What is workplace strategy, and why is it important to the future of every business?
For an emergent discipline with such obvious importance for the commercial property industry, Wikipedia remains strangely almost silent on the subject of workplace strategy.
It defines it as, “the dynamic alignment of an organization’s work patterns with the work environment to enable peak performance and reduce costs.”
Those describing themselves as “workplace strategists” on the back of their success in managing a corporate relocation into “activity based working” (ABW) workspaces may concur with this definition.
Yet workplace strategy’s new disciplines have far wider implications. They now direct not only the future of work itself across myriad workplaces but also the fortunes of many currently powerful property owners.
And in its unfolding, even ABW may now be history, a passing fad, because what is coming, with its ever tighter focus on knowledge-creating workspaces, is even more challenging, especially for those owners.
Workplace strategy and the bust of the commercial workplace property boom
Those owning commercial CBD property may currently be enjoying too fat a lunch, blinding themselves to the inevitable.
Current occupation of Sydney and Melbourne CBD properties is at an all-time high, with there being little stock available and historically low vacancy rates.
The combined effect of low availability and a slowing pipeline of new supply coming online, tightening demand, is high rental prices.
But what goes up must come down, and the factors that will contribute to this are already manifesting.
First, tenant companies are becoming more knowledgeable about activity based working and workplace strategy. In getting better at negotiating new square metrage, based on actual need, they will continue to demand less, but also different kinds of space.
Second, commercial property owners (CPO) generally have limited knowledge of the ways in which those businesses leasing their spaces are using them. Not being either invited or able to see through their walls limits their abilities to refine their product to address genuine needs.
The age of machine learning also presents the prospect that with digitised combatants becoming smarter in the way they do things, many office jobs will simply be automated out of the workforce.
The upshot seems likely to be a diminution in the demand for commercial office space, or the emergence of that demand in a different form.
Activity based working is yesterday’s workplace strategy news
ABW is an area in which Robin Brinkman, director office leasing at agents Knight Frank, suggests Australia pretty much leads the world.
But, perversely, tenants leading the world at ABW was only the beginning of the owners’ or agents’ problems.
Even when I first interviewed him one year ago, Simon Hunt, managing director, office leasing, at Colliers International in Sydney, suggested that the downward effect on big tenant leases of customers getting smarter about their use of space was already affecting its business.
Hunt said, “The bigger tenants are becoming smaller. They are moving from A to B, and a lot of the big legal and accounting firms are taking 10–15 per cent less space.
“There are brand new players, such as WeWork and different models, LiquidSpace, third spaces, flexible spaces, membership spaces, and you can spill out into those areas.
“Therefore tenants are saying, I might not need all the meeting space on this floor … so I might take a little less space.”
The upside, he said, is that, “Occupiers might be getting smaller, but there are more tenants, just coming up in Australia. There are more businesses now.”
Indeed, ABW is already yesterday’s war, but more businesses don’t automatically add up to more of the same demand.
The new players are already taking the cream
In April, Business Insider reported IBM agreeing to sign a membership deal for all desks in coworking operator WeWork’s 88 University Place, New York, building.
It was set to move up to 600 employees there, with it essentially becoming IBM’s corporate office, but designed and managed by WeWork.
It is coworking, not ABW, that is tomorrow’s battle for CPOs.
The commercial workplace market is shifting
The emerging business model of those looking for space is now moving in pretty much the opposite direction to those established institutions at the big end of town previously best able to supply it.
Currently, in an age moving inexorably fostering the many variants of coworking, this change may be happening only at the margins.
But, where incumbent landlords want to lock customers into the longest lease term possible for the greatest amount of space, the space-takers now want precisely the opposite.
They want to buy the smallest amount of space, a single desk for a month without commitments any longer than that month.
In this shift, the customers can only win.
How commercial CBD office owners are shuffling towards disruption
It is regularly observed that in time of industry transition, a market’s dominant players lose sight of what is happening around them.
Their business models make them fat, rich and complacent because they come to dominate the top, price-insensitive segments of the market that makes most of the money.
They cease to focus on the the bottom end of town, those lower yield segments from which new demand will emerge.
Harvard Business School professor Clayton Christensen, the authority on the subject, has for years written that industrial disruption is as inevitable and ultimately unavoidable as gravity.
His classic example is Toyota’s introduction to the US market of a small, affordable car.
The local motor industry didn’t see it as a threat because its players could only conceive of producing large and increasingly luxurious versions of existing models.
Typically, at first, those running the old system won’t notice the change as a few “edge” customers move over to the rival’s new solution.
As in Toyota’s example, when they do, the dominant incumbents assume it’s not significant.
Industries never welcome newcomers, but then there comes a tipping point at which the new entrant becomes more than a minor irritant by continuing to steal more of the incumbent’s sales.
The established business remains in denial that this incursion will last and declares it a passing fashion, or fad.
Finally, the entrant’s new model succeeds so well that it becomes the main game.
When they’ve squandered most of the time they had to adapt, the managers of the old organisation suddenly wonder where their business went.
This pattern is repetitive, and, once seen, ubiquitous.
Coworking is the disruptors’ new vehicle.
Coworking is unbundling the workplace
Bundling is a technique of offering two or more complementary goods or services together as a discounted package deal. Consider Microsoft Office an archetypal bundle.
As a phenomenon given new impetus by the internet, however, unbundling may be seen as an opportunity by a new competitor able to pick off the individual lines of an incumbent to make money where the incumbent can’t.
As we’ve seen in the unbundling of financial services, it may then rebundle them with those of another organisation on which that competitor also can’t make money. The new entrant, however, profits because it sees the world differently.
It is arguable that against the traditional model of office leasing, in increasing instances of coworking, the workplace is already being unbundled and repackaged.
The business model described by US academic and management author John Hagel as an “infrastructure business” fits that of the commercial property owner. Its focus is on managing high volume, routine processing activities, aggregating participants and transactions.
Such businesses are driven by a cost-focused efficiency culture in which the key capability is to drive down cost per transaction, and to standardise, as variability tends to push up costs.
The inherent uncertainties of coworking’s unit of sale of a single desk per month and the complications of providing supporting services geared to the interests of a specific niche of customers does not fit the model of an infrastructure provider.
Coworking at its best requires true customer care, collaboration and insight, none of which are the CPOs’ standout qualities.
It’s not necessarily about the workplace
Workplace strategy may in a definitional sense be only half-correctly named, as it itself is moving away from being primarily a consideration of property to becoming one concerned fundamentally with the design and delivery of work.
And it’s not just any work, but that conducted in “knowledge factories”, and how it is to be executed.
It is much more about strategy than workplace.
It is also likely that those who work in strategy will learn about workplace strategy much faster than those blinkered property foks preoccupied with selling square-metre solutions of physical workplace.
Property owners should be concerned that in their future battles over leases they are unlikely to be taking on the sorts of minds they are used to dealing with.
The argument is no longer over square metres and years.
The challenges for owners, agents and those representing large occupiers are largely the same: accommodating something they have never seen, and whose shape is initially hard to discern and measure.
The challenge is to conceive of a future in which the workplace is about designing work itself around the knowledge that must be created and transferred, and not just the spaces in which it will take place.
Location might be valuable — if you want to attract the right people, it’s still location, location, location, right? However, we need to rethink knowledge-creating work’s evolving relationship to both the virtual and physical spaces in which it occurs.
This requires a new set of competencies, and they aren’t principally property focused.
The absolute focus should be on producing knowledge-generating workplace assets because existing alternatives have diminishing value.
Workplace strategy is knowledge architecture
Workplace strategy is at its heart “knowledge architecture”, and its techniques and technologies are going to refashion the business models of all it touches.
In the words of Bill Gates, as in anything, we may overestimate the impact of new technologies in the short term, but we are definitely likely to underestimate them in the long term.
We may be sure the current owners of commercial CBD workspace are mindful of this emerging risk to their livelihoods. But at this point of how they intend to fight back, we may be less certain — especially over that longer term.
Graham Lauren is a director of Shiro Architects in Sydney and is building a specialist knowledge-architecture briefing practice.
The header image is licensed via Creative Commons from GotCredit.