HCL CEO Vineet Nayar: Outsourcing is dead, and there's nothing innovative in cloud technology

He wrote the book on a philosophy known as 'employees first, customer second.'

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So therefore, my statement is the fact that there is nothing innovative in the technology so far. The innovation is only when salesforce.com kind of companies come in with largely peripheral applications. I have not seen anything on the cloud, either from a technology point of view or a cost point of view or an application point of view, where people will put their legacy on cloud or Oracle on cloud. I'm talking about G500 customers. Cloud adoption will largely be with cash-strapped SMB customers or with peripheral applications where the CIO of a G500 doesn't believe it to be strategic and is okay with adopting something on the periphery, which is salesforce.com or Workday or any of these applications coming. I truly believe for anything big to happen, like e-commerce or multichannel, there needs to be a huge demand from the customer and a disruption in technology and cost for a massive adoption of that trend. That's why I made that comment.

Okay. So in terms of these other forces that are driving changes in the IT shop, how are they changing your portfolio?

Right. So first is on cloud, let me complete it, we are amongst the biggest on converting our customer applications to private cloud. Data center virtualization and adoption of private cloud, and converting applications around the service bus, we are amongst the biggest in consulting and helping our customers do that.

The second big trend is around mobility. I think there are two trends in mobility. Number one, companies are becoming digital in their presence and digital companies are largely apps on taps, which are all your mobile apps. Therefore, it is not just a technology question anymore of how can you convert applications into mobile or how [customers] can get access to my website on the mobile. I think the critical question is what is the innovation on a mobile app which you can get from me and therefore experience my company distinctly and differently compared to how you will experience my competitor? The moment we treat mobile as a technology [shows] we missed the point. I think it is an experience issue. The solution to mobile is not a technology answer, it is a combination of business and technology sitting together and creating a unique experience for a customer in the digital world with apps on taps. That's where we are going on mobile. We have a huge mobile presence and we have a lot of non-IT professionals helping customers build mobile.

The third focus is the multi-channel commerce, which is where HCL has made the biggest investment. We truly believe that we have moved into an era where people are wanting more from each customer rather than more customers. To do that you should be able to listen to social networks, do analytics and trend lines of the customer who is visiting your site and beam him content and beam him campaigns so that he can get more from you. So, a combination of chatter on the Web, a combination of analytics on the customer, a combination of real-time response and a combination of experience and an ease of transacting with you on the Web, and giving a unique identity experience to the customer is where the whole world is moving.

These are the three big bets which we are taking and have significantly invested in all three of them.

I want to go back to the philosophy that you mentioned early on -- employees first, customers second. Can you tell me how that really translates into day-to-day action? What does it actually mean in the way that you work?

Let's say that we are doing an SAP implementation for our customer, or we are doing a supply chain or a multi-channel commerce implementation for our customer. There is a group of 150-200 people who are working on a customer project. Now the customer bought that service from you with a vision that these 150 people are going to think on their behalf and drive innovation for him in his unique fashion. HCL is in the business of enabling, infusing and encouraging those employees and giving them knowledge, training, best practices capabilities, so that they can create magic for the customer. Most companies are actually organized in a very different way. They are not organized to deliver value. They are structured around profit maximization and multiple divisions, and when they come together at the customer they are actually focused on profit maximization for their respective divisions. Eventually, [the customer is] what I call "in the hand of God." Either finance or HR or the boss will tell [the service provider employee] what not to do, even if it is not in the interest of the customer, because the hand of God is too far away from you, the customer.

We saw that as a great opportunity. We said that if we actually reverse the organization and make the management accountable to delivering value to the customers, and have the managers and the management and the CEO's appraisals done by the employees, then the behavior of the company will change. It will enthuse and enable the employees to deliver the value which the customer bought from us. At HCL, my appraisal -- along with 6,500 of the managers -- is done anonymously and the results of that appraisal are published on the Web for all employees. That changes the culture, where the business, the managers and management suddenly is not the 'hand of God' business, but in the business of enthusing, encouraging and enabling employees to create differentiated value. The customer sees the unique set of employees, who are highly energized, highly enabled, highly intuitive, and have access to all knowledge within the company, and therefore can create a higher value. That's why in Forrester's employee satisfaction survey, what you will see is we have been rated number one on customer satisfaction, are better than IBM, Accenture and all the other Indian providers.

One element is cultural alignment with customers. The employees are aligned with customers, significantly more than aligning with the company, and we believe by aligning more with the customer, the company will automatically gain. And we were right. If you look at our growth trajectory, we are growing at a much faster rate than the industry average.

Do you think that's a philosophy CIOs should embrace within their own organizations?

The CIOs are embracing it. We have held 86 one-day workshops because after I wrote the book, Employees First, Customers Second, we had a lot of requests from the CIOs to [learn more about] the philosophy and some of the tools which we have implemented. A lot of CIOs are adopting these tools in their own way and helping organizations move toward getting more out of their people. Right now we are only talking about CIOs, but if you really ask CEOs their biggest challenge is how to get the most out of the human capital they have. And they are not happy with what they are getting. So this is a big, big ticket item for them. And the reason we are [seeing interest in] these sessions we have created, these workshops we have done for our customers, is that all of them are trying to understand 1) how can we get more out of people, 2) how do we align our people with our vision, and 3) most important, can culture or how we run our company be the core competitive differentiator in years to come? There's a lot of interest across the world on this philosophy and a lot of CIOs are in various stages of adoption of this.

There's a lot of focus within IT shops on automation today. Does automation in the data center obsolete outsourcers ultimately?

I don't think so, but it's a very interesting question. The traditional outsourcing companies have always believed that their core business is manpower outsourcing -- they can take out your expensive manpower or less-talented manpower and give you cheaper manpower and more talented manpower. Innovative outsourcing companies like us, are actually redefining the word to 'co-sourcing' rather than outsourcing. We believe it is more about tools, processes and industrialization. So what we are offering our customers is that by industrialization, implementation of ITIL, implementation of tools, with our competence and capability in these areas, we would be able to reduce costs between 20 to 30 percent offshore-to-offshore or nearshore-to-nearshore. Without changing the location or the country of the employee base, we can take off 20 to 30 percent because of our own IP, our own toolsets, our own dashboards and our own expertise in use of these things. That is a competitive advantage. Therefore, the traditional IT outsourcing companies, including [Indian companies], are seeing a slowdown, and the innovative IT companies, which are leveraging tools and technologies, are seeing fast growth.

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