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Measuring productivity amid digital disruption

Investors and building owners must focus more on human capital, not just physical capital
Wednesday, October 28, 2015
By Rebecca Melnyk

Despite management consultant Peter Drucker’s accurate forecast from the 1950s, that knowledge-based work would become increasingly important in 21st-century institutions, the real estate industry continues to face obsolescence because of its slowness to adapt to the current needs of the millennial workforce and its aging assets.

Such a concern was voiced during a seminar on workplace evolution at the 2015 NAIOP Commercial Real Estate Conference, which took place in Toronto on Oct. 14. To remain competitive in the global marketplace, investors and building owners must focus more on the rising percentage of creative workers inside buildings, not just the buildings themselves.

Bryan Koop, senior vice-president and regional manager of Boston Properties, said the solution to this disconnect is creating a high-performance work space where worker productivity is prioritized and people adapt to what is called “digital disruption,” a change to which millennials are already natives.

Referring to Boston’s one million-square-foot Prudential Tower, Koop emphasized that it now consists of 90 per cent creative work, compared to only 20 per cent back in the 1970s. Overall, workers in the tower are now being paid $1,985 per square foot annually, much more than the worth of the building. Such evidence leads to the idea that companies are putting large amounts of money into human capital, and therefore employees need “special space.”

“We are indeed in a revolution of the workplace,” Koops said during the seminar. “What we measure is obsolete. What we focus on is cost per square foot; that’s an industrial age measurement. The future is about productivity and how we’re going to measure productivity.”

Measuring productivity: Landlord perspective

In response to thinking of space as not only efficient, but also designed to increase employee satisfaction and collaboration, several innovative research tools will surface over the next couple of years. Over at the MIT Media Lab, Dr. Sandy Pentland has created a new data science called social physics which extracts intelligence from understanding how networks of people behave and, in turn, allows people to form productive, creative and resilient organizations and societies.

Big data is driving this science and can be used to predict human behaviour and design better social systems. According to Koop, these advanced technological tools are where the industry is headed and needs to go. Such tools Pentland developed measure the workplace, such as the energy of human beings located at their desks.

“When you’re most engaged in your work, you are fidgeting a lot and moving in your seat,” noted Koop. “[Pentland] can measure that with this social meter he has.”

The meter also measures how much employees explore and travel around their floor to meet with other people, as well as how much team members are engaging with each other.

Over at 888 Boylston, an office tower in Boston, Boston Properties sacrificed one whole floor in favour of raising the ceilings on another floor to offer tenants a better environment. Columns were removed and chilled beams installed to offer better air freshness. The company also allowed two tenants to stamp out their own open floor spaces, all in an effort to create a high-performance work space focused on the lives inside.

Measuring productivity: Occupant perspective

From the occupant perspective, Sheila Botting, partner and Canadian real estate leader at Deloitte, offered some statistics that delve deeper into why measuring productivity is becoming more significant to the value of real estate.

The life cycle of a tool is four to six months, while a typical organization goes through significant change every seven years, from acquisitions and divestitures to private equity investments. Yet, says Botting, the industry still grapples with the fact that most leases are still 10 years, located in assets that have an average age of 40 years. Meanwhile digital disruption is changing the workplace.

“Suddenly I have a mobile device, a laptop; the ability to work anywhere, anytime, anyplace with anybody in any way that I want,” she says. “I’m completely in control as an employee. Physical location doesn’t matter the same way as it used to.”

Yet, while such technology is transforming the workforce, the industry is not changing its physical environments to match such digital disruption. Botting cautions that the human capital element of an organization and how it leads and manages has to change.

“The leaders have to manage by influence,” she says. “It’s no longer the military thou shalt; it’s how do you feel about working on this project because I care about recruitment and retention.”

When you start building cube farms, she says, they’re not exciting places to work. Deloitte facilitates utilization studies with businesses to conduct a “bums and seats” analysis, which examines who is in what seat. The reality is that these seats are 75 per cent vacant, no matter what kind of organization it might be. She points to her own floor at Brookfield Place in downtown Toronto, where giant corner offices surround cube farms. She says this reinforces a hierarchy, out of balance with where the world is going.

“Surprisingly people are still building this type of office environment; it’s archaic; it is not future proof; it is not for the future of organizations,” she says, suggesting that organizations completely recalibrate their business or workplace to future proof space.

“It’s not about the real estate,” she adds. “It’s not about the lease transaction; it’s about the decision-makers inside.”

It’s also about the talent. Based on previous Deloitte studies, 85 per cent of people would change their job to have flexibility in their workplace, and be able to work from home one or more days a week.

Yet, Canadians are 23 per cent less productive than their U. S. counterparts, Botting points out, which leads to the priority of driving talent and opportunities to foster productivity. Many organizations are not invested in technology; yet everything else is more important than the space itself.

Across three recent office developments, Deloitte developed 18 different work environments based on business requirements for these different spaces. Over at the Bay Adelaide East Tower project, the company reserved 30 per cent of space for amenities, like a data analytics lab and restaurants.

“We’re not building places for people to process paper or have our giant ego shelved because of the size of our office,” says Botting. “So we’ll have 3,500 people who will be fully agile and you can imagine the technology and management change that goes along with that and that’s a fairly exciting process.”

Rebecca Melnyk is online editor of Building Strategies & Sustainability and Canadian Property Management @rebeccachirp.

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