The Inefficiency of Efficiency
I’ve been thinking a lot about two statistics I’ve heard recently, one from a colleague, the other from a client;
- 40% of office space is not utilized
- There’s $20bn of annual excess capacity in America’s bank branch infrastructure
If you stop and think for a moment it’s hard not to come to the conclusion that something very odd, and very big, is behind these stats.
I wonder what?
Well, first, the office space issue. Perhaps, like me, you spend a lot of time “on the road”, visiting clients and partners. What often strikes me as I walk from the elevator to the meeting room in big offices is how few of the cubicles laid out in rows have anyone in them; it would be rude to ask but I do sort of think to myself “where is everyone?” They can’t all be in meetings, or in the loo, or off sick, or out on the road themselves. Hundreds and hundreds of desks sitting there, sometimes with signs of life, but frequently with nothing more on them than an old land-line phone and a half chewed pencil. [Talking of pencils, Theodre Roetheke was onto this a long time ago I guess http://bit.ly/1HbAOwz]
This isn’t a one-off based observation; not simply a finding from a day-trip to Detroit. This is something I’ve been seeing for many years now, in places all around America, including big cities like Boston and LA, and all points around the world. The 40% figure, when I heard it, really tallied with my own experience, but crystalized quite how significant this strange dynamic was.
And again, I’m typically not visiting Mary Celeste Incorporated; these are meetings with big name, blue chip companies, with thousands of people on the payroll.
Very strange …
Now, the bank branch infrastructure issue; I suppose this is easier to understand. When was the last time you went into a branch of a bank? I can vaguely recall going into my local branch in the fall last year, but that’s about it. It’s probably unlikely that you’ve been into your branch either recently. All of our banking is now on-line (well, most of it) so there’s really no need to go to the physical branch. When you do go in there, the only folks there seem to be the more, shall we say, mature members of society (!) and mature members of staff … and an occasional young (typically female) teller, looking as though she’s thinking to herself “what on earth am I doing here … ???”
Where I live, the main bank’s branch is bang in the middle of the nicest part of the town. If they rent the space I can’t imagine the rent is cheap, and if they own the land, they’re sitting on a pretty penny, presumably. The branch’s trading profitability though, as a stand-alone entity, must be worryingly thin (if it even is still a positive figure) based on the amount of transaction based traffic they see throughout the year.
Again, very strange …
So, what’s it all about Alfie?
Well, here’s my two cents, for what they’re worth (clearly not very much if it’s only two cents …)
I think this is all about the inefficiency of efficiency. For many years the efficient thing to do has been to maximize the number of people you can get into an office by squeezing the amount of space they have for their desk and/or cubicle. The average amount of space per office worker in North America has dropped from 225 square foot in 2010 to 176 in 2012, according to CoreNet Global, mentioned here in this NYT article http://nyti.ms/1a4HkZb I imagine in the last few years these numbers have shrunk even more. (In fact they seem on the generous side from my non-scientific, non-research based, perspective).
For more grisly details of these trend lines check out Nikil Saval’s great book about the history of the cubicle, http://amzn.to/1n8L90B
MBA toting executives have been praised and promoted as they’ve shoehorned more and more of their people into tighter and tighter spots. Very proper. Clearly the right thing to do. Very efficient. Until, suddenly, management looks up one day and sees that the office space that they’ve created has become so unbearably awful that people are voting with their feet by not coming into the office. Some of them have left the company altogether, and many of them are working from home or from Starbucks or the library or somewhere that doesn’t make them feel like a battery hen. Somewhere they feel human. Where their soul is not assaulted by the inane nattering of their pig-pen neighbor (at best) or the ugly attention of the office overseer (at worst). Where the environment they spend most of their waking hours in is not partitioned by cheap, nasty, grey carpeted ply-wood barriers with all the aesthetic appeal of a 1970’s roach motel. With everybody gone, suddenly, things at the office are now very inefficient.
Likewise, in the world of banking the efficient orthodoxy has been to drive customers to the web or the phone where transaction costs are lower because of more self-service, more automated 1-800 numbers, and less human interaction. The approach has been very efficient and has reduced banking costs (and thus increased banking profits) very significantly. But now, because we as customers are so used to going to the web or the phone, and because the physical branch has received so little TLC or investment, when we do go into a branch it’s a pretty doleful experience. The friendly, knowledgeable bank mature (who was our neighbor or our tennis partner) is nowhere to been found. Suddenly, all that physical space is incredibly inefficient.
Doing efficient things has produced inefficient results.
If you broaden the aperture you can see lots and lots of examples of how this paradox plays out in many, many other areas of business and life; the big incumbent western airlines pursue efficiency in passenger yields by giving us less and less legroom and worse and worse food and then have to deal with the inefficiency of their passenger volumes falling as a new generation of airlines make flying a tad more enjoyable again http://on.wsj.com/1BRaFRo
Phone companies run efficiency playbooks that nickel and dime us and make customer service a thing of the past but then face the inefficiency of people migrating to Skype and WhatsApp and FaceTime.
Cable and Satellite TV providers focus so hard on the efficiency of their operations, become so disliked in the process, then look up to see cord-cutters everywhere they look. Very inefficient.
So many businesses in so many industries, it seems, pursue things that in the short term are entirely logical – so efficient – without seeing just how illogical – how inefficient – the strategy is going to be over the longer term. It’s actually hard, if you try and find examples of companies that don’t operate in this way, to find (m)any. I don’t normally refer to Cognizant in these types of articles, but I will say that Cognizant does in fact pursue the long term in an unusual way; Cognizant’s strategy is to deliberately forgo a point or two of margin (the pursuit of which would be the efficient thing to do), which it reinvests in its clients, which in turn has been at the heart of its industry out-performing growth over the last 20 years. [Right, that’s enough humble-bragging – Ed]
In his great book, Creativity, Inc. (which I’ve written about recently http://bit.ly/1NT4IIP) Pixar’s Ed Catmull says “efficiency is a goal, but it’s not the goal”. That’s a very nice way of putting it, which more business schools should take heed of.
While the pig-pens are emptying and executives are scrambling about trying to think of the next efficient way to deal with the inefficiency of their real-estate holding (GE’s play here, announced this week http://usat.ly/1JvxRWW), WeWorks are filing their community office spaces as fast as they can open them. [Full disclosure; Cognizant has recently rented office space from WeWorks in New York City]. At first glance WeWorks offices are wildly inefficient; lounges are full of sofas and comfy seating, dining areas have beer taps (which can make things very inefficient!), common areas aren’t cramped and dingy. A traditional office planner could come up with half a dozen ideas to improve space utilization in the time the typical WeWorker would take to shave off his civil-war age whiskers. That would be the efficient thing to do.
But the reason people are flocking to WeWork offices (and many other similar types of office run by competing firms) is that people want to work in spaces that inspire, that energize, that lift the spirit, that are destinations. That are not pig-pens, that are not soul-less, that are not venues for “The Office” like behavior. [btw, I used to work in the office building that was featured in the opening credits of the UK Office! But that’s another story!] Where they’re not squeezed on top of each other and where bean counters clearly run the show, i.e. somewhere that clearly runs efficiently. Where they can talk, and collaborate, and think, and create. Do all of those crazy, inefficient sort of things.
Sure, WeWorks want to have efficiency as a goal within their business operations, but they’re not confused into thinking that efficiency is the goal of their business. Right, guys?!
Lauding inefficiency is obviously something that needs to be done with care! I would advise that if I’ve touched a chord with you, you don’t immediately run into your CFO’s office waving around a print out of this piece! There’s a time and a place to be so contrary and, by conventional big business norms, unconventional. But unless people in positions of power are prepared to step back and grapple with this conundrum you can imagine that there will be more and more examples of efficiencies becoming very inefficient. “Re-imagining the office” is now becoming a very big – and very expensive – trend; http://wapo.st/1t9s9lw. A lot of that new expense could have been saved if things had been allowed to be a little more inefficient.
As the Japanese (who know a thing or two about inefficient staffing in offices!) say, “nothing is more expensive than free”. The American economist, Harley Lutz put it more famously when he said “there’s no such thing as a free lunch”! As lots of companies and executives are finding out, being efficient can seemingly have a ton of hidden cost. Which is very inefficient.