Innovation Is Now the #1 Business Driver, So IBM Abruptly Drops Remote Work

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Mar 20, 2017

If innovation is essential to your firm’s success … learn the value of “coming to work”

IBM is a firm that for years has been a highly visible public champion of remote work. So it was a shock to many that IBM (where as much as 40 percent of its workforce works remotely) is now abruptly dropping remote work! IBM is now requiring its workers to physically move close to one of six regional facilities and to begin coming into the office.

To the uninformed, this radical “move or leave” action may seem like an attack on productivity. And, indirectly it is. Because in a fast-moving highly competitive world, increasing productivity has fallen into second place behind innovation in providing economic value to a corporation. Of course, increasing productivity is still important. But if you expect to compete against the top six powerhouse “serial innovation firms” with the highest market cap like Apple, Google, Microsoft, Amazon and Facebook, innovation must now be paramount (all of these also appear in the top 10 Most Admired Firms). With an over four-year consecutive decline in revenue, IBM’s CEO had little choice but to take radical action. And making the changes that are necessary in order to become a serial innovation firm are key to a successful turnaround.

Serial Innovation Produces Greater Economic Value

For literally centuries, the primary goal of almost every firm was increasing employee productivity. Where productivity is the value produced by labor, minus labor costs. Obviously, it’s hard to argue against the traditional productivity approach where you hire and retain workers with a strong work ethic, and as a result, you make single-digit yearly improvements in productivity. However, by examining what the top market cap and high revenue-per-employee firms have in common, it’s easier to see the much higher value produced by innovation.

One of the best ways to measure the value that your employees are creating in your current work environment is by comparing your revenue per employee to that of your competitors (i.e. total corporate revenue divided by the number of employees). Employees at IBM produce on average $193,000 per year (below average for the industry). However, IBM’s results are minuscule when compared to Apple’s $1.87 million, Facebook’s $1.62 million, and Alphabet’s $1.25 million yearly revenue per employee. These serial innovation firms produce a multiple of between 6 and 9.6 times the value of IBM’s workforce. Increasingly, CEOs are learning what talent managers have known for a decade. And that is that while remote work clearly improves individual worker productivity by double digits, the more interactive and stimulating face-to-face interaction between employees is the key to dramatically increasing the much higher value (at least five times more) that is added by maximizing collaboration, creativity, and innovation.

“How many people telecommute at Google? And our answer is: ‘As few as possible'” (source)

Why Remote Work Harms Innovation Explained

Research by Google has revealed for the first time that increased collaboration between disparate teams is a critical factor in increasing innovation. On the flipside of that research is that remote work unintentionally decreases innovation. There are four primary reasons why remote work dramatically reduces innovation. Those reasons include:

  1. Remote communications involve delays which kill excitement — most communications to and from remote workers involve delays. This is because remote workers usually work on their own schedule, so there is often a delay of several hours between employee interactions and responses to communications. Of course, it’s hard for any email/text message to cause excitement. But the typical hour or more delay between receiving and responding to an email, for example, has the effect of reducing the excitement of any conversation. Because, by the time the remote worker responds, the office workers may have moved on to other things. The responsiveness and excitement of face-to-face meetings simply can’t be duplicated with remote communications.
  2. Being treated as an outsider reduces the number of ideas from remote workers — because remote and international workers are not often physically seen, they are often treated as outsiders. As a result, their ideas and problems (no matter how important they are) are less likely to get the full attention of the rest of the team. And over time when their ideas get little response, they stop producing them. Being remote can also reduce team cohesion, and as a result, the outsider may over time develop lower levels of commitment.
  3. Remote participation during team meetings is problematic  even with the best technology, it’s hard to fully involve remote workers in scheduled team meetings that involve innovation. And when it comes to impromptu meetings or informal meetings during work breaks, they are simply not invited. Even when they are invited to participate, it hard for remote workers to actually “feel” the energy and the excitement in the room. As a result, their involvement, energy, and a number of contributed ideas in the all-important team meetings can be limited. It’s much like a party; there’s no chance that following the party remotely via messaging or video can compare with the actual excitement felt by those that are physically at the party.
  4. Remote workers often have little opportunity to think and reflect — remote workers are often expected to keep continually busy, and in some cases, their work is even remotely monitored. Their heavy workload and a focus on productivity almost universally leave little free time for thinking about innovation. In addition, those that work at home might not even have a physical space where they can quietly reflect on innovation.

Why Face-To-Face Interactions Dramatically Increase Innovation

In order to successfully increase innovation as a result of a “come to work” process, understand why the effort actually works. Seven foundation reasons why “coming to work” increases innovation include:

  1. Constant serendipitous interactions increase the likelihood of sharing solutions — historically it was known as a “water cooler effect.” Whether you are strolling down the hallways or working at your table in an open work environment, the odds of running into someone that can help you with your problems are increased dramatically. The technical name for those meetings is “serendipitous meetings.” And when they occur frequently, that means that when you’re struggling with a problem or solution, there is a higher probability that you will run into someone who has an answer, a suggestion, or best practice. Increasing the number of people who spontaneously offer suggestions results in problems being solved faster and solutions being refined more quickly. In fact, one research study by i4cp found that the employees at top-performing firms exchanged knowledge seven times more often than the employees at weak-performing firms.
  2. The likelihood of constant interactions forces office workers to stay on the leading edge — this important “pressure to learn” factor is often overlooked. When offices are designed correctly, the chances of face-to-face encounters from members of different teams are much greater. That means that the odds of an individual employee accidentally running into someone who is more up to date or that have a newer or more innovative idea are significantly higher. And with these increased interactions, the chance of being challenged increases, which also creates the fear of appearing like you are behind and the fear of receiving criticism of your work. Taken together this fear (I call it the fear of looking stupid) puts a subtle pressure on all employees to keep up to date. Yes, continuous unplanned interactions increase employee competition and help to ensure that workers are continually working on something new and exciting. Remote workers have the opportunity to delay their responses, so they may face less of a challenge to stay on the leading edge.
  3. Informal problem-solving meetings can be called quickly — with everyone close by, it’s much easier to hold impromptu meetings, and especially those that occur when a member of another team stops by. Without an agenda and maybe even having no manager present, these impromptu meetings are more likely to involve the exchange of innovation ideas that have a higher level of risk. At least in my experience, few bold ideas are fully explored in regularly scheduled formal team meetings.
  4. Faster decision-making excites innovators — innovators want their ideas to move forward quickly, so they want fast decisions, even when they are negative. Because everyone is working in an open office environment, everyone is close by. And that makes it possible for many decisions to be made verbally and in an informal way. Reducing the time it takes to make quality decisions is an integral factor in maintaining employee excitement. Getting the vote and buy-in of remote workers on even minor decisions, obviously, involves more delays and a corresponding reduction in excitement.
  5. Increased opportunity to interact during breaks — because serial innovation firms usually have a number of on-site services, employees don’t have to leave the premises during the day. And that means that in addition to their regular work hour interactions, there are numerous additional serendipitous interactions during breaks, meals, and on-campus fun activities. In fact, before and after work and break/fun interactions can cover as much as 20 percent of the total workday. Many serial innovation firms also provide free bus transportation because it increases the number of interactions while waiting in line and on the bus. Google even designs its lunch tables and the length of its café lines to increase interactions. Adding 20 percent to the time where employees are exchanging ideas plays a significant role in increasing innovation. It is of course much less likely that remote workers will participate in these off-the-clock interactions.
  6. Increased inspiration from leaders — when a key leader holds an informal “all-hands” talk or a formal presentation, those in the room are likely to feel the energy and to be inspired. Informal talks with individuals immediately after such sessions are also likely to increase understanding and commitment. Unfortunately, a remote worker who is watching a video of the session won’t experience the same impact.
  7. You must demand innovation everywhere — it’s a huge mistake to centralize innovation and to expect it from only from a small number of design or product development jobs. That is because for innovation to work in a corporation, every function must be fast and innovative. That is because just like a train, an organization can only move as fast as the slowest and least innovative component. Yes, finance, HR, and supply chain need to move fast and be equally as innovative, in order to provide the support those engineers and product designers need in order to implement their innovative ideas successfully. Remote workers (and especially those working for overhead functions) are simply more likely to be a drag on moving fast and innovation.

Action Steps for Talent Managers and Executives

IBM’s executives should realize that although shifting to a “face-to-face work environment” can have a dramatic impact on innovation, there are many factors that can reduce the effect (Yahoo is an illustrative example). For example, if your hiring and retention systems don’t have the capacity to attract and retain innovators (most don’t), your workforce simply won’t have the capability to take advantage of the increased interactions. Average workers and those behind in their learning seldom exchange innovative ideas. If you don’t recognize, celebrate, and reward innovation and “risk-taking with rapid learning,” most employees will stick with the safe route of continuous improvement.

If your firm overemphasizes programs like Six Sigma that dramatically reduce errors, you will unintentionally lose the opportunity to learn from those errors. And finally, how you manage innovators is critical. It is extremely hard for firms like IBM and Yahoo that emphasize rules, procedures, and hierarchy to successfully shift to the new mode, which requires granting your employees a huge amount of freedom. (Google offers 20 percent time and Facebook offers “no meeting Wednesdays in order to maximize free time.)

Final Thoughts

It’s not uncommon for employees who are currently working remotely and those sympathetic towards working parents to violently object to the elimination of remote work. In fact, I find that it is often only data-driven insiders that know that collaboration and innovation are maximized when there is a high volume of “serendipitous meetings” between workers from different areas. These interactions have nothing to do with traditional team-building activities. Instead, the data demonstrate that increasing informal interactions works because those interactions result in numerous positive outcomes. Those outcomes include increased collaboration, faster learning, and problem-solving, more idea sharing, more criticism, and the breaking down of barriers and silos. These interactions also increase excitement and even competition, as coworkers find out through these exchanges whether they are as up to date and as innovative as their colleagues.

In addition to just requiring workers to come to work, these cross-team interactions must be purposely increased through open office design, sharing food and coffee, riding together on the company shuttle bus, and even through fun activities.

If you still doubt the impact that coming to work and its related support programs have on innovation, do a quick side-by-side comparison. Statistically, compare the innovation rates of 100 percent remote teams and 100 percent face-to-face teams. The differences are almost always dramatic. And yes, when you implement this process you may initially lose some level of productivity and some percentage of your remote workers. But you will gain that initial economic loss and much more back over both the short and long term as a result of the dramatic increase in collaboration and innovation.


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