As new working patterns become entrenched, employee satisfaction will rise and employers’ costs will fall.
While the pandemic still moves in unpredictable ways, the future of work is becoming clearer. Regardless of the evolution of COVID-19, we believe employees will continue to spend a significant amount of time working away from their corporate offices. This has major implications for business planning, in terms of physical location, sites and buildings, and other office-related expenditures such as rent, utilities, maintenance, and security.
Before the pandemic, office workers typically spent 5 percent of their work time at home; during the lockdown period remote working increased to between 40 and 50 percent and we anticipate the figure will plateau between 20 and 30 percent in 2022 (see figure 1). Although people will in all likelihood return to their offices, for social interaction and work that needs team collaboration, tasks requiring concentration and individual focus are likely to be done at home.
Figure 1: Impact of COVID-19 on remote work
Some companies have already stepped into this more flexible future. Spotify recently announced that employees can choose to work in the office or remotely or in a co-working space paid for by the company. Declaring the nine-to-five workday dead, Salesforce now offers three categories of work for employees: flex (in the office one to three days a week), fully remote, and office-based (the small number of staff who need to be in-person four to five days a week). Dropbox has gone further still, letting all employees work from home permanently. But they can also choose to work in existing office space, now called Dropbox Studios.
Now’s the right time to really change!
COVID-19 has forced employees and organizations to get used to new locations, work patterns, and digital tools, while finding a new balance between work and private life at an unprecedented speed. But the situation remains fluid and dynamic. As each wave of the pandemic subsides, some people revert to old ways of working. Many employees’ willingness to change has been overstretched and snaps back, as the immediate threat to health wanes.
If leaders are to bring about sustainable and lasting change, it’s important for them to understand the what and how of new ways of working, which are complex and affect three core strategic areas:
People satisfaction (for example, individual/team performance, health/well-being)
Customer satisfaction (ways of engaging, service offerings)
Financial performance (savings due to digital and automation, space efficiency)
With most organizations still in alert mode, the time is right to define a change to the work environment. Leaders need to develop appropriate remote work guidelines and policies that will enable employees to continue to be effective and productive, balance their work and personal lives, and improve employee satisfaction during times of transformation and uncertainty.
To that end, CXOs could promote a new remote or hybrid leadership style, using the right collaboration tools and training for employees. In parallel, it’s time to reconsider the future of physical offices, space layout, and costs.
Recruitment and retention costs are coming down
Many companies froze their recruiting activities in the first wave of the pandemic but have now restarted them remotely: interviews take place online, digitally supported by robots. Similarly, onboarding days for new employees have gone digital. Reduced travel expenses mean lower recruiting costs.
At the same time, HR marketing costs are falling, as activities move online, via affiliate marketing, newsletters, search-engine advertising, and online fairs. LinkedIn is now one of the leading talent search and recruiting engines.
Midterm, we believe low-cost remote recruiting will continue. Some 60 percent of chief HR officers expect a significant decrease in recruiting costs. At the same time, new work models—defining where to work, when to work, and how to work (space allocation and collaboration)—will become a crucial differentiator in the war for talent and employee retention. Implemented well, such models could result in a better work-life balance, greater employee satisfaction, and lower turnover costs.
Optimizing office space and purpose
During each coronavirus wave, cities’ business districts have felt like ghost towns. Many organizations aren’t using their expensive office space efficiently, while incurring unnecessary rental and maintenance costs. Although many space optimization initiatives (such as subleasing) are underway, space capacity benchmarks (such as that produced by Gartner) reveal further potential to lower office costs in the new normal. Based on what we’ve experienced with our clients and internally at Kearney, there’s room to reduce unused space by at least 25 percent compared with pre-COVID times (see figure 2).
Figure 2: Impact of COVID-19 on location cost
Taking a midterm perspective, companies’ location strategies should support new remote work models that offer significant savings potential. When less working space is required, neighboring sites (those within a radius of 100 km) of similar purpose and low utilization can be consolidated. Some companies might even consider shifting from shiny landmark buildings in the heart of a city to more low-key sites outside. Others might reinvest the savings from space reduction to move to attractive locations that will draw the right talent. A move to the city suburbs might result in less costly work space per square meter and offer room for agile working areas (for example, thinking rooms), social meeting rooms, and other site amenities (such as a coffee corner, gym, or library).
To optimize site selection and achieve cost reductions of up to 40 percent, we suggest redesigning the corporate location strategy using a set of purpose and location tiers criteria (see figure 3).
Figure 3: Definition and implications of global location tiers
As well as less space, a different kind of space will be needed: more collaboration and engagement work areas will be required as people will come to the office to brainstorm with their teams. On the other hand, less work space will be dedicated to quiet activities that need concentration, assuming such work will generally be done at home with the right equipment.
However, some space reduction efforts will be offset by new social-distancing rules: some of our clients have already had to rent additional office space to comply with the regulations.
Beyond that, many rental contracts will change: for some companies, such as small or medium-sized, or smaller subsidiaries, it might be more attractive to move to co-working places that offer capacity on demand that can be rented on a daily basis.
For most companies, lease contracts and their duration need to be redefined to reflect the fact that fewer people are in the office. Some of our clients have already started to reorganize their facility management, as fewer people generate less garbage and reduced cleaning needs, while renegotiations of contracts will likely lead to lower maintenance charges.
Employees shoulder more operational costs
During the pandemic, utility costs (for electricity, heating, water) have shifted from the employer to employees working from home, as have some drinks and food costs that were formerly provided by the employer. At the same time, travel costs fell substantially and, given the current travel restrictions, they will remain low at least until the end of 2021. On the other hand, most companies had to invest in technological and ergonomic equipment to enable employees to work remotely.
Although many employees will see a reduction in commuting costs, we expect the shift of operational costs from employer to employee will have to be rebalanced in the long term, for example, by an energy bonus paid by the organization or via tax reductions by governments.
Still, our clients anticipate a massive decrease of operational costs of up to 50 percent for the new normal compared with pre-pandemic times (see figure 4).
Figure 4: Impact of COVID-19 on operational cost
The end of working as we knew it
In summary, we expect the new normal to be in place by 2022. This reset will not only affect our ways of working but will also reduce costs related to recruiting, onboarding, training, and other HR activities that change from physical to digital events. At the same time, location costs will decline, even when accounting for new social-distancing rules, while operational costs will partially shift from employer to employee. As travel and business meetings decrease, their associated costs will also fall.
For all organizations, a core question in the coming months will be: how do we take the lessons from the pandemic and the new ways of working (and fully realize their cost potential), while continuing to attract, retain, and fully utilize the workforce?
In our ongoing work with clients, we’ve found the following four-step approach to transformation to be effective:
Thorough analysis of “as-is” ways of working and cost baseline
Ambitious target setting (improve employee and customer satisfaction, increase financial contribution)
Concrete measure of definition derivation
Implementation of policies and tracking of measures
Bottom line: as the world of work resets, and new working patterns become established as part of a strategic transformation, employee satisfaction will rise and employers’ costs will fall.