How Shiv Nadar learned to let HCL Grow Up
Legacy Issues
Now, HCL Technologies didn’t exactly have a great reputation with employees. Their employee stock option plan (ESOP) for instance, wasn’t exactly transparent. Who was awarded, how much, and why was largely unknown. To the world outside as well, HCL Tech’s fierce ways had earned it a not-so-endearing reputation. To that extent, Nayar had a tough job on hand. His single most important task was to build trust, both inside and outside.
Within two months of taking over, he established his leadership by addressing every single employee through town hall meetings and other forums; he egged them to ask questions in a world that didn’t know it was possible.
Buzzwords were used to dramatic effect. Whoever heard of a company that said “Employee first, Customer second”? In a company with one of the highest attrition levels in the IT business, the line went down well. “Destroying the CEO’s office” was another line Nayar used to draw applause internally. The message was clear: One doesn’t need to go to the boss for every little thing. These were dramatic departures from the past.
Trust gained, he reorganised the business around verticals and not delivery centres. This also translated into centralising key functions like human resources, bringing the organisation under one intranet, and automating processes to improve the employee experience. Major issues an employee face are now addressed within 72 hours on the outside. It didn’t take Nayar long to gain their trust.
He then turned to the outside. The mainstay of most Indian software companies is writing and maintaining code. Nayar needed to find something in areas where others were not too well-entrenched. That is how he latched on to engineering services, remote infrastructure management (RIM), enterprise applications and platform-based BPO. 
Of these, RIM was where HCL Tech was the strongest, thanks to Nayar’s experience at HCL Comnet. It’s a $100 billion opportunity of which Indian companies had captured only $1 billion by 2005 says Nayar. He went after it aggressively and between 2005 and 2009, HCL Tech’s revenues from infrastructure outsourcing increased from $70 million to $355 million.
RIM, however, is only a part of the total IT budget for any company. The big money lies in going after total outsourcing deals. So he formed a big deal group comprising at least 30-40 people to go after these businesses aggressively.
But every large Indian company too was looking at these opportunities. To lend edge to his system, he made some changes to his organisational structure. In most Indian companies, client relationships are owned by vertical heads, who then get the service lines to put together a solution. Nayar empowered the services heads as well to lead the discussions on total IT outsourcing.
That it was paying off was obvious when in the last quarter of 2008, Nayar announced HCL Tech had signed 20 deals worth $1 billion, the highest ever in a quarter for this company. Of these, three deals were in excess of $100 million each and five were worth $50 million each.
Since then, the question on everybody’s mind was, how did Vineet Nayar manage all of this? We spoke to several analysts, customers, competitors and employees at HCL Tech. A common strand that emerged was predatory pricing. “Their average price points are lower than other Tier 1 Indian vendors by at least 15 percent,” says Bhavtosh Vajpayee, head of technology research at CLSA, an equity research firm. “If HCL wins a deal, everybody says we undercut,” counters the company’s CFO, Anil Chanana.
Then there is the issue of margins. Margins for IT outsourcing deals tend to be lower than selling discrete services. Last year HCL Tech earned margins of 15 percent in infrastructure services, compared to 19 percent for software services. Among the top tier players, HCL Tech’s margins are among the lowest and data over the last eight quarters show margins fluctuated between 16-19 percent. “HCL is on the mend, but reputations don’t change in two-three quarters. It needs consistent performance like its peers” says Vajpayee.
Competitors too are not enthused with HCL Tech’s sales strategy. Says Sanjay Gupta, Senior VP, Wipro Technologies, “Selling horizontal services is an old model, this is how the industry was positioned four-five years ago. It has now been commoditised. Instead, companies are moving towards providing vertical solutions like a mortgage origination platform, which is where the premium lies.”
On his part, Nayar doesn’t think much of doomsday soothsayers. “On a straight road, the guy with more momentum will always be ahead of you. But when you hit a dark tunnel, somebody presses the brake and somebody the accelerator. We hit the accelerator,” says Nayar.
Don Corleone
As for Nadar, he spends most of his time on philanthropic activities. But in the days to come, Nayar will need Nadar’s counsel to tackle the even tougher parts that are coming up. Of the 12 vice presidents who report to Nayar, many have the title but not the power say those at HCL Tech. History and blood ties continue to influence things. For instance, the CFO Anil Chanana reports to Nadar, not Nayar. The Chennai-based Ranjit Narsimhan, Nadar’s nephew and the head of the BPO business too does not report to Nayar. And for some inexplicable reason, executives say the non-voice BPO business, which ideally should fall under the BPO arm is now being clubbed under a separate business unit called B-Serv.
“Do not go by the designation. Inside the company there is a very distinct formal and an informal organisation that runs on parallel tracks,” says a senior Delhi-based HCL Tech executive who has worked within the group for 15-plus years in different capacities. Not surprisingly, HCL Tech’s media managers declined to share names of Nayar’s top team and their reporting structure, calling it “information sensitive”.
That there’s a huge gap between Nayar and his top team, consistently comes through at various levels. Access to Nayar’s second rung is still an issue unlike, say, an Infosys or Wipro which allow access to senior executives below the top layer. Says Sudin Apte, Country Head, Forrester, “HCL’s success is too personality centric, they have not been able to institutionalise or create processes like Infosys.”
At least three old timers who have spent long years at HCL Tech in various capacities reckon HCL Tech is just too important for Nadar to completely let go. So while Nayar may have the operational freedom, it is unlikely he has the freedom to pick his A-team.
A senior Delhi-based executive who was hired by Nayar after he became the CEO, left within three years. “It was a great stint. When I look back I realise how much Vineet put in to support and help me settle down. One of the best CEOs I have worked for,” he says. So why did you leave? “I saw myself hitting a wall. Career progression was an issue,” he says.
So can Nadar be like Don Corleone and look the other way as he did once Michael took over the family business in Godfather? He better had. You can’t hold once you let go.
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