This article was first published in MoneyWeek magazine issue no 993 on 2 April 2020. To make sure you don't miss out in future, and get to read all our articles as soon as they're published, sign up to MoneyWeek here and get your first six issues free.
As the lockdown grinds on, everyone is desperately asking just how long it will last and when we can return to normal. Limited testing of individuals, a lack of hard data and unstable computer modelling are making predictions impossible. Nor can anyone say what is in fact meant by “return to normal”.
The longer activity is choked off by government restrictions, the more likely we are to adopt new habits that could change the structure of the post-virus economy irrevocably. Perhaps the key trend set to have a big impact on the way we are going to live in future is working from home. From an investor’s point of view it has the potential to give new impetus to the businesses that facilitate it.
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A breakthrough for remote working
Remote working is not new, of course. Research varies, but figures for the US show regular working from home has risen faster than working in an office. Nevertheless, before the outbreak of the coronavirus, the vast majority of businesses did not envisage that so many of their employees would ordinarily be working from home for an extended period. This is a breakthrough. Even employers quite used to this style of working are unlikely to have had as many employees based at home as they do now amid the emergency curbs on movement.
Many companies may have felt that a certain proportion of the payroll must be in the office even if the role can largely be performed at home; they may also have thought that some homeworkers can’t be supervised and won’t actually do anything. Without sudden shake-ups like this virus, habits and preconceptions aren’t changed easily.
Assessing new evidence
But as the lockdown goes on and businesses carry on engaging with clients, processing tasks and keeping up with administration, more and more business leaders will ask why homeworking shouldn’t continue where it practically can.
Companies would save on costs such as rent (surveys repeatedly show that office desks are empty up to half the time) and would be likely to reap a productivity bonus from their undoubtedly happier employees. Less sick leave and lower staff turnover are related plus points. What’s more, having experienced the coronavirus, companies will be better prepared to keep their businesses ticking over in emergency situations. Clearly, the present environment is extreme and not everyone can – or would want – to work from home every day, or even at all. And not all businesses can support it.
According to a 2019 survey in the US, though, 80% of employees would like to be able to do so at least some of the time, many more than were actually doing so before the advent of Covid-19. Yet for all of those who see the benefits of domestic flexibility and work-life balance, there are others who struggle with the lack of camaraderie and face-to-face interaction.
When the lockdown does finally end, however, there will be many employees reluctant to give up the homeworking set-up and able to demonstrate to their managers that it has worked.
Assuming there are no insurmountable reasons preventing homeworking beyond the current virus period, is it likely managers would resist and thus potentially stoke resentment as they try to reshape their companies and bolster morale for the post-virus landscape?
A win-win for business
The reality for them is that homeworking could be a “win-win” and it makes sense to allow and promote it wherever possible. It’s not just a question of employees’ morale, work-life balance and productivity.
Strategically minded business leaders will see more wide-ranging and potentially significant benefits that could boost their businesses’ reputation. Environmental, social and governance (ESG) is all the rage at present and homeworking ticks several boxes when it comes to the environment and social welfare.
Chief among them is the inevitable reduction in commuting and hence pollution. As well as making a business more “green”, there are the associated benefits of lower city and urban congestion, whether from less road traffic or fewer people on trains, tubes and buses, and reduced strain on infrastructure.
More broadly, staff working from home all or at least most of the time are in a position to live outside traditional commuter areas where property prices can be lower and thus more affordable, an especially important factor for those with growing families.
Ultimately this means people are not clustered around key railway stations or bursting out of the edges of city boundaries, making for a more even population (and wealth) distribution. It also reinvigorates communities further away, increasing local business trade and community diversity.
There are plenty of benefits to homeworking, then, but the most immediate gain is a more productive, engaged and committed staff. Right now it is an unavoidable arrangement, but to continue with it longer term requires mutual trust. Companies must expect good results from staff who in turn need to feel involved. Tech and software today can help companies achieve this virtual business environment that, with the right management and workers, makes a business better.
Many organisations have been embracing technology and design for years. Creating that perfect office set-up, whether physical or virtual, often seems to be a challenge that never ends. For decades, business magazines have regularly speculated about the “office of the future”. Too often the conclusions are just another variation on a mix between private office spaces, cubicles and open-plan layouts with some tweaks here and there. If there were innovations, there were failures too, while many ideas fell somewhere in between.
In the semiconductor industry in Silicon Valley in the 1990s, Andrew Grove, the highly regarded CEO who helped semiconductor giant Intel thrive, had everyone in cubicles and always accessible. He believed in an egalitarian office with no offices for top executives. He engendered a demanding office atmosphere known as “constructive confrontation” between staff regardless of role or rank. Intel performed well, but many employees were unhappy.
Giving workers more autonomy
Design fads aside, over the longer term we have seen a shift towards what consultants like to call “staff empowerment”, with more and more employees being afforded greater autonomy provided they deliver on clearly defined objectives – a structural backdrop that bodes well for homeworking.
A key advocate of smashing the traditional office set up and letting staff get on with it was the US advertising mogul Jay Chiat of the Chiat/Day agency. He was responsible for big campaigns including a take on George Orwell’s Big Brother in a Super Bowl commercial to premier Apple’s new Macintosh computer in 1984 (yes, the Mac is over 36 years old). He also created the thumping “I Love L.A.” campaign for Nike in the same year that so dominated the city’s Olympics that, according to his New York Times obituary, it eclipsed Converse, which had in fact paid $4m to be the official footwear sponsor. American Express, Honda and Reebok were among other clients.
The pioneer who paved the way
Chiat said that offices are ruined by politics and workers become obsessed with each other at the expense of their work. Chiat didn’t want people stuck in noisy office areas. He argued the office wasn’t a place for work. His solution was to ditch all dividing walls and cubicles, as well as actual desks and computers. Everyone got a laptop and mobile and could work wherever they wanted.
It was all about breaking things down and moving forwards. Chiat said in an interview in Wired magazine in 1994 called, interestingly for the time, “Virtual Chiat”, that “Most businesses are run like … schools – you go to work and you only leave your office when you have to go to the bathroom.
“That sort of thing breeds insularity and fear, and it’s non-productive. The important thing is to focus on what kind of work you do.” His new office format was a breakthrough at the time and it got lots of coverage and imitation.
This is a man who got the most out of people – he built an agency that went from $8m of billings in the late 1960s to over $1.3bn by the early 1990s. That reflects a 25%-a-year compound growth rate.
Technology catches up
He had the right thinking. He pushed the boundary of what could be done with the office. Two decades later with the types of technology we’re now almost taking for granted, he could have gone further. Chiat would probably have been among those to pioneer the virtual offices that, because of the arrival of a virus, we have ended up with today.
The rapid growth of the technology that makes remote working possible has outstripped the ability and determination of many businesses to embrace and harness it. The impact of the coronavirus demands an almost turbo-charged catch-up. There are so many easy ways to spot the technology “huggers” or “Luddites” in UK plc.
Take the simplest example: two companies can require customers to complete and sign the same form. One asks you to print it out, fill it in, sign it, scan it and then email it back (basically just faxing). The other gets all the relevant information by asking you to use the keyboard and then asks you to sign electronically, perhaps with a mobile-phone security verification text, and the job’s done.
The Luddite company will regret not investing more in technology before today’s spot of bother and if the shutdown has wiped out its cash reserves, it may be too late to make amends.
A right, not a perk
Even companies that can embrace the concept of the virtual office after the virus dies down may not. Some can’t, of course, as it is simply impractical, while others will be able to do it, but only for a limited range of roles. But there will also be those that want staff in an office in any case as they like renting big open spaces and want dedicated desks for every staff member whether they are there regularly or not.
Nonetheless, it’s clear which way the wind is blowing. In China this year during the coronavirus outbreak, more than 18 million companies worked online remotely and 300 million people used homeworking software.
There have been numerous surveys with staff saying it has been a more productive period and the time saved in commuting lifts morale and makes people feel better.
Technology is changing business the world over and companies should take careful note and adapt where necessary. Any firms clinging to the idea that requests to work from home are simply a perk for staff and a risk for the business may find out the hard way that modern ways of working and attracting the best people are going to make an increasingly big difference to their long-term fortunes in the post-virus world.
The cloud is key
There are many approaches to making homeworking function for each business. Central to all is the cloud. This broadly refers to storing or managing data and delivering IT services on the internet rather than in-house. It basically is the virtual office, capable of joining up more and more interactions between people, their devices and their work anywhere in the world. Once in the cloud employees or customers all become fully connected continuously and a physical office is irrelevant; face-to-face meetings, if needed, can take place anywhere.
Within this framework, core elements for virtual offices are cloud-based document and information storage, cloud-based software applications, videoconferencing, telephone-call management and handling, electronic document signature software, and staff-to-staff online chat and collaboration tools. Cybersecurity services should also feature. The box below highlights some beneficiaries of the trend.
The stocks to buy now
The emphasis here is on businesses that should benefit from a growing long-term trend of people working remotely as well as during the current lockdown. A reliable working-from-home “all-rounder” is Microsoft (Nasdaq: MSFT). The business model and management is highly rated and it doesn’t come as a surprise that at the time of writing it is one of those rare stocks with a share price in positive territory so far this year.
Investors can profit from the group’s rapid development of a serious and leading cloud service that is needed by businesses to connect all their staff, customers and devices. Almost all homeworkers will be using those revenue stalwarts Office and Windows. They may well use Microsoft’s Skype for communication, as well as its Teams product for staying in touch with colleagues. Meantime, LinkedIn is likely to be used more frequently for profile building and remote networking.
Another high-quality remote-working play is Adobe (Nasdaq: ADBE) with its applications for design, publishing, photography and video. Again, it has a strong business model and is underpinned by its Creative Cloud offering for work storage, processing and collaboration from anywhere with anyone.
It’s used by an array of businesses, agencies and studios as well as by many freelancers. With a good record and a further expansion of its offering into its client base, it should continue to offer strong returns eclipsing the overall market’s over the long term.
As more people work at home, there will be more demand for online data centres. Work will be stored there rather than in an individual’s computers so it can be accessed from other devices wherever the worker is, or by colleagues. Intel (Nasdaq: INTC) is a strong operator in this area. But Advanced Micro Devices (Nasdaq: AMD) is growing its market share and offers good growth prospects too.
Connecting people visually, meanwhile, is the speciality of Zoom Video Communications (Nasdaq: ZM). The surge in videoconferencing has seen its profile climb during the pandemic. It has had a good run in the past and is highly rated by investors. However, the work from home (as well as virtual education) trend is proving a considerable boost and for long-term investors with an appetite for increased risk it’s worth a close look.
And finally, research Citrix (Nasdaq: CTXS). It is very well-placed for homeworking with its long-established applications for connecting employees directly into their own companies’ systems using laptops, or even their own computers at home.
Several analysts have recently released upgrades to their estimates, which has bolstered the shares this year. It is vulnerable to a general dip in the economic cycle, but remote working offers potentially sustained upside on a long-term view.
• Stephen Connolly writes on finance and business, and has worked in investment banking and asset management for over 25 years.
Stephen Connolly is the managing director of consultancy Plain Money. He has worked in investment banking and asset management for over 30 years and writes on business and finance topics.
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