Posts Tagged opportunity cost

Coffee Klatch

coffee_cupDrive the length and breadth of Silicon Valley, and you’ll see lots of office buildings, homes to the biggest names in technology. Some are fantastic campuses, like the Googleplex. Some are garden variety leased office space. So what do they actually manufacture in these hi-tech HQs?

Coffee.

Bold, medium roast, espresso, latte, caf, de-caf, you name it. Silicon Valley makes really good coffee. But do they make anything else?

Well sure, they make software and design hardware, but in the 21st century, do you really need office buildings to do that? What is truly gained by requiring employees to devote an average of 2 hours each day to commute to a central location? Is the cost in opportunity, rent, and the associated expenses of maintaining an office offset by a boost in productivity and revenue that makes it all worthwhile?

No. There is compelling data that suggests the opposite, that traditional offices are far more expensive and less productive than their alternative: virtual officing. Yet, in the 21st century, businesses nonetheless cling to 19th century office practices. That businesses are slow to adopt new technology is not in itself unusual. Over time, the adoption of advancements like the telephone, voice mail, fax, email, the internet, software-as-a-service, virtual meetings, voice-over-IP telephony, web 2.0, social networking, viral marketing, etc, have been impeded by the previous generation’s management best practices. In the particular case of virtual officing, there is a strong visceral force at work against it – managers are simply uncomfortable with it and are willing to pay a very steep price to keep their bricks & mortar.

Nevertheless, the sober realities of this economy are forcing many businesses to consider creative options to keep the lights on and the doors open – even if keeping the doors open requires closing the doors. Virtual office service Officebroker.com reported a 41% increase in virtual office inquires in June 2009 as compared with the previous year. These businesses are finding that gains in productivity and opportunity cost are as great as 200% over their traditional counterparts, enabling them to not only weather the downturn, but prosper as well.

In a 2006 pilot project, the Arizona Health Care Cost Containment System (AHCCCS) sent 4 employees home 4 days a week to gauge the potential benefits of virtual officing. The results were astonishing. The AHCCCS found that the number of claims processed by their virtual employees grew from an average of 2,101 claims medically reviewed per month to a seven month average of 4,700 claims medically reviewed per month! The authors of the report acknowledged how fantastic these gains might appear: “These numbers may seem incredible, but private sector firms like AT&T have reported increases in productivity of 75%!”

Additionally, the AHCCCS found that by offering telecommuting services to these four subjects, it saved each individual an average of $7,000 per year in vehicle costs. It also found substantial quantifiable benefit to the community as well – a total savings of $15,764.83 from commute-associated costs, such as traffic services, roadway land value, roadway costs, and crash damages. Finally, though not specifically addressed in the study, in can be reasonably assumed that the project yielded a compelling green dividend in the form of reduced CO2 emissions.

Given the potentially spectacular gains in productivity and cost savings, why aren’t captains of industry abandoning their corporate coffee clutches with greater, well, abandon?

Though virtual officing offers a relatively cheap and easy way to realize extraordinary efficiency and productivity gains, it is often dismissed due to management’s visceral discomfort with the notion of a company without walls and visible people. Managers don’t like it but, in my experience, they can rarely backup their feelings with rationale. At the top of the list of management excuses is that virtual employees can’t be supervised. This begs the question: “why would you want to hire employees that require supervision?”

Duh.

Though many companies are being driven to virtual officing by today’s tough economy, many believe the trend toward virtual officing will persist beyond the great recession.

One of these is j2 Global Communications’ CEO Hemi Zucker, who has presided over the company’s year over year growth in the outsourced fax, voice and email services categories, such as eFax.

Mr. Zucker summed it up this way: “businesses that have seized on technology advances have demonstrated a decisive advantage over their traditional competitors.”

Perhaps General George Patton said it best when he declared “Fixed fortifications are monuments to the stupidity of man.” Though his words were intended more for the Maginot Line than the Googleplex, they are still relevant over 65 years later, as there has never been a time when the when economic necessity and the tremendous capacity of virtual technology have had greater convergence. Those who choose to surrender their forts of industry today may well prove tomorrow’s corporate titans.


Note: this article is also available on San Francisco Chronicle’s “City Brights”

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I Haven’t Grown Accustomed to Your Face

myfairladyI rarely meet people before I hire them.

Seriously.

The reason why I lead off this installment of Virtuality with this particular factoid is because, in some 12 years of virtual officing, this is the one that has consistently drawn the greatest surprise from others. Actually, I would never have given my blind recruiting a second thought if not for the shock and awe reaction I typically receive in response to this particular revelation.

Why do I pass on face interviews? I think the better question is: “why conduct face interviews?” My rationale is this: if the employee is not going to have a public face, what do I care what they look like? My primary interest is in results. If an unattractive person gets the job done, that’s terrific. In 12 years of virtual officing, I can say with confidence that there is no correlation between looks and job performance.

Of course, there’s much more to our virtual recruiting practices than what doesn’t meet the eye.

For example, we not only don’t care what our employees look like; we don’t care where they live either. When we recruit new employees, we don’t constrain our net to a particular area, we draw from the entire 50 states. This enables us to search for talent in less competitive places, which substantially drives down our payroll expense, while driving up our retention. For example, we have successfully recruited from small college towns with little local industry. Graduates may love the town, but may find the local pickings slim. They’re often willing to give up some premium in compensation in order to enjoy college town life rather than pick up and move to the big city and swim with the sharks.

Another factoid: I never look at a software developer’s resume until they’ve passed a test.

When we place a job ad for a software developer, it’s not unusual for us to receive hundreds of applications. Over time, I found that there tended to be an inverse relationship between a software developer’s job-hunting skills and their development skills. The slicker the resume and the smoother the interview, the worse the code. After getting burned a few times, I asked my developers to assemble a test to probe the skill sets we needed from our recruits. Our job ads informed prospective employees that their applications would be screened by test results. Overnight, our world changed for the better. From the hundreds of respondents that applied, only a dozen or so would bother to take the test. From that number, only 3 or 4 would deliver satisfactory results. Suddenly, instead of spending dozens of hours vetting resumes only to be disappointed with the eventual hires, I might spend 30 minutes reviewing resumes, another hour or so in interviews, and I was almost always happy with the new additions to our team.  It’s worth noting again that I have never met a software developer before hiring them.

Job jumpers need not apply

Early in my virtual management career, I was confounded at the number of resumes I received from job hunters who, although relatively young, had already had scores of jobs on their CV. It was rare for these people to last a year at a job, yet it did not seem to be a particular impediment to their career. People kept hiring these job jumpers despite the long odds against them being around to celebrate a single anniversary. Why invest in someone who is going to leave, either voluntarily or involuntarily?

Then it finally dawned on me: the people who are hiring them are job jumpers too!

These managers may rationalize their hiring behavior – perhaps they actually believe that those who exhibit loyalty and longevity are complacent or even lazy, when the reality can usually be filed under one of the following categories:

  • The employee left voluntarily for a better opportunity – i.e. a shortcut to better compensation and status
  •  The employee left voluntarily because he/she just didn’t like the job
  •  The employee left involuntarily because he/she did not perform well on the job

Which of these would you prefer as your dream employee?

Of course, there are situations where things just don’t work out – the company downsized, the job was a bad fit, etc. However, if I see a consistent pattern of short-lived job experiences, it instantly hoists a big red flag for me. It costs money to recruit and train. Moreover, there is enormous opportunity cost associated with the organization trusting an employee to be on the job and supporting their proportionate weight of the company workload. It is extremely disruptive to an organization (and, therefore, costly) to replace an employee in midstream.

No adult supervision required

As I’ve written previously, one of the principal objections to the virtual office is management’s inability to physically supervise employees. My response to this is: why would you want to hire an employee that requires supervision?

Duh.

Professionals will deliver professional results without the additional overhead of constant supervision. If you treat employees like children, you can expect childish behavior in return.

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Virtuality — Part 2: Strategy and Technics

Virtuality part 2: Strategy and Technics

gettysburg “Muzzle-loading weapons sound awful primitive. They didn’t seem primitive to them. They were a new kind of infantry rifle that is deadly at 200 yards. That was a tremendous step forward. And the tactics were based on the old musket, which was accurate at about 60 feet. And they lined up shoulder to shoulder and moved against a position, and got blown down because they were using tactics with these very modern weapons. They were using the old-style tactics with very modern weapons. A few of the men realized that, Bedford Forrest for instance. He would never make a frontal attack on anything with this new weapon in their hands. But too many of them, including Robert E. Lee and U.S. Grant, followed the old tactics against these modern weapons. That’s why the casualties. There were 1,095,000 casualties in the Civil War. If today you had that same ratio, you’d have something like 10 million casualties, to give you some idea of what happened.”

- Shelby Foote, Civil War Historian

“They were using the old-style tactics with very modern weapons.” History has demonstrated again and again that military strategy and tactics lag the available technology. This is also true in business, where the adoption of advancements like the telephone, fax, email, the internet, software-as-a-service, virtual meetings, voice-over-IP telephony, web 2.0, social networking, viral marketing, etc, have been impeded by the previous generation’s management best practices.

As was the case with previous generations, today’s managers encumbered by yesterday’s vision face an insurmountable competitive disadvantage from those embracing the current technologies and practices available to them. At WebFeat, we were able to defeat companies as much as 100 times our size, simply because we were much more efficient and more productive than our bigger, slower, traditional adversaries. How was this possible?

Two words: opportunity cost.

When I attempt to recount the benefits of the virtual office to a stranger, I invariably am (preemptively) told that office rental is the #1 advantage. While office rent might make my top 100 list of reasons to go virtual, it is far from #1. Number 1 is the cost-effectiveness of my work force. Our virtual office easily yielded double the productivity of our traditional competitors. How?

strategytechnicstable1

This may not seem like a lot, but it adds up:

strategytechnicstable2

27.5 years lost in a 100 person organization. That’s the equivalent of 27.5 extra people!

In addition, in my own experience, I found that my virtual employees tended to work longer hours than those in traditional offices. Typically, this ranged from 20% to 30% more than traditional employee office hours. Apparently this was attributable to two factors:

1. Virtual employees tend to make less of a distinction between work time and personal time than traditional employees, and…

2. It appears I am a hard task master

Whatever the reason, in our 100 - employee hypothetical company, this would add an additional 20 - 30 years annually, bringing the total to 47.5 - 57.5 years of additional productivity — a virtual company is 47.5% - 57.5% more productive than traditional companies.

But wait, there’s more!

While at work, my virtual employees tended to accomplish more than their traditional counterparts. This was due to a number of factors, including:

We held only a fraction of the number of meetings held by traditional companies

When we did hold meetings, they tended to be more productive — why?

Because most of our meetings were held via teleconference, the attendees tended to find silence or “dead air” to be uncomfortable. Consequently, our meetings tended to be short, and they followed classic successful meeting techniques, namely:

  • An agenda was published prior to the meeting, informing attendees what to be prepared to discuss
  • Brief minutes were taken, with action items captured, as well as persons responsible and deadlines
  • If follow-up meetings were required, these action items fed into the subsequent meeting

The bottom line is that we didn’t hold very many meetings, and we got a lot done in the meetings we did hold. Additionally, because our meetings produced cogent sets of action items, the work resulting from our meetings tended to yield better results

Finally, no one “dropped in” to our virtual offices to chat. Granted, some of our more gossipy employees made effective use of online chat, but they had little time to waste at the virtual water cooler. The moral of the story is that the success of the virtual office, as well as the traditional kind, is determined largely by the effectiveness of the management team. However, an effective team in a traditional office will be no match for an effective management team in a virtual office.

While it is difficult to gauge the amount of time consumed in useless meetings and water cooler gossip, consider that if it averages only 1 hour per day per employee, our virtual productivity edge over traditional offices grows to 60% - 70%! How many employees do you know that give up a mere hour each day in meetings and gossip?

Clearly, I’m not talking about moving the corporate performance needle a couple of percentage points. I am talking about a great big game-changing, Earth-moving, paradigm-shifting fundamental makeover that can enable your business to not only weather the current storm, but enable it to prosper and handily crush its competition.

More to come in part 3…

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