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Workplace Real Estate Balancing Act

In many companies, accommodation expenses form the second highest category after staff costs, excluding manufacturing or inventory costs. It is therefore not surprising that many SMEs seek to make savings in this area. But when making corporate real estate decisions, it is critical to consider the flipside of potential cost reduction measures.

Potential options to reduce workplace costs include:

• Leasing less expensive space, typically in lower quality buildings or in suburban locations, achieving potential rental reductions of 40 percent.

• Spending less on the fitout. These costs can range from around $500 to $2,500 per square metre. Occupying an existing fitout, the acquisition of secondhand furniture or reuse of furniture can substantially reduce fitout expense. Extensive use of open plan workspaces limits the fitout costs of fixed partitions, glazing and doors associated with enclosed offices.

• Reducing the ratio of space per person, for example compressing the open plan environment. It is often possible to reduce required floor space significantly by planning floors more efficiently. Something as simple as selecting new workstations with flat panel monitors, meaning desk depth can be reduced, can deliver a potential floor space saving of about five percent. Improvements can often be made to an existing fitout through more efficient use of space.

• Increasing the ratio of people per desks. In many offices 5-15 percent of desks are unallocated at any one time. Hot desking, where staff who frequently work away from the office share access to a pool of workstations, is one option to achieve this.

• Reducing the costs of reconfiguring the environment during staff additions, moves and changes. Some organisations spend thousands of dollars when tradespeople are involved in reconfiguring office partitions. Use of modular furniture and partition solutions and implementing common desktop technology so that teams can reorganise themselves without the need to involve facilities and IT staff can significantly reduce costs for day to day workplace reshuffles.

Problems with tightening workplace accommodation

While nibbling at accommodation costs may appear to produce tangible savings, there may be significant downsides. These can include a disengaged workforce, consequent increases in employee turnover, difficulties in attracting quality personnel, reduced productivity due to poor layout and negative sentiment from customers and the market.

Perspective is important: accommodation costs generally comprise five to eight percent of expenses, so a 20 percent saving may only amount to one percent overall. Employment costs, on the other hand, may account for 80 percent. The Hays Group estimates the full cost of replacing a skilled staff member at 18 months’ salary. And there are numerous examples of botched premises projects contributing to significant staff losses – up to 50 percent in some cases.

Research by the Australian Centre for Industrial Relations Research and Training (ACIRRT—a University of Sydney think tank) and others reveals that the nature of the physical workplace has an important effect on staff satisfaction and organisational performance. The majority of people say location, proximity to transport and amenities, access to natural light and views, the physical layout, quality and age of furniture and fittings, availability of informal breakout spaces and the balance between interaction and distraction are important, when questioned about accommodation issues.

A survey conducted by Management Today (UK) magazine in 2003 reinforces the importance of the need for superior working accommodation, reporting, "45 percent might make the ultimate sacrifice and contemplate changing companies in return for an improved work environment, even if the role, salary and benefits of the new job were no better".

Similarly, the space per person ratio or workplace density—net lettable area divided by the number of work points—seems to have a causal effect on staff satisfaction ratings. Up to a point, office staff are relatively tolerant of sacrificing personal space to make way for more people. At densities below 12 square metres per person, satisfaction drops away sharply. Clearly there’s a limit beyond which staff begin to feel like cattle in a pen. And disaffected staff leave.

Then there’s the open plan versus enclosed offices debate. There are both cost reduction benefits of an open plan environment and the potential benefits of improved collaboration, organisational learning and innovation. But the trend to install vast tracts of workstations with low or no dividers creates significant auditory and visual distraction and does little to promote staff engagement. US research indicates that the most effective environments feature open plan work group ‘pods’ that are visually and acoustically screened from adjacent pods. Small teams are able to collaborate and share information within their pod without distracting people working on different tasks.

A proven way to alienate staff is with hot desking solutions. In Thinking for a Living: How to Get Better Performance and Results from Knowledge Workers, Thomas Davenport notes that the office is still central to work: teleworking technologies have not produced the types of flexible working outcomes that were envisaged in the early 1990s. Management Today’s survey found that hot desking "engenders deep hostility, with nine out of 10 managers preferring the security of their own designated workspace". People need a place to call their own.

Arguably, location is the most critical workplace factor. US business strategist Michael Porter posited a theory of economic clustering, which is clearly seen in the concentration of investment management firms in Melbourne, law practices and investment banks at the Circular Quay end of Sydney’s CBD and technology firms in North Ryde. Firms in such clustered markets that ignore the importance and benefits of proximity, risk the credibility of both their external and employment brands.

The Balancing Act

Clearly there is a balance between accommodation cost efficiency and overall workplace effectiveness. The good news is that in most cases you don’t need a Taj Mahal budget to create a workplace that supports productivity and contributes to positive employment and market brands. It is even possible to go too far and create an environment that alienates employees because it is too opulent.

Roberts Weaver Group offers the following recommendations when considering new workplace initiatives:

• The number one driver of workplace satisfaction and performance is the quality of working relationships. Workplaces that facilitate relationship building, for example by creating opportunities for staff to interact, will help your business thrive.

• Help people connect with their work. Avoid the hot desking trap and ensure everyone has a place to call their own. Allowing staff to personalise their environment can increase their sense of belonging. If you do have the opportunity to move to new premises, get staff involved in the design process.

• Enable mobility, both within the workplace and beyond. Give staff the choice and ability to work in either open plan or enclosed, ‘quiet room’ spaces. Provide a range of formal and informal team and collaboration spaces. If people can work better at home or elsewhere, given them the tools and support to do so.

• Let in the light. Exposure to plenty of natural light and a pleasant outlook enhances people's physical wellbeing as well as improving performance.

• Understand the demographics of your target workforce and the role location plays. The CBD is a powerful attractor for younger professionals whereas operational roles may be better suited to suburban locations. Consider the impact of the industry clustering effect.

• Many workers seek a safe neighbourhood, proximity to convenient transport options and surrounding amenities (food options, banks, post office etc).

• Your workplace conveys your employment brand. Make sure the design captures the essence of your firm's culture and values both overtly through graphics or
images, and subtly through layout and other cues.

• Look after the little things. Ongoing issues with temperature, ventilation, desk height and screen glare distracts and dissatisfies employees.

David McEwen is the director of Roberts Weaver Group, a project and change management, interior design and technology group. For further information, contact Gina Kelly 0431 925 731

* The opinions expressed in this article are those of the author, and do not necessarily reflect the opinions of DYNAMICBUSINESS.com or the publishers. 

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