Case Study – Leading Change

Read “Employee First, Customer Second: Vineet Nayar Transforms HCL Technologies” at the end of Chapter 5 of your textbook.Read at least two scholarly articles that address
effective organizational leadership generally, or at HCL Technologies
specifically.Write a paper of approximately 750 words that answers the following questions:
In what ways was Vineet Nayar effective and ineffective in implementing change at HCL Technologies?Write a brief performance appraisal of Nayar, explaining each of the
following core tasks, and provide an example to support your
evaluation:
Developing and communicating purposeEstablishing performance goalsFacilitating upward communicationStrengthening the emotional bond between employees and the organizationDeveloping future leaders
Do you think Nayar deserves all or most of the credit for how well
or how poorly the organizational change turned out? Why or why not?Besides Nayar, what other individuals or groups in the case were
instrumental in the success or failure of the change? Describe how they
contributed to or resisted the change effort.
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“Employee First, Customer Second”: Vineet Nayar Transforms HCL Technologies
Headquartered in Noida, a suburb of New Delhi, HCL Technologies competed in India’s hyperdynamic
information technology (IT) sector.27 Founded in 1976, HCL defined itself as “one of India’s original IT
garage startups.” For its first 25 years, HCL found success offering IT hardware. However, as the global IT
industry shifted from hardware to software and to offering infrastructure services, HCL proved to be less
than nimble.
In April 2005, the company looked within and promoted Vineet Nayar to the position of president. Nayar
immediately set his goal for HCL: transformational change within the company in order to position HCL
as a global leader in transformational outsourcing services “working with clients in areas that impact and
redefine the core of their business.”
Strategic Renewal
Strategic renewal at HCL would involve, Nayar announced, a movement away from “small time
engagements” and toward high value-added integrated service consulting and outsourcing. In order to
turn that vision into reality, Nayar would oversee transformational change at his $1.5 billion, 46,600employee company. (HCL had operations in 11 countries including the United States, France, Germany,
China, and Japan, with 96 percent of its employees worldwide being Indians.)
His first strategic goal was to pay a great deal more attention to internal operating efficiencies than HCL
had in the past, while simultaneously emphasizing innovative offerings. Nayar would, he promised, “put
our house in order by rejuvenating employees and improving operating efficiencies.”
From his past management experience, Nayar (who had spent seven years as an HCL engineer before
taking the assignment of running an internally developed start-up company) had come to believe that
employees rather than leaders would be the source of improvement and innovation.
India’s traditional hierarchical culture led executives to take a “dictatorial” approach to management.
Studies of national culture have found that India ranks high on two dimensions: power distance and
long-term orientation. High-power distance suggests greater acceptance of hierarchical authority and a
greater capacity to follow than lead. A high score on the long-term orientation index suggests a
preference for thrift, perseverance, and predictability. If HCL was to compete successfully against larger
Indian competitors such as Infosys, Nayar wanted to “invert the pyramid,” he said, explaining his
meaning in blunt terms. For most companies, “it’s the employee who sucks up to the boss.” Nayar’s goal
for HCL was to create a culture where “as much as possible, [we] get the manager to suck up to the
employee.”
Rejuvenating Employees
Three months after assuming the president’s position, Nayar announced two initiatives designed to
rejuvenate employees and unleash their creative potential. Both initiatives, he also admitted, were
intended to be “shocks” to the system and signal a shaking up of the old culture.
“Employee First, Customer Second”
In July 2005, Nayar introduced his “Employee First, Customer Second” initiative in order to “invert the
pyramid.” That initiative, explained Dilip Kumar Srivastava, head of corporate human resources, had four
strategic objectives:
To provide a unique employee environment
To drive an inverted organizational structure
To create transparency and accountability in the organization
To encourage a value-driven culture
Added Nayar, “I wanted value focused employees that were willing and able to drive an innovative,
sophisticated experience for customers. From the start, though, I was clear: Employee First was not
about free lunch, free buses, and subsidies. It was about setting clear priorities, investing in employees’
development, and unleashing their potential to produce bottom-line results.”
360° Performance Evaluations
Along with announcing the Employee First, Customer Second philosophy, Nayar introduced 360°
performance evaluations. Initially, the evaluations were performed on Nayar and his top 20 managers.
That was not the shock however; rather, it was Nayar’s directive that the results of that evaluation be
posted online for any employee to see.
Executives report to feelings of unease at the airing of those results. Said R. Srikrishna, head of the U.S.
infrastructure services division, “There was this whole picture of me that [emerged] as a heavy
taskmaster. It was very unsettling the first time.”
For Nayar, the publication of 360° results signaled that HCL was serious about his Employee First
philosophy. Nayar expanded the system so that employees can see the results for their managers as well
as their peers. Nayar assured them that the ratings would not be used to determine bonuses or
promotions. Instead, they would allow the individuals to work with the company’s human resources
department to create developmental programs for them.
Nayar appreciated that the idea of posting results would be shocking, at first, to employees. He referred
to this as disruptive thinking. “When I put my 360° evaluation in the Intranet within my first 90 days of
taking charge at HCL Technologies, it showed that the CEO was willing to put his neck on the line. It is a
simple gesture that galvanizes others into thinking on similar lines. We [India] claim to be the world’s
largest democracy, but while running our businesses we are dictatorial toward our employees.”
Additional People Alignment Initiatives
Some additional initiatives started by Nayar include the following:
HCL’s training program was renamed “Talent Transformation and Intrapreneurship Development.”
“We did not just want to have swanky off-site development programs, then have employees return to
work and go back to status quo,” explained Anand Pillai, who headed the program. Instead, HCL rotated
employees through multiple projects and jobs and then helped them “understand the work of their
operation at both the tactical and strategic level.”
HCL abandoned performance-based bonuses and adopted, instead, what was called “trust pay.”
Aimed most especially at junior engineers, pay would be fixed at the beginning of the year. That
represented a dramatic break from the industry standard of having variable pay account for up to 30
percent of total compensation. “It increased our cost base,” admitted Nayar, but the idea was, we’d pay
you fully, but we trusted that you would deliver. It was intended to reduce transaction volume and
increase trust.”
Further Challenges
By 2007, Nayar could point to some impressive improvements. Under his leadership, HCL has achieved
the highest level of organic growth—defined as growth achieved through internal development rather
than by acquisitions and mergers—among India’s IT sector. Employee retention had been a particular
problem for HCL. In 2005, the company’s attrition rate—the percentage of total employees who leave a
company in a year—was 20.4 percent, among the highest in the industry. In 2007, that figure dropped to
17.2 percent (still higher than many competitors). At the same time, competition remained unrelenting
and was becoming more global. IBM announced plans to invest $6 billion in India in the upcoming three
years, up from $2 billion in the previous three years.

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