Case Closed: Work-From-Home Is the World’s Smartest Management Strategy
Research from Stanford and other sources reveals that working from home vastly increases productivity.
PHOTO CREDIT: Getty Images
Last month, I explained why open plan offices are the dumbest management fad of all time. Then, earlier this week, I described how a study of 47,264 workers found that they're happier and more productive if they have private offices. That study, however, assumed that everyone would be coming into work every day. What about working from home?
Based on the overwhelming evidence (see the many links below), I'm convinced that allowing employees to work from home is the smartest management strategy of all time--even smarter than giving them private offices.
Before going any further, though, we must ask: what makes a management strategy "smart?" The best definition of "smart" in this context is "an easily-implemented strategy that increases revenue and reduces costs." A quick but permanent productivity boost, in other words.
Very few management strategies meet those criteria. Downsizing, for example, reduces costs but kills revenue. Centralizing and decentralizing are both time-consuming and ultimately a wash. Reorganizing is famously pointless and time-consuming. And while management fads work flawlessly in PowerPoint, they always fail to deliver in real life.
There is one management strategy, however, that is easily implemented and immediately increases productivity while reducing costs: allowing employees to work from home and remotely, rather than forcing them to come into the office every day. This provides the following huge financial benefits:
1. It raises employee productivity.
In a landmark study cited in the Harvard Business Review, call center workers on Ctrip--a Chinese travel website--were given the option to volunteer to work from home for nine months. Half the volunteers did so; the other half was the control group and thus continued to work at office each day.
The study revealed that "people working from home completed 13.5% more calls than the staff in the office did--meaning that Ctrip got almost an extra workday a week out of them," according to Stanford University professor Nicholas Bloom.
In another study, this one from Gallup, found that that employees who work from home three to four days a week are 33% more likely to "feel engaged" and 15% less likely to feel "not engaged" than employees who report to the office each day. Numerous studies have found that increased employee engagement boost productivity.
2. It reduces attrition rates.
The cost of employee turnover is huge--far larger than most people, even managers, assume. Depending upon the study, recruiting, hiring and training a replacement after an employee departs can cost up to two full years of that employee's salary. Assuming, of course, you can find a qualified candidate--a difficult task in a hot economy.
In the Ctrip study cited above, the employees who worked from home reported "much higher job satisfaction" and "quit at half the rate of people in the office," a result that Dr. Bloom said "was beyond what we anticipated."
In addition to lowering your attrition rate, a work-from-home policy can make it easier to recruit new employees. This is especially true for millennials, according to a 2018 study at the University of Akron, which found that "forty one percent of them state that they prefer communication via electronics as opposed to in person or over the phone."
3. It lowers facility costs.
A recent University of Sydney study of over 47,000 workers showed that they are happier and more productive at work if they have completely enclosed private offices. However, that study had an important omission: it did not treat working from home as a testable alternative.
When employees can work from home to accomplish tasks that require concentration and no distractions, they'll be less like to require privacy and quiet when they do come into the office. Therefore, allowing employees to work from home may be the best way to get the lower facility costs of an open plan design without murdering productivity.
As a bonus, employees who work from home buy their own office furniture. And if they're occasional in-office workers, they'll are less likely to expect fancy or require (i.e. pricey) digs. That means lower cost.
4. It results in fewer sick days.
According to the Bureau of Labor Statistics, around 2.8 million workdays are lost each year due to absenteeism. For some companies, this comes out a $1 million loss each and every day.
However, when employees can work from home, they're more likely to do so when ill, because they're saved the stress of commuting and interacting with other employees.
Just as important, while they're working from home, they're not spreading their illness and germs to their coworkers, which is a huge problem especially in open plan offices where a single sneeze can create millions of air-born droplets.
Working from home also limits employees' exposure to freeway air pollution, a major health hazard according to the American Lung Association. This means higher productivity, because "higher levels of air pollution decrease worker productivity [and] the negative impacts of pollution on productivity extend beyond physically demanding tasks to indoor, white-collar work," according to the National Bureau of Economic Research.
5. It reduces payroll costs.
Payroll is one of the largest expenses for most small businesses, consuming as much as 30 percent of a company's gross revenue, more (and much more) if the company is a startup and not creating much revenue yet.
Fortunately, the average worker will take an 8% cut in pay when allowed to work from home, according to the American Economic Review. That makes perfect sense when you consider that working from home reduces or even eliminates many hours per week spent commuting, time that can be spent doing other things.
Assuming a 30% payroll cost and a net margin of 3%, an 8% reduction in payroll cost comes out to about a 3% increase in net margin, effectively doubling your profitability. And remember, that's not counting the 13% higher productivity and the other cost reductions described below.
Overall, it's clear that there's currently no smarter management strategy than allowing employees to work from home. All the more so because your competition is probably still hung up on the irrational belief that it's effective to arm-twist everyone to come into work every day. Doh!