So we developed a different business model, involving revenue sharing: We co-designed products with our customers, then shared the revenue with them. Over time, we used this approach more and more, instead of more conventional fee-based and cost-based contracts. In effect, just as our customers use our technological knowledge for their expansion, we use their marketing talent and branding to help fuel our growth. Everybody shares.
This business model was very important for HCL during the Great Recession of 2008–09. When our customers cut back, revenue sharing enabled us to continue working with them, and coming out of the recession we still have those products and customers.
S+B: With this business model, how do you maintain the technological edge to stay distinctive?
NAYAR: We have more than 13,000 people in core R&D and engineering services at HCL. This makes us among the largest research and development houses in the world. Having taken the position that we will not compete with our customers, we are more aware of technology trends and opportunities.
For example, we have developed wireless devices that can be placed inside the human body, and avionics components used by aircraft companies. When you put together the collective intelligence of 13,000 HCL people and customers’ knowledge of their own domains, it creates something significantly more valuable than what a customer could create alone.
This is especially true when you consider another trend: the increasing importance of what I call the whole environment of the product. We believe that a customer’s competitiveness, and that customer’s maximum benefit to the end consumer, comes from the ecosystem built around the product. We call this engineering out of the box. That is, we see opportunities not just in building products, or boxes, but in creating the combination of services and structures that exist around any product.
S+B: For example?
NAYAR: Think about the iPod and its relationship with iTunes; more and more companies are competing by surrounding the product with services that create unique experiences. Another example is the infrastructure that builds up around wireless medical electronic devices that monitor body functions. Or telecom manufacturers that offer services to manage the networks of the service providers.
As they operate in this way, our customers infuse our own capability with more skills and services. This is critical. HCL continues to retain its core competence as a high-tech engineering company, but innovatively adds on the capabilities for providing services. A user of Facebook or iTunes may not realize that behind every complex website are hundreds of design engineers — people who developed the technology and make it operate seamlessly.
The Value of “Employees First”
S+B: What led to the idea to put employees first and customers second?
NAYAR: This came out of a transformation that started in 2005. We had done extremely well up until the year 2000, but then we were caught on the wrong foot. We had not made some investments that were needed, and our growth slowed significantly compared with our competitors.
In 2005, the board was very clear that something radical needed to happen. I was asked to take over as president of the company. I accepted. But before I did, I asked for only one thing from the board: their support to allow me to try nontraditional management approaches.
At that time I was the head of a division responsible for remote infrastructure management. Leading that division, I became aware how easy it is for people in a company to fall in love with their past. Somebody had to yank out that rearview mirror and say that history was not nearly as relevant as the future.