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The implications of structural changes brought by Coronavirus – Part 1

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Lakshmisha K S
Founder - Namo Brigade, Management Consultant, Amateur Economist, Politically Conservative and believer in the supremacy of facts, NITK-Surathkal, XLRI alumnus
 

It has been 5 months since the world discovered a new strain of SARS virus. In these set of articles, I try to delve into longer term and structural changes that will be brought about by Coronavirus. Starting with…

Work from Home (WFH)

The pandemic has forced many companies to adopt work from home. The 1-2 months lockdown has necessitated every company to initiate work from home for its employees. This is going to bring a radically change on how we work going forward. Many companies will move towards greater share of employees working from home with a weekly one to two day gathering for team building purposes. TCS has already announced that it expects 75% of workforce to work from home in the future, It is interesting to note that before lockdown only 20% of its employees worked from home. The IT industry in India estimates that close to 50 per cent of the country’s 4.3 million IT workers will soon work from home. Sure, many people would be sceptical about the future moving towards work from home and expect things to go back to normalcy post the crisis, but here are the reasons why it wont.

  • Covid-19 is staying here for long time – Many expect that the lockdown and Coronavirus crisis to be a 2-3 month affair, but the sad truth is that it is here to stay with us for much longer. Until either the entire population is infected to attain “herd immunity” or an effective vaccine is discovered, we will continue to have coronavirus breakouts. Either of the above is anywhere between 12-24 months away from us. Hence lockdown and social distancing is here to stay for good year or two.
  • Productivity will improve further – It is pertinent to note that some companies have already seen productivity improve from work from home measures. If we are going to see longer periods of working from home as stated above, then companies and employees will find ways to improve productivity during the work from home. Already people are leveraging video conferencing and other collaborative tools that can overcome the existing disadvantages. Like anything, the productivity dips when something new is implemented but with increased usage, efficiency gains kick in resulting in improved productivity. Therefore by the end of Covid-19 crisis in 2021-22, companies would have figured out to reach same if not higher productivity leveraging working from home measures
  • Reduced cost – Working home means reduced costs to companies. They don’t need to run large office complexes, hire hundreds of support staff to run and maintain these spaces. A 25% reduction in on-ground employee can result in 15% reduction in office space requirements. Hence working from home measure offices significant reduction in costs. Once companies realise the cost savings from these measures, they will become more proactive promoters of working from home measures.

“Identify and significantly reduce every single indirect cost like hubs, office infrastructure, etc… It is one of the areas where we feel the cut is most prudent given it doesn’t affect customer or employee experience,” food delivery startup Swiggy’s CEO Sriharsha Majety wrote in a recent mail to his employees

  • Myth of office – Unlike manufacturing process where an employees needs to work in the same defined space as each workspace is intrinsically linked to others, most service offices are not. Take IT services, most companies are providing back end office services to global MNCs, if the office work of an US or European company can be handled in Bangalore 1000 of Kms of from the HQ, it shouldn’t be that difficult to move the same to the employees house, a few kms from the office. Take consultancy, media agency, accounting and other typically office working firms, each of their work can easily be done by employees working from home rather than necessarily coming to one space to do the same.
  • Work life balance – The biggest benefit of working from home is more work life balance to employees. Today an average commuter spends anywhere between 2-5 hrs on road travelling between office and home. Working from home provides greater flexibility to employees to plan their work according to their needs. The additional free time will provide opportunities for the employees to pursue their interests and other things. Overall employees will see the greater benefit of working from home. Hence even if few companies hold out on implementing working from home, employee attrition to companies that offer the benefit will force these companies to implement them as well.

So the future will be greater share of working from home. It is important to note that the working from home will not be a 100% exercise. Employees need the social interactions with their colleagues. Hence a compromise will be devised where for majority of the week, employees work from home with designated days in a week kept for working from office. Various companies will create varied formats depending on their specific needs but 100% 9 to 5 work is no longer going to be the default way each of us work.

Broader Implications

  • Real Estate: “Work from home” with shades of “work from anywhere” will lead to profound impact on Real estate.
  1. Unlike today where people are forced to choose locations nearest to office to avoid travel, WFH will give flexibility to stay further from offices. This will lead to people choosing locations of comfort, greenery, better schooling. Locations that are currently little farther from office centres will gain prominence. Additionally close by cities and towns to major Metros will also be preferred. For example, people can move to Mysore is 2 hour drive from Bangalore. Lower cost of living and better living standards (less traffic, pollution) and faster commute (high speed rails) can accelerate this trend. When the requirement is to be in office for a day or two in a week, the above option is a feasible alternative to many.
  2. Office Real estate will see significant reduction in demand. Companies will move away from basing offices in large campuses. With “WFH”, it makes more sense to have smaller campuses with 30-40% of current capacity. In 2018, Commercial real estate attracted 60% of total real estate investment. IT-BPM sector absorbed nearly 32% of commercial real estate in 2019. Hence the moves by major IT firms to have significant part of work force on “WFH” will have significant impact on the commercial real estate demand going forward.
  • Services: Every office campus supports a wide range of service offerings. From maintenance and cleaning services, to food and restaurant services. Increased WFH resulting in lower footfalls will significantly impact revenues from these. While cleaning and maintenance demand might remain static or increase in short term due to Covid-19, the F&B and other allied services will remain severely stressed. Hence there is a need to pivot these services to home food delivery and home maintenance services. Firms like Urban clap and Swiggy can capitalise this to offer new services to cater to WFH population. This could include a daily meal plan to regularising and formalising maid services at home.
  • Transport: WFH will have significantly reduce demand for urban travel needs. This is going to impact shared mobility significantly. Uber and Olas of the world will see sustained reduction in demand. One growing trend in the recent past was the millennials aversion to car ownership. The health and cleanliness concern derived from Covid-19 will reverse this trend in the short run atleast. Hence shared mobility and premium public transport will see decreased usage.

These are just some of the potential changes that we can expect due to changes in ways of working brought about by Covid-19. In an integrated and inter-connected world, small behavioural changes can impact a host of related and seemingly unrelated sectors which can result in drastic transformation. It is pertinent to see how the above mentioned factors evolve in the next few months and what will be the new normal in the coming days.

Post Script: Companies announcement of WFH policies

  1. TCS – 75% of the workforce can work remotely and the remaining at office spaces.
  2. Infosys – 5% of our employees to return to work, probably scale this to 10-15% for the next month or so
  3. Tech Mahindra – 25-30% of the company’s workforce may continue to WFH till the end of year.
  4. Capgemini – Those employees who are working on critical projects or who are unable to work from home due to certain client security guidelines will be part of the first phase to return to office and all other roles will continue to work from home
  5. Facebook, Twitter, Square, Shopify, Atlassian are some of the global companies that have announced movement to 100% work from home going forward.

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Lakshmisha K S
Founder - Namo Brigade, Management Consultant, Amateur Economist, Politically Conservative and believer in the supremacy of facts, NITK-Surathkal, XLRI alumnus

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