As global economies slowly, and cautiously re-open from the nearly 2-month hibernation that governments have imposed to help battle the novel coronavirus, we awake to a very different world from what it was just 3 months ago. The impact of this health crisis is far and wide, and unlike anything we’ve previously experienced in our lifetimes. In a relatively short span of time, the toll that this disease has taken on individuals, families, communities, businesses and mental health is unfathomable. In the United States, the April unemployment rate now stands at 14.7%, up from just 3.8% in January of this year, and the gap is likely to get worse before it gets better. Some estimates forecast unemployment growing to as much as 25%, matching the peak of the Great Depression.
And, while we might wish to think of COVID-19 as a black swan event, the truth is that scientists, virologists and global health policy professionals have been warning of such a pandemic for decades. Whether through malfeasance or simply a byproduct of an increasingly interconnected world, the likelihood of such an event has been on the rise for some time. Until now, however, the belief that a biological outbreak could wreak such global havoc, so swiftly, was not top of mind for most of us and the urgency to prepare was therefore lacking.
The first phase of reopening is exactly that: the first phase. Short of universal infection and antibody testing, as well as an effective vaccine and proven therapies, any reopening at this stage is somewhat of a gamble. Prompted by a flattening and downward trend of clinical infections and deaths, along with the very real need to mobilize our economies, this reopening experiment is essentially a public beta. Policy makers will continue to monitor field data, including the efficacy of ongoing, but reduced social distancing. Should a meaningful resurgence of the disease occur, as some believe will happen, you can expect shelter-at-home policies to resurface.
Even as companies reopen their doors, what will the workplace and workforce look like? The likelihood that things will quickly return to some pre-pandemic normal seems grossly unrealistic. Some offices may be open, but will staff feel comfortable about commuting to, or working in them? Any return to some semblance of normalcy will not be like flipping a light switch.
And, while many companies have genuinely sought to care for their employees and avoid mass layoffs in the midst of this crisis, this is not a sustainable position if revenues continue to falter. Already, you’ve begun to see some companies very publicly pivot towards staff reductions. Others have introduced compensation cuts, even while they look to secure additional operating capital. Some have sought bankruptcy protection. While small businesses with less of a financial cushion have been disproportionately impacted, larger companies are not impervious.
In recent years, there’s been a trend towards open floor plans; a perceptible reversal of what had been a growing acceptance of working remotely; and increased offshoring to leverage the labor arbitrage that exists in some second and third-world countries. These corporate policies are replete across industries, and while there are multiple dimensions to the rationale for such decisions, the overwhelming one is cost. While a total reversal of such policies is neither anticipated nor prudent, expect greater moderation.
An onsite presence and open floor plan, for example, do positively lend themselves to greater communication and interaction amongst staff. There’s often no substitute for the impromptu conversations and ideas that germinate in such an environment. But the days of cramming greater numbers of people into ever-decreasing space, just enough to remain compliant with fire codes, are over.
For companies that have viewed cost controls as the primary driver for such floor plans, a return to less dense facilities and private offices may present significant financial challenges. After all, who would lease more space and commission a build-out in the middle of, at best, an economic recession or, at worst, a global economic depression? Already, pending office lease activity has stalled, particularly in major cities. According to CBRE, for example, the amount of Manhattan office space that was leased in April was down 64% from the 5-year monthly average. The full impact to commercial real estate is yet to be measured, but it’s reasonable to assume that traditional office, retail and hotel space will suffer, at least for the foreseeable future, while industrial, warehouse and procurement facilities will thrive.
Some companies and commercial facilities have already begun to explore the form and function of the future office. For example, there is discussion of thermal sensors that can detect a fever being installed at office buildings, airports, hotels and theme parks, though the efficacy of such scanning for a virus that may be asymptomatic is questionable. In addition to more rigorous cleaning protocols, companies have evaluated improved ventilation and the installation of HEPA air filters. Others have contemplated weekly onsite shifts and staggered arrivals, in order to disperse elevator traffic. Some have even begun to envision the office as more of a coordinating executive branch, or as a social hub from which onboarding, training, and necessary in-person meetings can be held. What is clear is that a remote workforce will increasingly be a major component of many companies’ operating plans.
Flex-office space providers, like IWG and WeWork, have also understandably struggled during the pandemic, due to facilities closures and financially-strapped small business tenants. But they may ultimately emerge as a commercial real estate growth segment as companies seek to avoid long-term leasing commitments and bring as-needed office space closer to their remote employees, rather than the other way around.
Any pre-pandemic resistance to a remote work trend that had been gathering steam over the past decade now feels more like a blip than a sea-change. As recently experienced by nearly every office worker, the technology to enable a remote workforce is available, cost-effective and continues to improve. While not every job can be accomplished remotely, most current resistance to remoting has largely been the byproduct of a lack of trust between manager and staff member, or poorly implemented engagement models. In both cases, optimized workflows, policies and the availability of video conferencing can go a long way towards ensuring healthy workplace dialogue, individual productivity, mutual trust and team engagement.
Interestingly, without the demand of an extended commute and the ability to have workplace access from anywhere, at any time, remote employees may actually be more productive than some of their on-site peers. Certainly, some of this is a function of an individual’s role, work habits and distractions, but a productive employee is likely to be productive whether working onsite or off; similarly, an unproductive employee is likely to be unproductive in both cases, and may even have an adverse impact on team productivity, given the additional oversight and reassignment of work that may be required.
Some companies have also remained unwilling to reimburse employees for their BYOD (Bring Your Own Device) or BYOO (Bring Your Own Office) expenses. These policies may warrant further consideration, since the cost to outfit a remote worker is far less than the cost to outfit an onsite worker.
As for the sizable offshore dependencies that some companies have embraced, expect a pull-back. What became evident from this pandemic is that staffing concentration risk could be greater than a single city, or even a region within a given country. Inasmuch as COVID-19 is a global pandemic that knows no borders, network infrastructure to the home is not ubiquitous in a third-world country, thereby making stay-at-home orders all the more disastrous for companies that depend on the availability of this large workforce.
In some industries – healthcare supplies and pharmaceuticals come immediately to mind – the significant dependence on a foreign country for materials, manufacturing and distribution represents concerning geopolitical, production and supply chain risks that must be addressed. Similarly, in large financial services institutions, substantial operational capacity was taken offline when India announced its stay-at-home mandate. To be clear, this is not to suggest a position of acute anti-globalization. We live in an interconnected world and there’s no going back, nor should we want to totally retreat. A local presence is also important to servicing and growing other markets, but we surely must find a better balance between cost and risk.
Clearly, digital enablement should be a significant priority for many firms, if it isn’t already. This path was already set in motion, pre-pandemic, but will now accelerate, further. While digital will not supplant all office work, travel or face-to-face meetings, it will increasingly represent a sizable share of both your workforce and client engagement and will be an integral part of a new normal.
Companies may also seek to offload functions and capabilities that are commoditized, non-core, and do not serve to differentiate them. In so doing, they may realize an opportunity to shift from fixed/CapEx to variable cost/OpEx structures with suppliers that are also more capable, scalable and nimble than a similar in-house offering may be. This has certainly been an important driver for cloud adoption, but it will permeate other areas, as well, and again be an integral part of a new normal.
The rise in the gig economy will continue. Think of the essential workers who have provided remote grocery shopping, food delivery services or telemedicine to you. Think of some of the doctors and nurses, many retired or who operate as independent contractors, who rushed in to help save lives, putting themselves at risk. Much of this workforce is attributable to the gig economy. As remoting, along with a renewed focus on core competencies and variable-cost operating models becomes more commonplace, companies are likely to leverage more third-party suppliers and contractors, many of whom will be gig workers.
Still, gig workers will need more of the basic protections afforded to their FTE peers, including comparable health benefits and backstops, like unemployment insurance. The state-specific EPO and HMO insurance plans offered to individuals under the Affordable Care Act, for example, typically provide less coverage, are subject to service area restrictions and are more expensive than employer-issued plans. Moreover, notwithstanding some federal accommodations made to address widespread COVID-19 unemployment, most gig workers are not typically eligible for state-sponsored unemployment insurance.
With these workers becoming a growing part of the overall economy, federal and state policy makers should seek to partner with companies, insurers, trade associations and other parties to address these significant gaps. This should be a priority for all.
For these reasons and others, it’s not a stretch to suggest that there will be lasting changes to both the workplace and workforce, even after the COVID-19 threat abates. Much like the way in which countries responded to terrorism, post-09/11, a new normal will be established and, over time, will simply become routine. This is not to suggest that we will don face masks for the rest of our natural lives whenever we venture outside of our homes, or that we will never again go to a theater, join friends at a restaurant or enjoy countless other social opportunities. Yes, a vaccine and effective therapies will be identified, but there will most certainly be some permanent post-pandemic differences. More immediately, however, any such transition is likely to be a work in progress, as we collectively find our way out of, and beyond this current crisis.
Stay well!
