“Cloud is bullsh*t” – HCL’s CEO, Vineet Nayar, explains why he said just that

Vineet Nayar, CEO at HCL Technologies, has firmly cemented himself as one of today’s outspoken visionaries in the world of IT services.  Never afraid to offer an opinion that may rub a few folks the wrong way, the self-styled CEO booked his ticket to notoriety at HCL’s analyst conference in Boston this past week, where he described Cloud, well, as bullshit.

Unfortunately for Vineet, some of the HfS Research team had also made their way to the sessions, and we weren’t going to let Vineet off lightly, without getting him to share some of his views with our readers.  So Phil Fersht and Esteban Herrera were only too pleased to grab some time with him on Thursday after his flamboyant keynote to get him to elaborate a little further…

Vineet Nayar, Chief Executive Officer, HCL Technologies

HfS Research: Thank you for joining us today, Vineet. Can you elaborate on your statement this morning that “Cloud is Bullshit?”

Vineet Nayar: My view on Cloud is that I always look for disruptive technologies that redefine the way the business gets run. If there is a disruptive technology out there that redefines business I am for it. If there is no underlying technology there, and it is just repackaging of a commercial solution, then I do not call it a business trend. I call it hype.

So, whatever we have seen on the Cloud – whether it is virtualization, if it’s available to… now before I go there, and the reason I believe what I’m saying is right, is because you have now a new vocabulary which has come in Cloud, which is called Private Cloud. So now it is very difficult, so what everybody is saying is “yes, it is private Cloud and public Cloud” So, in my vocabulary Private Cloiud is typically data center and when I say Cloud it is about Public Cloud. So let’s be very clear about it.

All the technologies that have come in so far—whether it is VMware on virtualization, which is the driving force in cloud, or Azure or Spring—are available for the enterprise customers to implement in their data center and to create a robust infrastructure which is a shared platform for their applications to deliver to their consumer. So the question I ask is: “Why should they step out from their data center and go into somebody else’s data center which is shared?” Why would they do that?

They would do it because they believe that with shared infrastructure, assumption one, they will get a better return on investment. Now, that did not happen with grid computing with IBM and IBM On Demand has been a very big campaign.

Is there something I see out there that tells me it will happen now? Yes, it is happening where your usage requirement is time bound—that means you need it for three months for SAP testing, you need it for one month a year for tax consolidation. But, am I going to put my IP on the Cloud, am I going to put my financial accounts on the Cloud, and I going to put my HR applications on the cloud? I have not seen any technical reasons for that to happen.

Then the second reason you can do that is there is commercial benefit that somebody is offering you, which is flexibility of you being able to use the infrastructure at a higher or lower on a significant level—that means you can go up 50% or down 50%. When you look at the pricing available for those kinds of flexibilities, they are commercially unattractive. Which leads me to believe that whoever is selling services of variable infrastructure as Cloud is selling them as leasing connections, rather than selling them as true variable connections. I don’t have a problem with that because there is no underlying technology which makes sharing more productive rather than not sharing. So if there’s no underlying technology, obviously it has to be leasing connections.

And then we go to applications like leasing of Azure, which creates a bus so you have to create more efficient applications rather than inefficient applications. I believe Azure will be a standard tool for creating applications inside the organization so that people, whenever they use those features and services, will use them inside the organization.

So, do I need to I need to go out on the Cloud to use azure or Spring? The answer is no.  the only reason I would go out on the Cloud is for shared services—for applications which are not available for me to buy. Salesforce.com now you can buy as an enterprise license. So the purity of the Cloud is also going away. And you will see a lot of Salesforce.com being inside the enterprise because they will reuse their existing infrastructure.

Now, public citizen services is an area which would lend itself to application sharing. And the same is true with communities coming together—export communities, auto component manufacturing communities—whose owners on a standalone basis are not big enough to buy an ERP system but can come together and buy a shared ERP system.

Now, you can force me to call it Cloud. Or you can force me to say that they will an entrepreneur out there who will see an opportunity to construct a data center, construct and ERP, charge everybody a fee and say that my business is to serve you—and you create a shared services platform.

So my view is that I have not seen anything from a technology point of view which is not available for the enterprise for usage for me to get very excited and saying, “Hey all of this is going to move to the Cloud.” And that’s the reason I’m not as bullish about the Cloud as somebody else is.

HfS Research: You mention about shared services and I think that’s interesting. Do you see the growth of these “shared services” happening more with the small to mid-market businesses? And it’s those companies, as they get bigger, where everything they’re getting, is being provisioned as a shared service in the Cloud. Whereas it’s the large enterprises—the global 2000—where there’s a lot of legacy IT apps and infrastructure, and the business case for Cloud isn’t quite there yet.

Vineet: I think if you take it two-by-two—if you take small and medium enterprises and large enterprises, short term and long term: The small and medium enterprises for long term, and the large organizations for long term is where the Cloud or shared services will be used. That means, if I want to do testing for three months, large organizations will use it. A small organization testing for three months—no one will give them the shared services. So the small guy will have to commit long term and the larger guy will find usage in short term. Those two quadrants will be where the opportunity should be.

I’m glad you’re using the word shared services. Shared services will be there. So what happens is I can create my enterprise data center and allow people to share it. And you can, if you like, force me to call it Cloud.

I don’t call it Cloud.

HfS Research: You mentioned about the Private Cloud, one of the things I’ve said sometimes—and it’s not been well received—but I wonder if you’d agree, is that Private Cloud is nothing more than a re-architecture of your existing apps and infrastructure. There’s nothing terribly innovative or different about it, except that some of the technical architecture behind it may have changed.

Vineet: I think there is one difference. And that difference is that everybody asks the CIO, “Have you implemented Cloud?” And the CIO gets away by saying, “Yes,” when you call what you’re rightly saying is an enterprise re-architecture of your internal data center as Private Cloud.

So the Private Cloud vocabulary is a convenient way of shutting down any conversations around Cloud. So that’s the reason I support Private Cloud in my CIO conversations, otherwise it is exactly what you’ve said. Otherwise you are saying, “How come you have no strategy for Cloud?” Every board is asking for a Cloud strategy. So you might as well have a Private Cloud strategy and call it a Cloud strategy and get it over with and put a tick in the box and get on with life.

HfS: Let me switch to some perceptions that the analyst community and certainly your competitors have, and that is that on both sides of the Atlantic you’re winning a lot of sole source deals. So that the growth is clearly there. There’s a perception and I’m not sure you’ve been too public about it as a deliberate strategy. And I wonder if you can comment on whether it’s deliberate—and whether it is or isn’t, why are you winning those? What’s the difference?

Vineet: I want to be careful in answering that one. (Laughs) So, the answer is, yes we are winning a lot of sole source deals. And it is deliberate to keep quiet about it. And the reason for that is that we are increasingly finding that our whole business benefit-based approach starts very early in the cycle. And if we are able to convince our customer on the business benefit, then sourcing becomes an irrelevant issue. Where the amount of IT spend irrelevant compared to the business benefit, we are able to do sole source. And that is what our focus is.

HfS: Now everybody’s jealous of you because you are getting many sole source deals, which is clearly a more cost-efficient way to sell. What is it that you, as HCL, are doing differently that allows you to do it and your competitors not so much?

Vineet: I would just say that we have figured out a few things, which lends itself to business benefits. We have figured out a lot of things that don’t. And we are in the business of focusing on the few and ignoring the many. Sharp targeting.

HfS: That’s actually one of my other questions, but I’m going to skip to the most rumor and innuendo-fueled of my questions.  The extraordinary success of HCL in terms of growth is really driven by your personality and you getting personally involved in the sales cycle with senior clients. You’re nodding your head so that may or may not be true. What happens to the organization as it continues to grow? Can you stretch yourself that thin?

Vineet: First, it is more a fear in the mind of a losing sales guy. It’s very easy to justify why you lost is because Vineet was personally there. So the rumor as you rightly said is forming in the excuse of why you lost the deal and that my CEO was never there. And you can’t dispute that logic. However, I can assure you that not a single CIO will buy complex transformation transactions based on my limited knowledge of his business and my limited knowledge of the solution we’re offering. My knowledge in both cases is very limited. He will buy only because on the ground he sees people with higher energy, higher passion, innovative solutions, aggressive pricing, more business case, more aligned. So my role in HCL is around strategy, as you saw, making sure that what I presented to you is delivered inside the organization. Today, I am in the US meeting you. The next five days I am only spending with employees. I am going to Seattle, then I’m going to San Francisco, then I’m going to Dallas, then I’m going to London, then I’m going to Paris, then I head home. I have three customer meetings during this trip. I truly believe in what I say—that if I can get my people fired up they will do the magic. So that’s one.

Number two, what happens when I’m no longer there? That’s a very interesting conversation. I truly believe, you must understand that I was the CEO and promoter of HCL Comnet. When I left HCL Comnet it was $70 million. Then I was replaced by another guy—Anant Gupta—who is not as much an extravert as I am. He has a different personality. He has taken that company from $70 million to $550 million—far faster than I did in bringing the company to $70 million. Why? Because you must understand at HCL it is not personality and charisma, and presentation which makes a difference. If you remove all of that and look at the thought in the presentation—the thought in the presentation could not have come from me. It’s not one person who can think through that because the subjects we cover are cultural, technology, customer relationship, employee management are a culmination of thought. Now when the organization is moving toward a strategy that is unique, and starts thinking in that fashion, the leader doesn’t matter. And, therefore, Comnet as an example from 2005-2010, if I’m not in HCL Technology, I can assure you it will grow faster.

HfS: Some would have their doubts. But let me go to one of the cornerstones of your strategy which is very catchy. I think it’s very powerful with customers. I think it’s a great marketing tool, which is the Employee First culture and you back that up with action. However, I still think from our interaction with buyers, many know that HCL is employee first, but if I ask them what does that mean, they can’t answer that. So I think HCL has a gap there that still needs to be addressed, because while it’s catchy and compelling I don’t know that people know the difference between being an employee at HCL and doing the same role at one of your competitors. Can you talk a little about that?

Vineet: I think that that’s true—that one of the failures at HCL is the fact we’ve not been effective at communicating what it is. But let me flip the coin on the other side. The other side is that every single one of our customers knows what Employee First is—every single customer knows. Every single one of my 70,000 employees knows what Employee First, Customer Second is. Every one of my competitors know what EFCS is. And it’s just a matter of time. In my mind, a great idea is going to catch on. Whether it still does a good job or not a good job, if the idea it will reach over the years; if the idea is bad, irrespective of my marketing it, it is not going to reach over the years.

One of the reasons I have held back on glitz around Employee First is because what you rightly said in the beginning is it’s a great marketing tool. I don’t believe so and I do not want it to be seen that way, I don’t want it to be projected that way, I don’t be used that way.

I think it’s a great idea. It’s a great journey of experiment that started in HCL. Let it take 10 years to reach its end destination. Any management guru you talk about they know about Blue Ocean; everybody knows what Blue Ocean is all about. In the first three years nobody knew anything about that book or the concept. After three years, everybody knows it. So, with Employee First, we’re not in a hurry. You must understand, my company thinks five years at a time. I don’t think one year at a time. In 2015, if you can show me any CIO who does not know about what Employee First is, I think that is going to be an interesting conversation.

HfS: The part I’m still curious about is the employee experience. How does an HCL employee, or someone who’s considering becoming an HCL employee, know the difference?

Vineet: Let me explain what Employee First, Customer Second is, then let me explain how an employee experiences it, how a customer experiences it, how a potential employee experiences it.

What is your core business? To create value for your customer—differentiated value. Where does value get created? In the interface of our employees and customers. Who creates the value? The employees create it. What should the business of manager and management be? Enthusing and encouraging employees to create value for your customers so that you can grow faster. That’s the concept in a box.

OK. How does an employee feel it? There is a 360-degree appraisal system happening right now—including my appraisal. If you come into the company, you see CEO, my manager, my manager’s manager and you’re being asked to rate them. There was another analyst in before you, and I asked him what do you think is different between HCL and anybody else, because they’d done this customer support feedback and HCL was number one in an independent assessment of customer satisfaction—ahead of IBM, Accenture, and everybody else. So I asked, “What is it that you heard?” And he told me that “HCL knows how to say no.” And I said that, where did HCL learn how to say no? Well, if you’re doing your boss’s appraisal you get a different degree of confidence. So that’s the first experience that happens.

Number two, your boss suddenly is very nice to you. What can I do for you, what value can I create for you? So at least he’s nice three months before the 360 and three months after the 360. So you six months out of one year I have made your boss in your service. And in each passing year it becomes better and better. You feel empowered. You feel encouraged.

Third, the energy level in the organization is very high. Why? Because of the collaborative culture. Because of open appraisal systems, politics is not there. Everybody knows if you’re playing politics, your employees are going to screw you up. The whole company is going to know about it. You can’t play that. It’s not just your team. Your 360 is done by his team, his team, his team because if you are negatively influencing his team performance you’re going to see it in 360. So an employee feels energized, motivated, collaborative, and he has all the tools he knows the company has aligned towards him.

Is it perfect? No.

How does the customer experience it? If you ask them the energy, the enthusiasm, the passion in the eyes of the employees—they have not seen before. And that’s what the customer cares about. He gets a motivated employee rather than a demotivated employee.

A potential employee is sick and tired of the blue book and that a****** who’s his manager. And he says, there must be a better company. That’s a reason 33,000 employees, can you believe it, 33,000 employees in the last six months crossed the border. So there must be something very attractive. And they would not cross after reading a book. They’ll pick up a phone and talk to a friend and say, “This is what happens in my company. What happens?” And the conversation is like this: “That guy is not giving me approval.” “Why do you go to him for approvals?” So when those kinds of conversations happen, you must understand that 77,000 mouths is a lot of mouths—and a lot of Tweets and a lot of blogs.

And that’s one reason I don’t call it marketing. You can’t keep it in a box. Because all of them are talking about it. And when I wrote the first book, I know, Krishna and everybody said, “Vineet don’t do it because there’ll be a lot of people who’ll talk about it.” And that’s exactly what I want. I want my employees to say, “This is not true.”

Go and say it if it is not true.

So that’s what a potential employee sees. Nobody’s challenging it—everybody’s loving it, because all the dirt is in you and I.

HfS: When you look at the next year, and after what we’ve been through in the past two or three years, where are you going to be investing in the next 12 months in terms of your own business.

Vineet: I will be investing, number one, in creating new services around business services—business services and ecosystem business incubation around Cloud, mobility and other stuff. That’s the first investment in service lines. Second, I have to make a huge investment in new generation organization architecture for Gen Y and gender parity. That’s the second area of significant investment. Third, in new geographies: Continental Europe, South Africa, Asia are significant investments for us from a geography point of view. The fourth area is we need have to redefine what our competitive position is going to be with a new competitor. We are creating a new competitor who doesn’t exist today.

I have some assumptions of how technology companies may snuff out competition by suffocating it, by making billions of dollars worth of purchases so that those technologies are not available to us as service providers for our provision to customers. So if you are my competition, that’s the thing you should do. So how are we going to react to that? That’s going to be very important.

And the last is innovation. What is it that HCL needs to do to drive innovation? Because innovation is happening at a very high speed, we don’t understand it to the extent we need to understand it. What is that big idea so that we can transfer momentum behind innovation, so that we can deliver, so that we can be the most innovative company in the IT services landscape by 2015? What is it that we need to do today to get us to that position in 2015? These are the five areas in which we are making investments.

HfS: Thank you so much for your time this afternoon- and for sharing your views with the HfS readers.

Vineet Nayar (pictured above) is Vice Chairman and CEO at HCL Technologies.  You can read his full bio here.

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