Open Plan Offices Are Costing You Money

New research has demonstrated that open plan offices increase stress, staff turnover, and contribute to the spread of disease.

Awesome.

False Economy

Near the end of the news.com.au article linked above, the author, Dr. Oommen, says

“The problem is that employers are always looking for ways to cut costs, and using open-plan designs can save 20 per cent on construction.”

Let’s assume that’s true. A modern office building floor might cost a couple of million dollars to fit out. Maybe. You stand to save on the order of $400,000 for your fit out.

That same floor will house 150-200 people depending on how big their cage cubical is. The average salary for a full-time employee in Australia is $59,545.20 at time of writing. Let’s assume that people are given largish cubes, so there are only 150 people on this floor. Your company’s wages bill for this floor is $8.9 million. If you work in IT, as I do, most of the people on the floor will be earning over $100,000 per year, which makes your wages bill for the floor $15 million.

Crunch The Numbers

So you’ve saved $400,000 on a one off charge for the floor fit out, only to cause productivity losses on a wages bill of $15 million. You only need to have caused a drop in productivity of 2.6% to wipe out those savings ($400k/$15m). That’s only 3.9 of your 150 people off sick each week, ignoring any other losses due to distractions and stress.

It gets worse. The fitout was a one-off charge. The office doesn’t need fitting out again for years. Maintenance is bugger all on desks. Your depreciation charge is tiny. But you take the productivity hit every year. So that 2.6% drop in productivity only needs to happen for one year and your savings are toast.

If we say our office fitout will last 10 years, which is not unreasonable (I’ve worked in offices with much older desks), that’s an average drop in productivity of only 0.26%. A quarter of one percent. If it’s higher than that, you’re actively losing money because you bought crappy furniture.

Do You Like Losing Money?

This is a trivial example, and has a couple of key assumptions, but I don’t think it’s far of the mark. If anything, the impact of a bad office fitout is worse than what I’ve outlined above.

So why do people do it?

Because they want to sit in an office, as befits a manager, while their lowly staffers are relegated to having furniture that reflects their pay grade. That’s one reason. Strangely, they also believe that the desks couldn’t possibly have an effect on staff productivity. Yet the same things that have no effect on staff somehow have a great deal of effect on managers. Obviously a manager can’t be expected to do their job properly with a sub-standard chair.

The sad truth is that it’s a combination of status plays by managers with low self-confidence, combined with laziness. Figuring out these kinds of financial impacts is much harder than making intuitive judgement calls on what the manager assumes in self-evident. The manager doesn’t believe chairs are important, and he’s got a nice one, so why should he bother trying to get nice chairs for his staff? It isn’t really covered in business school, either, so how could he be expected to know how to do this? That’s a finance decision. Sorry, but there’s nothing I can do.

The good news is that it doesn’t have to be this way.

Your Competitors Are Beating You

If your job means you spend 8 hours a day in an office at a desk, that desk, chair, and computer are your tools of trade. Certainly, it’s a poor trademen who blames their tools, but do you think a master craftman would tolerate a blunt chisel? Some companies actually do invest in their people and their work tools. And if they are, why aren’t you?

The truth is that there will be companies out there are provide a nicer working environment for their employees. Those companies will be able to attract, and retain, the best and brightest. You won’t. Your workforce will degrade over time, while theirs gets better.

And the work that those companies do will be better than yours. Their products will be better. A master craftman can do a decent job even with ordinary tools. Imagine what they can do with the best tools.

The Choice

The global economy isn’t looking so flash right now. Margins are going to be squeezed, and sales will be down. Now is the time for gains in efficiency. Can you really afford to be throwing away money because your staff aren’t as productive as they could be? It’s always a good idea, but now it might just be vital.

You could choose to cut costs willy nilly, without regard to the long term impact to your business, sure. You might save some money this year. But in 5 years after the economy has recovered, you’ll have been reducing your company’s value while your competitor has been innovating their ass off. They’ve got a 2-3 year lead on you. Now try to catch up.

Or you can choose to invest in your staff in ways that are amazingly cost effective. You can probably get that $2 million fitout for a bargain price right now. A $2 million value for $1.5 million? Show me another way to make that kind of cash in today’s market. It might mean you need to start thinking about the way you do things a little differently from the way you, and your competitors, used to.

But then, isn’t that what you’re supposed to be doing anyway?

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