Mitchell Marcus, CPA and John Zummo
7.22.21 | Industry Insights
If there’s one thing that COVID-19 has highlighted, it’s that the traditional setup of a corporate headquarters where employees congregate daily is not essential for productivity and that more roles than ever can be conducted remotely. A Gallop study reveals that, in the U.S., remote working doubled during the pandemic, with one in four employees operating entirely from home. As a result, many businesses have found that it’s time to reinvent the working environment.
Office Space, The Final Frontier
Business managers face the question of how to avoid wasting money on office space while accommodating workers who have taken well to telecommuting but still want to come into the office every so often. The concern is that, by continuing the pre-pandemic mindset of maintaining a big central office, businesses will see a lot of square footage go to waste since there will be fewer people there on any given day.
Traditionally, a company’s headquarters is defined as the location where its executive management, key departments, and support staff are based. It is argued that with everybody in the same building, decisions can be made quickly, departments can collaborate, and progress can be monitored. Such offices are often in prestigious central business districts, which means that commuting from the outer suburbs is all but essential for most employees. But with the advent of cloud technology and the introduction of remote working policies, there’s arguably far less need for all employees to work under the same roof – resulting in the old norms not holding true in the current environment.
New Model for a New Age
The hub-and-spoke model is a potential solution. Essentially, the idea is to replace one large central office with several smaller “spoke” offices spread throughout the area, with perhaps a small “hub” office that serves mainly to coordinate the spokes. In this way, workers can primarily telecommute. If they need to go to the office, there will be one nearby, and they won’t need to travel to the central office. Use of space would be scheduled based on needs. For example, one day, a spoke office could be used entirely for marketing, while another day could belong to a different department.
While working from home has been a success for many, a recent report by Capita showed that 77% of businesses said the lack of social contact during working hours had compromised employee wellbeing. With this in mind, there needs to be a middle ground between long commutes to packed offices and working from home. In recent years, flexibility has become the number one requirement of key talent when considering joining a company. Companies that are open to flexible working will benefit not only by attracting top-shelf candidates but also from increased productivity, profitability, and loyalty from their current workforce.
Looking ahead, experts predict low-rise suburban office buildings will see increased demand as some companies move to this new hub-and-spoke model. Before companies choose the model that will work best for them and their employees, they should consider the following potential benefits and disadvantages:
- Productivity: An improved work-life balance could mean higher employee productivity and output.
- Flexibility: All staff can be in their most convenient location at all times, seamlessly integrating their home office, local spoke, and central hub into a highly collaborative and productive work lifestyle.
- Environment: Reduced or zero-commutes combined with less active commercial real estate can help minimize emissions and energy consumption.
- Attracting talent: Businesses can spread out and attract a wider talent pool, improve work-life balance, and increase productivity and profitability.
- Attracting new business: Having a larger geographical footprint can lead to a broader audience and broader customer and client reach.
- Financial impact: Businesses could benefit from shorter and potentially less expensive lease agreements and lower risk.
- Local economies: Area communities will appreciate the uptick in business and revenue from spoke offices.
- Weakening of company culture: Employees spread across different spoke offices could erode the foundations of the company culture that drove innovation and productivity.
- Loss of potential: Hub-and-spoke leaders may lose sight of their team’s joint potential and the synergy that comes from all members working in concert. Over time, they may focus more on their own effectiveness and satisfaction with each relationship rather than on the team’s overall success.
- Lower-grade spoke offices: Spoke offices might not have all the meeting rooms, breakrooms, kitchen/catering facilities, gyms, or super-fast Internet of large commercial buildings.
- Lack of available spoke offices: Currently, there isn’t enough suburban office space to facilitate a mass shift to the hub-and-spoke concept. Often the available space does not meet the standards employees have come to expect in downtown offices and central business districts.
- Loss of greater imprint in larger cities: Not maintaining a presence in major cities like New York City, Philadelphia, and Los Angeles may impact the chances of attracting new business.
Finding a Balance
When looking at the advantages of a hub-and-spoke model, you can’t simply throw away the shared human experience of going into the office. Nor can you ignore the fact that some people don’t want to work remotely all of the time. Clearly, more flexibility is needed. Some employees discovered that telecommuting raised their productivity and improved their work-life balance, while others didn’t and have been eager to get back to the office. Most, however, were somewhere in the middle, seeing the benefits of remote work on some days and the need for an office visit on others. Businesses, meanwhile, developed the digital infrastructure for remote work and were able to see how a distributed workforce could operate successfully.
Attracting New Business
Adopting the hub-and-spoke model means that while your dispersed teams are going about their daily business, they also meet local people and other companies they might not have otherwise encountered. These circumstances open a range of doors and benefits, including a broader reach for in-person services, more ‘click & collect’ spots, new business partners, and potentially more extensive distribution. The hub-and-spoke model essentially asks the question: Why stay in one location when your business could go further? As opposed to the more traditional headquarters model – in which a business operates from a single, larger city center head office – hub-and-spoke offices allow employees to work from either their city hub or a dedicated, strategic spoke location, which includes more regional workspaces.
The Shift is On
Some prominent businesses – Fujitsu, Google, Amazon, and Virgin Money – have already adopted or announced the adoption of the hub-and-spoke model. With the next generation already hitting the workforce with their apparent desire for flexible work schedules, this model could serve as an agreeable compromise as we see a generational transition.
One Size Does Not Fit All
When weighing the advantages and disadvantages, it is safe to say that the hub-and-spoke office model will not work for all businesses. Some will not benefit if their business significantly (or heavily) relies on a team atmosphere and in-person collaboration. In addition, not all regions are currently suited with appropriate satellite offices that are up to today’s required office standards. So, if you are located in such an area, this model may not be feasible at this time. For years, the real estate and construction industries have highlighted the fact that only the best buildings can truly boost occupant health, optimize productivity, and attract leading talent. COVID-19 has made healthier workplaces a top priority. In many areas, this is just not possible utilizing the current suburban building stock, nor is it immediately attractive or feasible to develop.
Wherever you may be on the hub-and-spoke model, one thing remains clear: Current corporate headquarters will need to change and adapt as employees demand more flexibility from their employers related to their office setup and location.
Questions: Contact Mitchell Marcus at 212.331.7460 | email@example.com or your Berdon advisor.
Berdon LLP New York Accountants