HCL's Shiv Nadar on Bringing Business-plan Rigor to Social Entrepreneurship

HCL's Shiv Nadar on Bringing Business-plan Rigor to Social Entrepreneurship

Published: June 17, 2010 in India Knowledge@Wharton

Shiv Nadar, founder and chairman of the US$5 billion Indian IT group HCL, has forayed into setting up educational institutions and attempting to bridge the country's urban-rural divide. He has designed this effort with business-plan rigor, thinking big but starting with pilot projects before scaling them. In a conversation with Wharton management professor Michael Useem and India Knowledge@Wharton, he spoke about his model of social entrepreneurship and building organizations, processes and leadership skills in students, among other topics.

An edited transcript of the conversation follows.

India Knowledge@Wharton: You have spent your career building HCL as an entrepreneur. How do you view the relationship between entrepreneurship and the social goals you are trying to achieve through the Shiv Nadar Foundation?

Shiv Nadar: I have a view on this. When a corporation grows up, when it takes up a certain percentage of its revenue [or] a certain percentage of its profit and puts it into social causes, what can be done gets fairly limited. And it'll create a very discontinuous effort. Otherwise it'll become very small. If we say that we will put in one percent of our profit or five percent of our profit, and then put it in, what happens when you do this in a year in which there's no profit? Then they all become projects. Projects are by nature discontinuous. But what [the corporation] gains is the project management and program management capabilities, which will always be inherently very strong in the corporation.

We know that the subjects where we can contribute are very many. So we encourage our employees to participate along with NGOs (non-government organizations) in many of the causes. One of the causes for which we seek their cooperation is to go and teach in a school. It's a question of how long your time is available, and accordingly, we work with NGOs which will find when our employees can go and teach in a school. We have 62,000 employees. So the number of hours they can contribute is large.

But what we have done, or what my family and I have done, is different. We have two operating companies in HCL -- HCL India and HCL Global. HCL India is about US$2.5 billion in size and HCL Global is US$2.8 billion. They have been declaring dividends since inception. HCL India was formed in 1976 and HCL Global is [the former] HCL Technologies, formed and listed in 2000. These dividends flow into a family corporation. The family corporation bequeaths a large quantum of it into a Shiv Nadar foundation. So we have found a very sustainable way of doing this. With this, we can take a long-term effort -- something which will take 10 years or 25 years, a big project. At the end of the day, what have I achieved, what have we achieved? We have built two institutions. And we know how to run them with processes and structures. So if you want to create institutions which are built to we will do them as institutions, not as projects.

Michael Useem: Let me ask you about the target of your efforts. It could be health, the arts or community services, but you have chosen to focus on education. Why education?

Nadar: Education came [about] with not much of reasoning. Because when we wanted to give something back, I looked at myself, I said, "What am I?" I'm a product of education. Education and scholarship gave me a lot of confidence. And aspirations I picked up from friends and the ambience in which I grew. If I could provide a similar ambience, it could help a lot more people. That's how we set up a college of engineering (the Sri Sivasubramaniya Nadar College of Engineering), under Anna University. But we set it up [saying] that this is going to grow big, this is going to last, this is going to do many more things than just engineering. We bought a 230-acre (an acre is 4,047 square meters) campus near Chennai.

In 14 years, we did the processes right, we built the institution right. In its ninth year it's topped the state; there are 400 engineering colleges in the state. In the 10th year it ranked among the top 10 private colleges in entire India. Nine years ago, we said, 'Let's start a joint program for masters, and let's do it with the best school in the world in these fields.' So we've done that with Carnegie Mellon [University, in Pittsburgh, Penn.]. We offer four post graduate courses. In a globalized world, we believe you should study in multiple countries.

Now I'll step back and give you the reasons. China has become India's largest trading partner. It's rare to find an Indian who speaks Chinese. It's rare to find a Chinese who can speak any of the Indian languages. Neither of them at the trading level -- I want to repeat this, at the trading level -- can speak English either. All businessmen -- how do they communicate? God knows. Sign language, probably. They are our largest trading partner; they displaced the United States. We all speak English, but no one speaks Chinese. If you've ever traded with them ... they come up with a calculator and tell you, "This is the price." That's all. You always go back with the price that you want. The way they cost their materials is probably very different, [perhaps] by weight or something [else].

So now, this has to be recognized. It has to find its way into the education system. It will be good for India exchange programs, where if there's a two-year course, someone goes there, spends three months and comes back. And then over that entire period learns Chinese -- to speak, read or write. You have a problem in America where everyone speaks only English or Spanish. In India everyone speaks their mother tongue or English. [Over time], the economies at No. 2, 3, 4 and 5 will be China, Japan, Germany, India. They have to speak a different language now.

Anyway, we thought that this joint program should pick up the experience. These programs have two semesters in India and one semester in the U.S. The students are solid; most of them work for American company and go through a placement system. In the third step, we had a product of technology. We had a product of R & D. Our company began its efforts in producing computing before either Microsoft or IBM did in the personal computing area. We were one of the earliest in the '70s. We were also one of the earliest in Unix.

So we know that the way stages itself. Technology comes first. Research comes first. As a result of it (research), technology comes. As a result of it, engineering comes. If you build an engineering college, how do you connect it up with what happens before? So we started working on that. We built a research center. We got somebody from defense research. We've got great advisors who are supporting this. The people who support us include [Carnegie Mellon professor] Raj Reddy and V.S. Arunachalam (former scientific advisor to India's defense ministry). We thought we would do this as something which is inspiring. Our belief is that aspirations, meritocracy and a world class institution are the three ingredients our country needs.

India Knowledge@Wharton: How serious is the educational challenge in India and what is your strategy to try and tackle that?

Nadar: Education in India requires correction in some places, new interactions in some places and widening in some places. When my daughter (Roshni Nadar) came here to study, the first thing I insisted was: 'You live abroad for a year alone and work in a company just by yourself.' She went and worked in the communication business with Sky News (in London), completely anonymous. No one knew who she was; she got a job because she had a degree in communications. But it's great experience. One must have some alien experiences like this. Studying in one location somehow doesn't appeal to me -- not for the future.

I come from a generation in which the average life expectancy is in the 80s. They (his daughter's generation) are going to be in a generation in which life expectancy should be 100 plus. If it is so, they have more time to strengthen their education. It can be a discontinuous effort, too.

We thought that we would provide all these things and build a university. That is another project we are doing. We are not doing it in the traditional style, where we take land, then start with some courses and then build it [over time]. Not like we did it the last time. This time we are going ahead and constructing it, so that a full fledged university is what will be built. We will get to work with partners across the world and then take it from there, offering a completely different educational experience. Someone asked me what is this [university] going to look like? We don't know. It's a leap of good faith. These are two things we're doing in higher learning.

Useem: You've built the university, and yet I know you're also very interested in students of younger age at a different stage. Where have you intervened in the educational course that people follow? Why intervene at the university level? Why intervene at a younger level? A related question is, what do you think about scale or scaling? You want to intervene, but I also know you want to intervene and have a large impact on a lot of people.

Nadar: There are two things that we noticed as serious gaps. One, let me talk about my home state. My home state is not where I come from, which is Tamil Nadu. My home state is U.P. (Uttar Pradesh, adjacent to New Delhi), where we are the largest private employer, which is where we built all our businesses. We employ 20,000 people who all are in U.P. If the state were to be a country, with a population of 190 million, it will be the seventh most populous state in the world. But it has very depressing failures. The school system with 180,000 schools is not able to cope with the needs. Politically, compulsions have been such that a student will just get through class after class after class without measuring what he or she has learned.

If you take fifth standard students (aged 10-11), 45 percent of them don't know how to read. If you take second standard students, a similar percentage of students can not recognize letters. So we have a serious problem, okay? If you knew that how to correct that, they would have followed it. The state government is very sincere; I'm not blaming them. Someone needs to experiment and find an answer.

We have run some pilot models of delivering education through a non-qualified teacher. Deliver it through this medium and a telecast mode, where someone only is assisting, standing next to the student; it's almost like cooking with a television instruction. We created it, tested it and piloted it. After every hour or so, we reinforce the learning, then find gaps and close them.

The huge advantage a city-bred person has is the mother becomes a teacher. No one can replace a mother's teaching, because she will ensure that the child learns and retains what she has taught, if she can teach. That's why the urban students get to be much more competitive, particularly the bulk of what learning potential that there is. We are bringing in a control and command system through satellite, so that the most proficient of the teachers take all the students who have gaps; they're connected through satellite, and they teach and correct.

Our objective is to get 90% of what is being taught to be retained by 90% of students. The advantage of this system is if someone has a two-month handicap, he or she can join a class. You take away this mental conception of one year for each one standard. Think without those limitations. You have so much to study; it has to be paced to what you have. And in between, if you are to go away for something else, it'll wait. These are people who may drop out after the first standard or drop out after school. This is the only opportunity they have to have any foundation.

The government knows that we are fairly sincere people. We have a good reputation. We say we will do what we say we will do. And if we don't commit [to] anything, we'll say at least we'll experiment with all sincerity. So of the 180,000 schools (in U.P.), we asked them to give us the management of 200 schools. [We asked them to] just agree to be patient with us and we will correct things. We are yet to do it. But we are starting now.

They (the U.P. government) said, "Take at least 1,000 schools." There were 200 schools and we are talking about 60,000 students. So it is a very serious responsibility. I said, "Look, it's an act of faith with what you're giving. It's a leap of faith. And the least we will do is we'll follow the old method, but deliver good education to these people." These 60,000 people will take charge. Next year, we'll write in the letter of intent that we'll go up to 1,000 schools. But post that, we will program-manage this interaction over the state to the 180,000 schools. This is the largest such effort. We will work side by side with [the government.]

It's a very well-intentioned thing. And the team which is doing it is highly capable. The project is headed, you know, by a person no less than T.S.R. Subramaniam, who was chief secretary of U.P. and [Union] cabinet secretary. The team is very high-powered, and has very capable individuals. I'm personally involved in this project, which is called Shiksha. The other project is called VidyaGyan. [It addresses the urban-rural divide, which] is very sharp.

[Take] 2001, 2002, 2003. In three consecutive years, India registers nine percent growth. In 2004 there is an election and the ruling party (the Bharatiya Janata Party-led National Democratic Alliance) is defeated. And it has not come back [since then]. The problem is the [country's] 300 million poor people who go and vote, never saw the benefit of the nine percent growth. In the subsequent five years, they (the government) called it all-inclusive growth, and did partly, and promise mostly, that they would get them (the poor) the benefits. And they started seeing them.

Currently all benefits are going to urban people. How do we take it to the rural people? How do we bring them to be equals? We need to bring leadership at the rural level. Talent is randomly distributed. It doesn't look at caste, it doesn't look at creed, it doesn't look at religion, it doesn't look at where you are studying and where you are living.

India Knowledge@Wharton: How can you develop leadership at the high school level among students?

Nadar: At the level in which you develop them, because afterwards it may be late. You develop it in every stage. They get very aspirational. Aspiration comes when all of them are almost similarly qualified. If you go to 2,000 schools and take school toppers and select 200 students, they're all very similarly qualified when they come in. So you compete and then you correct yourself. In some field or the other, we make sure that they lead. If we hold a play like Ramayan (an ancient Indian epic story), 56 of the 200 students will participate. We'll make sure that in sports, they compete every week on something or other. Competition raises leadership. There are many team events in which they participate. It's a very busy life. Those kids lead a very busy life. They get up at five in the morning, they get to work at 5:45 and they get to sleep at nine or 9:30; they don't have a minute free.

To me these are projects which will take a long time. I hope I live long enough to see the results because they have to go to school, then they have to go through college, then they have to go through work life. Will they go into an IIT or IIM (Indian Institute of Technology or Indian Institute of Management)? I guarantee you, yes. Unquestionably they will be able to pick up where they want to go, anywhere in the world. I would want them to go back to IAS (Indian Administrative Service, the country's civil services cadre) or political life. Run for office. We would prepare them for it. When I was very young, they said every Kennedy was prepared to be a president of the United States. They pretty much did.

Useem: So as a business entrepreneur for many years, you developed a capacity to think strategically and to build an organization, set a direction. As you've come in now to serve as a social entrepreneur, what are the skills that have carried over from your years at HCL?

Nadar: Whatever we aspire to do has to be big to keep my interest in it alive. All our initiatives were bigger than what we thought we could do at the time we started them. The first thing we always do is to work out a plan. The plan has always been a 10-year plan. We work on financial allocations, which will be a 10-year allocation. We work out an organization structure of how we create it. We said, "First, we need a board that will guide it." We construct the board. The person who had served as the head of the IAS academy is on our board, someone who's managing the petroleum ministry is on our board. You know, we got them. For the school, we have one who is principal of Miranda (Miranda House, a residential women's college in New Delhi); the vice chancellor of Delhi University is on our board. For the engineering college, we have Dr. Natarajan (R. Natarajan, former director of the Indian Institute of Technology Madras in Chennai) on the board and we have Dr. [V.S.] Arunachalam on the board. We have the previous election commissioner on the board.

The first task is to create a board that will help and then build the institution. And then build an organization structure. How do you translate a 10-year goal to a five-year goal? They have to have the aspiration. These things cannot be served by people to whom it is just not a job. In our educational institution, people turnover is pretty close to zero because they like what they do. They are compensated well and we introduce metrics for everything, because it must be measured. The topper's grade was 92.8 percent. In the school for leadership, 25% [of the students] scored about 90%.

How did they get there? It is checked out week by week. It runs with an institutional discipline. I learned that from somebody. I learned how the [Bill and Melinda] Gates Foundation works. It works like a business organization, excepting [that] its business is to meet some other objective, which are not business objectives.

India Knowledge@Wharton: How will you measure your success?

Nadar: In?

India Knowledge@Wharton: In the field of social impact and education.

Nadar: The social impact of something like an engineering institution is measurable. There are many measures to that. [But for] something like a brand new idea of a university, which will function in collaboration with universities in multiple countries, it has never been done before. So it has to be adapted. We always create an institution, an organization.

We have to keep correcting -- being the first in doing anything is nothing to go by. The only thing to go by is to keep collecting feedback to see [if what you are doing] is correct and keep checking the outcome. We have an advisory board of people who not only govern the inputs but also will be the final consumers -- it could be businesses, it could be the government, or wherever we want these people (students) to go to, such as research.

India Knowledge@Wharton: Thank you very much.

Useem: Terrific, thank you. It was very interesting.