HS071: The Real Numbers Behind the Return To Office Myths

Why are some executives still insisting on Return to Office policies? Does it improve culture and productivity like they swear? Or is it more about the devaluing of a massive asset on their books: Commercial real estate. If the value of commercial real estate drops, companies have less to leverage for loans and– perhaps more importantly to some folks– executives will lose out on performance bonuses and stock dividends. Johna and Greg discuss the black-and-white data and talk about the intersection of RTO with management, diversity, and culture.

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Episode Transcript

This episode was transcribed by AI and lightly formatted. We make these transcripts available to help with content accessibility and searchability but we can’t guarantee accuracy. There are likely to be errors and inaccuracies in the transcription.

Greg Ferro (00:00:17) – Welcome to Heavy Strategy, the show, which is about unanswered questions instead of unquestioned answers. The idea here is to discuss a given topic, not really to tell you how to do it or how to solve it. That’s your problem, not ours. Our idea is to try and surface questions that we should all be thinking about, so you can pick out which questions you need to answer in your situation. Now, one of the topics that’s been resonating right the way through most of 2023 is this idea of returning to the office or the end of remote work. And I think it would be fair to say that most companies, especially large companies, have been taking a harder and tougher line, demanding that employees come back to the office and they’ve gone from a yes, we’re coming back to the office, come back to a mandated 2 or 3 days a week.

Greg Ferro (00:01:03) – Now it’s a 3 or 4 days a week, and we’re seeing increasing signals from various companies saying, no, it’s a return to the office in full. At the same time, however, what we are also seeing is that a series of articles and a series of reports from way across the space is that if you are willing to advertise and take on remote workers, you can get unprecedented numbers of applications. You can pick and choose who you want for the role. You can pick the best people. So what we’re seeing is people are yes, they’re coming back to work because that’s where the money is. But they’re also out there hunting for other jobs, too. And if the opportunity presents itself to go remote, which I think Johna begs the question, what does return to the office mean in, you know, the fourth calendar quarter of 2023? And what does it mean for 2024? Is it a bust? Is it going to go forward? Where’s where’s the problems now you’ve done a research report on this.

Greg Ferro (00:01:57) – You’ve spent some days researching all the topics. Where do you want to start.

Johna Till Johnson (00:02:00) – Well I think I’d like to start with the the first question, Greg, is, you know, what are the claims driving return to the office because you have high profile folks like Jamie Dimon saying, oh, it must. We need people to return to the office because productivity has suffered. Well, it turns out productivity has not, in fact suffered. And Jamie Dimon being a finance guy might actually know this. Corporate profits, which are really the ultimate measure of productivity, were 10% higher in July 2023 than in July 2020. corporate corporate profits have actually gone up since pre-COVID times as well. So profitability has gone up, productivity has gone up so much.

Greg Ferro (00:02:40) – So remember we did that show on the great layoff about all the people tens of thousands. It’s my thesis that productivity was up so high during the pandemic and the period of remote work that they were able to ditch 10% of their staff to do the same amount of work.

Greg Ferro (00:02:55) – And once you ditch the percentage, all of a sudden profits grow. So there was a productivity increase allowed more product, more, more productivity, more, more services delivered for lower cost. And then they actually turned around and sacked the people who made that happen and booked that as a profit. That’s my thesis, is that.

Johna Till Johnson (00:03:12) – I actually don’t care, because my main point is that the numbers show in black and white. The profitability is up. Therefore, every claim that profitability, that remote work hurts profitability is is false on its face. So whether they got there and then sacked people or whatever, that’s nice. That’s interesting. It’s a side thing. But the main thing is if if you have a senior manager saying productivity is down because of remote work, they are wrong. They are lying. Unless there is a special case that I’ll get to in a little bit. but then. So I thought maybe there is something to do. You know, one of the concerns that I think both you and I have is that the real driver here is the sunk cost in real estate.

Johna Till Johnson (00:03:54) – And as I’ll get to, that’s actually something that I believe is is really valid. But let’s take a look at what that real estate actually costs on a per employee basis. and what you’ll find I’ll, I’ll jump to the, I’ll jump to the findings that depending on how much you’re paying your employees, you are actually spending anywhere from 25 to 80% of the annual cost of that employee in real estate and associated costs 80%. Think about that. You’re basically saying, hi, I want to almost double the my labor costs because reasons. No sane manager says that even if productivity dipped a little bit, the idea is if you can eek another 10% off the cost of your labor force, as you pointed out, you would do that, right? That’s right. So yeah. So just just to throw the numbers behind this in case anybody’s running the, you know, basically what you’re looking at for the annual cost per square foot of office space is roughly US wide, $455. The square footage per employee is 163.

Johna Till Johnson (00:04:58) – So that means the annual real estate cost per employee is $74,000. The average employee makes something like 80,000. If you’re counting office workers, which presumably are the people that you’re actually housing in offices. now that said. You know, that’s that that does run a little low for certain geographies. And we’ll talk about that. And then you have an additional call at 3 to 5000 for maintaining that office space, which is non-negligible. So you get to roughly 77% at $77,000 per $80,000 employee. That’s really bonkers. That makes no sense. Why would you double that? Well, most people will then say, oh, well, wait a minute. Actually, when you talk about like, Greg, you were talking about all the big layoffs, you’re talking about laying off people who make 200, 300, $400,000 a year, not 80. and okay, that is a mitigating factor. But guess what? In those geographies, not only are the people more expensive, but the actual, the actual facilities costs are actually more expensive.

Johna Till Johnson (00:06:02) – Even if you say for the sake of argument, Google or whoever has the cheapest office facility costs in the, you know, in the region. Yeah, you’re still talking about 26% of the salary of that employee. That’s a that’s basically an add on tax that the company is paying. These people are not stupid. They don’t inflate their largest costs or one of their largest costs by 25 to 80%. For reasons. I want to highlight the fact that, number one, productivity has gone up, not down. And number two, return to the office is super expensive.

Greg Ferro (00:06:37) – Not even accounting to the fact benefit schemes that they’re having to put in place.

Johna Till Johnson (00:06:42) – I am actually. Yeah.

Greg Ferro (00:06:43) – Yeah. Okay.

Johna Till Johnson (00:06:44) – So we’re including their benefit. You know, benefits are basically run from anywhere from 1.2 to 1.3%. sorry, 120 to 130% of the salaries. So you throw that in and yes, all that happens. So and but the reason I didn’t really focus on it.

Greg Ferro (00:06:58) – And I guess what I was thinking is that you have a number of companies are struggling to get employees to come back to the office. So they’re starting to say, oh, we’re going to cater your lunch for you, because at home you would make it yourself and it would be a nice lunch. Whereas if you come to the office, you have to go and buy less than I’ve.

Johna Till Johnson (00:07:15) – Heard that anecdotally, I haven’t actually studied that. So I can’t, you know, I can’t put a pencil on a piece of graph paper and say, I know this is happening. But yes, anecdotally, the research.

Greg Ferro (00:07:25) – I did, it’s fairly consistent. There’s some sort of benefits. It could be a catered lunch, it could be, an uplift for travel fees or petrol fees. So petrol and parking. So a lot of people who aren’t, you know, now that they’re commuting to the office, they’re saying, well, hang on, I’m now 3 or $400 a week worse off because I have to pay for petrol and parking.

Greg Ferro (00:07:44) – Right. I can come into the office, but I would like to get some contribution towards that. Or, perhaps a more salient one is women who or women or men who have been sharing childcare when they come back to the office because they’re all coming back, usually on something like a Monday, Tuesday, Thursday or Tuesday to Thursday, something like that. They have to get childcare to cover those days where before they didn’t and they’re now saying, well, okay, if you want me to do that, I’ll, you know, I am now going to incur extra costs. Now, that’s not it. Just to be clear here, that’s not an across the board, that is people are saying, look, if I’m coming back to the office, I have to pay for these costs. This is why I don’t want to come back to the office. So the company then has a choice. It can be feel like it’s being held hostage, or it feels like it’s that saying, well, that’s a valid concern.

Greg Ferro (00:08:30) – What can I do to help you? I could give you some, you know.

Johna Till Johnson (00:08:34) – And actually one of my favorite responses I was I was walking through this thesis with a client of mine, and he commented that his work, his wife’s employer, which happened to be Samsung and I’ll give them a shout out, is requiring a return to the office. And I was pounding the table and explaining why that was nuts. And he said, no, actually, it’s not nuts. Here’s what Samsung said. Hey guys, we realized that this is an imposition on you for everything you’ve just said. We’re not going to tease you with stupid foosball tables or food in the office. Here’s a you know, and I forget what the percentage was. So don’t take me, don’t take it as gospel, but I think it was a 5 or 7% increase in your salary because we want you to be in the office for our reasons. We understand that’s an imposition on you. Here’s more money. And she’s like, sure, that works for me.

Greg Ferro (00:09:17) – Now that is a that is a 360 degree turnaround from where we were three years ago or two years ago when companies like Facebook was the one that was in my mind where, Zuckerberg was on the record as saying, if you’re going to go remote, we’re going to pay you less. Yes, exactly. Do you remember that when I.

Johna Till Johnson (00:09:34) – Do and I, I just remember thinking, Samsung, good move, guys, because that everything you just said about the talented, talented employees, they get a win win. They get the best and the brightest because they’re paying a premium. And they’re recognizing the real economics here.

Greg Ferro (00:09:49) – Which is of course, if you do go remote, if you choose not to come to the office, you don’t get the financial edge. Right?

Johna Till Johnson (00:09:55) – Well, I don’t know that they’re offering a I don’t know that they’re actually offering a choice at that level. They’re kind of saying, we want you in the office, and we realize that that’s not optimal for you. So this job requires you in the office.

Johna Till Johnson (00:10:07) – If you want it, you will get it at a premium. That’s my understanding. That said, I haven’t actually interviewed Samsung, so if anybody’s listening from Samsung and knows otherwise, hit us up on, you know, packet pushers dot net for you and give us some follow up and we’ll happily read it out on the show.

Greg Ferro (00:11:01) – So it’s been very interesting to watch that there’s been a lot of other smoke sort of going around. What we have seen is a number of property investors saying that they’re very concerned about the value of commercial real estate, because it now has much less value. And that is going to take. It’s taken me a while to see say, well, why haven’t we seen that happening? Why is it that that they’re saying that or why is it but that does not showing up in the prices? And the answer is because most commercial real estate deals are five and ten and 20 years, like ten plus ten, or you’re you’ve got a ten year, you’re five years into it. The effects of that aren’t going to be felt until those leases come up and get renegotiated. Now, we’ve seen when I was doing my research, I found any number of articles about, you know, Facebook, for example, in London, had a $200 million lease on a building for the next 20 years. They just paid a I think it was like 100 million or some very large, multi, multiple tens of millions break fee to let that go.

Greg Ferro (00:12:01) – Now either Facebook is not planning to grow in the UK, or they’re not planning to increase office space in the UK because people are working remotely more often.

Johna Till Johnson (00:12:10) – And I think you’ve hit on I was going to lead up to that, but I think you’ve jumped right into the core, as you often do. which. The real issue. If you follow this, follow this all the way down. Essentially what’s happening is these very large companies, and it’s usually the very large companies that are demanding pounding the table and demanding return to the office. Here’s the kicker. These these, commercial real estate is a big asset on their books. That asset is going to get massively devalued and they’re going to get a haircut as, Deutsche Bank.

Greg Ferro (00:12:42) – Yeah.

Johna Till Johnson (00:12:42) – Yeah, yeah. And they’re going to get smacked in the bonus. And so the Jamie Diamonds of the world are going, no. You know what I actually want to keep making my, you know, hundreds of millions and billions of dollars a year because I’m such a great company leader, I don’t want to get smacked by Wall Street or.

Johna Till Johnson (00:12:56) – Yeah, yeah, on my stock price, because I’m sitting on top of a giant asset that’s going to be devalued in like three or 4 or 5, ten years or, you know, more like three, four, five. Because now we’re three years in now.

Greg Ferro (00:13:08) – And so I’ve seen political leaders talk the same topic because they’re saying, look, my my city centers are dying. I’ve got restaurants going out of business because they used to rely on the lunchtime trade. now, the flip side of that, of course, is that what they’re starting to realize is that if office blocks go down, they just have to rezone them to be residential.

Johna Till Johnson (00:13:25) – Well, that’s that’s a whole nother discussion because it turns out it’s super expensive to you can’t just rezone them. You actually have to rip the office block almost apart to rebuild it because, you know, plumbing is different. Everything’s different. Lighting is different. But coming back to this, what we actually have, when you strip away all the fluff, what we actually have is corporate leaders doing something because it’s going to hurt them in the wallet.

Johna Till Johnson (00:13:50) – It’s. I’m going to hurt them in The Prestige. If they don’t do it, and then they’re blaming their employees for it, they’re saying it’s your fault productivity went down when in fact it didn’t go down. And they’re taking an enormous hit somewhere else, which is on the cost of labor, because they they know they can get away with it because, as you pointed out, Greg, they can just fire the people if they need to. They’re stuck with these ten year leases or the ownership of this. So, I mean, it’s really pretty nefarious when you think about it.

Greg Ferro (00:14:17) – So so the question sticks in my mind, why are these CEOs and the headlines are all around big companies, but this also implies all the way down mid-level small companies. I think there’s a few things. One of the things that I saw is following Andy Jassy, and there’s a lot of discussion around AWS, who’s been ramping up the pressure on employees to come back to the office. And this there’s a definite sense that Jassy is becoming more and more frustrated by people refusing to come back because it’s his bonuses stake.

Johna Till Johnson (00:14:45) – It says bonus at stake. And he’s not going to say that.

Greg Ferro (00:14:48) – Yeah, perhaps. But I think perhaps that.

Johna Till Johnson (00:14:53) – I mean, that’s this. This is you say why and the why is blazingly simple. It’s literally the balance sheets of the companies go down. Amazon.

Greg Ferro (00:15:01) – I believe that Amazon owns a lot of the office blocks it sits in. It may do. It is partially a real estate company, but.

Johna Till Johnson (00:15:07) – Yeah, actually it is very much a real estate company. And that’s that’s the problem. I mean, I think you can probably and I haven’t done this. And if somebody is listening to me and they’re skeptical, by all means go out and look at the balance sheets of all these public companies and tell me what they’re listing for real estate assets. I would love to see that I haven’t gotten.

Greg Ferro (00:15:24) – There was one quote I saw where somebody was pressing Andy Jassy and he said, well, I don’t have any data to justify coming back to the office, but I’ve spoken to 60 or more other CEOs, and we all agree that it would be better if people came back in the office.

Greg Ferro (00:15:38) – So but, I mean, AWS or Amazon is one of famously the most data driven companies, right? And this is just one of like, you can I’ve read like hundreds of articles on this return to work thing in the last two days, and not a single CEO can put a finger on why they want them to come back, other than I want that, or the senior management has agreed that this is what needs to be done for the culture, or for teamwork or collaboration without any data whatsoever.

Johna Till Johnson (00:16:07) – And that’s why I led this. You know, I led this episode with the data because the data is absolutely in black and white. Productivity has gone up. Yeah. And keep and keeping office space for employees is. Tantamount to doubling the cost of your up to doubling the cost of your your labor force anywhere from 25% to, you know, literally 100%. No sane CEO is that is the data black and white? No sane CEO can back that up. So instead they kind of do the fluffy fluffy tea culture, blah blah blah.

Johna Till Johnson (00:16:42) – And at the end of the day, you basically are left with two hypotheses. The people running very large companies are insane, which they can’t really be because they’ve managed to amass massive fortunes, or they’re worried about a hit to their massive fortunes that we haven’t actually figured out. When you look at their real estate holdings and what you said earlier, Greg, that’s the whole point. They’re at the precipice of these black and white lines on their, their, their balance sheets going south. And when that happens, their stock prices go south. The market loses faith in them. And they get smacked and they get, you know, their bonuses go away. It’s that simple.

Greg Ferro (00:17:19) – And that’s why I don’t think I don’t think it I don’t think that’s even that intelligent. That would be assuming I disagree. Now let me let me show you why I’m quoting here from another article. This is from Fortune. And they were introduced.

Johna Till Johnson (00:17:31) – Well, yes, of course they never screw up.

Greg Ferro (00:17:35) – This is quite recent.

Greg Ferro (00:17:36) – And they were talking to Peter DeSantis, who was an SVP of utility computing, and he said at being in the office is important because it helps with high speed decision making, mentoring and identifying the future leaders of the company.

Johna Till Johnson (00:17:49) – Well,

Greg Ferro (00:17:51) – If you have to do that face to face, that is that sounds to me like gut feel shoot from the hip. I’ve met this person and I like them type stuff. That’s not leadership. That’s that’s, getting rid of diversity. That is focusing on people like me that I want to have around me type stuff.

Johna Till Johnson (00:18:10) – Well, and there’s I agree, I couldn’t agree more, Greg. And in fact, there’s two responses to that one we’ve already made, but I want to reiterate it for completeness, which is that is leadership using a paradigm from the 1700s. And remember that all of our corporate leadership comes from military leadership that models that were developed in the 17 and 1800s, which were for better top down command and control. I have to see everybody. I have to I have to micromanage every major decision.

Johna Till Johnson (00:18:39) – And what’s happened is even the military’s realized that doesn’t work very well. and without going in a huge long tangent about that, what they’re adopting is something called mission command, which essentially means we call it, we call it adaptive leadership. That essentially means actually empowering small groups of people to make decisions very quickly on their own, without having to run it up the flagpole. There’s a whole lot more, and we’re not going to talk about that this time. But that’s one that’s one thing. The other elephant in the room that they’re actually missing is AI. And let me give you an example. One of the classic reasons that everybody says, oh, we need people in the office like take an advertising agency. Oh, we need people in the office so they can be doing pitch sessions where they’re figuring out what the pitch is going to be developing the campaign. Guess what? The one thing that AI is actually good at is ideation coming up very quickly, with a huge range of ideas that you can then curate and select from, and double tech test to make sure they’re valid.

Johna Till Johnson (00:19:38) – Well guess what? AI doesn’t live in an office.

Johna Till Johnson (00:19:44) – And it doesn’t work better in an office. And it doesn’t require face to face interactions. So anyone who’s saying I require face to face interactions, aside from the fact that they’re using an outdated management technique, has yet to come to grips with the fact that they’re going to be managing a mix of human and AI workforce going forward. And AI doesn’t care at all about any of that.

Greg Ferro (00:20:06) – Now, I just want to extend this idea about diversity, which I said. One of the things that strikes me about being in an office is that when you work in an office, you lose autonomy and you get much less empowered. Now, the reason that I say that is that when you’re surrounded by people around you and you’re forced to work in an office, you’re all forced to work to wear a uniform. So everybody wears approximately the same clothes, and everybody is expected to behave in a similar way.

Greg Ferro (00:20:32) – Everybody answers the phone. You’re expected to be available to be interrupted. Your attitude is expected to be the same. So you end up with this, convergence of approaches now. And one of the things that’s coming to light a lot in the corporate research that I’m reading, coming out of even of all people, McKinsey and those types of companies, is that there is value in diversity, diversity of opinions, diversity of perspectives. And I think this is going to loop back to your I think, right. If you have a much more diverse group of people with divergent mindsets and divergent perspectives looking at what AI generates, you’re going to be able to detect the bombs in there, right? People who look at words differently, people who look at topics and understand how they fit. And I think forced work, in the office leaves workers unimpaired for all, nearly all types of work. This all assumes that your work doesn’t require access to a special physical machine that you actually. So this is not factory workers and all that.

Greg Ferro (00:21:30) – This is, white collar knowledge workers who do nonspecific tasks. Right? One thing that we know about them is that they are empowered and left to be autonomous. They do better work overall. There is always a risk, of course, that there are people out there. I mean, one of the things that I’ve seen a lot of these CEOs talk about is when I leave people doing remote work, sometimes they’re taking on side hustles or they’re doing two jobs. You know, they’re working for two companies at the same time. Nothing upsets an executive more than thinking that they’re working for two companies at the same time. but what does it matter? What does it matter? You know, and there are sure there’s going to be some people slacking off. But I promise you, even if they’re in the office, they’ll still be slacking off. You just won’t be so visible. it’s not as visible or easily detected as people think. So I feel like if you come into the office, you today. This was not true five years ago.

Greg Ferro (00:22:21) – Oh, sorry. It was true five years ago, but we accepted it as a necessary thing. It removes your ability to be autonomous, to move in directions that suit the company best. And it reduces your empowerment, your ability to say, this is the direction that I need to take my work for the best role. I wonder if that. If that’s something that they don’t like, losing control and getting a diverse set of employees with much more independent thought. and they see that as a threat.

Johna Till Johnson (00:22:47) – Well, let’s let’s unpack a little bit of what you said, because I think you’ve hit on multiple important topics. The first one is diversity. I completely concur. Although the, the the the one paper that I hang my diversity hat on apparently came out of NASA like 30 years ago, and I haven’t been able to find it ever since, but they actually did some very granular quantitative testing, and they wanted to see. And this was just gender diversity. They wanted to see whether all male teams, all female teams or mixed teams did better.

Johna Till Johnson (00:23:17) – No surprise, it turned out the mixed teams did measurably better. But it was interesting to see the different ways that the the men and the women would go off the rails. Now, this was the culture in 30 years ago. Things may have changed. So I will say, while I believe fully the diversity is important and I would, you know, with no data, I would certainly side with McKinsey. The problem is there are quite a lot of people who believe that diversity is a canard. It’s just woke. It’s allowing people who can’t really succeed on a meritocracy to have a say.

Greg Ferro (00:23:48) – At the table. Let me just let me just interrupt you there. Wokeism is generically a US concept. That’s not to say it’s not creeping into other other countries, but by and large, wokeism as a as a, as a thing is, you know, or a social aspect is very, very much a US thing.

Johna Till Johnson (00:24:04) – And for those of you who are in other countries, the basic premises where I was going with this, which is that it’s an excuse for people who are not as qualified to get a seat at the table that they haven’t earned, and they’re not as qualified, and we know they’re not as qualified because they are.

Johna Till Johnson (00:24:19) – Their skin is browner, or they are female or or they’re differently abled, or they’re neurodivergent, or all the reasons that straight white male is they’re not straight white males. now, obviously, you hear from the way I’m saying this that I don’t believe that particular point of view. But the problem is, if you go back and argue to most of senior management today, well, you know. So people lose diversity by being in the office, but they’re going to say kind of smile and go, yes, I suppose that’s a problem. But look at this black woman that we’ve appointed the head of our diversity office, so we’ll fix it that way. Meaning they don’t really see it as a problem. You know, they hire somebody to do what they consider make work and they go on to something actually important. So while I think you’re correct on diversity, the fundamental problem is most people don’t accept that diversity has actual, tangible black and white value. I wish they did, but they don’t.

Greg Ferro (00:25:07) – So let’s turn to the culture question.

Greg Ferro (00:25:09) – Yes, which is one that we often see. So the these executives and leaders and management often talk about, we need you to come in so that we can build a culture. And the first thing that strikes me here is what happens when you’re in an office full of people who don’t want to be there, who know that they can be doing exactly the same thing without having to, to get there. And this is your point, to remember that the office kitchen is all awful. The toilets are not as good as your toilet at home. You’re probably able to use nice toilet paper, you know, or the toilet at home is probably cleaner than the one in the office. You’ve probably got a lot more natural lighting versus, you know, office lighting, and you’re not stuck in air conditioned thing. Now that I’ll be, I’ll be straight up here. I did used to go to the office so I could get warm in winter because the office was often heated, whereas my home, you know, you might think I could save some money by turning the heating off, but, I mean, what happens to an office and the culture if there’s an office of which substantially more than half the people don’t want to be there, what does that culture look like? What happens? I don’t have an answer for that, by the way.

Johna Till Johnson (00:26:10) – And I actually, you know, I actually really question the whole culture thing because it’s always invoked to support return to the office. And when you really push people on what they mean, it, it, they can’t really articulate it well. While it’s true that culture is a thing and culture has to start a good culture, just a play off what you’re saying, a good culture has to start with authenticity. And if you can’t authentically acknowledge, hey, we’re making you put up with something that’s kind of unpleasant because we think it’s important. You know, again, Samsung is upfront with that. Fine. Everybody’s like, I’m happy. I’m not happy to be here. I’d rather be at home in my cozy little home office with my flower garden. But hey, you’re paying me, so I’ll do it because it’s work and I’m doing it for the money in the first place. Yeah. So, you know, any culture that isn’t based on authenticity is not really a culture. And hopefully what people have picked up from listening to this is that all the reasons for.

Johna Till Johnson (00:27:05) – Return to the office are not based on authentic facts.

Greg Ferro (00:27:08) – No. Let me let me ask you this one. Right. If you start thinking about what is the purpose, what is the value of a company? And if you aren’t coming into an office, what is a company? Right. So what happens to your perception of a company entity if it’s just a gaggle of remote employees? Now okay, let’s come back again. Like if you have a factory and you’re producing widgets and there are machines, it’s different, right? So this discussion excludes all of that. But let’s say that you were someone running a purely technology company that was producing software, and your only deliverable is a website. This is really ephemeral. The only physical aspect of your company doing a thing together is if people actually turn up on site. They turn up in the office every day, right? So if you’re an executive and perhaps you’re not thinking in detail about these things, in other words, you’re incompetent, right? Do you suddenly feel that your company has disappeared when everybody’s just online somewhere?

Johna Till Johnson (00:28:09) – I think I think it’s even more than what you’re saying, Greg, because it’s not just feeling that.

Johna Till Johnson (00:28:15) – It’s actually that almost everything, certainly here in the US, is predicated on the notion of facilities. I mean, it’s so built into our culture, our culture, our actual laws and regulations. So let me give you two examples. The IRS requires a physical headquarters for your office. It doesn’t like it doesn’t matter. It matters where you have to pick someplace. But if there isn’t one, they get super uncomfortable with the whole notion of, well, there really isn’t one. And I don’t know how they’re going to how they’re going to deal with taxing AIs. But that’s a whole different question. But right now, if you you have to you can’t have a post office box even. I mean, you have to have a physical operating headquarters. And the other thing is the entire lending process in the United States is predicated on real estate. If you want to get a loan, you go in and you say, here’s my factory, here’s my office space, I’m putting this down so that I can get my loan.

Johna Till Johnson (00:29:03) – And on, on you go. So the fact that you’re making widgets. It’s in that factory space. The actual value that you’re producing has no value in terms of collateral for the loan. The only thing that has collateral is the land and the building. And I’m sorry, the only thing that has value. Yeah. So it’s not just a feeling. It’s literally how everything operates and taking, taking real estate out from its position. And the primacy as underpinnings for all of, you know, commercialization is going to be wrenching and I say is going to be because, you know, okay, you got a couple people on a podcast arguing that, you know, leading CEOs don’t know what they’re talking about. Big whoop. Who are you going to listen to, us or the billionaires?

Johna Till Johnson (00:29:52) – Well, reality has a way of catching up, so it doesn’t matter how much they stand there and pound the table.

Greg Ferro (00:29:55) – Well I think increasingly people are stopping listening to the billionaires because the billionaires have been shown to be, you know, emperors with no pants sort of thing.

Greg Ferro (00:30:03) – Increasingly what we’re seeing, you know, they just got lucky and they got convinced of their superiority and then told everybody about their superiority. And everybody looked at you and said, well, there these people must know. And it’s what’s becoming clear, you know, as these billionaires make more and more, silly moves, stupid errors are shown to be personally bankrupt, morally bankrupt, etc., etc. I think there is a definite much more cautiousness, a you know, towards what a billionaire says. Let me ask you one last question here. If you I, I could see that coming back to the office would work in the following two conditions. And let me just try and describe it. One is if you’ve got a company which has very high staff turnover and that means constant onboarding, constant relationship building, constant roll forming. So that is as new people come on, you’ve got to choose roles. You’ve got to say this person’s got skills here. Therefore I need this person to step into this area where this skill set is not being addressed.

Greg Ferro (00:30:58) – I think that works. You know, that adaptation to an unstable environment or a high growth environment might work for face to face situations. And I also think another area where is if you’ve got poor management and poor job descriptions or you’ve got uncontrolled workflows where people in the, you know, the teams on the floor just work out how to solve problems amongst themselves without any guidance from, from management or anything like that. And then you go through or you’re going through repeated restructuring. So one of the things that we see, particularly in companies like Amazon, for example, is that they’re constantly dissolving teams, destroying teams, destroying departments and rebuilding them somewhere else, redeploying people somewhere else. And I could, I could I think that there’s a case to be made that if you’re going through that sort of a work environment, that sort of cultural environment where nobody really knows what they’re doing, they know roughly what direction they’re going. But the tools that you use and the processes that you create between people about, if I do this, I know that you’re doing that.

Greg Ferro (00:31:59) – It may be that face to face actually helps there, but what I would also question is, is that a productive environment? Is that a viable work environment to get much done?

Johna Till Johnson (00:32:08) – Well, I’d like to split that again into two pieces. One is just general bad management, and I want to address that in a second because it’s a different answer. The first one, I would absolutely agree that face to face helps in that environment, but I would. But but what I would stress is it’s not the ordinary office where you go to a cubicle or your hotel or whatever. there, what I would recommend and what I’ve seen work, is that you have a frequent, but not every single day group interactions where, okay, we’ve just dissolved this team, we’re mixing up the new team. Everybody come in for a week, and we’re going to interact in this space that’s designed to interact. So you get to know your teammates, sort yourselves out, and I’ll run for the next 3 or 4 weeks or whatever it is, and then do it all over again.

Johna Till Johnson (00:32:47) – So it’s much more of, what was it you were using the last time? The punctuated equilibrium model where people come in?

Greg Ferro (00:32:55) – I think I interact with a lot of companies for whom punctuated equilibrium happens every week, because the companies are destructively organized, that there’s a culture of just letting you know, not knowing.

Johna Till Johnson (00:33:04) – What, but, but, but, but in that case, if every single employee is getting reorganized every week, then no, what you actually see is different waves of employees. So this week it’s these employees that next week it’s those employees. And there’s usually a period of a couple of months. Yeah. Where they are allowed to run.

Greg Ferro (00:33:22) – And so what you want is very high headcount turnover as well. So I’m thinking of cloud companies where they, one of the things that we’re seeing a lot of.

Johna Till Johnson (00:33:31) – Do you know, even so though I mean realistically cloud companies have people geographically dispersed. I mean there’s really no environment where you don’t allow people a little bit of stability because otherwise you don’t get anything done if people are just constantly meeting each other.

Johna Till Johnson (00:33:43) – Hi. Nice to meet you. Oh, tomorrow I’m working with someone else. Oh, the next day I’m working with someone. It’s not that’s you’re not producing in that environment. It’s just, So you have to be.

Greg Ferro (00:33:51) – Well, I envision an idea where, let’s say you’re working in a team of, say, 12 to 18 people, right? And on any given say, at any given month, you lose two of those people, right? That is quite normal in AWS. But again, I know that for a fact. Yeah.

Johna Till Johnson (00:34:05) – Yeah, but I don’t. But I don’t see that necessarily. Those two people that you’re losing or gaining are going to be geographically in the same spot. So you know, how how is that happening.

Greg Ferro (00:34:13) – So one person goes off to join another company, another person join goes off to join another team. They are going for an internal.

Johna Till Johnson (00:34:19) – But what I’m saying is they never were working in the same physical space. Some of them might be anywhere across the country.

Johna Till Johnson (00:34:24) – So it’s not like you were, you know, I still think it can be solved by by using office space differently and allowing people to interact differently. And I mean, I’ve done that myself, so I know it can work.

Greg Ferro (00:34:35) – Well, I do I do also think, I think that people in even in those environments, if you had, good use of tools, video conferencing, chat sessions and so forth. And I think one of the challenges that we face right now is like, for example, I’m looking at zoom because we record these over zoom. Zoom has now added chat and alerts and calendaring integrations and all these things. So one of the challenges that we’ve got is that the tool sets that we use to communicate or collaborate are actually changing underneath our feet. And we often don’t know, like sometimes I get alerts on my, you know, devices saying there’s something, something, something. And it’s an alert from an app that I didn’t realize suddenly had a chat session or, you know, whatever.

Greg Ferro (00:35:16) – All this feature and I think one of the iteration or the problems that we have is that the tools are trying to, you know, add value, but all they’re doing is being disruptive and preventing good quality work from being done. Sometimes, you know, slack has added video conferencing and audio calls. That seemed like a good idea until you realize that now you’ve got zoom and then you’ve got teams, and now you’ve got a telephone, and now you’ve got a mobile phone, and you’ve got and that’s that’s.

Johna Till Johnson (00:35:39) – A whole different episode that I keep pushing for us to talk about, because these, these tools are really, as you said, changing under our feet. But I want to kind of wrap up. For the last thing that you raised, which is, you know what? What about the special case of which is probably very common companies with horrible processes. And the only way any work gets done is by people wandering around and finding the people who actually know how to get work done. Here’s the thing.

Johna Till Johnson (00:36:03) – Here’s here’s the thing. One of my colleagues has pointed out that the best use of AI at the moment, and we’ve documented that the the single biggest use case is streamlining internal operations. He posits that what you would want to do is feed all the interactions, human interactions, into an AI, which can then tell you the hotspots and say, this is where, like, imagine a big glowing glob and some parts of it are green and parts of it are red and parts of it are yellow. Well, the red parts are where there are no processes or nobody’s ever following the processes. So you go in and fix that by developing the processes, or let the AI fix it by suggesting processes. And the greens are where the processes are good and the yellows are where the processes are not as good. Well, once that happens, that’s going to be the biggest single fix to that level of bad management. Lack of processes, processes clash.

Greg Ferro (00:36:52) – You’re a bit optimistic. I don’t think most senior management are even that self-aware, or that technologically technology, technologically competent or willing to adopt technology as a solution to their incompetence. Right?

Johna Till Johnson (00:37:05) – Right. But it’s AI they already have.

Greg Ferro (00:37:07) – Yeah, right. Well, I mean, that’s that’s the problem.

Johna Till Johnson (00:37:09) – The Wall Street Journal ran an article yesterday about how CEOs are pushing their teams to adopt AI. So yes, they’re not going to adopt zoom or teams, but they’ll adopt AI.

Greg Ferro (00:37:18) – Yeah, but the AI and zoom is creepy. So I’m not talking.

Johna Till Johnson (00:37:22) – About I’m not talking about that AI in anything is creating.

Greg Ferro (00:37:25) – A separate from intention. Yeah. From the from the potential of the of the technology.

Johna Till Johnson (00:37:28) – I’m just I’m just talking about the possibility for technology to analyze, synthesize and and and predict and suggest and suggest optimizations to bad human processes. The possibility is right across the horizon. I mean, it’s not far out. And that’s that’s going to take away that excuse for having people.

Greg Ferro (00:37:48) – I have one last point I want to make before we wrap this up. And one of the other things is that some companies are using auto mandates as layoffs. And so what they want to do is do some downsizing, or they want to do some changes to the organization.

Greg Ferro (00:38:00) – And one way to do that, without having to go around and just fire people and go through what is an ugly process. And quite often it’s to do to the emotional bankruptcy of the leadership team. They don’t want to be seen as firing people, so they just put, you know, return to office mandates and they say, well, whoever wants to come into the office is there like me. They’re the people I want around me. Therefore, I’m going to get rid of all the remote workers. So just every now and then, everything that we said about this sometimes can just be a rather, uncomfortable process for executives to lay off people in disguise. And companies are basically saying, we dare you to quit because then we don’t have to fire you and pay your termination bonuses. So it is a complicated you can find that sometimes there are other, other motivations behind return to office. So just be aware of that, that in your specific situation it might be different as well.

Johna Till Johnson (00:38:50) – And I would just wrap up to that saying that in such just scenario. It’s usually the best and brightest who quit. Not the least competent, because at least competent know what they can do to keep their jobs, and they do it the best and brightest to know they can get new jobs. And so essentially, that company is on the slow path to extinction.

Greg Ferro (00:39:07) – Yes. And it’s probably a fair sign for you to get that résumé buffed up even more than it normally is and get it out there. Well, thanks so much for listening today. This has been Heavy Strategy. Thanks very much to Johna. She works at the Nemertes Research. That’s Nemertes.com. You can find her over there, join her community where she actually maintains a group of people who contribute and chat. And you can get ahold of her and I at that location. I’m Greg Ferro from Packet Pushers. As always. You can find me over on Twitter and on LinkedIn and we have our website. Lots of stuff there, lots of other channels in our network. Thanks very much for listening and we’ll catch you again in a couple of weeks.