The ROI of hybrid working
This article will walk through the steps needed to show the value of hybrid working so that executives can clearly see the impact and ROI of this new way of working.
With most organizations adopting hybrid working arrangements, it’s important to ensure that executives see the value of working in a hybrid environment. This will require tracking the success of hybrid working, comparing it to the traditional working arrangement, and looking at success from three angles: 1) the organizations that support hybrid as an option, 2) the members of the team who see the benefits of working in a hybrid environment and 3) the community and the environment who benefit from having fewer people in traffic jams and less pollution in the environment.
Whether in our own organization, in our community, nationally or internationally, we have seen the shift towards remote work unfold over the past two years. Most knowledge workers who did not need to face customers were forced into a remote work environment. Many people love it and now prefer to continue working from home. Although a few prefer to return to work in the office, most workers now want a hybrid working arrangement so that they can work both at home and in the office. This arrangement is appealing because they believe it may not be realistic to return to the office full-time or work remotely. Offering a hybrid arrangement would solve these problems. The key is to make sure the hybrid arrangement works.
What is missing
Most decisions about working remotely and returning to the office have been based on surveys and employee feedback. For some executives, this is not powerful enough and they demand the return of workers to the office. At the other extreme, some leaders allow employees to essentially do whatever they want. There seem to be four missing pieces in this decision-making process.
- The most important data. There seems to be little data on how remote work works. Yes, there is data on the preferences of workers and managers, but little data on how it works in terms of work performance, the impact of work organization, the barriers to making it even more successful and the catalysts that made it successful. These large data sets would be valuable for the decision-making process.
- Entrance of the manager. In our work at the ROI Institute, we’ve studied work-from-home arrangements for years and found that the biggest barrier to employees working from home is the first-level manager. These managers have a natural resistance to this arrangement. Based largely on myths: “If the physical presence of a manager is not necessary, do you really need a manager? If employees can work independently, will the organization eliminate managers? If I can’t see the work in progress, it doesn’t happen. If managers think it won’t work, it won’t work. If the managers want it to work, it will work. These barriers must be removed or minimized. This can usually be accomplished with good preparation for managers.
There was an absence of data showing how managers perceive the work being done. If managers see that the arrangement is working and driving their KPIs, then they can support that effort. Why should a senior executive counter this decision and force people back into the office?
- RCI. Senior managers make the decisions about working from home. Many of the decisions they typically make use the concept of return on investment, i.e. costs versus benefits. ROI analysis for a hybrid work environment is rarely done, but it could be powerful. The senior manager may prefer people to be in the office so they can see the work being done, the collaboration, and the results. But when they realize that there is a high return on investment for the organization having employees working from home, it could change their thinking dramatically. Further ROI studies on remote working and hybrid working are needed.
- Environment. There has been almost no discussion of how remote work helps the environment. It is strange because most of the leaders, who make the decision to bring workers back to the office, make a lot of statements about protecting the environment and reducing the number of tons of carbon released into the environment. In the ROI Institute case studies, we calculated the tons of carbon not released to the environment because employees work from home. It is dramatic and impressive. The environmental effects of working from home or a hybrid arrangement should be central to the decision-making process.
The value chain
Before showing what needs to be done, it is useful to consider remote work as a project to which a value chain is linked. This classic logic model, first developed in the 1800s, is the basis of most assessment systems around the world. Almost anyone can relate to it and it works. Figure 1 shows the five levels of hybrid work outcomes data and one entry level (Level 0).
What return on investment?
In this age of stakeholder capitalism, it is helpful to think about the hybrid working arrangement from three stakeholder perspectives.
The organization’s point of view
What is the ROI of hybrid working? ROI comes from specific impacts in business metrics, isolating the hybrid solution from that impact and converting those impacts into money. This improvement in business metrics becomes the monetary benefits for an ROI calculation.
- Retention. Perhaps the biggest reason for working from home or in hybrid arrangements is to retain employees. For many employees, having this option is an important part of deciding to stay with their employer. The key is to isolate the effects of the work arrangement on their decision to stay with the organization. Because the turnover is so expensive, it can result in a substantial monetary benefit.
- Office expenses. Office costs cannot be reduced in a hybrid arrangement, if a person’s office and office support are maintained and kept ready for them on the days they are there. However, this can be adjusted by having sharing agreements or a hospitality concept (where people book a desk for the days they are in the office). In these situations, the reduction in office costs can be significant.
- Productivity. Studies show that employees are more productive when given the option to work from home or in a hybrid arrangement. Some suggest it’s because they aren’t as stressed without their long commutes and are instead relaxed and ready to go to work. Another possibility is that employees are working harder to try to be more productive, so they can keep this arrangement. Additionally, working from home can be a distraction-free environment and can allow individuals to be more productive without the constant interruptions of the office.
- Absenteeism. Sometimes employees are absent because they have to attend to personal matters, such as a brief doctor’s appointment or a personal errand. Instead of taking a day off, they can usually fit it into part of their work time. Also, sometimes employees may not feel well at the start of the day. Later in the day, they may feel better and decide to work from home. If they had to go to the office, they could choose to just take a sick day.
- Quality of work. For some types of work, there may be fewer mistakes and errors due to the environment free of focus and distraction.
- Intangible property. There can be many other intangibles, such as job satisfaction, work-life balance, engagement, convenience, stress, and recruiting image.
The key is to capture these impacts, convert them into money and compare them to the costs of working arrangements. Costs can be small or high, especially if the organization has spent money to set up a work from home arrangement for an employee or provide home support for part of their job. The key is to capture all costs. ROI is calculated using two formulas, benefit-cost ratio (BCR) and ROI calculation.
BCR = Program Benefits ➗ Program Costs
ROI (%) = ((Program Benefits ➖ Program Costs) ➗ Program Costs) ✖ 100
The employee perspective
This won’t necessarily require an ROI calculation, but collecting the pros from an employee perspective versus the cons is beneficial. Again, if the employee prefers a hybrid arrangement, there should be job satisfaction, work-life balance, convenience, and personal savings for commute time, parking, and meals. Part of employee feedback might be the question, “Is this a good return on investment for you?” You should receive a positive answer to this question.
The environmental point of view
The environment includes the community. City mayors want less traffic and congestion and will reward, recognize and promote the concept of working from home. They often reward organizations that provide these options and take the necessary steps to implement these provisions. Due to congestion issues, some will even offer incentives to offer a work-from-home option. Just imagine in the most congested cities of Los Angeles, New York, Washington DC and Atlanta, what it would mean for those cities if a large portion of their employees were working from home.
When looking at the effect on the environment, calculate the fuel savings for employees. This is a plus for them in monetary terms, but it also shows a reduction in fuel consumption when traveling. This can be converted into tonnes of carbon prevented from going into the environment. Some environmental advocates suggest the most important thing a company can do to help the environment is allow its employees to work from home.
To obtain a copy of a ROI study following the process outlined in this article, please contact the ROI Institute.