A region-based approach to scaling companies in the era of remote work.
Now that companies have tested and employees have tasted remote working, will business location matter anymore? If employees could work from anywhere and be productive, then could talent access become location agnostic? If we have become just as productive working from home, then will we need the office anymore?
These questions have confounded business leaders in the recent months. There is an element of stepping into the unknown in any answer to these questions. Uncertainty turns into perceived risks, which could result in inaction when preemption is what’s sorely needed. We at BeyondHQ have looked at the available data, debated this issue, and made some observations. This post includes some of our findings and a recommended solution to location strategy in the new changed world.
Are we more productive working remotely?
A lot has been said over the recent months in defence of working remotely. After all employees were reporting higher productivity and better results when they had the support of their managers and the right tools to work from home. This higher productivity was the result of some other dynamics that have been overlooked in the enthusiasm to codify remote work into the post-pandemic future. The prospect of reducing real estate cost and accessing a larger talent pool is tantalizing for corporate managers. Therefore, the enthusiasm is understandable.
Before the pandemic, remote work was frowned upon in most companies and only 4% of the entire US workforce worked remotely. Now that nearly half of the workforce, mostly those who work in office/desk jobs, are working remotely, and reporting high productivity, the taboo has been broken. But we must analyze why most employees have been more productive while working from home.
Office workers saw rapid job losses in the service sectors and the anxiety quickly transferred to them as well. Could they be next, they asked themselves. Some employees, such as those in HR and Finance, could never have worked from home because of confidentiality. Now that they had the opportunity, they wanted to prove that they were just as effective working from home. They wanted to have the negotiating power later to be eligible for remote work. Most of us have been unable to separate ourselves from work in our home offices because at home the sense of time becomes distorted and we spend more time working than when we commuted to work. All these reasons, and more, have led to most people working longer hours. Hence the higher productivity. Being at home, per se, has nothing to do with it. However, six months into remote work may have changed that perception. Isolation, burn out, distractions, and quarantine 15 are compelling us to re-evaluate remote work and the desire to go to work in a physical workplace. Despite that, remote work is attractive for various reasons, so we want to keep it as well.
Big Tech makes remote work acceptable
Just like the open office and universal basic income, certain ideas come from Big-Tech because they serve the purpose of Big-Tech. It may be prohibitive, if not impossible, for companies that have specialized equipment or huge capital investment to just walk away from their workplaces or let their employees be remote for an extended period. Most tech companies today don’t have that problem. They have digital products that are produced mostly by brain power and brain power can easily be made mobile. The core work in tech companies is writing code, which is largely a solitary pursuit, even if now and then teams regroup and ideate. Tech is the most suited to remote work. Also, the enormous profit margins achieved by Big Tech today allow them to take a hit on real estate because that is a very small portion of their overall cost and tiny proportion of their revenue.
Today’s successful tech CEOs are put on a pedestal by society and the world hangs on to every word they say. Now that some of them have embraced remote work, we are likely to see CEOs in other industries follow suit. Big-Tech employs legions of workers and their demand for talent seems insatiable. If remote work or work-anywhere leads to better retention and access to new talent pools, then remote work could be a resilient trend that other industries might try to emulate. Since technology pervades every industry, most companies today view themselves as technology companies, which makes them even more open to suggestion by ideas that come from Big-Tech.
This augurs well for remote work.
The pendulum swung far, and now it must swing back
Who knows what is normal anymore. Remote work was foisted upon us with such suddenness and intensity that most of us adjusted to it whether we liked it or not. Now it has collectively dawned on us that we could have been doing this all along and the office could have been used on an as-needed basis for inter-personal interaction and collaboration. It is quite likely that soon we will attempt just that. We just need to feel safe and for that there needs to be a public-health recourse in place. We must accept that some of us will choose to be in the office more than others. Considerations of personality differences and mental health are likely to become critical factors in designing the office of the future.
Coworking appeared to be taking on the the way we work unlike any other innovation in the workplace in recent memory. Coworking companies had taken large blocks of space that were being leased by companies to increase flexibility and accommodate sudden spurts of growth. If even a third of our office-going workforce chooses to work remotely, coworking will have to go and meet them where they live. A second wave of innovation in coworking may include smaller work pods in the suburbs and easy-to-reach commercial nodes. This provides an opening for smaller and non-traditional coworking providers to develop community spaces for short-duration and short-notice use.
Why “traditional” site selection won’t work anymore
Some site selection consultants may take umbrage if it was suggested that largely most of them follow the same core process and that there hasn’t really been any innovation in that process in living memory.
And yet, that’s what we must suggest.
The site selection process was developed as a model of exclusion that would lead from a universe of locations to a single preferred location, with a possible backup location, real or decoy (because incentives).
Digital tools, business intelligence, data visualization, and ubiquitous data might have made the process more efficient but haven’t fundamentally changed it.
The work-anywhere and remote workforce trends on a sudden and unprecedented scale could mean that companies may become location agnostic in the short-term as they compete for talent. The existential nature of this change could compel the site selection consultants to re-evaluate and realign the traditional method.
The traditional site-selection process starts with narrowing down locations based on must-have factors or fatal-flaws. After narrowing down the field, a set of criteria are applied to this field resulting in a rank order of locations. Following this, the top few agreed upon locations are visited to confirm findings, and a final location is selected based on qualitative comparisons and financial performance. Economic incentives offered by the finalist communities often play a pivotal role.
If wide acceptance of remote work allows talent to disperse geographically from the HQ, and location becomes a more fluid concept, the traditional process will cease to work.
Since we may need to consider multiple communities across different states or even national boundaries as a bundle, due diligence will take on a whole new meaning and rigour.
Communities may not benefit from competing but from cooperation and that may make economic incentives less effective or hard to administer as a tool for business attraction.
A regional approach: Pick a city cluster
Let’s assume that a high-growth technology company in San Francisco will allow future hires to be remote but would like to provide the option for dev-teams to get together for occasional meetings. Having the ability to collaborate in a branded space would also help in developing the company culture, which is difficult to do virtually. How do we address this dichotomy? How does the company grow its talent base, allow remote work, and simultaneously justify the cost of office space?
In the days passed, the tech company would have picked a high-growth secondary tech market, like Austin, and would have then proceeded to build a swanky office space there to woo new employees.
Now that remote work might be a mid-to-long-term strategy for many companies, there is a better way to consider location, office space, and talent.
We need to look at regions with clusters of cities that individually may be smaller than a top tech talent market like Austin, but together could be larger and more cost effective.
For example, the company could consider the Cincinnati- Columbus-Louisville-Indianapolis cluster in the Midwest. Together as a cluster they have a bigger talent pool than Austin and a much lower average wage for tech employees.
If Cincinnati were to be the geographic hub for the company, then the other locations would be its spokes. Let’s call all employees nodes, who could reside anywhere in these metros or in the suburbs, exurbs, and small towns in between.
The company could have a leased collaboration space in the hub city where teams gather once a week as needed or where some local employees could choose to work daily. The spokes could have coworking pods for short-notice meetings.
This arrangement allows flexibility in hiring as well as the ability to test markets. If the company has greater hiring success in one of the spoke cities, they could switch the hub without disrupting the regional network. This also allows for a reduced real estate footprint, greater flexibility, better risk management, and a more effective workplace.
How a Hub-Spoke-Node model can change talent access
Even if remote work takes root firmly in every kind of office job, finding top talent will still be the main concern for companies. When everyone does the same thing, it ceases to be a competitive advantage.
Although there isn’t enough data yet to say with certainty that people are leaving large expensive metros in droves, we can see a drop in rentals in cities like San Francisco and New York. However, home sales have gone on unabated, especially at the mid-high end of the price range. Many of these sales are in exurbs and small towns within easy reach of major metros.
There has been speculation that small and rural communities could benefit from the expected movement of talent out of big metros. There is no such evidence yet, but if remote work becomes culturally acceptable across industries, it will allow workers to move outward from the urban cores to affordable communities still within reach of the main office.
This may also free up housing capacity in cities that would be good for affordability and choice.
Regions with clustered cities that allow access to talent, low cost of living, good infrastructure, and collective scale to rival major cities, will benefit from remote work.
This doesn’t mean that people will immediately migrate to these clusters en-masse, but these clusters may prove that their sum is larger than their parts, and certainly larger than some established bigger cities.
In the new reality where remote workers meet occasionally in a hub city, even if it means driving a couple of hours, but then don’t have to commute every day, the clusters of smaller cities could be more attractive than a single large city. They offer greater capacity to accommodate future growth and flexibility to shift emphasis to a different part of the cluster as dynamics change over time.
Talented professionals will find these clusters more attractive to relocate to as they would behave like large job markets. If these regions start cooperating like coordinated units, they could enter a new age of economic development and prosperity.
Rajeev Thakur, our head of client growth & strategy, wrote this post. Rajeev spent the past 15 years at Deloitte and Newmark Knight Frank, helping companies scale their workforce and real estate footprint globally. An architect by training, he is passionate about economic development, designing communities and workspaces, urban horticulture, his two adorable puppies, and all things Seattle.