme of the book is about the value of inverting traditional structures, so we might as well turn this one upside down too!), because in the preceding chapters I have talked about the practical issues and specific steps we took on our journey. Now I want to address the misunderstandings related to this philosophy.

The First Misunderstanding: It Won’t Work When Times Get Tough

“Yes, Mr. Nayar, this is all very well and good,” I can hear people saying to me. “Your stories about mirrors and droplets of rain and poultry farms are interesting and sometimes even inspiring. But what happens when times get tough? What happens when your company hits a bad patch? When the economy goes sour? When your whole industry becomes irrelevant?”

“Above all, Mr. Nayar, what happens when you have no choice but to cut costs and, God forbid, reduce the head count of your precious employees? Will they still think you’re accountable to them when you hand them the pink slip?”

Funny you should ask.

We at HCLT faced the same problems that most companies did during the worst of the economic crisis—most fundamentally, a serious threat of decline in business. During that period, from the middle of 2008 to the end of 2009, the Employees First, Customers Second concept was truly put to the test. We asked ourselves, is this concept relevant at a time like this? Can we afford to put our employees first when our customers themselves are struggling? Won’t we have to have layoffs? Isn’t that the only way to keep costs low in a time when the top line is suffering? And won’t that go against the whole Employees First idea?

I talked it over with my leadership team. We didn’t really know how to respond to the threat of declining business in a severe economic crisis, because we had never had to deal with such a situation. We refused, however, to believe that a wholesale layoff of employees was the only answer to reducing costs and surviving the downturn. We felt in our hearts that if we refused to see the recession as an excuse for declining performance, and if we did the right thing for our employees, then we could convert the threat into an opportunity.

This conviction was supported by my belief that the entire knowledge economy is built on the trust that employees and their employers have in each other; there really is nothing else. It is only this relationship—the one between employees and the organization—that keeps a company going. If you do a large-scale layoff that is not related to the employees’ performance, but is solely about cost-cutting, the fabric of trust is torn. The premise on which the organization exists is negated.

We had to find a different, no-excuse way. So we stuck to our Employees First principles and took the route of transparency, reverse accountability, and collective wisdom. We reached out to ten thousand HCLT employees, through live events and online media, and said, “How should we respond to this challenge? Give us your thoughts and ideas.” We called the program Smart Response.

As we had come to expect, the response was immediate and massive. And, as we learned from earlier initiatives, not all the ideas were useful. We did, however, end up with fifteen initiatives that we implemented and that resulted in huge cost savings for the company. Although the initiatives, as implemented, looked quite different from the original suggestions we received through Smart Response, that is not the point. The senior management team and I never could have conceptualized these initiatives on our own. We improvised on them, refined them, took them further, and ended up with a very strong list of finalists.

Surprisingly, the suggestions included ideas about reducing the size of the workforce by asking people who were performing below standard, or who were not flexible, to leave the company. The employees who made the suggestions argued that we had to weed out the free riders in order to survive and, very important, to motivate the high performers.

The ultimate impact of the Smart Response initiative was less on cost-cutting initiatives than it was on increasing revenues. When our employees were engaged to find an answer to the tough question of how best to weather the recession, they felt included and assured about their future, and started to focus on how to create more excitement in the customer interface so as to increase share of wallet. This was very different from the situation in some other IT companies, many of which had not adopted an inclusive approach for considering responses to the recession. Employees in such companies were uncertain and focused on their own fates, and they felt demotivated and afraid. It showed in their performance in the value zone and compounded the problems for their companies, which created a doom spiral of worsening performance and deepening anxiety. While market share of those companies dropped, HCLT grew 20 percent year after year during the worst period of the recession. We closed orders worth twice as much as in the same period the previous year, and we made thousands of new job offers across the globe during those months. In the United States and the United Kingdom we added fifteen hundred employees.

Management expert Gary Hamel pointed out the wisdom of this approach well before the recession hit. He wrote: “Unfortunately, a threat that everyone perceives but no one talks about creates more anxiety than a threat that has been clearly identified and made the focal point for the problem-solving efforts of the entire company.”¹

I asked several of our large customers why they thought we had been able to improve our market share during that time. They all said the same thing: “Your employees made the magic happen.”

The set of ideas that resulted from the Smart Response process enabled HCLT to manage the slowdown better than many of our competitors, and even more important, it proved that the EFCS concept does work in tough times. Did we get everything right? Probably not, but the Smart Response catalyst was sufficient to bring about a significant change in employee behavior and create the desired business result.

The Second Misunderstanding: We Don’t Need It, Because Times Are Good

Strangely enough, I also get this inverse reaction to Employees First: not only will it fail to work in tough times, but also that it is unnecessary in good times. I counter that misconception with the story of the ant and the butterfly, a story demonstrating that breakthrough initiatives like EFCS are most needed when times are good, or seem to be good.

Consider the young ant. It learns from its father and mother and goes to college and then business school and earns its MBA. Somewhere along the way, the ant becomes quite impressed with itself. “I am a better ant than any other ant,” it says. The ant that tries particularly hard can become an even better ant than it was before. And if it tries extra hard, it can become what I call a fast-walking ant. And, yes, if that ant gets some lucky breaks—like a big inheritance or a very fine spouse—it may become the fastest-walking ant of all.

However, it is still an ant.

Now, if you are an ant and wish to become a butterfly, that is a whole different matter. You must have tremendous desire to do so. You must be willing to give up all the things you liked about being an ant. You must accept that all the knowledge you had about how to be the fastest-walking ant won’t help you become a butterfly. You will need a different kind of knowledge altogether.

Look at the evolution of Mohan Das Karamchand Gandhi into Mahatma Gandhi. How did he do it? He came up with an idea—nonviolence—that had not been considered before, that was not established, and that no other leaders were employing. He departed from the conventional, well-traveled paths and, instead, took an unconventional route. This road led him to an amazing place, somewhere that he—and his followers, his nation, and the world—had never been before.

An ant may become a CEO. But that ant will not become a true leader without transforming into a butterfly. The same holds true for human beings. If you are a traditional CEO, the only way to become a leader is to listen to your inner self. If it tells you to do something, and if you are able to do it, you may become the leader you wish to be.

I was reminded of this story when I attended a conference of CEOs on the West Coast in 2008. I spoke about EFCS there, and when the session was over and I was getting ready to leave, a young man, probably in his late thirties, approached me. He introduced himself as Huang Li (I have changed his name) and said that he was the CEO of a Chinese hotel chain. Huang started the conversation by complimenting me on my speech, but quickly followed up with a criticism that has become extremely familiar to me.

“Even though your ideas are very interesting to hear about, Mr. Nayar,” he said with cold confidence, “I cannot imagine they are applicable to all situations.”

I had heard this comment many times before and have heard it many times since. I smiled and invited Huang to join me for coffee in the Networking Lounge. As we sipped our lattes, we picked up the discussion.

“I have to say honestly,” Huang began, “that I see no sense in the Employees First philosophy. At least not for me and my company.”

I decided not to counter his arguments. Instead I asked him to tell me about his hotel business. Huang was more than willing to tell his story, as most people are. It seems that it was a family-owned company, the leader in its highend segment of hotels and resorts in the region around Shanghai. (I have also changed the location of his business.) The key to the CEO’s office had been passed down from generation to generation. As far as I could tell, the senior leadership was a group of aunts, uncles, and cousins, all genetically sewn together into one happy, loyal boardroom.

As Huang talked about the company’s leadership, its heritage, and its culture, I quickly understood why he did not, and probably could not, believe in EFCS. He had been born into a closely held, family-governed enterprise. The idea that these imperial corporate rulers should be accountable to their employees would indeed have been totally ridiculous to him. I could not blame him for thinking that way.

After he told me about the business, we returned to our original topic of discussion, and again Mr. Huang questioned the concept. “Do you still think we need reverse accountability and all your revolutionary ideas?” he asked, with just a bit of a scoff. “You can see that everything is going just fine inside our company.”

I guessed that he would not be having coffee with me if he truly believed that everything was perfectly fine in his company, so I decided to take a different tack with him.

“Tell me, Mr. Huang, what is your company’s revenue growth?” I asked.

“It’s 22 percent year on year,” he said proudly.

“That’s very good, I suppose,” I said and paused.

Huang looked slightly offended. “Very good, indeed,” he said. “That’s 5 percent higher than the industry average.”

“No doubt,” I said. “But why isn’t it better? Why not 40 or 50 percent year on year?”

Mr. Huang looked at me as if he had no idea what I was talking about.

“Well,” I said,“the hospitality industry in China—and especially Shanghai where you are headquartered—is the golden goose right now, isn’t it?”

“Of course it is!” Huang said with obvious self-satisfaction.

“And you have just told me that your company is the leader in the premium segment. So, if you are the top company in a fast-growing industry in the best market in the world, why are you clocking just 22 percent year-on-year growth?” I asked. “Especially when that’s only 5 percent better than the average?”

Huang smirked at me, but I could see a tiny cloud of doubt in his eyes.

“I think the fact that your company is growing at only 22 percent year on year should actually be a cause for concern for you,” I said.

“That’s absurd,” Huang said.

“Possibly so. Now, I assume that your hotels have the highest standards and all the best amenities and that your customers are serviced in the best possible way.”

Huang nodded, not quite sure what I was getting at. “Yes, of course, everything is of the highest order,” he assured me.

“And so how will you improve your growth rate next year and the year after that? Especially if the market cools down. Or your competitors match your standards?”

Mr. Huang fiddled with his coffee cup but did not reply.

“You asked me why you should reverse the accountability in your company and put employees first. My answer is that it is the only way for you to keep growing. That’s the only way to improve your performance.”

Huang was listening more attentively now.

“I am sure you have done everything you can to improve your tangible assets,” I said. “Properties and amenities. Now I believe you must focus on your human capital. To make a big leap ahead, especially when you’re already performing at a high level, you have to put your employees first. You must do everything you can to enable them and be accountable to them. If you do, you will see your company exceed your own expectations as well as those of your customer. You will not have to settle for 22 percent growth. You may even achieve 40! Even more important, you will create a sustainable legacy and be long remembered for your success.”

Huang laughed this time, and I laughed with him. But, when we took our leave of each other, I could see that Huang felt some discomfort. I had planted the seed of an idea in his mind. I hope that it found some sunlight and some nice rain droplets.

I had no doubt that Mr. Huang was a fast-walking ant, perhaps the fastest-walking ant in the Chinese hotel business. But I was not sure he could become a butterfly. Next time I’m in China, I will stay at one of Mr. Huang’s hotels and find out.

The Third Misunderstanding: Customers Will Never See the Value

Now comes the third objection, which is that although the employees of an EFCS company may find value in the initiative, it is a delusion that customers will actually receive any direct value from it.

My answer to that misunderstanding is this: not only does the customer see the value very clearly, but the customer often sees it before we, the leadership, see it ourselves. Remember the stories about how customers perceived the employees as the real doers in our company and regarded me, and management in general, as a barrier or not important to their success?

It does little good for me to claim that customers see the value of the EFCS initiative. They have to say it themselves and, fortunately for me, they often do. This happened most memorably at a Global 100 (a group of chief executive officers of some of the world’s most significant companies) meeting held in New York and hosted by Jack Welch, former CEO of General Electric. After my presentation, Jack began grilling me about whether the EFCS concept could help companies in recession. I launched into a long answer that must not have sounded very convincing, because, after a few moments, a member of the audience raised his hand and called out. He was the CEO of one of our major customers, a Fortune 100 company.

He stood up. “Jack, I have seen HCLT transform itself though EFCS, and I can vouch as a customer that it works for us, too.” Wow! I knew that the CEO was an important supporter of HCLT, but I had no idea that he would make such a public and positive statement of the value of Employees First.

That’s not all. Many of our customers tell me they love us specifically because of our commitment to our employees, and what’s more, these customers have followed our lead in this movement. They, too, are implementing EFCS approaches in their companies, in their own ways. They often come to talk with HCLT employees about how they are doing in their own companies, looking for honest assessment and feedback.

Our customer satisfaction scores, which had been high and on the rise, actually went up by 43 percent during the 2008–2009 recession. Customers do gain direct value from the EFCS program, and believe me, they know it.

The Fourth Misunderstanding: Implementation Requires Large-Scale Initiatives

At HCLT, we did not implement any large-scale technical or organizational initiatives to implement EFCS. We relied instead on small-scale catalysts, tweaks to our existing systems, rethinking of processes, and lots of communication.

We can see the similarly large impact of small-scale technical changes in many other situations. The cell phone, for example, is bringing new economic clout, profit, and productivity to thousands of fishermen on the Indian coast. While they are still at sea, the fishermen can call several ports to find the best prices, playing the dealers against one another to drive up the price. Dealers don’t like the new balance of power, of course, but they pay higher prices to the fishermen who work this particular stretch of coastline.

Similarly, simple access to the Internet has had a major impact on Indian farmers. Typically economically disadvantaged and often illiterate, rural Indian farmers have had limited access to information and education about improved farming techniques that could enhance their yield. Farmers rarely have ready access to quality materials, such as the best seeds, herbicides, and pesticides, or to critical information such as accurate weather forecasts, which could help them improve the quality of their crops. Such inefficiencies kept their costs high and profits low.

The e-Choupal project (choupal means “village square” or “gathering place” in Hindi) brings Internet centers to farming villages. Through these centers, farmers of soybeans, wheat, coffee, and other crops have easy access to real-time information over the Internet. By knowing the current prices for wholesale products, these farmers can negotiate better prices for themselves and thus realize the greatest profit from their crops.

The response to this misunderstanding: a solution need not be large scale, complex, or require a huge initiative to bring about a spectacular result.

The Fifth Misunderstanding: This Has Nothing to Do with Performance

Even when I respond to questions about the first four misunderstandings, people still doubt that an initiative like EFCS can actually lead to significant growth and profit.

The best response to this misunderstanding is a few facts that pertain to the first four years (2005–2009) of our transformation:

• Seventy percent of all major deals closed by HCLT were won against the Big Four global IT players.
• The number of our customers grew fivefold. By annual revenue, $1 million–plus customers doubled, $5–10 million customers quadrupled, and $20 million–plus customers grew fivefold.
• Employee attrition has fallen by almost 50 percent. That includes a significant decline in attrition of performers rated “outstanding,” which demonstrates our increased ability to retain our most valuable human resources.
• We achieved a 70 percent increase in ESAT (employee satisfaction), according to an external, independent survey.
• Revenues tripled over a four-year period.
• Operating income also tripled.

And we achieved all this while we were having lots of fun and not trying to be something other than what we actually were!

Unfinished Agenda: Making Change a Way of Life

As we have seen, the journey of Employees First, Customers Second progressed through a sequence of phases. These stages were: looking in the mirror, creating trust through transparency, inverting the pyramid, and transferring the responsibility for change to all.

In truth, the phases, as we lived through them, were not so well defined as they may appear as you read about them. We often found ourselves having to repeat one of the steps. Sometimes the entire sequence would have to be played through for a specific initiative or in a particular area of the company.

So EFCS must be seen as a cycle of activity, a journey that begins over and over again. But although the journey ceaselessly starts and restarts, it never plays out exactly the same way twice. Each time, we come up with new catalysts and continue to push our boundaries more vigorously so that we can change the company still further.

This is essential because the world of business is changing in fundamental ways. We all experience rapidly evolving consumer needs, greater regulation, a leveling of the competitive playing field, and the ever-changing nature of risk and ethics. Almost all the business leaders I know are navigating through the multiplicity of forces as never before. As complex as the business environment has become, however, I still believe that there is always a very simple route to success: a droplet, a catalyst that sets the process in motion.

However, I do not claim to understand everything about this subject, and I cannot be sure that the process will work in the same way, or as well, in all companies, all situations, and all geographies, as it has for us. I know that there are imperfections and inconsistencies in our approach. And when we run up against one of these, we must look in the mirror once more, make a correction, and start walking again. The beauty, ultimately, is in the experiments and the learning we gain from them.

Many people—both inside and outside HCLT—misunderstand what we are doing. But many do understand the philosophy of Employees First, Customers Second (and the thinking behind it), are excited by it, and have put the ideas to work for them in their professional and personal lives.

Many employees, for example, have applied what they have learned at HCLT in setting up and running their own small social enterprises. Others teach our philosophy at schools and colleges. Quite a few have told me that the principles we follow have helped them develop a new perspective on life and have helped them function better. That means that we may have touched as many as fifty-five thousand employees in different ways. If the new generation of managers takes up these ideas, we can certainly influence many more thousands, perhaps hundreds of thousands. That’s a big presumption, I know, but so was EFCS when we first talked about it.

Each year, a few hundred people leave HCLT to join other companies or to follow different paths in their lives. I consider these people alumni of the EFCS school of thought, and I hope that they, too, will take our ideas with them to their new endeavors. I hope they will be alert to the nature of the value zone in their new situation and be aware of the distribution of power there as well as be conscious of how accountabilities add value or create obstructions. Above all, I hope, they will be motivated to turn conventional management wisdom upside down.

We know that a single good thought can change society for the better. I believe that ours is a good thought.

When we started this journey, our goal was to transform HCLT, and after five years of travel, we have certainly done so. For me, it has been a humbling experience of self-discovery, one that I could not have undertaken alone. People throughout the company had ideas that would never otherwise have occurred to me. They have put the concepts into practice in ways that amazed and delighted me. They regularly revealed new horizons, the mountains beyond the mountains, that I did not see.

This is truly a book with fifty-five thousand authors.

Our journey transformed not only our company—but transformed me, as well. In 2005, when we began, it was as if I was blind, groping my way forward. I wish I could say that I saw the path clearly back then, but I did not. I am glad that I took the uncharted journey because that has been the fun of it.

Today, as much as my eyes have been opened, I wonder if I am still in the dark. A few years from now, will I look back at 2010 and say again that I was blind and just groping my way forward?