January 28, 2016
January 28, 2016
One of Steve Jobs’ last initiatives before his death in October 2011 was a personal pitch to the Cupertino City Council of his vision for a state-of-the-art research and development facility shaped like a spaceship, an integrated 21st century campus surrounded by green space, designed with a commitment to energy efficiency, environmental sustainability, and generous amenities for employees. The updated plans in December 2011 stated: “This new development will provide a serene and secure environment reflecting Apple’s values of innovation, ease of use and beauty.”
About the same time these new campus plans were being developed, Apple was linked with a very different work environment—that of Foxconn Technology Group, the biggest maker of Apple iPhones and iPads. A workers’ rights controversy at Foxconn had dogged both companies for a few years due to worker suicides and factory explosions. Photos of Foxconn’s dormitories and factories at the time show netting outside the windows to catch suicide-jumpers—an image clearly not aligned with a “serene and secure environment reflecting Apple’s values.”
As Bloomberg journalist Tom Randall noted in “Inside Apple’s Foxconn Factories,” “the relationship between the two companies shows how the reputation of global brands is increasingly tethered to the emerging-market companies they do business with.” This is especially true when it comes to the place where the work is done, whether it’s at an address controlled by the corporation or one of its suppliers.
Following the suicides, Apple published a set of standards spelling out how factory workers should be treated and it also moved some of its production work. It’s a continuous process. As Apple noted in response to a December 2014 BBC Panorama News program about Apple’s ongoing challenge to protect Chinese factory workers, Apple stated: “We are aware of no other company doing as much as Apple to ensure fair and safe working conditions. We work with suppliers to address shortfalls, and we see continuous and significant improvement, but we know our work is never done.”
Where the work gets done—planning, making, selling, and servicing the company’s core bundle of products and services—is the workplace. It can be physical space the company owns or leases; it can be cyberspace, where work is done from anywhere, anytime; and, as noted above, it can also be the physical space used by key vendors to whom various stages of the work have been outsourced. It is often a large asset: in 2014, AT&T’s domestic real estate portfolio was 240 million square feet while RadioShack had 4,400 company retail outlets before it declared Chapter 11 bankruptcy in February 2015. In addition, investment in the workplace can approach that of labor and information technology, yet boards often pay little attention to it until there is a crisis.
The workplace is changing, as seen in Harvard Business Review’s October 2014 cover story, “Why we Hate Our Offices and How to Build a Workspace We Can Love,” devoting three articles on 21st century workspaces and the impacts of technology and culture on how and where we work, how we feel about our workspace, and how it impacts our productivity.
Two industry thought leaders described workplace strategy (WPS) more than a decade ago as “a bundle of occupancy, connectivity, and support services to enable those who do the work to get it done.” Michael Joroff from MIT and Michael Bell of the Gartner Group wrote then: “In this definition, all activities are designed to help the workforce accomplish its mission in physical space and cyberspace.”
Directors need to understand the risks to the business if there is no WPS or if the latter is not aligned with enterprise priorities and opportunities. WPS needs to be agile enough to keep pace with ever-changing business requirements and risks. Here are questions directors can ask senior management:
Does the company have a WPS? The fact that a company leases or owns real estate and facilities does not mean it has a strategy. WPS requires an analysis of the supply of and demand for space wherever work is done throughout the enterprise and across divisions, departments, subsidiaries and state, national, and international boundaries, combined with plans to address the gaps or oversupply of space consistent with enterprise goals. The demand side of the equation is the current and forecasted hiring plans for employees and contractors. The supply side is the existing inventory of work space to accommodate that demand, with the added complexity of alternative ways of working from almost anywhere anytime.
The risks of not having a WPS include:
How can WPS support enterprise goals? WPS is becoming part of big data. Collecting, maintaining, and analyzing the data requires collaboration across myriad services including finance and accounting, human resources, information technology, and data analytics, sourcing/supply chain management, real estate and facilities, sales and marketing, and operations. Which group leads WPS varies by company so a report to the board on WPS might come from any of these groups. A WPS report includes trends in the total costs of occupancy with a breakdown by subsidiary, division, or line of business, and by region and real estate asset utilization, which include trends such as vacancy, the amount of square footage, and total workplace costs allocated per employee compared to industry benchmarks.
A good WPS includes performance metrics that flow from enterprise goals. WPS tactics and metrics should support enterprise goals such as cost containment, scaling business for high-growth initiatives, enterprise risk management, corporate social responsibility, sustainability, employee satisfaction, and retention goals.
WPS has long been a part of risk management—disaster preparedness from floods and blizzards, for example—but outsourcing has expanded the risks by including the working conditions of the workplace of one’s global vendors as well as cyber-risks of the supply chain. Consider these reputational risks:
Part of the update to the board should include an overview of workplace-related supply chain risks. It also includes an explanation of the governance structure that specifies how WPS decisions are made, executed, reinforced, and challenged in the company–at the enterprise level? At the line of business level? Who owns and is accountable for these decisions that can have a major impact on the business?
How agile is our WPS? Business is being disrupted at an accelerating pace. Whether it’s the impact of online shopping on a brick-and-mortar retailer or a merger, acquisition, or disposition of a business unit, directors should consider if the company’s WPS is flexible to enable a rapid response to sudden, unexpected risks and opportunities. Real estate is illiquid. There are ways to make a workplace more agile, but flexibility comes at a cost premium. The premium may be worth it compared to the impact to the business of not having space when you need it or of locating in a “low cost” place where the company cannot hire enough people qualified to meet the business requirements, or being stuck with millions of square feet of vacant space that can only be disposed of at pennies on the dollar. Service providers can help identify risks in the enterprise workplace portfolio and ways to mitigate these risks that align with your company’s goals and needs for agility.
Strategic questions to ask about WPS include:
A Reflection of Culture
The workplace is a reflection of corporate values and priorities. A headquarters campus, a retail store, a manufacturing plant, a call center, and the cleanliness and safety of an amusement park are all reflections of the culture, personality, and values of the founder or CEO. Office or facilities space is an indicator of the attention paid from the top down to where and how the work of the company gets done.
Here’s a thought experiment:
Now, think of your boardroom as the workplace of your board.
To go back to the example of Apple’s supply chain and the implications for a workplace, a March 27, 2015 article by Eric Pfenner in The Wall Street Journal hints at another way to outsource that has the potential to change the discussion about workplace. In “Japanese Robot Maker Fanuc& Reveals Some of Its Secrets—Company helps make iPhones and Teslas”, Pfenner reported that Fanuc’s giant Robodrill machine tools are used to help shape the aluminum cases for smartphones from Apple, Xiaomi, and other brands.
The efficiency of Fanuc’s robots is breathtaking. “One 86,000 square foot factory in Oshino, making industrial robots, is staffed by only four people at a time,” Pfenner writes. “In another factory, robots can assemble an industrial motor in 40 seconds.” As more industries accelerate the automation of work processes, reputation risk shifts from workplace conditions to workforce and impact on jobs. What WPS most closely aligns with your company’s goals and values?
In today’s evolving world of off-shoring, on-shoring, near-shoring, and right-sourcing, executives and the board would do well to think about the workplace as that bundle of occupancy, connectivity, and support services that enable those who do the work to get it done efficiently and effectively—wherever, whenever, however and-increasingly-whoever is doing the work on behalf of the company—and oversee that their company’s WPS enables enterprise goals and reflects the company’s values.
Margaret Latshaw’s experience includes seven years as an officer at Bank of America and at H&R Block and 10 years as a director on the board of a private real estate company. She is an advisory board member of the real estate center at the University of Missouri-Kansas City and an NACD Fellow since 2013. She currently advises on corporate real estate and business strategy. Contact her at email@example.com.