COVID-19 forced on businesses a large-scale experiment in remote working, and it has worked remarkably well overall.
However, many businesses have found that company culture, creativity and collaboration have suffered during the period of remote working.
Looking ahead, many staff and employers prefer mixed models. Such models balance three factors:
securing cost savings (for example, less office space),
rebuilding company culture and collaboration (retaining some office space but used differently), and
productivity gains through staff retention by offering desired levels of flexibility.
There are very many models emerging, and the right one for any company depends on a range of complex, quantifiable factors.
This is an urgent issue because the option to return to the office is imminent, and there are many complex and interlinked strategic and operational decisions to be made which may quickly impact staff retention and productivity.
White collar office-based firms long ago solved the ‘emergency’ problem of how to keep their staff working productively in pandemic circumstances, and these solutions have worked surprisingly well. However, the ‘steady state’ challenges and opportunities of remote working have also started to become increasingly clear. As vaccination programmes progress and COVID-19-related restrictions gradually unwind, it is now urgent for organisations to find long-term, balanced solutions to the problem of where and how their staff should work, recognising that remote working is a desirable and necessary part of the mix.
Large-scale forced experiment in remote working
The onset of COVID-19 precipitated a sudden and large-scale natural experiment in remote working. Employers’ initial reaction was one of how to deal with the immediate need to keep their workers safe, followed by concern about maintaining high standards of client service. Subsequently, a range of other longer-term hopes and concerns have also been raised, with key topics including:
- Productivity: will staff be able to execute their current roles and maintain outputs in line with established historical benchmarks?
- Creativity and innovation: outside day-to-day execution, will staff be able to continue to innovate and solve problems creatively to underpin excellence in client service and longer-term productivity development?
- Collaboration, staff development and culture: to what extent does remote working hinder spontaneous and focused team-working or limit the establishment/maintenance of strong company culture and learning environments?
- Staff engagement and retention: what is the balance between staff enjoying greater flexibility vs other potential downsides, and what impact does remote working have on engagement and loyalty?
- Cost savings: to what extent does greater remote working create an opportunity to save historically high costs of working ‘in the office’ without damaging these other aspects?
Given the novelty of the situation, these debates were initially based in significant part on first principles logic, supplemented by personal ‘gut feel’ or philosophical preferences. However, large-scale remote working has now been ongoing in the UK for coming up to a full year, and some of the empirical results of the experiment are becoming clearer.
In this Executive Insights, we summarise the emerging evidence, consider the impact for employers and identify some novel emerging solutions. We conclude that it is now urgent for each company to find its own long-term, balanced solutions based on a detailed understanding of its company- and function-specific needs. Those that succeed will benefit from a self-reinforcing virtuous circle of benefits, but those that fail ― or still worse, ignore the problem ― risk becoming trapped in a vicious cycle of declining productivity, staff retention and profitability.
Productivity has continued to hold up surprisingly well
As we observed in a previous article, initial fears of a decline in productivity have proved to be largely unfounded, with the majority of UK workers (63% in April 2020), for example, believing that they were at least as productive remotely as in ‘the office’. And crucially, the majority of their managers (78% in June 2020) agree with them.
The positivity of these results is echoed and indeed exceeded by a much larger US study published by Barrero, Bloom and Davis in January 20211 which indicated that 62% of 22,500 survey respondents over May to December 2020 viewed themselves as being more productive than expected, 25% about the same and 13% worse. Research by Microsoft in August 2020 also found that fully 82% of c. 9,000 senior executives across 15 European markets said they saw productivity levels either hold steady or increase as people shifted to remote work. In part, they say, this may be due to a reduction from an astonishing 52% of the working day being wasted by unnecessary disturbances in 2019 to ‘only’ 41% in a remote working setting.
It seems, therefore, that naysayers criticising the supposedly unproductive ‘shirk from home’ crowd have been proved largely to be wrong.
However, the c. 20% of workers in our previous research and 13% in the new research nonetheless represent a substantial portion of the workforce. Companies making the blanket assumption that ‘working from home is at least as productive as working in the office’ may suffer significant productivity problems in specific staff and/or departments. This can have equally significant knock-on effects for the rest of their organisations. A solution is required to cover all individual parts of the company, not just the ‘average worker’.
Company culture, creativity and innovation can suffer in a less collaborative setting
Concerns have been raised around the creation and maintenance of company culture and collaboration. For example, Andi Owen, chief executive of Herman Miller Inc., says, “That unplanned kind of interaction that contributes so much to how we build relationships with people and how we build culture — those things are what are missing.”
A range of financial firms, in particular, are also sceptical about the feasibility of establishing high-performing, collaborative teams in a remote working environment. Ronald J. Kruszewski, chief executive of Stifel Financial Corp, says, “I am concerned that we would somehow believe that we can basically take kids from college, put them in front of Zoom, and think that three years from now they’ll be every bit as productive as they would have had they had the personal interaction” of work in offices.
David Solomon, CEO of Goldman Sachs, and Jamie Dimon, CEO of JPMorgan, are also on record questioning the effectiveness of trying to establish and maintain innovative, collaborative, fundamentally apprenticeship-style cultures remotely. These cultures, they say, require both the team spirit built via working closely together and the ready availability of mentorship and guidance, each of which is more spontaneous and natural ‘in the office’.
Relatedly, creativity and innovation appear frequently to have suffered in remote working environments. “What I worry about the most is innovation. Innovation is hard to schedule —it’s impossible to schedule,” says Ellen Kullman, CEO of Carbon Inc. Microsoft’s 15-country study appears to confirm these fears, finding the proportion of leaders who thought their companies were innovative with their products and services declined from 56% in 2019 to 40% in 2020. An October 2020 survey by Lucid revealed that one in four remote managers say remote work has made their teams less creative overall, while one in four remote workers admit to spending at least half of a typical virtual brainstorming meeting distracted: many staff struggle without the social pressure and live intensity of in-person meetings.
It is possible that creativity is being stunted further by actual changes in brain function due to a lack of variety and stimulation. “What’s very clear in the literature is that environmental enrichment — being outside of your home, bumping into people, commuting, all of these changes that we are collectively being deprived of — is very associated with synaptic plasticity,” says Tina Franklin, a neuroscientist at Georgia Tech, a research university.
There are multiple current or emerging opportunities for companies to mitigate these effects, including the following:
- Mixed working models, i.e. part-time remote working but part-time ‘in the office’, to ensure that employees directly receive the required ‘dose’ of collaborative experience. We describe and explain nine such potential working models in a prior article and identify some new approaches already being taken by companies below.
- Introducing or reinforcing environmental enrichment in their remote working models — for example, through virtual office spaces such as Branch or Gather, which draw on multiplayer gaming culture, using spatial technology, animations and productivity tools to create a ‘metaverse’ dedicated to work.
- Keeping up to date with the latest remote working technology more broadly. Bloom, Davis and Zhestkova in their 2020 paper2 identify a rapid increase in patents explicitly mentioning home or remote work immediately following the onset of the pandemic. Companies need to keep on top of this innovation and move much more quickly than they would in a traditional corporate IT roll-out programme.
- Reinvesting in learning and skills development. HP’s October survey found that nearly six in 10 respondents reported currently learning a new skill while working remotely ― employers need to harness this energy and direct it towards the types of skills that promote creativity and innovation for professional purposes.
Again, each company must invest the time and effort required to identify where problems are most likely to occur and the specific circumstances faced by individual functions, peer groups and employees. They must adopt solutions that directly address these problems, recognising that a uniform approach across the organisation is unlikely to work well.
Staff morale and retention
Management theorists have also identified a loss of a sense of purpose and morale in remote working environments. For example, Michael Parke, assistant professor of management at the University of Pennsylvania, says that “the cost [of remote working] seems to be a loss of sense of purpose, which at work, is largely driven through strong and cohesive relationships and seeing how your tasks have impact on others.”
Perhaps ironically, one method for addressing this loss of purpose is to empower employees by delegating further and supervising less at exactly the time when the temptation is to monitor more closely and give ‘less rope’ due to concerns about lack of engagement. More generally, providing managers, who were naturally previously inexperienced in and thus unprepared for remote working, with training in staff motivation and management techniques is also essential.
Survey evidence also indicates a loss of morale in remote working environments. For example, HP’s survey of 1,000 office workers in the US, the UK, France, Italy, Germany and Spain in October 2020 revealed that one in three employees found that working remotely had lowered their morale. In part, this was driven by lack of support from employers: over 75% of employees surveyed had not received appropriate guidance to help with working remotely across a range of softer and harder topics, from management to online security ― organised training of both frontline workers and managers is required to address this. The same survey found that almost half of Gen Z workers surveyed in the US felt disconnected from company culture.
These challenges notwithstanding, it is also now clear that workers’ preferences for remote working have permanently changed. We began surveying attitudes in April 2020 and have continued to do so regularly. The results of this longitudinal research are shown in Figure 1.
Our survey results in January 2021 show headline results consistent with those in June and July 2020, suggesting that the opinions of employees have not changed significantly since the initial months of lockdown. The extensive duration of restrictions has not had a meaningful impact on their preferences; nor has the recent positive news around vaccines.
It is therefore clear that continuing with at least a proportion of remote working is considered by most employees to be a clear benefit. It is interesting to note in this context older research by Mas and Pallais in 2017,3 which found substantial welfare benefits with an 8% wage equivalent valuation of working from home by employees.
Companies must engage with these new preferences but also recognise the variance within them: to retain and motivate staff, flexible solutions are required which cater both to those who wish to retain their newly discovered remote working methods and to dyed-in-the-wool traditionalists who work best in a more conventional office environment ― again, one size does not fit all.
Cost savings are potentially a major opportunity but need to be balanced carefully vs other factors
Property costs are often a major line item for professional services and financial firms in particular, especially where they have high-profile City locations, and are naturally a target for CFOs looking to reduce the cost base amidst challenging economic conditions.
Some employers have made their long-term position clear. For example, Figure 2 shows expected reductions in office footprint from a selection of UK-domiciled banks.
The figure shows that three out of the four banks are looking for substantial reductions in space, but interestingly the fourth is employing more of a ‘wait and see’ approach.
These banks appear to be representative of companies more generally: Microsoft’s 15-country survey identified that more than half of decision makers expect to save costs by reducing the size of their office footprint and incur lower travel costs. A number of high-profile firms have announced that some or all employees will be allowed indefinitely to work from home if they wish to do so, e.g. Coinbase (all employees), Facebook (50% of employees), Shopify (all employees), Siemens (140,000 employees, can work from home two to three days per week) and Twitter (all employees).
A range of firms are reducing their footprint by repurposing existing office space and adopting hybrid approaches consistent with our nine working models framework. To give just two examples:
- KPMG intends to use its high-tech meeting facility in Canary Wharf as a model for other offices to allow more flexible working based on hybrid meeting areas, including big screens, digital whiteboards and data analytics to help employees in the office work easily with colleagues and clients not in the room
- Dropbox is making remote working the day-to-day default for employees on a permanent basis, turning their offices into ‘Dropbox studios’ for employees to meet in teams for collaboration and team building, but with individual work to be performed at home
A previous article articulates and quantifies the key trade-offs between cost savings, productivity and staff retention involved in developing these hybrid solutions. Again, the optimal solution for each company depends on a detailed analysis and understanding of its own operations and culture, recognising variances between functions and departments.
Some innovative ‘halfway house’ and alternative solutions have also started to emerge. For example, neighbourhood serviced offices are emerging in New York, whereby people can have the ‘best of both’ by working in a professional environment but one which is local to them, thereby saving on commuting time. We are aware of similar ideas emerging in the UK.
Conclusion: It is now urgent to solve the long-term problem of balanced remote working models
As vaccination programmes progress around the globe, the idea of a post-COVID-19 world is rapidly moving towards us from what has felt for a long time like a very far-off horizon. Long-term issues which were previously of only academic interest in the white heat of the initial emergency, and which remained so in the months that followed as the end of the crisis continued to feel remote, are now urgent.
The answers are not straightforward on any of the key issues, from productivity to staff morale to cost savings: in each case, some staff and some firms benefit, and some lose from a blunt version of remote working. Each organisation must address each issue in the way best suited to its particular activities and circumstances.
The most forward-looking companies have realised that headlines and platitudes are insufficient and have already established detailed, well-evidenced and balanced solutions to what is a highly complex problem. By doing so, they have established significant long-term competitive advantage through setting up a self-reinforcing virtuous circle of benefits.
Those that fail to plan adequately ― or still worse, ignore the problem ― risk becoming trapped in a vicious cycle of declining productivity, staff retention and profitability. Loss of competitive position and value destruction will be the inevitable consequences.
L.E.K. has been researching and advising in this area and offers clients the tools and analyses to identify and implement optimal new working models. L.E.K.’s strategic and commercial advisory expertise includes the following:
- Mapping organisational behaviours and linkages in order to assess policies for remote or office work that support overall business effectiveness based on detailed analysis of existing operational data, and specifying methods for collecting and analysing new bespoke data for this purpose, including staff surveys and communications metadata
- Developing business cases for new working models, including quantifying the trade-offs in the benefits in terms of staff retention, lower recruitment costs, reduced office costs, productivity, and growth from more flexible policies vs the relevant risks and costs
- Strategic planning for working patterns based on the outlook for demand for different service lines linked to those which need to be served face-to-face
- Benchmarking vs existing and newly emerging best practice
1 Barrero, Jose Maria, Nicholas Bloom and Steven J. Davis. “Why Working From Home Will Stick.” 21 January 2021
2 Bloom, Nicholas, Steven J. Davis and Yulia Zhestkova. “COVID-19 Shifted Patent Applications toward Technologies that Support Working from Home.” 2020.
3 Mas, Alexandre and Amanda Pallais. “Valuing alternative work arrangements.” American Economic Review, 2017, 107 (12), 3722-59.