Virtual engagement with customers and employees increased dramatically during the pandemic. And that change has stuck, to the surprise of some company executives.
It’s not only employees who prefer a remote or hybrid setup. Companies are finding that customers want to do more business virtually, too. That’s why this is an important time for CFOs to rethink their companies’ footprints and use of physical space.
William Lovis III
Most companies have more space than they need, and it’s usually in the wrong places. While some pared their real estate portfolio in 2020, many still haven’t. Go into an office in a city such as San Francisco or New York on a given day, and chances are you’ll see only a handful of people working. This is expensive and unnecessary.
Why haven’t more companies revisited their real estate strategies? For one, it’s not a “noisy” problem. Organizations gravitate to handling what they consider more pressing issues first. But it’s an expensive problem. According to Density, organizations waste more than $25 million a year on average on office space.
Real estate is not a ‘noisy’ problem … but it’s an expensive problem.
It’s also an operational problem. Despite missives from human resources, most employees aren’t clear on whether or how often they’re required to work from the office.
Finally, it’s a commercial problem. Customers and clients are unclear about how companies want to engage with them. Do they want to meet virtually or in person? What does customer service look like?
Just about every company could benefit from quantifying the financial, operational, and customer impacts of a footprint that hasn’t been critically reviewed since before the pandemic — or was cut indiscriminately in 2020’s slash-and-burn mode. For those that did more business during the height of the pandemic and actually added space, it’s now going to waste.
Making changes now toward finding the right footprint can potentially improve employee engagement and productivity as well as customer engagement and retention and financial and operational results.
How should companies think about optimizing their footprint? First, quantify the effects of a less-than-optimal arrangement on employees and customers. What’s been lost in terms of employee productivity and satisfaction? How have revenue and customer engagement been hurt by not having the appropriate customer-facing space?
The second step is to build a plan to address the mismatch. Some “no-regrets” actions — like jettisoning little-used space and switching jobs at those sites to remote — can be implemented easily and quickly. Others will require more costly, complex steps and should be woven into the company’s strategic plan over a span of a year or more.
Say a company has call centers in Boston, New York, and Miami. In the short term, employees in those cities could be shifted to remote work. Over time, it might make sense to consolidate those jobs in a lower-cost area with a large talent pool of employees with skills and compensation requirements that better match the company’s needs.
Banks have been undergoing this kind of shift for years, as customers moved to mobile banking and away from in-person services, closing full-service branches and shifting to kiosks. The pandemic accelerated the trend. More bank branches closed in 2020 than in any year from 2011 to 2019, according to the Federal Reserve, and hit another record in 2021. Those moves cut costs and helped banks reinvest in 24-hour kiosks.
Finally, rethink assumptions about how the space is being used. Start by identifying the most common types of space: space needed for heavy operational or administrative office work; customer space; and collaboration space for employees. There’s also the concept of celebration or culture space, where employees interact with their teams and customers.
Rethink assumptions about how the space is being used.
Then make choices. Some areas should be shuttered, while other areas can be flexible. It might make sense to own or rent property, or it might be better to make greater use of temporary options like WeWork-style offices.
Too often, a company’s real estate portfolio is addressed lease by lease as agreements come up for renewal, rather than taking a strategic look at the whole footprint. While the real estate team can negotiate leases, they don’t generally take on footprint optimization for the whole company. That’s a job for the CFO, CEO, COO, and other executives who are charged with seeing the big picture. Coordination is key.
“Analysis paralysis” keeps many companies from taking a hard look at their real estate composition. They might think business conditions aren’t clear enough or are changing too fast to make a decision. But why not take action now, using the information that’s available, and revisit it periodically? Even if circumstances change, you’ll likely be able to correct in a way that better meets specific needs and at a lower cost than if you maintained the status quo.
William A. Lovis III is a managing director and leader of the U.S. corporate transformation services division for global consulting firm Alvarez & Marsal.
