In 2020 the world stopped, and many companies had to rethink their operational models because of remote work challenges and budget constraints. Chief Financial Officers must deal with many requests while facing financial pressure, remote work environments, and dealing with the unusual circumstances in general. Why CFOs should consider hybrid work models for company cost optimization?
Company cost optimization is more critical than ever before, as it can not only help a company improve its finances but may even ensure its survival. For this reason, the CFO must be capable of taking on many challenges, overseeing a variety of different situations, and thinking outside the box.
Introducing a hybrid work model in an organization may be a blessing or a curse depending on the situation. The former if well thought out and backed up with data, or the latter if implemented in the wrong manner and under pressure.
Is a hybrid work model the way to go for company cost optimization then?
Hybrid work for cost optimization – the numbers speak for themselves
Without a doubt, remote work isn’t a novelty, and nor we invented hybrid work models only in 2020. However, the pandemic has had a substantial impact on how these models are implemented and perceived by various companies all over the world. And, while the pandemic has brought about changes in the work environment due to health and safety issues, it also demonstrated that remote or hybrid work might be viable long-term options for improved productivity, employee satisfaction, and financial savings.
Data from various sources only serves to prove this claim.
At the beginning of the pandemic when remote work was introduced to many companies, a lot of executives were afraid to drop productivity and engagement levels. Even though that was generally a global concern, it was not reflected in data. Mercer’s research revealed that 94% of US employers claim they have observed productivity levels remaining the same or increasing compared to everyday pre-pandemic work.
A whitepaper by Global Workplace Analytics and the Design Public Group (DPG) revealed that companies could collectively save over $500bn per year or almost $11,000 per employee who equally divides their working hours between the office and home.
Challenges of entirely remote work
Is remote work a godsend for operational costs then? As incredible as it may seem, there are some pitfalls.
Fully remote work may be associated with increased productivity, but employees can begin to struggle with their work-life balance and mental health sooner or later. On average, employees who complete their tasks in a home environment work for almost one and a half days more per month compared to those who stay in the office. This translates to as much as three extra weeks of work per year. Several factors contribute to that, including an increase in workload, distractions at home, and even a lack of “entering” or “leaving” the office feelings. But regardless of the reasons, fully remote work translates to overtime that may not be productive or certainly not fulfilling for the employee, to the point that they might consider switching companies.
All of these factors contribute to company cost optimization or a lack thereof.
On the other hand, productivity in a pre-pandemic office was not always impeccable either – on average, 66 minutes daily were spent discussing topics not related to work. But this had its purpose. It turned out that maintaining relationships with co-workers – which is more difficult in a remote environment – was sometimes as important as the job itself according to 7 in 10 employees. Spontaneous brainstorming, asking for other’s thoughts about specific ideas, or random water-cooler talk not only allowed more space for creativity but also introduced a more pleasant and friendly atmosphere to the workplace.
As it turns out, being fully remote or in office full-time both have their perks and disadvantages. Introverts may have found this new remote environment extremely productive, while parents with young children have had to cope with more significant chaos than usual. However, even if it turned out that working from home was not an entirely satisfying experience, returning to the previous arrangements of working full-time in an office may not exactly be fulfilling either.
Why hybrid work models are the way to go?
Three-quarters of globally surveyed Chief Financial Officers believe that in the next 12-18 months, remote or hybrid workforce models will be widely introduced.
This is a bold claim, but one that is justified.
#1 Hybrid work models ensure safety and minimize absences
The natural answer is a hybrid work model that will cater to various groups’ needs: single travelers, married couples, and parents with young children. Not only does hybrid work make it possible to combine the benefits of being remote with the perks of the office, but it also provides opportunities to reduce the costs associated with company operations. In turn, hybrid work will have a tangible impact on company finances. Not to mention health benefits that a decrease in the number of employees in the office will have, since they will be less susceptible to spreading the novel coronavirus (and any other infectious diseases for the matter). CFOs are well aware that potential absences will have a cost.
Hybrid work also makes it easier to ensure compliance with the requirements of social distancing and other protective measures against the spread of COVID-19. With fewer employees in the office, it is not an issue to space out desks in the workspace or canteen. As a result, fewer workers will be exposed to the risks of becoming infected themselves or indeed infecting other people. This will provide some savings in terms of anti-coronavirus measures and sick leave. The larger the team, the greater the potential savings.
#2 Hybrid work models support flexibility
Hybrid work models do not have specific requirements other than the fact that they allow employees to work both at home and in the office, anywhere between one and three days each per week. Some companies might ask employees to come to the physical workplace once a week, while others will provide the same opportunity for remote work. Some companies will leave the decision entirely up to its employees but allow them to work in the office if they do not feel like working remotely on any given day.
Either way, hybrid work is flexible.
Sometimes advance notice will not be necessary, but other times information may be required upfront in order to prepare space and make sure that the maximum capacity of employees is not exceeded. Usually management will also ask employees to come into the office if there is an important meeting, either internally or with a client (who themselves may be remote). Everything depends on the company policy, but most importantly it should be adjusted to its size, policy, budget, and the needs of employees.
It does not make much sense to introduce bureaucratic processes to reserve desk space in the office if there are only about 50 workers and just 10% of them declare that they will want to pause remote work sometimes. On the other hand, managing a hybrid work model in a big company might require some time (especially in the beginning), but it can bring about budget savings eventually.
#3 Hybrid work models lead to lower office expenses
According to Microsoft research, 66% of leaders worldwide stated that their company is considering redesigning the office space for hybrid work.
Fewer people in the office mean that you might reduce unused space and gain some financial benefits along with it. This could be by renting parts of the office to other entities or moving to a smaller building altogether. Some companies might also choose just to rent a coworking space instead. The ways of addressing this issue vary, but if successful, organizations can lower their real estate costs by as much as 30% according to McKinsey’s study. This might include reducing fees for renting space and decreases in energy or other media usage, thus lowering the overall costs of property maintenance.
As well as introducing flexible work practices in the office, coworking spaces also encourage the use of hot desks and open-plan workspaces. These enhance creativity and allow employees to interact more freely despite their position/department, resulting in a more enjoyable work environment.
#4 Hybrid work models develop talent pools that transcend geographical barriers
CFOs are highly interested in utilizing a worldwide market and capturing market share through global expansion, a concept that is favoured by 81% of them. It may be necessary to expand the team if a company wishes to have experts on board, and international search is a valid part of the strategy for increasingly more companies.
Hybrid work also supports this, since it provides an alternative pool for companies to access talent from outside their local area. Employees who need to attend work every now and then as opposed to every day may be more receptive to job opportunities if they can take on a higher paid position despite an occasional long commute.
Even before the pandemic hit, an overly long commute was the reason why 25% of surveyed employees left their previous jobs, either because of the time spent traveling in a public vehicle or the expense incurred by the need to drive oneself.
Access to a larger talent pool may mean that your company will get more employees from the suburbs of a city, but it might also mean being more open to workers outside of it. In many states or countries, the capital city is easily accessible from smaller villages either by bus, train, or car. A 1 to 3 hour commute that does not need to be made on a daily basis can result in a company attracting employees from across the country with lower salary demands due to the decreased costs of living outside the capital city.
The same also applies to international travel. In these modern times of low-cost flights, we can reach almost any destination within a short time in the air.
This results in a hybrid model in which companies can tap into a cheaper and better workforce, save money on ineffective recruiting, and work with experts worldwide.
#5 Hybrid work models accommodate employees’ needs
A hybrid work model means that employees have more freedom for their individual needs, such as having a doctor’s appointment or any other last-minute matter that they need to take care of. That, in turn, translates to reduced absences, since employees do not need to take special leave or a day off just to take care of relatively minor issues.
You can note similar findings in the case of less severe illnesses. Everyone with a runny nose or a bad cough can just stay home instead of having to show up in the office (and potentially infect other employees) or take a day off to heal themselves. This helps with maintaining the continuity of processes while at the same time reducing the company’s spending on replacing absentees.
What’s more, it might turn out that a single mother with a young kid or a father who needs to take care of his sick child does not need to use one of their days off – they just need a bit of flexibility with their work routine. As a result, absenteeism can drop by up to 30%, saving companies working in a hybrid model about $1.2 million per 1,000 employees.
#6 Hybrid work models are friends of employee retention
At the same time, employees will know that their company cares about them, resulting in a lower rate of attrition. Microsoft states that about 4 in 10 people across the globe are considering leaving their employer this year. Addressing their needs and desires with adequate care might make a significant difference, especially when we all need to experience warmer feelings to fight the reality plagued by the coronavirus.
There is no doubt that a flexible home office or hybrid work environment motivates many employees to feel safe and happy in their workplace. If we discontinued this practice, it could decrease employee retention and cause the company unreturnable costs. The price of replacing an employee can be higher than a year’s salary, and in some cases can exceed thousands of dollars. This includes not only the salary of the new employee but also advanced recruitment costs, onboarding, training and equipment, for example.
Additionally, the steps companies have taken to continue working during the pandemic have contributed to the idea that businesses can approach employees and their needs more individually than before. Even if something works well for one individual, it might not work well for someone else – yet it is possible to adjust to the needs of many individuals. This only requires some extra effort and willingness to listen from the company’s end.
The conclusion is clear: a lack of hybrid work models in the workplace may cause employees to look elsewhere to find work where such possibilities are available.
And that may cost you a lot.
Hybrid work’s benefits for everyone
There are (at least) six reasons why introducing a hybrid work model may be a good idea:
- improving safety measures
- allowing flexibility
- lowering office expenses
- accessing a more affordable and/or experienced talent pool
- adjusting to employees’ needs
- sustaining employee retention
Some CFOs might think “Oh, can we take it a step further to fully remote work?”.
The challenge with this is that many employees would greatly benefit from the ability to work and brainstorm in the office occasionally. On the other hand, others would even prefer to return to the office entirely. The importance of accommodating as many different opinions cannot be overstated.
Hybrid work is great for cost optimization. What’s more, hybrid work models are most likely to suit everyone.
And only companies who fully comprehend it are likely to succeed.
Be sure to check the story on how we met the challenge of remote work.