Why building corporate democracies still matter

[From Pixabay]

I must confess when I first heard that Vineet Nayar, the chief executive officer of HCL Tech, a frontline Indian software firm, was propagating the concept of an employee-first culture almost two decades ago, I was more than a tad sceptical. How did it make sense to prioritise employee well-being over the holy grail of customer delight? 

At the start of the 1990s, one of the precepts that had been drilled into us in business school came from Peter Drucker, one of the wisest management philosophers of all time. “The purpose of business is to create and keep a customer,” he wrote. 

Then there was yet another famous quote—this time by none other than Mahatma Gandhi—that adorned the walls of almost every other public sector bank. “A customer is the most important visitor in our premises. He is not dependent on us, we are dependent on him. He is not an interruption in our work, he is the purpose of it. He is not an outsider in our business, he is part of it.”

Two seemingly unrelated incidents in the last month forced me to revisit this old management precept. First, I was part of a team working on a case study about the amazing transformation of a relatively unknown industrial products wholesaler in Asia, which relied on a homespun employee-first approach to create breakthrough results. (For reasons of confidentiality, I’d have to keep their name out.) The second stimulus was Leading from the Back, a book I’m currently reading, written by Ravi Kant, the former vice chairman of Tata Motors and a business leader I’ve always admired, along with two other co-authors, Harry Paul and Ross Reck (Read about the book in this review by Ambi Parameshwar in Hindu Business Line.)

Both of these recent experiences triggered more exploration and wider research and led me to think more deeply about an alternative management philosophy that may not be common, but is worthy of study. They also raise interesting questions about our existing models of 21st-century leadership and how it helps firms succeed.

Transformation is one of the most repeated words in business literature. In his popular TEDx talk, Nayar says there are two schools of thought about the purpose behind transformation. A large majority of businesses are obsessed with transforming what they do, aiming to be the next Google, Facebook, or Tesla and discovering innovative ways to make unique products and services. The other approach is to find a more humane way to transform how you run your company and how you treat your employees, by increasing the clock speed of your organisation.

The reality is that most products and services are commoditised. Even a new innovation gets copied within days. Yet, most companies continue to believe their raison-d’etre is to create unique experiences for their customers. That begs the question: Who creates these experiences? And where does it get created? In this world of sameness, the real value creation happens where customers and employees meet. 

Last weekend, I was away at an annual conference hosted by a leading think tank that chose to curate the entire unique experience entirely on its own, without involving traditional event managers. Every little detail—from the tenor of the sessions, the menu and the delegate kit bags—was carefully thought through. Every team member, young and old, pitched in to make it a special experience for speakers and delegates alike. It was a huge collective effort to stimulate open and engaging conversations.

Using the carrots-and-sticks model of managing people that we’ve grown up on isn’t the only way to move forward. People are naturally capable of self-direction and self-control, if they’ve signed on and committed to the larger organisational goal. If you treat them as mature adults, the chances are that they will learn from their own actions and mistakes.

So, if one indeed believes that employees are the real value creators, what should the role of leadership be? Nayar avers it is to enthuse, motivate, and enable employees to create those unique experiences for customers to help the firm grow faster. And he believes it was this employee-first approach that helped him generate a six-fold increase in revenues and market cap at HCL.

In the ’90s when HCL was a quintessentially hardware firm, I picked up amazing stories from Harsh Vardhan, an HCL alum, about how Shiv Nadar, Arjun Malhotra, and  other co-founders at HCL empowered its famed frontline sales team to create value for their customers. One day, Harsh narrates, the Prime Minister’s Office under Indira Gandhi asked for a demo of the HCL machines. Two years into HCL, Harsh, along with another trainee, were asked to present to the PM and other senior ministers, including VP Singh. The PMO officials—and the PM herself—were dumbfounded that the MD of HCL wasn’t available to meet the PM. But they believed Harsh when he said Nadar and the regional sales manager were travelling. In the end, the young team pulled off a coup by bagging the order, opening the door to many such lucrative government contracts.

Nadar displayed classical leadership from the back. He seldom went on sales pitches. HCL hired the best young talent and then left it to them to build relationships and create and demonstrate value for their customers. Getting out of the way, and providing space for employees to be innovative and take initiative helped HCL soar to the top and build an amazing frontline sales cadre. That lasted until the time they signed up for an unsuccessful joint venture with HP. The joint venture ended up diluting this strong decentralised culture at the frontlines.

There are enough examples of other global firms that have embraced many aspects of this employee-first culture: Zappos, the legendary Herb Kelleher at Southwest Airlines (read his interview with Prof Raj Sisodia at the bottom in the Dig Deeper section) or even, Ricardo Semler at Semco in Brazil.

Semler’s leadership journey is vividly documented in Maverick, his bestselling book, published in 2005. Semler peeled off many unnecessary layers of management, built the foundations of an unprecedented democracy at the workplace, thereby challenging old ways, and charting a new pathway to success in a volatile business environment. (Read this 2005 article from Strategy+Business about how Semler shaped a new participative management model that gave his company 14 straight years of double digit growth.)

So the moot question: If there is evidence that employee-first cultures work, why hasn’t it become a mainstream management philosophy? The somewhat simplistic answer is that, like every other management concept, it doesn’t work in every context. 

That may be true, but it also points to a bigger issue: In this relentless search for business growth and success, we’ve prioritised machines over humanness and efficiency over effectiveness. We’ve ended up reducing human endeavour to an assembly-line operation. In the current hype around artificial intelligence, business managers would do well to keep in mind the limitations of a mechanistic world and continue to emphasise the value of building human relationships.

Dig deeper:

• A conversation with Herb Kelleher, co-founder, CEO and chairman of Southwest Airlines by Prof Raj Sisodia, FEMSA Distinguished University Professor in Conscious Enterprise at the Tecnologico de Monterrey, Mexico. Click here to watch. (Play time: 61 mins)

(A shorter version of this column was first published in Business Standard)