Tuesday, October 4, 2022

How companies are shifting their office spend to lure reluctant workers back

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As companies and workers continue to try to figure out where and how work will take place in a hybrid environment, the costs being spent on existing office spaces previously built around the 9-to-5, five-day workweek are being closely examined.

Flexibility has become the buzzword for both sides of the employee-employer power dynamic. Workers have been leveraging the empowerment gains they’ve made amid the pandemic and a tight labor market to maintain the personal time that has come with working from home. Companies, many fearful of eroding culture that could increase turnover as well as stifling innovation by having a mostly remote workforce, have tried to meet workers somewhere in the middle by gently prodding, not pushing, workers back to the office.

The question becomes then, how does that impact budgeting and spending on typically costly workspaces when a large portion of your workforce won’t be there every day, if it all? Is there an opportunity to cut costs, or do those spaces now require additional investment to try to draw workers who are at home back into the office?

Scott Dussault, the CFO of HR tech company Workhuman and himself a pandemic-era hire, is seeing the change firsthand.

“I always quote Larry Fink’s [2022] letter [to CEOs] where he said no relationship has been changed more by the pandemic than the one between employer and employee; that’s never going to change and we’re never going back,” Dussault, a member of the CNBC CFO Council, said. “The concept of 9-to-5 in the office five days a week is gone – the keyword is going to be flexibility.”

For many companies that means retrofitting offices to meet this new normal and employee demands, while also investing in other tools to make sure connections are still being made efficiently – efforts that could mean spending more money even if square footage or leases are adjusted.

“I’m not so sure it’s going to be a cost negative,” Dussault said. “I’m not sure if people are going to take less real estate; they’re just going to change the way that real estate works.”

Workhuman is currently coming towards the end of its lease in its Boston-area headquarters, and Dussault said the company is considering expanding its space, which would provide a “clean slate” to adjust to this new working environment.

He recalled his time at a job in the 1990s where it was a “football field of cubicles” – the kind of situation where you could “go to work and sit in a cube all day and never interact with anybody – you truly could lose that connection.”

Dussault said he sees the office becoming what he calls a “collaboration destination,” part of a hybrid environment where while you might work from home on days where you’re catching up on work or emails, the office can serve as a space that is “all about connection.”

“You’re going to see a lot more open spaces, collaboration spaces, conference rooms, meeting rooms, break areas where people can sit and get together,” he said. “It’s going be focused on connection which I think frankly is positive and it is evolution – it’s going to be about making those connections more meaningful.”

That would mean investing more in things like a gym, where employees could take a physical break, or other spaces that would provide a place to take an emotional break or meditate, Dussault said, something he said results in costs shifting “from one bucket to another.”

“We need to understand and recognize that when employees are home and productive, they have those things, and we need to try to make sure that those things exist in the office as well,” he said.

That also puts a further onus on the investment in digital tools, because there still needs to be ways for workers to connect with peers even when they’re not in person.

“Companies always talk about how important employees are and how employees are the most important investment – they haven’t always acted that way,” he said. “This is a good thing that’s come out of the pandemic.”

Neal Narayani, chief people officer at fintech company Brex, noted that in 2019 the company had people coming into offices five days a week in San Francisco, New York, Vancouver, and Salt Lake City. At that time, “nobody worked from home, because it was seen as a negative,” Narayani said. But as the pandemic forced employees to work from home, where they successfully took on several large projects, that view shifted.

“We recognized very quickly that we were able to actually work more productively and faster, and that video collaboration is a very productive tool when you don’t have to commute somewhere to search the office for a conference room,” he said.

With a belief that a remote-first approach was the future of work, Brex leaned in. Of the company’s more than 1,200 employees, 45% are fully remote. The company still maintains those four office location hubs where workers can go if they want, but the company has altered its approach so that every process is designed for remote workers.

That also changed the thinking that went into those spaces as Brex planned out its growth.

“When you unwind the real estate costs, we were able to look at how many people would come into an office if we were to make it fully optional, and it was about 10%,” Narayani said. “So, we were able to move into a 10%, maybe even less, real estate option, and then take the rest of those dollars and repurpose that towards travel, towards talent development, towards diversity and inclusion efforts, and towards anything else that makes the employee experience better.”

“It turns out to be a much better experience for us because that real estate cost was very high, and those markets are very expensive,” he added.

Roughly a third of the cost of the company’s previous real estate strategy has been put into the company’s new off-site strategy, Narayani said, with other portions of that being used to pay for the four office spaces and other co-working spaces.

Larry Gadea, CEO of workplace technology company Envoy, said that he thinks many companies are looking at ways they can reduce costs right now, with office space spending as one area potentially ripe for cuts.

However, Gadea warns that “people need to be together with each other, they need to know each other.”

“They need to have a sense of purpose that’s unified, and you need to bring people together for that,” he said. “How are you going to bring people together when they’re all around the country? I think that there is a substantial amount of people thinking they’re going to be saving money on real estate, but United and other airlines and Hilton and other hotels are getting it instead.”

Gadea said that as companies try to manage a tight labor environment as well as other market challenges, more time needs to be spent on “thinking about how to bring teams together.”

“The number one reason that most people stick with a company is that they love the people they work with,” he said. “It can be a lot harder to love those people if you don’t ever see them because they turned off their video on Zoom or if they don’t even know them at all.”



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