Post-pandemic: the changing nature of work
Despite the widespread disruption, sickness, and millions of deaths caused by the COVID-19 pandemic, some positive changes have emerged. Telemedicine has been embraced by both doctors and patients, with adoption rates increasing 38-fold. Digital nomads have also found a new way of working, opting for remote work in less crowded and more affordable rural areas or even foreign countries. Stanford Professor Nicolas Bloom, who has been studying the evolution of work for more than two decades, reports that employees prefer hybrid working, a combination of office and remote work, resulting in increased productivity and loyalty. As life starts to return to “normal”, what is happening to the future of work?
How much office do we need?
The pandemic has created a surge in demand for larger, more comfortable homes that can accommodate remote work and learning. As a result, house prices in the US have increased by 45%, leaving those on a lower budget or in popular urban areas struggling to find affordable housing.
In contrast, offices remain largely unoccupied, despite employers’ repeated attempts to encourage employees to return. Kastle’s analysis of over 4,000 buildings across 10 major US cities shows that average occupancy is only around 50%.
This trend appears to be the “new normal”, (in 2021 while I was on the board of Poly) a survey of employees showed that 40% of preferred returning full-time to the office, 40% preferred hybrid arrangements, and 20% wanted fully remote work. This suggests a maximum peak office occupancy of 64%. In San Francisco, average downtown office occupancy rates are still only around 40% of pre-pandemic levels.
When employees do come to the office, it is essential to make the most of their time there. Meetings, collaborative work, and serendipitous interactions are critical for fostering a shared culture and promoting innovation. To facilitate these types of activities, the work environment needs to change. This means more shared vs. dedicated desks and meeting rooms equipped with collaboration tools such as whiteboards and video conferencing facilities. In return, companies could potentially reduce their office space by 35–50%.
At the same time, the US is facing an unprecedented housing shortage. Due to a decline in construction after the 2008 financial crisis, there is a shortage of 3.8 million homes to meet the needs of the growing population. This presents an exciting possibility for a pandemic “peace dividend” whereby unoccupied office space is transformed into attractive living spaces in coveted downtown locations.
Hard to turn swords (offices) into plowshares (homes)
However, spaces designed for offices (large, open spaces) are costly and difficult to convert into suitable apartments (what to do with the interior (dark) space without windows?). This explains why few office buildings are being converted. Since 2016, only 15,000 apartments have been created from former office buildings. Nonetheless, companies can still downsize their offices, reducing their costs. But the greater cost savings lie elsewhere…
The “other” peace dividend
The last 10–15 years have seen a major change in where employees create and access corporate data. Since the widespread deployment of personal computers in offices in the 1990s, most employees came to the office to create and access data (stored in corporate applications running in a private datacenter).
Occasionally, employees would connect from the road or from home. A small percentage of traffic (usually email and web-surfing) would flow from the corporate network to the public Internet. Companies invested in powerful (but expensive) Ethernet switches, routers, and large datacenters to provide the necessary connectivity for IT systems.
This flow of traffic has now completely changed. Prior to the pandemic, many companies had started hollowing out their private datacenters by “lifting & shifting” their legacy apps to the cloud and by replacing some of those apps with software-as-a-service (SaaS) offerings. This meant an increasing share of traffic was now flowing to/from the Internet. With the pandemic, the majority of data is now no longer flowing to/from the office, but instead, is now originating and returning to people working from home or elsewhere:
There is now a disconnect between the “old IT architecture” and the “new reality” going forward. Not only is the office getting smaller, it is getting leaner. When employees come to the new office environment, they will spend less time hunkered down working alone, downloading large files or creating data (focus work is best done in a quieter (home) environment, away from the interruptions of other people). Instead, they’ll be meeting, collaborating, and planning with others. Desks and workspaces need to be adapted to suit (no cubicles or private offices). There’s also no point to still put fixed-line phones on desks when those desks no longer “belong” to a single employee. Besides, the past 3 years have taught us that we can survive perfectly well using our mobiles & laptops to communicate. The office environment will look more & more like a private coffee shop: lots of space to huddle with colleagues with pervasive WiFi and coffee.
In the 90s, when I was a CIO, we used to allocate two Ethernet ports per desk: 1 for the phone and the other for the computer. Getting rid of desk phones means you need 50% fewer Ethernet switches. Getting rid of wired Ethernet altogether (given that most people are already getting by perfectly well over WiFi when at home), means you’ll only need 1 Ethernet port for every 20 employees (a further 95% reduction). Also, the new office doesn’t require big (expensive) wide area network (WAN) pipes to the corporate datacenter: instead, just connect the office directly to the Internet as most apps now reside there anyway. The new office needs 97.5% less Ethernet and also a lot less WAN.
As IT equipment purchased pre-pandemic reaches the end of its financial life (these assets are usually depreciated over 5–7 years), CFOs are going to ask tough questions about the need to replace LAN & WAN technology. Not only are there real estate savings to be had (of offices that are now 35% smaller), but the vast majority of LAN & WAN infrastructure is no longer required either. This is the most probable “peace dividend” from the pandemic: reduced IT spending on legacy infrastructure.
Why IT spending may not decrease overall
What will companies do with the real estate and IT cost savings? Most likely, they’ll spend it on other areas of IT: big data, cloud, and the emerging AI tools that have burst onto the scene in 2022. These include Large language models (LLMs) and Stable Diffusion image generation systems. GPT3 and MidJourney represent two leading examples of such AI technologies. These provide a new platform that are enabling numerous new applications (e.g. Jasper.ai) targeting white-collar work. An early paper from MIT has found that for writers and programmers, productivity gains of 50% are already possible. The advent of new AI tools is set to revolutionize the way we work. With companies poised to invest their pandemic peace dividends in AI, the potential for unlocking the productivity of their workforce is immense. This could represent one of the most remarkable accelerations we witness in our lifetime.
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