Phoning it in
(A fully illustrated and mobile-friendly version of this longer-than-usual view from Breakingviews is available here.)
As the Covid-19 epidemic began to peak in Asia, Piyush Gupta tried to boost morale for his quarantined workforce. The chief executive of Singaporean bank DBS led his management team through a parody version of Gloria Gaynor’s disco breakup anthem “I Will Survive,” in which they sang off-key praises for their new remote working arrangements. “We grew strong,” one managing director howled into a wooden spoon. “We learned how to work from home!”
For the hundreds of millions of office workers forced to participate in the world’s biggest telecommuting experiment, whatever enthusiasm they may have had is wearing off. Faster networks and processing speeds smoothed the experience compared to prior efforts, but there are bigger issues for companies and their staffs to consider as they start thinking about a post-pandemic era. More than 80% of employees expect to return to the office in the next 12 to 18 months, according to a Xerox survey of corporate tech decision makers released in June. Over half of the companies polled plan to move to hybrid home and office models and will boost IT spending to support the transition.
There are plenty of wrinkles to iron out. In addition to a long list of software bugs and security holes uncovered by the surge in usage, the transition will demand changes to ways that workers are monitored, managed, encouraged and disciplined. Working from home, or WFH in the new social-media vernacular, presents a singular challenge to C-suites as they evaluate whether the change is boosting efficiency or wrecking morale – or both. It sets the stage for a fresh clash between labour and capital.
Businesses had little choice but to go remote as contagion rates shot upward in the first phase of the outbreak. In China alone, around 200 million people started working from home at the end of the Lunar New Year holiday in February, according to a McKinsey estimate. As spring sprung in North America, Facebook, Google and others told staff they could telework for the rest of the year. Most of Twitter’s 4,000 employees can now do so indefinitely.
Other bosses are dubious about workplaces being abandoned. One of them is Bruce Flatt, the CEO of Brookfield Asset Management, the Toronto-based investing titan that is parent company of one of the world’s biggest commercial property landlords. “It is ludicrous to think that companies will not return to offices,” he said at a Reuters Breakingviews event in June. “Anyone who says they’re not going to be in offices is naive about how company culture is built.”
Despite Flatt’s scepticism, investors are anticipating some big behavioural changes. For all its admitted security and political problems, Zoom Video Communications’ market value more than tripled this year to $70 billion, trading at more than 180 times forecast earnings. Shares of Atlassian, which makes project management tools, are up more than 50% year-to-date, far outpacing the Nasdaq Composite Index. Slack Technologies, operator of a cooperative workflow app, has posted a similar gain.
“Business is booming,” said David Gurle, CEO of Symphony, a Goldman Sachs-backed financial chat tool. In the first three months of the year, new user accounts grew by 40%, as much as in all of 2019. Voice messaging usage doubled, and the number of file attachments increased five times. In late April, the company rolled out an encrypted virtual meeting room to satisfy compliance officers, many of whom want video to be recorded and logged as text is now. That in turn will drive yet more demand for storage capacity. Early in the outbreak, e-commerce giant Alibaba told Breakingviews it had already added 100,000 new servers to handle the load, as millions of employees and students began using its DingTalk app to communicate.
Wayne Kurtzman, research director at IDC, projects that the collaborative software market alone will grow at over 12% a year to be worth nearly $27 billion by 2023 – driving more demand for microchips, hard drives and data centres. “The digital journey that companies didn’t want to take will now have to be taken,” he said. Resistant managers are being forced to learn new tools, and that will stick: “The longer this lasts, the more habits will be refined.”
Cash is king
Before Covid-19 came along, few mature companies considered flexible schedules a necessity. They were a morale booster, perhaps, and a way to accommodate employees with physical constraints or children. Hot-desking could reduce the need for space. Less commuting meant less smog and traffic congestion. Inertia, however, stood in the way.
In many cases, the requisite software was barely integrated into workflows, mostly because older managers resisted learning new tools. Their reluctance was understandable in some cases. Many packages were hastily tweaked versions of apps designed for casual consumers, prone to crash and full of security holes.
Another hurdle has been measuring performance. For all the business intelligence software on the market, many bosses still rely on physical presence as a proxy for productivity. This is particularly evident in East Asia, where rising technological sophistication has been offset by cultures that value contribution by overtime at the desk. China, for example, pioneered a brutal work schedule known as 9-9-6: from 9 a.m. to 9 p.m., six days a week. Some Japanese companies tried to maintain attendance through the epidemic, including obligatory “nomikai” post-work drinking sessions.
At this economic moment, however, the biggest advocates of work-from-home may be accountants. “Cashflow became king during the global financial crisis,” said Paul Salnikow, founder of high-end flexible workspace provider The Executive Centre. Speaking in one of his swishy Hong Kong locations, he estimated that for his clients, most of which have less than 50 employees, rent comprises from 15% to 20% of recurring costs. Such small- and medium-sized businesses collectively employ over half the world’s workforce, per the World Bank, so if they cancel their fixed leases in tandem, it could really hit the commercial real estate market.
Bigger companies are considering downsizing too. One regional manager at a global serviced office provider told Breakingviews that some of his largest clients had asked to reduce square footage by 20% to 30%.
Some of these adjustments will be temporary. John Saunders, head of Asia Pacific real estate at investment goliath BlackRock, allowed that a migration to more flexibility could shrink overall demand for offices by 10% or less in the long run, but predicted a rush back to desks as quarantines wind down. “The longer this goes on, the longer it exposes the frustrations” of remote work, he said. “I’m actually incredibly tired at the moment.”
Bartenders, strawberry pickers, mechanics and such have to show up on the job no matter what, but it is safe to assume most of the 2 billion members of the world’s middle class, as defined by the Organisation for Economic Co-operation and Development, work at desks. Where breathless advocates consider telecommuting the best thing to happen to work-life balance since casual Fridays, human resources departments see goofing off on the clock. A group of Hang Seng Bank trainees in Hong Kong, for example, were busted after posting an ill-advised selfie of themselves hiking tagged “best WFH activity.”
Workers in the United States, China, Japan, Germany and Italy reported that they were just as productive, or more so, at home, according to a March survey by computer manufacturer Lenovo. But the hard evidence is equivocal. Stanford University researchers concluded in 2002 that “empirical research to date has been largely unsuccessful in identifying and explaining what happens when people telework” and said there was no evidence it consistently increased job satisfaction or productivity. One issue is respondent bias implicit in surveys like Lenovo’s. Employees that enjoy working from home tend to report increased output regardless of reality – and vice versa.
A more recent experiment in 2012 from the University of Innsbruck in Austria showed positive effects on output when people did creative tasks from home, but less so when they performed rote ones. The study found, unsurprisingly, that habitual procrastinators became less productive.
The information technology industry has been less enthusiastic than one might expect. Yahoo’s generous telework policy was ditched in 2013 soon after Marissa Mayer became boss, as she tried to rebuild the struggling internet portal’s culture. “Back to the Stone Age?” was the uncharitable Forbes headline. IBM – which in 2009 had 40% of its 386,000 employees worldwide working from home – began a reversal a couple years ago.
Trip.com, previously known as Ctrip, provides another stark example. The Chinese online travel giant was the subject of a Stanford experiment in 2014 that showed telecommuting increased productivity by 13%. Employees worked more minutes per shift and took more calls on average. Yet Trip.com, which switched to a mandatory remote policy during the outbreak, told Breakingviews in April that it had moved most staff back to the office, and that the proportion of those working from home was low.
One issue is that telecommuting tends to work best when business is running smoothly. Yahoo was a mess when Mayer took over; IBM revenue had been on a long slide when it decided to bring staff back. Poorly disciplined organisations become even less so when they take their eyes off employees. A 2012 inquiry into an award-winning telework programme for U.S. patent examiners, for example, found signs of widespread timesheet fraud. Controls were “completely ineffective,” it concluded.
The same study, however, also exposed common flaws of inappropriate performance measurement and incentives for remote workers. The patent examiners were paid by hours put in, not output. They tended to slack off for weeks, the report noted, then cram all the work in before deadlines. Yet investigators conceded that most everything got done on time.
Work always from everywhere
Since the global financial crisis, Western democracies have recorded a “job-rich but productivity-weak recovery,” as consultants at McKinsey put it. The causes are complex, but one factor is that much of the technological advancement that was supposed to enhance labour efficiency didn’t. That won’t surprise anyone who has spent hours on the phone with tech support.
One benefit of Covid-19, however, has been the way it put collaboration software through a massive stress test, forcing vendors to clean up their code. It also has compelled employees and managers to learn how to use technology they once resisted. Both will boost output. For many, telework means fewer hours on the road. In some areas, commuting costs can exceed $10,000 a year. The average American spends around 200 hours a year getting to and from work. Letting them keep that time and cash, instead of extending workdays, would provide an equivalent of five weeks off plus more disposable income.
A U.S. Bureau of Labor Statistics survey found that a quarter of Americans who had been granted the option to telecommute before the pandemic were in the top salary decile. That suggests it has been something of a C-suite perk. Before proles get too excited, however, they should consider this may also be the symptom of a disease. More executives have become terrible workaholics, which explains why the average working week has been steadily getting longer.
Consider how Alibaba’s DingTalk has been deployed in China. Capable of handling over 300 people in a single virtual conference room, its usage exploded as managers and teachers forced subordinates and students to log in. It rapidly became one of the most hated software products in the country, arguably because it works too well. Online commenters have railed against the way it erodes barriers between work and personal time. In addition to constant dinging notifications, the system can track physical whereabouts and require daily reports where workers log completed tasks. In China, working from home was immediately put in the service of 9-9-6. It’s likely that something similar will happen in other countries.
That will come with a cost. In the United States, for example, net labour productivity growth, while slow, has still grown six times faster than compensation since 1979, according to an analysis by the Economic Policy Institute. This trend, observable in other developed economies, has exacerbated wealth inequality. Today the frustrated aspirations of the overworked middle and lower classes manifest in political extremism, substance abuse, divorce and troubled children – all of them expenses passed on to society one way or another.
In Japan, pointlessly long office hours have delivered decades of economic and demographic stagnation by crowding out consumption and procreation. Nor is it necessarily profitable for individual companies to burn the labour candle at both ends, especially if it produces high turnover among talented staff.
Presented with an opportunity to gift people more time with families, friends, dogs and bicycles, the risk is that corporate slaves to quarterly targets will be unable to restrain themselves from filling the extra time created with more email chains, overstaffed conference calls and project management checklists – all of which drain morale and efficiency.
Some bosses discovered during the quarantine that it made little difference whether their people sat in the same place or not. That could say something very good, or something very bad, about their team performance and chemistry. Regardless, the point of having co-workers together physically is to encourage collaboration, both through structured events and spontaneously, and to facilitate training and mentoring.
Research labs, advertising agencies and trading floors rely on a communal approach to problem-solving, which demands physical presence, or something very close to it. Yet dun cubicle farms have proven little better at stimulating conversation than the ninth Zoom call of the day. In Yahoo’s case, it’s worth noting that dragging everyone back to their desks did not produce a decisive turnaround.
In the early days of the Industrial Revolution, some predicted that machines would free people from work altogether: everyone could be an idle aristocrat. And yet humanity did not take that path, because there’s a basic human pleasure derived from jointly tackling tasks, if only for an excuse to gab. “The small talk over coffee, or on the way to lunch – these are the moments that have disappeared,” said Gurle of Symphony. “I don’t know what is the cost of that – that soft world around the hard world of work. I have not found a substitute.”
Companies that consciously incorporate this human drive into their teleworking plans will probably outperform those who lurch to one extreme or the other. The most effective template may resemble the model used in post-secondary education. Like graduate students who make their way to campus for class or group projects, workers could head to their jobsites for specific events intended to stimulate collaboration, build team spirit or train staff. The rest of the time, they could work from anywhere. In the end, people spending more efficient time on the job at home could ultimately make the office a better place to work.