Show me the Money

A. Cut real estate costs, or

B. Increase productivity

Based on the details in Figure 1, which approach would have the most impact?

Of course, the opposite is true, too. Lopping a whole floor out of the budget might delight the CFO in the short term, but if the new environment reduces employee performance, the net impact could, well, let’s say to coin a word, increase the tenuosity of employment?

This is a perfect example of why traditional measures of workplace success such as person-to-desk-ratios, space-per-employee and other place-centric metrics are woefully inadequate and often misleading. They are easy to calculate, but they don’t reveal anything about the impact of workplace change on an organization’s most expensive and valuable asset: its people.

What is productivity?

What is productivity and how do you measure it? Some argue the term itself is outdated — a vestige of the days of typing pools, factory work and farm jobs. Performance, they say, is what matters in the information age. In reality, they are both important and always have been.

Let’s say Emma and Jorge are both programmers at WooHoo. Emma codes really fast. Jorge is slow, but meticulous and known for the efficiency of his code. Which one is more productive? In terms of quantity, most would argue it’s Emma, but if her code is buggy and bloated it will take its toll on customer satisfaction and ultimately the bottom line. In terms of quality, Jorge may look like the better performer, but his slow pace could hamper time-to-market which is critical in today’s fast-changing world. Leading organizations can’t afford to choose between fast and good, they need to strike a balance between the two and to do that, they need to measure both.

Improve productivity & enhance performance

So, what can FM and CRE do to improve productivity and enhance performance? Here’s the simple answer: Ensure that workplaces and work practices enable and encourage people to do their best work. In terms of the workplace, that means removing the friction that keeps people from performing their best. It starts with creating the right physical environment, which, according to a wide body of research, should include:

• Customizable thermal controls

• Visual and sound privacy options

• Good lighting

• Good air quality

• Effective ergonomics

• Efficient wayfinding

• Appropriate adjacencies

• Easy ways of finding team members

• Access to decision makers

• Appropriate noise levels and sound options

• Easy access to a variety of spaces and places

• The right technology

• Assess to healthy food and beverages

• The right amenities

• The right level of stimulation

• Visual reinforcement of the organization’s mission and values

• Stress-reducing elements such as biophilia, sounds of nature, outdoor areas

• Attention to aesthetics (colors, shapes, textures)

If a person is cold, or in pain, or hungry, or frustrated by technology, they simply can’t do their best work. Importantly, unless these workplace elements are right, people simply can’t even think about the kinds of things that allow them to do their best work.

We could estimate the cost of dissatisfaction with many of the elements from the list above by simply multiplying the minutes lost by the employee’s cost per minute. Let’s use sound and visual privacy as an example. Either can result in an increase in unwanted interruptions.

Estimating unwanted interruptions

Research by the University of California suggests that employees are significantly interrupted every 12 minutes. Every time they are interrupted, it takes an average of 23 minutes for them to recover. If the new sound-proofing, or office layout, or quiet spaces, or work-from-home policy allowed WooHoo’s 500 employees to avoid just one interruption a day, it would add US$2 million in annual productivity (see Figure 3: The Cost of Unwanted Interruptions). It would take a 30 percent reduction in real estate costs to generate the same savings.

Figure 3: The cost of unwanted interruptions

In addition to the hit to productivity and performance, unwanted distractions also increase errors, stress, frustration and more. Recent research shows they also impede creativity and innovation.

The physical elements of workplace design clearly can affect, for better or for worse, employee productivity and performance, but work practices can have an even bigger impact.

Work practices & productivity

A group called The Energy Project was curious to understand what most influences employee engagement and productivity, so they partnered with the Harvard Business Review to survey more than 12,000 mostly white-collar employees across a broad range of companies and industries. The results were reported in a New York Times opinion piece called Why You Hate Work. In a graphic labeled “White Collar Salt Mines” it revealed that less than two in ten employees felt they had time to think (see Figure 4: Why You Hate Work). The rest of the findings were equally startling to anyone familiar with employee engagement principles.

Figure 4: Why you hate work

“Demand for our time is increasingly exceeding our capacity — draining us of the energy we need to bring our skill and talent fully to life,” according to the authors of the study. “Increased competitiveness and a leaner, post-recession workforce add to the pressures. The rise of digital technology is perhaps the biggest influence, exposing us to an unprecedented flood of information and requests that we feel compelled to read and respond to at all hours of the day and night.”

A meta-analysis of more than 250 research studies covering nearly 200 global organizations conducted by Gallup, Inc. found that business units with employee engagement scores in the highest quartile (compared to those in the lowest):

• Are 17 percent more productive

• Achieve 24 percent lower turnover

• Have a 41 percent lower rate of absenteeism

• Produce 10 percent higher customer service ratings

• Produce 20 percent more sales

• And are 20 percent more profitable

This data allows us to easily quantify the impact of increased engagement. We’ll focus on turnover and productivity.

Voluntary turnover

A meta-study by the Center for American Progress suggest a broad range of estimates on the cost of turnover, from as low as 16 percent of salary for the lowest paid workers to over 200 percent of salary on the highly paid and skilled end of the spectrum. So, if high-performing Jorge gets fed up that his manager constantly rewards Emma for her speed and continually chastises him for his slowpokeyness, the cost of losing him could be as high as US$170,000 ($85,000 * 200 percent).

There’s not much CRE can do about bad bosses outside their own preview, but they can help attract and retain talent and increase productivity by encouraging work practices that increase employee engagement.

Based on Gallup’s numbers we can estimate the value of engaging a quarter of WooHoo’s disengaged employees (typically 13 percent of employees according to Gallup) would be US$320,000 a year. Increased productivity would contribute US$240,000 of that (see Figure 5: How to calculate the impact of engagement on productivity) and the balance would come from reduced turnover (see Figure 6: How to calculate the impact of engagement on turnover).

Figure 5: How to calculate the impact of engagement on productivity

Figure 6: How to Calculate the Impact of Engagement on Turnover

And, of course, the real value of the initiative is a multiple of that $320,000 if the changes continue to have an impact in future years.

Naturally, this could all work in reverse too. If the changes you make to workplace design or work practices have a negative impact on engagement, the hit to the bottom line could be substantial.

A whole lot more

We’ve only scratched the surface on the bottom line impacts a change in workplace strategy can produce. In addition to productivity, engagement and turnover, changes can affect, for good or for bad:

• Employee health and well-being

• Creativity and innovation

• Absenteeism and presenteeism

• Effectiveness and efficiency

• Employee safety

• Diversity

• Continuity of operations

• The environment

• Relationships with customers, vendors, shareholders and communities

• And more

Every one of those can and should be measured, both pre- and post-change, so the impact can be quantified.

And as staggering as the numbers we’ve offered here may be, they are hugely understated because of one critical reality: People are not hired to simply offset their salaries. Unless the brains or brawn they bring to what they do translates into a multiple of their compensation, there will be nothing left to pay all the other business expenses, let alone produce a profit — a survival imperative.

The revenue-to-salary ratio, as it’s called, varies by industry. In the finance industry, for example, it averages six to one. In other words, someone making $85,000 a year produces, on average, over $500,000 in annual revenue. So, in reality, all the impacts we’ve calculated for WooHoo are actually 600 percent higher than we’ve shown here!

Facility managers and CRE professionals are increasingly being asked to quantify the impact of workplace change on organizational priorities. That was easy in the days when the (short-sighted) top priority was reducing real estate costs. But employers are finally beginning to understand that workplace design and work practices that are good for people are good for the bottom line. It’s time we start measuring what matters.