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55 (150) 2022

Finance

The trends shaping economy in 2022: reduced overheads

By Pawel Ornatek, country manager Poland, IWG
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2022 hits the global economy with many challenges: Covid recovery, war in Ukraine, energy cost increase, rising inflation – just to name a few. Companies are under constant cost pressure and need to be extraordinary agile and flexible in cost reduction initiatives, therefore are increasingly realising that hybrid working brings lower costs.

Office rent is typically one of a company’s biggest costs. But the new hybrid working model – where people can work remotely at home and at local workspaces, making the occasional visit to a head office – means those costs can be considerably reduced.

According to global real estate consultancy JLL, the most expensive premium office rental markets in the world are Hong Kong, New York, Beijing and London, costing as much as $313 per square foot in 2020. But one of the many benefits of hybrid working is that offices no longer have to accommodate all of their employees at the same time, meaning companies can downsize their workspaces. The result is a leaner corporate real estate (CRE) footprint, and the opportunity to increase profit margins.

“Years ago, Microsoft used to build an individual office for every single employee,” says Doug Demers, Managing Principal at B+H Architects and the Centre for Advanced Strategy. “It was part of their attraction as an employer: ‘Come work for us, you get an office.’ It served them well for a period of time, and then you saw the shift.

“I think this is another one of those shifts, where there’s going to be economic benefit to being more efficient in your portfolio model and how you use office space. The smarter people are adapting them and using them to their advantage.”

Having a smaller CRE footprint also means lower utility bills, cleaning fees and office equipment costs, contributing yet further to reduced overheads. According to Global Workplace Analytics, a typical employer can save about $11,000 every year for every person who works remotely for half of the week.

Increased flexibility benefits the bottom line

Although some companies are getting rid of central offices entirely, moving to a binary combination of working from home and local flexspaces, the prevailing trend is for a hybrid model in which a corporate HQ still plays an important role in operations. Increasingly, organisations are adopting a hub-and-spoke approach, using a number of satellite co-working spaces that are closer to employees’ homes in combination with an inner-city central office.

Avoiding long, rigid office leases that can turn out to be cripplingly expensive is particularly important for companies that are expanding either overseas or domestically, and providing employees with access to satellite flexspace allows businesses to expand (or contract) directly in line with how many employees they actually have. Standard Chartered Bank (Standard Chartered bank signed up 95,000 people) and NTT (NTT signed up 300,000 people) are among several global firms that have partnered with IWG using this model.

“In the past, we would just go out and get a long-lease office with 50 or 100 seats, but flexibility is very important in this current environment and access to IWG flexspace gives us that,” says Arvind Kumar, Global Vice President, NTT Global Sourcing.

The Times announced, that Deloitte does the numbers and makes hybrid working permanent.  “Working from home is here to stay at Deloitte, which has scaled back its London office space in one of the biggest reductions of its kind since the pandemic. The accountancy and consulting firm has cut its office space in the capital by more than a third as employees increasingly adopt a hybrid model of working partly in the office and partly from home.”

Businesses now have the opportunity, like never before, to revolutionise ways of working. Work life can deliver a unique trifecta of benefits for employees: it can be more flexible, more productive and more satisfying. And those employee benefits can in turn pay back for an entire enterprise in the form of increased productivity, increased employee engagement and reduced fixed overheads. On top of it, employees can save a lot of commuting cost, whether this is private car or public transport, when prices for both – following fuel and energy price increases – will skyrocket.

From a business perspective wastage is reduced. There is no need to pay for empty offices or waste carbon keeping them heated and cooled. There will be a steady flow of people moving between allocated spaces instead. And risk is distributed more widely too. From the C-Suite’s point of view, there is the added benefit of knowing that disruption to a single site will no longer have the potential to cause huge damage to the whole enterprise.

This is a crucial moment for many enterprises. No less an authority than The Harvard Business Review concluded that leaders need to “work to rebuild and maintain trusting relationships – with and among their employees… Those that don’t risk far more than lower morale. The chances of increased attrition, lower productivity and stalled innovation also loom large when trust plummets.”

Provided that businesses can make their IT systems and HR processes link up with their operations team, giving employees the opportunity to work from multiple locations need not be a threat to collaboration and trust. Quite the opposite, in fact. Offering teams the freedom to choose how they work and where they work from, can actually strengthen relationships. It can also strengthen entire businesses.
No matter how big an enterprise is, it still depends on individuals. By giving those individuals the room to grow, in turn, trust within the workforce will grow. But more than that, productivity will grow, and so will the financial and operational resilience of the organisation as a whole.

 

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If you think the economy is more important than the environment, try holding your breath while counting your money.” (Prof. Guy R. McPherson)

For years, we were taught that it is acceptable to sacrifice the environment for the greater good – the economy. That thinking has changed, however. We now know that the environment and the economy are two sides of the same coin. Humans are taking serious action, setting targets and making a number of ambitious commitments. According to the EU Strategy for Financing the Transition to a Sustainable Economy, Europe will need €350 billion in additional investment per year over this decade to meet its 2030 emissions-reduction target in energy systems alone, along with the €130 billion it will need for other environmental goals. The appetite for financing is huge and public funds are insufficient. Creating a green economy requires the alignment of all sources of finance, both public and private. In this regard, bonds and loans are the most renowned tools for transferring capital.