To the outside world, HCL Technologies (38,000 employees, $1 billion plus in revenues) is just another big Indian IT services company, and on paper its structure and its processes look remarkably similar to everyone else’s. But scratch under the surface and you see the beginnings of a new model of management. Through the pioneering efforts of its president, Vineet Nayar, HCL Technologies is putting in place a series of apparently small changes that will potentially have a dramatic effect on how people in the company work. And already these innovations are starting to get noticed. As Fortune editor David Kirkpatrick observed after talking to Nayar: “I have seen the future of management, and it is in India.” HCL decided to position itself as a value-centric company, rather than a volume-centric company. As Nayar explains: “We decided to chase deals where we were both important to the customer and creating value for them. And we announced this in a global customer meeting: we said ‘We will surrender our existing customers’ if they don’t feel we are important partners for them.” This meant giving up $35 million in revenues, but it allowed HCL to focus on the customers that were aligned with its strategy.
The drivers of innovation
Vineet Nayar joined HCL in 1985 as a management trainee and worked his way up through the company, becoming president of HCL Technologies (there is also a sister company, HCL Infosystems) in 2005. So he has lived through the boom in IT investment, the shift to outsourcing and offshoring, and the gradual maturation of the IT services industry. As he recalls: “The history of HCL is a bet on the growth of technology services. Back in the late 1990s, 45 per cent of our revenues came from technology development. We were very good in what we did. But when the technology meltdown happened in 2000, technology spending vanished overnight. So we had to re-invent our business model. “We took a look at our market space, and the key trend was that there was too much emphasis on volume, and people had forgotten the concept of value. Everybody was rushing to India, but no-one was asking, am I getting value? I believed that down the line clients would get frustrated: I have got my 30 per cent, 40 per cent cost saving, now what?”
As Fortune editor David Kirkpatrick observed after talking to Vineet Nayar: “I have seen the future of management, and it is in India.”
The second strand of HCL’s innovation-led strategy was the allure of uncontested market space – the “blue oceans” where margins are high and competitors are non-existent. “We have to create market space either in the way we deliver the service or what we deliver – this is what makes us unique and makes us big”. HCL was the ﬁrst mover in Remote Infrastructure Management (managing data centres and network services out of India) and became leaders in that market space. And now the company is pushing a new offering in the IT outsourcing market where the customer generates major cost savings while retaining control. By offering ﬂexibility and transparency to the customer, HCL avoids head-on competition with the big players like IBM and EDS (whose approach is to take the entire system off the customer’s hands). Four major deals in recent months, including Dixons, Terradyne and Autodesk, attest to the potential in this new market space.
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Rethinking management’s ﬁrst principles > HCL Technologies
Building an innovative organisation
To deliver on the promise of a distinctive market position, Vineet Nayar realised he needed to make some fundamental changes inside the company. “We were creating an innovative company, but you can’t do that unless your internal organisation structure is innovative. If you don’t perpetuate innovation, it is not going to happen.” His objectives in doing this are nothing unusual – he wants to invert the pyramid and put the power in the hands of his...