Home is Where You Work, Work is Where You Socialize
While nothing ages quite as badly as predictions about the future, sometimes we get things right. Here is a piece written in 2001, arguing that technology would make "location" more important than ever before. Now, over fifteen years later, we are seeing both established companies and start-ups locate their offices in urban settings.
Why do you go into the office in the morning? You could get better coffee at Starbucks. Your children's computer has better graphics. The chairs aren't as comfortable as what you've got at home. So why do it?
"I go into the office for only two things: to be interrupted and to have meetings. If I want to work, I stay home," says Kevin Kelly, the founding editor of Wired magazine. In order to be interrupted? Most people think of the office as a place where they go to get work done - to get away from crying children and other distractions of the home. But distractions are what office work is all about.
The corner office with a thick door, thick carpeting, and a ferocious, protective secretary is a thing of the past. It's not because companies can't afford to give people that amount of work space. No, it's because the nature of white-collar work has changed, and the real estate that houses that work will need to change, too.
Just as the role of computers has changed in the last ten years, so has the role of the office. In the words of futurist Stan Davis, computers have gone "from crunching to connecting." Although there are still plenty of IBM S/390s calculating payrolls and booking accounts receivable, most new computers are being used to network. And the bigger the network, the more value there is in tapping into it.
The nature of work has changed, too. Think back to movies like 1967's How to Succeed in Business Without Really Trying. In row after row of identical desks sat nearly identical white males doing work that can best be described as crunching.
Today, we have replaced the desks with cubicles and the adding machines with computers. But more interesting is what the denizens of those cubicle farms are doing. They are spending the bulk of their time staying in touch with each other. And not just by using email to exchange Dilbert cartoons. Much of their time is spent collaborating with other people, inside and outside their firms.
At the same time that the office has changed, so has the home. The obvious change is the amount of computer hardware that people have. A typical new computer order from Dell or Gateway involves a computer, a monitor, a printer, and a scanner, supplemented by numerous storage options like read/ write CD-ROMs, Zip drives, and DVD players. That's the crunching.
But it is the connecting of the home office that is really different. A second telephone line is no longer seen as a luxury. But broadband connectivity, from cable modems and DSL lines, is where the real revolution begins. Workers now have the means to work as effectively at home as they do in the office (depending on how you define "work").
About ten years ago, Nicholas Negroponte of the Massachusetts Institute of Technology Media Lab outlined what became known as the "Negroponte Switch." Those communications that had been primarily wire-bound, like telephone calls, would become wireless, he said, and those that had been wireless, like television, would be carried on wires of some sort. Applications that required mobility but little bandwidth should be wireless, and applications that required broadband but not mobility should be carried on cable.
There probably will be an equally pronounced "shift" in the role of the home and office. In a highly connected economy, home is where you work, and work is where you socialize. An estimated 20 million people now work at home at least one day a week, according to Telecommute America, a public/ private organization that promotes awareness of telecommuting issues. Virtually anybody in your office, with the possible (and perhaps temporary) exception of the switchboard operator, is now able to say, "I have a lot of work to do tomorrow, so I'll be working at home."
We don't go into the office to work in the traditional sense anymore. What we do go in for is a different type of work, and it needs to be supported by a different type of office. Offices in the future will be different in their design, their infrastructure, and even in their location. How quickly this change happens is anybody's guess. But the direction of the change is inevitable.
What Is Driving All This Change
Among the drivers making this shift possible are ubiquitous connectivity, demographic changes, and the decline in self-employment. Future evolution in the office market will be led by greater access to what until recently has been largely private data, and a move to real-time pricing of property.
Ubiquitous Connectivity. The biggest contributor to the changing office is the advent of ubiquitous connectivity. In the age of the Internet, we expect access to information at any time, from any place. If a manager were to tell her people that their firm doesn't have dial-up access into E-mail and file servers, she would be met with blank, uncomprehending stares. People who can access their Hotmail accounts from anywhere in the world expect at least some access to their work files.
Demographics. In America, at least, most middle-class families have two working parents. Balancing work and family means more people, including men, have days when they are forced to work from home. What they need from their workplaces on those days is facilitation, not firewalls. Another demographic trend is the entry of Generation Y into the workforce. The echo generation, the children of the baby boomers, has grown up with computers. Not only is this generation more comfortable supporting its own technological needs, it is more impatient with bureaucracies that get in the way of constant connectivity. For both Generation Y and for working parents, the expectation is clear: Let me work when I want to, from where I want to. Just do it.
Falling Self-Employment. At the same time as more people than ever are telecommuting, the number of people who are self-employed is falling. Data released last year by the Bureau of Labor Statistics showed that 1994 to 1999 was the first five-year period since the 1960s when the number of self-employed Americans outside the agricultural sector actually declined. Maybe it's because health insurance is so hard to find. But more likely, it is because people are looking to organizations to provide something that contract work cannot: a community. We don't need organizations to give us the basic tools of production. We've got those at home. What organizations do provide is other people: the people who interrupt us - with their complaints, their questions, and sometimes with their ideas. Jean-Paul Sartre once observed that "Hell is other people." Maybe so, but in the modern economy, work is other people.
From Private to Public Data. Right now, most real estate transactions are like private placements, with terms of the deal known only to the buyer and the seller, or the owner and the tenant. In the future, transactions will be publicly quoted the way stock purchases are today. We are already seeing this in the public listing of comparables on sites like costargroup.com. When every tenant and every buyer has access to every comp, the value proposition of the real estate broker will have to change.
Real-Time Pricing. Like stock prices, real estate prices will change minute by minute. Instead of determining lease rates for the next five years, people will find themselves checking terms every five days, or even every five hours. Fixed, long-term, contractual pricing will still exist, but in the same way that futures contracts operate in the commodities exchanges. Real-time pricing generally has the effect of lowering prices in fixed-cost industries, the way that airlines and hotels price their last batches of inventory to move. This won't always be a pretty sight for property owners.
Change Comes to the Workplace
"Not only are people working differently, but scientific observation quickly demonstrates that the real estate industry never really knew what people were doing in the office anyway," observes the noted British architect Frank Duffy. "The real estate industry has totally underestimated people's mobility, both within and outside the office. It has ignored major demographic shifts in the office workforce and has screened out the views of increasingly powerful end users."
What are these "powerful end users" doing at work? Not so much executing as innovating. In a highly networked economy, the benefits from doing something new are real, but short lived. As soon as you start doing something innovative, your competitor starts doing it, too. The only sustainable competitive advantage is the ability to innovate again and again and again.
A company that does innovation for a living has different space needs than one that doesn't. Malcolm Gladwell, writing in the New Yorker on December 11, 2000, observed that "innovation – the heart of the knowledge economy - is fundamentally social." To facilitate this "social" work, an office needs to foster connectivity, convening, collaboration, and creativity. Taken together, these four factors give a way of measuring how effective your office space is.
Connectivity
The sine qua non of the connected office is the communications infrastructure. The difference between the office and the home, for many people, lies in the quality and speed of the connections – telephone, file servers, mail servers, and the Internet. A major drawback in working at home is the headache of dealing with modems and antiquated dial-in servers. At the same time, the Internet connections that people have at the office are often better than what they have at home. This leads to the unexpected outcome that "work is where you shop." Online merchants such as Gap.com, Borders.com, and Kbkids.com reported that half of their sales in the first week of December were to people logging in from the office.
Workers will come to equate "office" with "better connectivity." The home office is fine if you're writing memos, but not if you're an architect exchanging computer-assisted drafting (CAD) drawings with your clients. The first rule of real estate is now "connection, connection, connection."
Convening
If home is where you work and work is where you socialize, how can the office foster that socializing? By being a place that makes it easier to get people together. This might mean being near where people live, near transportation hubs, or near desirable destinations. Historically, office location has been driven by the desire to minimize the CEO's commute. But with CEOs and everybody else traveling more and spending less time in their primary offices, convening becomes more important than convenience.
Collaboration
Once people have arrived at the office, having flown in from numerous cities on several continents, is the office facilitating their work? In the collaborative office, meeting rooms are more important than desks. Your desk, after all, is where you make your phone calls and check your E-mail. But so is your airport and soon, perhaps, your car. But the office is where we get together with other people to work together. So how well do most offices do on this count? Not very. Conference rooms are too often under-lit, under-ventilated, buried in the interior of large floorplate buildings, and not very much fun to be in.
Creativity
It doesn't matter how efficient your office space is, how many people per thousand square feet you can squeeze in. What matters is how effective it is and whether the people who work there are being creative. And this doesn't just apply to people in the creative industries. In the knowledge economy, every company is either a creative company, or a cratering company. Office space that allows people to be creative is a much better value for the dollar. If you were going to move your team into "breakthrough" space, what would you look for? Interesting design, a mix of high-energy and lower-energy spaces, and places to spread out and places to come together. In short, you would look for space that provides variety. Now look around your office today. How does it measure up? Does it look like breakthrough space, or the breakdown lane?
Changing Office Design
The work that goes on inside an office building is different than it used to be. Mindless execution is out; collaborative creativity is in. The last time we saw a comparable shift in office work was ten years ago, during the reengineering revolution. Consultant Michael Hammer may wish that he had never said, "Don't automate...obliterate." It turns out that the baby was often obliterated with the bathwater.
In their book The Social Life of Information, John Seely Brown and Paul Duguid tell the story of TBWA\Chiat\Day's experiment with radical restructuring. When the celebrated advertising firm built new offices in Los Angeles a few years ago, it made the bold step of eliminating people's desks. There were still work surfaces and rooms and whiteboards, but at the end of the day, people had to put their things in their lockers before they could go home. On the surface, the rationale was somewhat plausible. People do all their work in teams, so why not design the office to maximize the recombinations of people, place, and production? What TBWA\Chiat\Day learned the hard way was that there was information embedded in the arrangement of people and their desks, such as who was working together, and how. Especially in the information age, the social context of information is as important as the information itself.
This raises the challenge for us: will the e-revolution be as unmindful of social content as the reengineering revolution was? While we are redesigning our work spaces to allow us to collaborate with colleagues from around the world, are we conscious of the social infrastructure that is required? With this in mind, let me propose three ways that office design will need to change - perks, lighting, and fractals.
Collective Perks
It used to be that you could tell who the most senior person was in a company from the size and location of his office. When I was young, one of my parents' neighbors was rumored to have sneaked into a rival's office armed only with a tape measure. When he found what he was looking for – a violation of the company's policy about the size of vice presidents' offices – he brought about the tangible change of having one of the offices resized.
There were always exceptions. At Salomon Brothers, in the period of the early 1980s that Ken Auletta described in his book Greed and Glory on Wall Street, John Gutfreund thumbed his nose at cochairman Pete Petersen by working from a desk in the middle of the bond trading floor. For him, power was the ultimate perk. Or, in another, more recent example, Jim Hackett, the chairman of office furniture maker Steelcase, works in a seven-by-eight foot cubicle - no doubt a statement of pride in what his company sells.
But in most organizations, the office is a perk. The more senior you are, the better office you get. Even so, there has been downward pressure. When IBM moved into its new headquarters in Armonk, New York, in 1997, fewer than a dozen of its most senior executives had their own offices.
With pressure to reduce square footage and to enforce egalitarianism, the nature of the real estate perk will change. No longer will it be used to differentiate status within a firm. Instead, it will be a collective perk, enhancing the status of the group. "Hey, cool space!" That is what you want both recruits and competitors to say.
Let There Be Light
In the Netherlands, one of the more enlightened pieces of social legislation is the requirement that office workers be located no farther than five meters (16.4 feet) from a window. In a country where workers have well-organized rights, it is worth noting that this was seen as an important accommodation. After centuries of treating humans as an interchangeable factor of production, we are starting to treat them as humans. Human-centered design, taking the physiology of workers into account, will have major design implications, especially in an economy where skilled, knowledgeable workers are scarce. For example, heating, ventilation, and air-conditioning systems historically have been evaluated in two ways: are they sufficiently powerful, and are they energy efficient. Nobody was asking whether the people inside the building would be more productive if they got a few more air changes per day.
In addition to air, light is another "utility" that is ripe for reexamination. Rather than being satisfied with standard minimum lumen levels, workers and tenants will want lighting that makes people more productive. When people buy supplemental lights for themselves, they most often buy halogen lights, and hardly ever buy fluorescent lights. In a world where workers and tenants have choices, the false economies of "efficiency" will be less important than the true economies of effectiveness.
Fractals
The way that human designs are most often different from nature's designs is in self-similarity. The shape of a tree branch and all its subsidiary branches and twigs is usually very similar to the shape of a portion of that branch. But in most architecture, or at least most 20th century architecture, the amount of detail seen from a distance is quite different from the amount of detail seen up close. Seeing the first few floors of a New York condominium doesn't prepare you for seeing the numbing sameness of 40 identical floors.
The burgeoning field of complexity science is exploiting fractals to model complex problems like scheduling and fluid dynamics. Fractals have a place in a human-centered architecture. The basic principle is that the whole of an object should have the same level of complexity as any portion of it. In terms of office design, this means that whether you are looking at a building, a floor, a portion of a floor, or even a desk, it should have approximately the same mix of elements. The proportion of convening space on a given floor should be comparable to the proportion in the overall building. The concentration of storage space within a room should be similar to the concentration within a personal work space.
Of course this is more a property than a rule. Some sections of a building will have higher concentrations of storage. But even those storage rooms need a mix of work space, convening space, and personal space that is not that different from that of the overall building.
Tom Wolfe, in his book From Bauhaus to Our House, wrote that the Chippendale-style building that AT&T built on Madison Avenue in 1984 was tremendously important. It was, he argued, the first major office building in a generation to have a recognizable front door. The comparable challenge that office designers face is creating a recognizable center to the work spaces they are creating.
When the Boston Red Sox someday win the World Series, it is widely known that their jubilant, longsuffering fans will gather on the desolate plaza outside Boston City Hall. There is an unspoken understanding of where the center is. But in most new office spaces, there is no center, no place where people can expect to run into each other, or to come together in times of crisis or celebration. The esthetic of fractals says that cities should have centers, building should have centers, floors should have centers, and sections of floors should have centers.
Location, Location, Location
Futurist Davis distinguished between the two roles of computers – crunching and connecting. Real estate will come in three flavors: crunching, convening, and connecting. Crunching space is what is required for the white-collar factory: big floors, cheap space. Did you ever notice the return addresses on your credit card bills? Did you ever think that South Dakota had so much office space? Or Bangalore?
Convening space is everything that crunching space is not. It's expensive, it's centrally located, and it's hard to reproduce. This is the sort of real estate that they had in the old days, when a "Tiffany location" was not a spot in a hundred interchangeable malls. It's also the sort of space that ten years ago many people thought was becoming obsolete. Some would-be forecasters said that the information revolution would make location irrelevant because people would be working from home, or else using their offices for teleconferences. Then a funny thing happened: senior managers found that they were traveling more, not less. Despite all the investment in teleconferencing equipment, it turned out there was no substitute for meeting people face to face.
The one law the digital revolution has not rewritten is the Law of Unintended Consequences. In this case, the better our communication tools, like E-mail, the more people we try to be in touch with and the more people we need to spend face time with. If you compare your call records from ten years ago with your call records and E-mail histories from today, you will see that the number of different people you communicate with on any given day has probably doubled. (It could be worse – at Intel, according to Fast Company magazine, the average employee gets 40 E-mails a day, and some get as many as 300.)
Face-to-face meetings are critical at the beginning of relationships ("Do I think this guy is for real?") and in the later, delicate stages of negotiations. Videoconferences don't capture the same wealth of information that we collect in person. The bandwidth just isn't there. As a result, the need for spaces where we can meet with people and, eventually, work together will, if anything, increase over time.
The location and the layout of convening space is different. Convening space increasingly will be in two locations: center cities and transportation hubs. Urban locations have two benefits (price not being one): they enable people to meet with more people per day, and they provide attractions outside of the office. Would you rather have a meeting in Paris or Parsippany?
The layout of convening space has two distinguishing features. One is large spaces suitable for meetings – not just conference rooms, but spaces designed to facilitate creative interactions. The other feature is a variety of spaces and seating arrangements. The most important work in meetings often happens outside the meeting during the breaks, or before or afterward. Good convening space provides a variety of meeting spaces, from breakout rooms to comfortable seating areas. Think how much work gets conducted in hotel lobbies. The most important type of document for structuring deals is the cocktail napkin. Good convening space will push the boundaries of what is office space and what is social space. You may not need to have a bartender on your payroll, but you should have places where people can meet over a drink.
The third type of space, connecting space, is where people come to take advantage of infrastructure connections that are better than what they have at home. Sun Microsystems, for instance, has set up five drop-in centers in the San Francisco Bay Area where employees can drop in, fire up, and log on. By providing temporary hotel space, Sun saves employees commuting time when they don't need to be working with other people. But this type of space is something of a stopgap. First of all, there are firms like Kinko's, which provides temporary office space, Internet access, and even videoconferencing at its 900-plus locations. The only difference between Kinko's stores and Sun's drop-in centers is high-speed access to Sun's servers. And in the long run, firms will be forced by their employees to migrate their E-mail and file servers from dial-up to Internet access. If Internet connections are secure enough for billions of dollars of e-commerce, then they can be made secure enough for E-mail.
Real-Time Buildings
One of he more unsettling changes that ubiquitous connectivity will bring to real estate is realtime pricing. It doesn't take much connectivity to transform a Coke machine from static pricing to real-time pricing. After all, why shouldn't a Coke cost more at five o'clock in the afternoon than at five in the morning. Fish markets have always operated with real-time pricing, with prices falling at the end of the day. Real-time pricing is inevitable because it will always be in somebody's interest to change the competitive landscape by introducing it. Dominant sellers want the opportunity to exploit price elasticities. New competitors want to gain market share by pricing at their marginal costs. Customers want to get the best deal they can at any moment. And once real-time pricing is accepted in one corner of a market, it is nearly impossible to dislodge. In real estate, real-time pricing means shorter and shorter lease terms, with prices that fluctuate from day to day.
One segment of the market already operates by these rules: hotels. The average room rate changes each day, depending on supply and demand. If tenants are taking space for shorter and shorter periods, one casualty will be the lease as it currently exists. When you check into a hotel, you do not negotiate the terms of your contract. There may be a little haggling over the room or the rate, but nobody is having the lawyers go over the fine print. Both sides have a clear picture of what the standard contract will cover. The room can be assumed to have a bed, a bath, a phone, a TV, and perhaps a desk. Deal done. The need for standard, almost implicit contracts for real estate will increase as lease terms get shorter.
Real-time pricing does have its downside. A hotel's bottom line is much more volatile than that of a conventional office building because the average lease term is hundreds of times shorter. In good times, a hotel's bottom line shoots up, and when times turn bad, a hotel is the first thing to go sour. This variability in cash flow is why hotels are so hard to finance with conventional debt.
So if the future of offices looks like the hotel sector, how do you manage the business? The basic answer is, by having a portfolio of properties. Diversifying the business risk of each property makes the overall cash flow more stable and more financeable than for any one property. This will lead to the creation of branded chains that raise capital at both the property level and the corporate level.
Is this pie-in-the-sky? Not at all. The United Kingdom-based office company Regus has 340 business centers in 48 countries. When it went public in October 2000, its $2.3 billion capitalization made a billionaire out of its 40-year-old founder, Mark Dixon. Regus leases furnished, connected office space by the hour, the day, the month, or the year. Although a quarter of its tenants are high-tech companies that have no idea what their space needs will be in three months, it also counts blue-chip companies like Glaxo SmithKline among its tenants and Equity Office Partners among its business partners. Regus, along with competitor HQ Global Workplaces, has secured the early mover advantage in what might be the biggest innovation in real estate since the elevator.
The real estate industry is subject to the same patterns of technology diffusion and adoption as all other industries. The connectivity revolution is playing out in the same three stages as all other technological innovations: awareness, commerce, and reinvention. Most real estate firms are still in phase one, using the Internet to post information like addresses, photographs, and property information. The second phase comes when firms actually transact business over the Web. Right now there are countless startups where building owners can buy their supplies online. The real money, however, is in signing leases and arranging financing online, and there is much less activity there. The final phase of technology adoption occurs when people reinvent their industries by creating new business models that couldn't have existed before the Internet. The creation of real-time office space is the most revolutionary trend today in the industry. It is ironic that the most successful companies made possible by the Internet are ones that would have made sense to hotelier Cesar Ritz, a hundred years ago.
Connectivity and Networks
The real estate industry is being transformed by the forces that are changing the entire economy. And connectivity - which is what the Internet represents - is the fundamental driver of the changes we are seeing. We are linked in a set of global networks that are large, connected, and adaptive. These networks, we are discovering, behave according to many of the classical rules of network dynamics. Most fundamentally, the speed of change is a function of the size of the network. In his recent book Investigations, Stuart Kaufmann shows how networks have more dramatic tipping points the larger they get. A disease spreads through a larger population more suddenly than through a smaller population. Maybe this explains why the changes we have seen during the first five years of the Internet age have seemed so great.
Another lesson from network dynamics is that as all the pieces of the network are more closely linked, the system becomes more volatile, not less so. Prices will gyrate the way they do on the stock market. If this is true, our very notion of efficiency needs to change. Efficient markets change quickly, incorporating every bit of new information. What looks like chaos is actually efficiency. For real estate, not only prices but spaces and people will need to be more flexible and adaptive than ever. It won't be stable, but it will be robust.
This chaotic efficiency is what one finds in nature, not in economics textbooks, so many business thinkers are looking into biology, complexity science, and adaptive systems theory for ideas. Christopher Meyer, coauthor of Blur: The Speed of Change in the Connected Economy, draws a few lessons from adaptive systems theory that are germane for real estate: recombine, don't invent, and innovate, don't perfect. Most of the elements of tomorrow's economy are lying in front of us. What we need to do is not so much invent breakthroughs as reshuffle the cards that we have. Real-time offices are really not much more than offices that run by the rules of hotels. The only new idea is the combination. Meyer's second observation - innovate, don't perfect - is a warning that there is no final state. You have to keep innovating, innovating, and innovating again, because the ability to innovate is the only sustainable competitive advantage.
Eight Challenges for the 21st Century
It's ironic that the ubiquitous connectivity is making location more important than ever. The more closely we are linked electronically, the more we need to differentiate the spaces in which we work. But just because we are subject to the Law of Unintended Consequences doesn't mean we have to be unprepared. Here are eight challenges for you and your business as you prepare for the inevitable:
Make the office more social. The role of the office has changed. It's not about providing desks and phones for white-collar clones. The role of most office space will be to allow people to convene and to make their collaboration more productive.
Make working at home workable. How can you make your employees more productive when they are working at home? Replace dial-up connections with Internet access to E-mail and files. The amount of time wasted during cumbersome dialups will drop at the same time that distributed work speeds up.
Think more Kinko's than McDonald's. When everybody is working at home at least part of the time, office support services won't just be coming from the office. Expect a huge growth in the service providers like Staples and Kinko's, expanding from supplies and copying into access, help desk services, and professional services - and certainly into cappuccino.
Design for effectiveness, not efficiency. Don't look at inputs, look at outputs. Are you optimizing cost per employee, or output per employee? Better light, better air, and better aesthetics will turn into better results.
Put fractals, fractals everywhere. Standardization and specialization are hallmarks of the industrial age, but now we are in the information economy, moving toward the biological economy. Disciplines like complexity science will start influencing how we design organizations and buildings. The structure of a tree is fractal, and so should the structure of a building.
Design to recombine. Whether or not the pace of innovation is increasing, the pace of recombination certainly is. Businesses are starting up, shutting down, spinning off, and hooking up faster than ever.Is the way you are designing buildings, tenant layouts, and leases making continual reconfiguration easier or harder?
Prepare for real-time finances. The price of a lease changes every three to five years. The price of a hotel room changes every day. The price of a stock changes every minute. And price fluctuations that used to be private are now, thanks to the Internet, public. Get ready for a world where every price is changing every minute, and everyone knows.
Location matters again. The biggest paradox of the Internet revolution is that by enabling us to work anywhere, it has made location more important than ever. Even though crunching work can happen anywhere in the world, convening work - where real value is created - happens in high-value locations. As long as people matter, place will, too.
Why do you go into the office in the morning? You could get better coffee at Starbucks. Your children's computer has better graphics. The chairs aren't as comfortable as what you've got at home. So why do it?
"I go into the office for only two things: to be interrupted and to have meetings. If I want to work, I stay home," says Kevin Kelly, the founding editor of Wired magazine. In order to be interrupted? Most people think of the office as a place where they go to get work done - to get away from crying children and other distractions of the home. But distractions are what office work is all about.
The corner office with a thick door, thick carpeting, and a ferocious, protective secretary is a thing of the past. It's not because companies can't afford to give people that amount of work space. No, it's because the nature of white-collar work has changed, and the real estate that houses that work will need to change, too.
Just as the role of computers has changed in the last ten years, so has the role of the office. In the words of futurist Stan Davis, computers have gone "from crunching to connecting." Although there are still plenty of IBM S/390s calculating payrolls and booking accounts receivable, most new computers are being used to network. And the bigger the network, the more value there is in tapping into it.
The nature of work has changed, too. Think back to movies like 1967's How to Succeed in Business Without Really Trying. In row after row of identical desks sat nearly identical white males doing work that can best be described as crunching.
Today, we have replaced the desks with cubicles and the adding machines with computers. But more interesting is what the denizens of those cubicle farms are doing. They are spending the bulk of their time staying in touch with each other. And not just by using email to exchange Dilbert cartoons. Much of their time is spent collaborating with other people, inside and outside their firms.
At the same time that the office has changed, so has the home. The obvious change is the amount of computer hardware that people have. A typical new computer order from Dell or Gateway involves a computer, a monitor, a printer, and a scanner, supplemented by numerous storage options like read/ write CD-ROMs, Zip drives, and DVD players. That's the crunching.
But it is the connecting of the home office that is really different. A second telephone line is no longer seen as a luxury. But broadband connectivity, from cable modems and DSL lines, is where the real revolution begins. Workers now have the means to work as effectively at home as they do in the office (depending on how you define "work").
About ten years ago, Nicholas Negroponte of the Massachusetts Institute of Technology Media Lab outlined what became known as the "Negroponte Switch." Those communications that had been primarily wire-bound, like telephone calls, would become wireless, he said, and those that had been wireless, like television, would be carried on wires of some sort. Applications that required mobility but little bandwidth should be wireless, and applications that required broadband but not mobility should be carried on cable.
There probably will be an equally pronounced "shift" in the role of the home and office. In a highly connected economy, home is where you work, and work is where you socialize. An estimated 20 million people now work at home at least one day a week, according to Telecommute America, a public/ private organization that promotes awareness of telecommuting issues. Virtually anybody in your office, with the possible (and perhaps temporary) exception of the switchboard operator, is now able to say, "I have a lot of work to do tomorrow, so I'll be working at home."
We don't go into the office to work in the traditional sense anymore. What we do go in for is a different type of work, and it needs to be supported by a different type of office. Offices in the future will be different in their design, their infrastructure, and even in their location. How quickly this change happens is anybody's guess. But the direction of the change is inevitable.
What Is Driving All This Change
Among the drivers making this shift possible are ubiquitous connectivity, demographic changes, and the decline in self-employment. Future evolution in the office market will be led by greater access to what until recently has been largely private data, and a move to real-time pricing of property.
Ubiquitous Connectivity. The biggest contributor to the changing office is the advent of ubiquitous connectivity. In the age of the Internet, we expect access to information at any time, from any place. If a manager were to tell her people that their firm doesn't have dial-up access into E-mail and file servers, she would be met with blank, uncomprehending stares. People who can access their Hotmail accounts from anywhere in the world expect at least some access to their work files.
Demographics. In America, at least, most middle-class families have two working parents. Balancing work and family means more people, including men, have days when they are forced to work from home. What they need from their workplaces on those days is facilitation, not firewalls. Another demographic trend is the entry of Generation Y into the workforce. The echo generation, the children of the baby boomers, has grown up with computers. Not only is this generation more comfortable supporting its own technological needs, it is more impatient with bureaucracies that get in the way of constant connectivity. For both Generation Y and for working parents, the expectation is clear: Let me work when I want to, from where I want to. Just do it.
Falling Self-Employment. At the same time as more people than ever are telecommuting, the number of people who are self-employed is falling. Data released last year by the Bureau of Labor Statistics showed that 1994 to 1999 was the first five-year period since the 1960s when the number of self-employed Americans outside the agricultural sector actually declined. Maybe it's because health insurance is so hard to find. But more likely, it is because people are looking to organizations to provide something that contract work cannot: a community. We don't need organizations to give us the basic tools of production. We've got those at home. What organizations do provide is other people: the people who interrupt us - with their complaints, their questions, and sometimes with their ideas. Jean-Paul Sartre once observed that "Hell is other people." Maybe so, but in the modern economy, work is other people.
From Private to Public Data. Right now, most real estate transactions are like private placements, with terms of the deal known only to the buyer and the seller, or the owner and the tenant. In the future, transactions will be publicly quoted the way stock purchases are today. We are already seeing this in the public listing of comparables on sites like costargroup.com. When every tenant and every buyer has access to every comp, the value proposition of the real estate broker will have to change.
Real-Time Pricing. Like stock prices, real estate prices will change minute by minute. Instead of determining lease rates for the next five years, people will find themselves checking terms every five days, or even every five hours. Fixed, long-term, contractual pricing will still exist, but in the same way that futures contracts operate in the commodities exchanges. Real-time pricing generally has the effect of lowering prices in fixed-cost industries, the way that airlines and hotels price their last batches of inventory to move. This won't always be a pretty sight for property owners.
Change Comes to the Workplace
"Not only are people working differently, but scientific observation quickly demonstrates that the real estate industry never really knew what people were doing in the office anyway," observes the noted British architect Frank Duffy. "The real estate industry has totally underestimated people's mobility, both within and outside the office. It has ignored major demographic shifts in the office workforce and has screened out the views of increasingly powerful end users."
What are these "powerful end users" doing at work? Not so much executing as innovating. In a highly networked economy, the benefits from doing something new are real, but short lived. As soon as you start doing something innovative, your competitor starts doing it, too. The only sustainable competitive advantage is the ability to innovate again and again and again.
A company that does innovation for a living has different space needs than one that doesn't. Malcolm Gladwell, writing in the New Yorker on December 11, 2000, observed that "innovation – the heart of the knowledge economy - is fundamentally social." To facilitate this "social" work, an office needs to foster connectivity, convening, collaboration, and creativity. Taken together, these four factors give a way of measuring how effective your office space is.
Connectivity
The sine qua non of the connected office is the communications infrastructure. The difference between the office and the home, for many people, lies in the quality and speed of the connections – telephone, file servers, mail servers, and the Internet. A major drawback in working at home is the headache of dealing with modems and antiquated dial-in servers. At the same time, the Internet connections that people have at the office are often better than what they have at home. This leads to the unexpected outcome that "work is where you shop." Online merchants such as Gap.com, Borders.com, and Kbkids.com reported that half of their sales in the first week of December were to people logging in from the office.
Workers will come to equate "office" with "better connectivity." The home office is fine if you're writing memos, but not if you're an architect exchanging computer-assisted drafting (CAD) drawings with your clients. The first rule of real estate is now "connection, connection, connection."
Convening
If home is where you work and work is where you socialize, how can the office foster that socializing? By being a place that makes it easier to get people together. This might mean being near where people live, near transportation hubs, or near desirable destinations. Historically, office location has been driven by the desire to minimize the CEO's commute. But with CEOs and everybody else traveling more and spending less time in their primary offices, convening becomes more important than convenience.
Collaboration
Once people have arrived at the office, having flown in from numerous cities on several continents, is the office facilitating their work? In the collaborative office, meeting rooms are more important than desks. Your desk, after all, is where you make your phone calls and check your E-mail. But so is your airport and soon, perhaps, your car. But the office is where we get together with other people to work together. So how well do most offices do on this count? Not very. Conference rooms are too often under-lit, under-ventilated, buried in the interior of large floorplate buildings, and not very much fun to be in.
Creativity
It doesn't matter how efficient your office space is, how many people per thousand square feet you can squeeze in. What matters is how effective it is and whether the people who work there are being creative. And this doesn't just apply to people in the creative industries. In the knowledge economy, every company is either a creative company, or a cratering company. Office space that allows people to be creative is a much better value for the dollar. If you were going to move your team into "breakthrough" space, what would you look for? Interesting design, a mix of high-energy and lower-energy spaces, and places to spread out and places to come together. In short, you would look for space that provides variety. Now look around your office today. How does it measure up? Does it look like breakthrough space, or the breakdown lane?
Changing Office Design
The work that goes on inside an office building is different than it used to be. Mindless execution is out; collaborative creativity is in. The last time we saw a comparable shift in office work was ten years ago, during the reengineering revolution. Consultant Michael Hammer may wish that he had never said, "Don't automate...obliterate." It turns out that the baby was often obliterated with the bathwater.
In their book The Social Life of Information, John Seely Brown and Paul Duguid tell the story of TBWA\Chiat\Day's experiment with radical restructuring. When the celebrated advertising firm built new offices in Los Angeles a few years ago, it made the bold step of eliminating people's desks. There were still work surfaces and rooms and whiteboards, but at the end of the day, people had to put their things in their lockers before they could go home. On the surface, the rationale was somewhat plausible. People do all their work in teams, so why not design the office to maximize the recombinations of people, place, and production? What TBWA\Chiat\Day learned the hard way was that there was information embedded in the arrangement of people and their desks, such as who was working together, and how. Especially in the information age, the social context of information is as important as the information itself.
This raises the challenge for us: will the e-revolution be as unmindful of social content as the reengineering revolution was? While we are redesigning our work spaces to allow us to collaborate with colleagues from around the world, are we conscious of the social infrastructure that is required? With this in mind, let me propose three ways that office design will need to change - perks, lighting, and fractals.
Collective Perks
It used to be that you could tell who the most senior person was in a company from the size and location of his office. When I was young, one of my parents' neighbors was rumored to have sneaked into a rival's office armed only with a tape measure. When he found what he was looking for – a violation of the company's policy about the size of vice presidents' offices – he brought about the tangible change of having one of the offices resized.
There were always exceptions. At Salomon Brothers, in the period of the early 1980s that Ken Auletta described in his book Greed and Glory on Wall Street, John Gutfreund thumbed his nose at cochairman Pete Petersen by working from a desk in the middle of the bond trading floor. For him, power was the ultimate perk. Or, in another, more recent example, Jim Hackett, the chairman of office furniture maker Steelcase, works in a seven-by-eight foot cubicle - no doubt a statement of pride in what his company sells.
But in most organizations, the office is a perk. The more senior you are, the better office you get. Even so, there has been downward pressure. When IBM moved into its new headquarters in Armonk, New York, in 1997, fewer than a dozen of its most senior executives had their own offices.
With pressure to reduce square footage and to enforce egalitarianism, the nature of the real estate perk will change. No longer will it be used to differentiate status within a firm. Instead, it will be a collective perk, enhancing the status of the group. "Hey, cool space!" That is what you want both recruits and competitors to say.
Let There Be Light
In the Netherlands, one of the more enlightened pieces of social legislation is the requirement that office workers be located no farther than five meters (16.4 feet) from a window. In a country where workers have well-organized rights, it is worth noting that this was seen as an important accommodation. After centuries of treating humans as an interchangeable factor of production, we are starting to treat them as humans. Human-centered design, taking the physiology of workers into account, will have major design implications, especially in an economy where skilled, knowledgeable workers are scarce. For example, heating, ventilation, and air-conditioning systems historically have been evaluated in two ways: are they sufficiently powerful, and are they energy efficient. Nobody was asking whether the people inside the building would be more productive if they got a few more air changes per day.
In addition to air, light is another "utility" that is ripe for reexamination. Rather than being satisfied with standard minimum lumen levels, workers and tenants will want lighting that makes people more productive. When people buy supplemental lights for themselves, they most often buy halogen lights, and hardly ever buy fluorescent lights. In a world where workers and tenants have choices, the false economies of "efficiency" will be less important than the true economies of effectiveness.
Fractals
The way that human designs are most often different from nature's designs is in self-similarity. The shape of a tree branch and all its subsidiary branches and twigs is usually very similar to the shape of a portion of that branch. But in most architecture, or at least most 20th century architecture, the amount of detail seen from a distance is quite different from the amount of detail seen up close. Seeing the first few floors of a New York condominium doesn't prepare you for seeing the numbing sameness of 40 identical floors.
The burgeoning field of complexity science is exploiting fractals to model complex problems like scheduling and fluid dynamics. Fractals have a place in a human-centered architecture. The basic principle is that the whole of an object should have the same level of complexity as any portion of it. In terms of office design, this means that whether you are looking at a building, a floor, a portion of a floor, or even a desk, it should have approximately the same mix of elements. The proportion of convening space on a given floor should be comparable to the proportion in the overall building. The concentration of storage space within a room should be similar to the concentration within a personal work space.
Of course this is more a property than a rule. Some sections of a building will have higher concentrations of storage. But even those storage rooms need a mix of work space, convening space, and personal space that is not that different from that of the overall building.
Tom Wolfe, in his book From Bauhaus to Our House, wrote that the Chippendale-style building that AT&T built on Madison Avenue in 1984 was tremendously important. It was, he argued, the first major office building in a generation to have a recognizable front door. The comparable challenge that office designers face is creating a recognizable center to the work spaces they are creating.
When the Boston Red Sox someday win the World Series, it is widely known that their jubilant, longsuffering fans will gather on the desolate plaza outside Boston City Hall. There is an unspoken understanding of where the center is. But in most new office spaces, there is no center, no place where people can expect to run into each other, or to come together in times of crisis or celebration. The esthetic of fractals says that cities should have centers, building should have centers, floors should have centers, and sections of floors should have centers.
Location, Location, Location
Futurist Davis distinguished between the two roles of computers – crunching and connecting. Real estate will come in three flavors: crunching, convening, and connecting. Crunching space is what is required for the white-collar factory: big floors, cheap space. Did you ever notice the return addresses on your credit card bills? Did you ever think that South Dakota had so much office space? Or Bangalore?
Convening space is everything that crunching space is not. It's expensive, it's centrally located, and it's hard to reproduce. This is the sort of real estate that they had in the old days, when a "Tiffany location" was not a spot in a hundred interchangeable malls. It's also the sort of space that ten years ago many people thought was becoming obsolete. Some would-be forecasters said that the information revolution would make location irrelevant because people would be working from home, or else using their offices for teleconferences. Then a funny thing happened: senior managers found that they were traveling more, not less. Despite all the investment in teleconferencing equipment, it turned out there was no substitute for meeting people face to face.
The one law the digital revolution has not rewritten is the Law of Unintended Consequences. In this case, the better our communication tools, like E-mail, the more people we try to be in touch with and the more people we need to spend face time with. If you compare your call records from ten years ago with your call records and E-mail histories from today, you will see that the number of different people you communicate with on any given day has probably doubled. (It could be worse – at Intel, according to Fast Company magazine, the average employee gets 40 E-mails a day, and some get as many as 300.)
Face-to-face meetings are critical at the beginning of relationships ("Do I think this guy is for real?") and in the later, delicate stages of negotiations. Videoconferences don't capture the same wealth of information that we collect in person. The bandwidth just isn't there. As a result, the need for spaces where we can meet with people and, eventually, work together will, if anything, increase over time.
The location and the layout of convening space is different. Convening space increasingly will be in two locations: center cities and transportation hubs. Urban locations have two benefits (price not being one): they enable people to meet with more people per day, and they provide attractions outside of the office. Would you rather have a meeting in Paris or Parsippany?
The layout of convening space has two distinguishing features. One is large spaces suitable for meetings – not just conference rooms, but spaces designed to facilitate creative interactions. The other feature is a variety of spaces and seating arrangements. The most important work in meetings often happens outside the meeting during the breaks, or before or afterward. Good convening space provides a variety of meeting spaces, from breakout rooms to comfortable seating areas. Think how much work gets conducted in hotel lobbies. The most important type of document for structuring deals is the cocktail napkin. Good convening space will push the boundaries of what is office space and what is social space. You may not need to have a bartender on your payroll, but you should have places where people can meet over a drink.
The third type of space, connecting space, is where people come to take advantage of infrastructure connections that are better than what they have at home. Sun Microsystems, for instance, has set up five drop-in centers in the San Francisco Bay Area where employees can drop in, fire up, and log on. By providing temporary hotel space, Sun saves employees commuting time when they don't need to be working with other people. But this type of space is something of a stopgap. First of all, there are firms like Kinko's, which provides temporary office space, Internet access, and even videoconferencing at its 900-plus locations. The only difference between Kinko's stores and Sun's drop-in centers is high-speed access to Sun's servers. And in the long run, firms will be forced by their employees to migrate their E-mail and file servers from dial-up to Internet access. If Internet connections are secure enough for billions of dollars of e-commerce, then they can be made secure enough for E-mail.
Real-Time Buildings
One of he more unsettling changes that ubiquitous connectivity will bring to real estate is realtime pricing. It doesn't take much connectivity to transform a Coke machine from static pricing to real-time pricing. After all, why shouldn't a Coke cost more at five o'clock in the afternoon than at five in the morning. Fish markets have always operated with real-time pricing, with prices falling at the end of the day. Real-time pricing is inevitable because it will always be in somebody's interest to change the competitive landscape by introducing it. Dominant sellers want the opportunity to exploit price elasticities. New competitors want to gain market share by pricing at their marginal costs. Customers want to get the best deal they can at any moment. And once real-time pricing is accepted in one corner of a market, it is nearly impossible to dislodge. In real estate, real-time pricing means shorter and shorter lease terms, with prices that fluctuate from day to day.
One segment of the market already operates by these rules: hotels. The average room rate changes each day, depending on supply and demand. If tenants are taking space for shorter and shorter periods, one casualty will be the lease as it currently exists. When you check into a hotel, you do not negotiate the terms of your contract. There may be a little haggling over the room or the rate, but nobody is having the lawyers go over the fine print. Both sides have a clear picture of what the standard contract will cover. The room can be assumed to have a bed, a bath, a phone, a TV, and perhaps a desk. Deal done. The need for standard, almost implicit contracts for real estate will increase as lease terms get shorter.
Real-time pricing does have its downside. A hotel's bottom line is much more volatile than that of a conventional office building because the average lease term is hundreds of times shorter. In good times, a hotel's bottom line shoots up, and when times turn bad, a hotel is the first thing to go sour. This variability in cash flow is why hotels are so hard to finance with conventional debt.
So if the future of offices looks like the hotel sector, how do you manage the business? The basic answer is, by having a portfolio of properties. Diversifying the business risk of each property makes the overall cash flow more stable and more financeable than for any one property. This will lead to the creation of branded chains that raise capital at both the property level and the corporate level.
Is this pie-in-the-sky? Not at all. The United Kingdom-based office company Regus has 340 business centers in 48 countries. When it went public in October 2000, its $2.3 billion capitalization made a billionaire out of its 40-year-old founder, Mark Dixon. Regus leases furnished, connected office space by the hour, the day, the month, or the year. Although a quarter of its tenants are high-tech companies that have no idea what their space needs will be in three months, it also counts blue-chip companies like Glaxo SmithKline among its tenants and Equity Office Partners among its business partners. Regus, along with competitor HQ Global Workplaces, has secured the early mover advantage in what might be the biggest innovation in real estate since the elevator.
The real estate industry is subject to the same patterns of technology diffusion and adoption as all other industries. The connectivity revolution is playing out in the same three stages as all other technological innovations: awareness, commerce, and reinvention. Most real estate firms are still in phase one, using the Internet to post information like addresses, photographs, and property information. The second phase comes when firms actually transact business over the Web. Right now there are countless startups where building owners can buy their supplies online. The real money, however, is in signing leases and arranging financing online, and there is much less activity there. The final phase of technology adoption occurs when people reinvent their industries by creating new business models that couldn't have existed before the Internet. The creation of real-time office space is the most revolutionary trend today in the industry. It is ironic that the most successful companies made possible by the Internet are ones that would have made sense to hotelier Cesar Ritz, a hundred years ago.
Connectivity and Networks
The real estate industry is being transformed by the forces that are changing the entire economy. And connectivity - which is what the Internet represents - is the fundamental driver of the changes we are seeing. We are linked in a set of global networks that are large, connected, and adaptive. These networks, we are discovering, behave according to many of the classical rules of network dynamics. Most fundamentally, the speed of change is a function of the size of the network. In his recent book Investigations, Stuart Kaufmann shows how networks have more dramatic tipping points the larger they get. A disease spreads through a larger population more suddenly than through a smaller population. Maybe this explains why the changes we have seen during the first five years of the Internet age have seemed so great.
Another lesson from network dynamics is that as all the pieces of the network are more closely linked, the system becomes more volatile, not less so. Prices will gyrate the way they do on the stock market. If this is true, our very notion of efficiency needs to change. Efficient markets change quickly, incorporating every bit of new information. What looks like chaos is actually efficiency. For real estate, not only prices but spaces and people will need to be more flexible and adaptive than ever. It won't be stable, but it will be robust.
This chaotic efficiency is what one finds in nature, not in economics textbooks, so many business thinkers are looking into biology, complexity science, and adaptive systems theory for ideas. Christopher Meyer, coauthor of Blur: The Speed of Change in the Connected Economy, draws a few lessons from adaptive systems theory that are germane for real estate: recombine, don't invent, and innovate, don't perfect. Most of the elements of tomorrow's economy are lying in front of us. What we need to do is not so much invent breakthroughs as reshuffle the cards that we have. Real-time offices are really not much more than offices that run by the rules of hotels. The only new idea is the combination. Meyer's second observation - innovate, don't perfect - is a warning that there is no final state. You have to keep innovating, innovating, and innovating again, because the ability to innovate is the only sustainable competitive advantage.
Eight Challenges for the 21st Century
It's ironic that the ubiquitous connectivity is making location more important than ever. The more closely we are linked electronically, the more we need to differentiate the spaces in which we work. But just because we are subject to the Law of Unintended Consequences doesn't mean we have to be unprepared. Here are eight challenges for you and your business as you prepare for the inevitable:
Make the office more social. The role of the office has changed. It's not about providing desks and phones for white-collar clones. The role of most office space will be to allow people to convene and to make their collaboration more productive.
Make working at home workable. How can you make your employees more productive when they are working at home? Replace dial-up connections with Internet access to E-mail and files. The amount of time wasted during cumbersome dialups will drop at the same time that distributed work speeds up.
Think more Kinko's than McDonald's. When everybody is working at home at least part of the time, office support services won't just be coming from the office. Expect a huge growth in the service providers like Staples and Kinko's, expanding from supplies and copying into access, help desk services, and professional services - and certainly into cappuccino.
Design for effectiveness, not efficiency. Don't look at inputs, look at outputs. Are you optimizing cost per employee, or output per employee? Better light, better air, and better aesthetics will turn into better results.
Put fractals, fractals everywhere. Standardization and specialization are hallmarks of the industrial age, but now we are in the information economy, moving toward the biological economy. Disciplines like complexity science will start influencing how we design organizations and buildings. The structure of a tree is fractal, and so should the structure of a building.
Design to recombine. Whether or not the pace of innovation is increasing, the pace of recombination certainly is. Businesses are starting up, shutting down, spinning off, and hooking up faster than ever.Is the way you are designing buildings, tenant layouts, and leases making continual reconfiguration easier or harder?
Prepare for real-time finances. The price of a lease changes every three to five years. The price of a hotel room changes every day. The price of a stock changes every minute. And price fluctuations that used to be private are now, thanks to the Internet, public. Get ready for a world where every price is changing every minute, and everyone knows.
Location matters again. The biggest paradox of the Internet revolution is that by enabling us to work anywhere, it has made location more important than ever. Even though crunching work can happen anywhere in the world, convening work - where real value is created - happens in high-value locations. As long as people matter, place will, too.
September, 2001. This article originally appeared in ULI on the Future, an Urban Land supplement. (c) ULI - the Urban Land Institute