From your home workspace, to assign yourself to a patients treatment team, you should:

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The Idea in Brief

Could your organization benefit from the alternative workplace—where employees work off-site, primarily from home?

AT&T, IBM, and even the U.S. Army are saving a bundle in real-estate and infrastructure costs by having workers work from home—even with the added cost of providing these employees computers, software, tech support, etc. Productivity gains are another compelling benefit: in a study of one well-managed office, conversation and other office norms distracted people from work an average 70 minutes in an eight-hour day. Less tangible results, such as increased employee satisfaction that translates to improved attitudes toward customer service, are just as important. Yet, the alternative workplace is not suitable for every company or every job. Like many other business management trends, this one requires careful application.

The Idea in Practice

Notable cost savings from alternative-workplace arrangements lead some business decision makers to think that these arrangements are the wave of the future. Others cling to the notion that a company office is still the most productive place to work—water cooler and all. Some managers argue that alternative workplaces hurt employee cohesion, while others say “just give ‘em a laptop and a cell phone, and they’ll be fine.”

How can you sort through the myths and misconceptions to determine if the alternative workplace is right for your organization? Ask yourself these seven questions:

1. Are you committed to new ways of operating? For example, rewarding for results brought in from the alternative workplace rather than effort made in the office?

2. Is your organization industrial or informational? If your structure and systems are designed for face-to-face interaction, the potential for alternative workplaces may be limited.

3. Do you have an open culture and proactive managers? The effort won’t succeed unless managers are enthusiastic, knowledgeable, and ready to leave tradition behind.

4. Can you establish clear links between staff, functions, and time? What function does the job serve? How is the work performed? Thinking through these issues will help identify jobs that can be filled via alternative workplaces.

5. Are you prepared for “push-back”? Some managers get uneasy when their direct reports are no longer in close physical proximity.

6. Can you overcome external barriers? Have you determined, for example, whether most employees have the room at home to set up a workspace?

7. Are you willing to invest in the tools and training needed to make the alternative workplace succeed?

If your answers favor the alternative workplace, launch a simple pilot project and then phase in more people over time, tailoring the program with employee feedback as you go. Start with sales, project engineering, and other areas where employees are largely self-directed. Divide the pilot group into the office-bound, travel-driven, and independent—then think through the logistics of how they’ll work with each other after some of them have started working at home. Give careful thought to what you’ll do to ensure that remote employees still feel “in the loop.”

Finally, see to it that managers are given guidance in monitoring remote employees, that employees know what results they’re expected to achieve, and that other stakeholders such as customers are fully informed.

On September 20, 1994, some 32,000 AT&T employees stayed home. They weren’t sick or on strike. They were telecommuting. Employees ranging from the CEO to phone operators were part of an experiment that involved 100,000 people. It’s purpose? To explore how far a vast organization could go in transforming the workplace by moving the work to the worker instead of the worker to work.

Today AT&T is just one among many organizations pioneering the alternative workplace (AW)—the combination of nontraditional work practices, settings, and locations that is beginning to supplement traditional offices. This is not a fad. Although estimates vary widely, some 30 million to 40 million people in the United States are now either telecommuters or home-based workers.

What motivates managers to examine how people spend their time at the office and where else they could work? The most obvious reason is cost reduction. Since 1991, AT&T has freed up some $550 million in cash flow—a 30% improvement—by eliminating offices people don’t need, consolidating others, and reducing related overhead costs. Through an AW program called the Mobility Initiative, IBM is saving more than $100 million annually in its North America sales and distribution unit alone.

Another reason is the potential to increase productivity. Employees in the alternative workplace tend to devote less time and energy to typical office routines and more to customers. At IBM, a survey of employees in the Mobility Initiative revealed that 87% believe that their personal productivity and effectiveness on the job have increased significantly.

Many executives and employees hold firm—but false—beliefs about the alternative workplace. These myths may dissuade organizations from exploring the potential benefits of AW initiatives.

The alternative workplace is for everyone. It isn’t. Some high-tech advocates promote this notion, but it is clear that many people and functions today simply are not suited to the alternative workplace. The United States is perhaps a generation away from the threshold of broad-based computer literacy and systems integration that will enable the majority of people to be comfortable working outside the traditional office if they choose to do so. Yet leading organizations, such as those cited in this article, have shown that the AW concept applies to a large and growing segment of the workforce. Ironically, in this new paradigm, the youngest are the most skilled, the oldest are the most awestruck, and the middle-aged are the most resistant to the changes in mind-set and rituals that the alternative workplace requires.

An AW program can spearhead the process of organizational change. It can’t. Although an AW initiative can leverage reengineering and change-management efforts in the traditional workplace, it cannot launch them. Certain basic improvements must be made first—specifically, simplifying the organization, redesigning business processes, broadening access to information, and defining corporate performance measures. Otherwise, the AW initiative will be swamped by the sheer weight of these changes. But once the tide of change has begun to roll, AW employees can become strong advocates for extending the initiative throughout the organization. After all, they are already self-motivated, relatively autonomous, and results oriented. So they have the most to gain and the least to lose from influencing their peers to accept and adapt to AW work.

A company office is the most productive place to work. Not necessarily. What few managers realize—but the alternative workplace highlights—is that the atmosphere and norms of the conventional office can distract people from their work. In a study of one well-managed office, these distractions averaged 70 minutes in an eight-hour day. Employees in the alternative workplace are usually more productive than their traditional counterparts because they learn how to juggle priorities and minimize downtime by making phone calls, writing E-mail, clearing accounts, and performing numerous other routine tasks during the short pockets of time between other commitments throughout the day. But AW employees also are hampered by home and office designs. Developers are just beginning to include quiet, private office space and robust electronics in new homes. Similarly, some new office buildings now include efficient “plug-and-play” drop-in space.

AW employees can take care of themselves. Not exactly. It is naïve to think that all one needs is a laptop and a cellular phone to be effective in the alternative workplace. Most people need coaching in the basic protocols of AW life. And everyone needs direct access to the systems, gadgets, and technical support that enable remote work. A person’s ability to excel in the alternative workplace depends on an array of new skills in communication, navigation, and leadership that takes time to learn and requires proactive, top-down support. Informal but essential social processes that occur spontaneously in the conventional work-place, such as the brown-bag lunch and the weekly happy hour, need to be managed in the alternative workplace.

The alternative workplace undermines teamwork and organizational cohesion. In fact, it can build them—but in an unorthodox manner. Modern theories of teamwork are based on traditional, face-to-face models in which communication, information, and personal chemistry are intertwined in one location most or all of the time. In the alternative workplace, these links are unlocked. Technology empowers everyone—not just managers—wherever they are by enabling immediate communication with teammates and shared access to information. The chemistry within teams also has different elements. Contributions are defined more by content than by cosmetics when the team works electronically: an objective, egalitarian quality that often is missing in the conventional workplace. And relationships are enriched when managers use “face time” to focus on personal concerns rather than on business tasks.

The alternative workplace is really about computers. It’s not. The impetus for adopting an AW program is rooted in corporate strategy and renewal more than it is in technology. In a farsighted vision of its business, the U.S. Army is rethinking the fundamentals of its traditional workplace through a high-tech “digitized battlefield” supported by a virtual infrastructure of knowledge, training, and logistics. Similarly, in other organizations, the alternative workplace is really about rethinking the basics: What is the real purpose of your workplace? What work is performed? Who does it? How do they add value? What are their most important needs in the workplace? Where, when, and what types of facilities and systems do they require? How best can you provide them?

The alternative workplace also can give companies an edge in vying for—and keeping—talented, highly motivated employees. American Express president and COO Kenneth I. Chenault says that AmEx’s AW initiatives help the company retain experienced employees who find the flexibility to work from home especially attractive.

Finally, AW programs are beginning to offer opportunities to capture government incentives and avoid costly sanctions. Many communities are easing zoning rules to enable more residents to establish home offices. In addition, companies are meeting Clean Air Act requirements—and avoiding hefty fines—through regional workplace strategies with extensive AW components. Finally, tax codes may change to enable more employees to deduct home office costs.

The potential benefits are clear. But at the same time, AW programs are not for everyone. Indeed, such programs can be difficult to adopt, even for those organizations most suited to them. Ingrained behaviors and practical hurdles are hard to overcome. And the challenges of managing both the cultural changes and the systems improvements required by an AW initiative are substantial.

How should senior managers think about AW programs? What are the criteria for determining whether the alternative workplace is right for a given organization? What are the most common pitfalls in implementation? The lessons learned by managers who have successfully launched such programs and by those who are struggling to do so suggest that the best place to start is with a clear understanding of the many forms an alternative workplace can take.

A Spectrum of Options

Different companies use different variations on the AW theme to tailor new work arrangements to their own needs. To one company, for example, establishing an alternative workplace may mean simply having some workers on different shifts or travel schedules share desks and office space. AT&T determined that for some groups of employees, up to six people could use the same desk and equipment formerly assigned to one. The company now has 14,000 employees in shared-desk arrangements.

Replacing traditional private offices with open-plan space is another option. In such arrangements, a company typically provides team rooms and workstations in open areas. Free-address facilities are a variation on that format. As Jill M. James, director of AT&T’s Creative Workplace Solutions initiative, describes them, “You are assigned to one facility, but you can move around and choose a variety of work settings during the day. You don’t have to log in or put your name tag on a specific work space. And everyone can find you because your phone, pager, and PC go with you.”

Some companies have embraced the concept of “hoteling.” As in the other shared-office options, “hotel” work spaces are furnished, equipped, and supported with typical office services. Employees may have mobile cubbies, file cabinets, or lockers for personal storage; and a computer system routes phone calls and E-mail as necessary. But “hotel” work spaces are reserved by the hour, by the day, or by the week instead of being permanently assigned. In addition, a “concierge” may provide employees with travel and logistical support. At its most advanced, “hotel” work space is customized with individuals’ personal photos and memorabilia, which are stored electronically, retrieved, and “placed” on occupants’ desktops just before they arrive, and then removed as soon as they leave.

Satellite offices are another form of alternative workplace. Such offices break up large, centralized facilities into a network of smaller workplaces that can be located close to customers or to employees’ homes. Satellites can save a company up to 50% in real estate costs, diversify the risk of overconcentration in a single location, and broaden the pool of potential employees. Some are shells—sparsely furnished and equipped with only basic technology; others are fully equipped and serviced. Satellites are generally located in comparatively inexpensive cities and suburban areas. Most often, they have simpler and less costly furnishings and fixtures than their downtown counterparts.

Telecommuting is one of the most commonly recognized forms of alternative workplace. Telecommuting—that is, performing work electronically wherever the worker chooses—generally supplements the traditional workplace rather than replacing it. At IBM, however, telecommuters comprise an entire business unit. And at PeopleSoft, telecommuting is the dominant style of work throughout the entire company.

General Dennis J. Reimer, the U.S. Army’s chief of staff, offers compelling insight into what an executive can do from a remote location. Reimer travels with a laptop and routinely communicates by E-mail with 350 general officers and 150 garrison commanders around the world. Using a Web-based network called America’s Army On-line, which also includes an intranet chat room similar to those offered through commercial providers, Reimer can raise issues with his officers and receive advice on key decisions, often within hours. “The network allows me to be productive and to maintain a pulse on what is happening whether I’m in Washington or overseas,” Reimer says. “It not only saves travel costs but also enables collaborative teamwork across organizational and geographic boundaries around the globe. Gradually, this is changing the culture from one in which ‘my information is power’ to one in which ‘sharing is power.’”

The U.S. Army’s General Reimer rapidly receives on-line advice from officers around the globe.

Home offices complete the spectrum of AW options. Companies vary widely in their approaches to home offices. Some simply allow certain employees to work at home at their own discretion and at their own expense. Others—such as AT&T, IBM, and Lucent Technologies—provide laptops, dedicated phone lines, software support, fax-printer units, help lines, and full technical backup at the nearest corporate facility. One major company goes still further by providing employees who work at home with a $1,000 allowance for furnishings and equipment to be used at their discretion.

Most organizations find that a mix of AW options is better than a one-size-fits-all approach. Indeed, the very concept of the alternative workplace means tailoring the program to an organization’s specific needs. AT&T’s Creative Workplace Solutions strategy, for example, combines three options: shared offices, telecommuting, and virtual offices. These options can accommodate nearly all of AT&T’s office-based functions.

Is the Alternative Workplace Right for Your Organization?

The first step toward determining whether any or all of the AW options I’ve outlined could work for your organization is to answer a few basic questions.

Are you committed to new ways of operating?

For example, are you prepared to overhaul performance measures as necessary to align them with the new ways in which employees work? Are you braced for a cultural tailspin as your employees learn new ways of connecting with one another from afar? Are you committed to examining your incentives and rewards policies in light of the different ways in which work may be completed? Consider what Kevin Rirey, an IBM marketing manager, said about performance measurement and rewards in his unit after the Mobility Initiative was put in place: “We’ve always rewarded for results, but when you are in a traditional office environment and see the effort that people put into a job, it’s very difficult not to reward them at least partly for that effort. We don’t tend to do that anymore. We focus a lot more on results than on effort. But it’s a difficult transition.”

Is your organization informational rather than industrial?

This distinction refers to a management philosophy and style rather than to an economic sector or customer base. Industrial in this context means that the organization’s structure, systems, and management processes are designed for intensive face-to-face interaction and that employees remain rooted to specific work-places. In such an environment, the potential for AW arrangements is limited.

Informational organizations, by contrast, operate mainly through voice and data communications when it comes to both their employees and their customers. Informational, as used here, does not necessarily mean high-tech. But it does mean that managers and employees are moving up the curve toward information-age literacy, which is characterized by flexibility, informality, the ability to change when necessary, respect for personal time and priorities, and a commitment to using technology for improving performance.

Until recently, AT&T and IBM were among the many companies perceived by customers and analysts as industrial organizations; that is, they were seen as tradition bound, formal, bureaucratic, and slow to change. As former AT&T chairman Robert Allen noted on the company’s Telecommuting Day in 1994, “Work is where the phone is, and it’s logical that we should work like a phone-based organization. When our initiative began, however, AT&T looked like an antiquated company, with fixed schedules, expensive space, and a heavy hierarchy.” When the two companies launched their AW programs nearly ten years ago, top-level managers had already begun to reposition their organizations as informational.

Do you have an open culture and proactive managers?

A dynamic, nonhierarchical, technologically advanced organization is more likely than a highly structured, command-driven one to implement an AW program successfully. That’s why so many newer and smaller companies—particularly those that are heavily involved in the business of information or in electronic commerce—are using AW techniques with great success and with few transition pains. Yet as we’ve seen, even tradition-conscious organizations can use such techniques to eliminate fixed costs and facilitate performance improvements. The key is whether managers at all levels are open to change.

Richard Karl Goeltz, vice chairman and CFO of American Express, comments, “It’s important to have a multifunction team of senior managers promoting and supporting a virtual-office initiative right from the start. We had three departments involved in our effort: HR, technology, and real estate. The individuals on the team must be enthusiastic and not unnecessarily fettered by traditional approaches. And they must be made knowledgeable about all the key issues—from the ways in which corporate policies may be redefined to deal with various types of problems and opportunities to the different options for providing furniture or allowances to employees. Still, I would be skeptical about whether management by fiat would work very well. It’s better to be able to say, ‘Here’s an opportunity to enable you to do your job better, more efficiently, and more economically. You don’t have to use it, but it’s here.’ What I’ve seen happen elsewhere—and we’re beginning to see it in our own initiatives—is that once a fairly large department takes the first step, others are quick to follow.”

Can you establish clear links between staff, functions, and time?

AW programs assume that certain jobs either do not depend on specific locations and types of facilities or depend on them only part of the time. To analyze whether an AW program can work in your company, you must understand in detail the parameters of each job you are considering for the program. What function does the job serve? Is the work performed over the phone? In person? Via computer? All of the above? How much time does the employee need to spend in direct contact with other employees, customers, and business contacts? Is the location of the office critical to performance? Does it matter whether the job is 9 to 5? Is it important for others to be able to reach the employee immediately?

Managers who assume that the alternative workplace suits only road warriors on the sales force may be in for a surprise.

If a critical mass of corporate functions cannot work in an AW environment, the potential benefits may be too marginal relative to the required investment and effort. But managers who assume intuitively that an AW initiative is limited only to road warriors on the sales force may be surprised; often, more jobs are suited to a different way of working than at first seems possible. Executives at Dun and Bradstreet, for example, initially thought that only 5% of their global workforce could be involved in an AW program but learned that two-fifths of the company’s functions—involving half their employees—could adapt with only minor adjustments in work practices.

Are you prepared for some “push back”?

As Lorraine Fenton, vice president of information technology for IBM North America observes, most “twenty-somethings” entering the workforce have never had a private office, so to begin their work life without one is not a traumatic change. But for many employees, the transition from conventional to alternative workplaces is not as easy. Employees who are accustomed to a structured office environment may find it hard to adjust to a largely self-directed schedule, and those who are used to working within earshot of many colleagues may be lonely in a remote setting. Moreover, middle managers, who lose their visual and verbal proximity to their direct reports, have to change the way in which they relate to those employees. In fact, middle managers usually put up the strongest resistance to the alternative workplace, in large part because they feel as though the very foundations of their roles are being pulled out from under them.

Can you overcome the external barriers to an AW program?

Even if the work is suited to an AW format and managers and employees alike are amenable to change, physical and logistical barriers may exist. If space is at a premium in employees’ homes—for example, if many employees live in small apartments—then an AW initiative that calls for people to work at home may not be feasible. This is a key consideration in U.S. cities and in most countries abroad. In Japan, for instance, there simply is no “swing” space in most employees’ homes that could be used as office space; to accommodate a home-office initiative there, employees would have to sacrifice living space. Conducting employee focus groups at the exploratory and planning stages of an AW initiative can uncover such concerns effectively.

Richard S. Miller, vice president of global services (GS) at AT&T, leads some 2,000 sales and support professionals serving major corporations and government clients in the eastern United States. His organization generates $4 billion in annual revenues; its expense budget is about $200 million, of which real estate represents 6%.

In December 1996, Miller learned on a television newscast about a competitor’s initiative to pursue an AW program. Driven into action, he asked the help of AT&T’s global real estate (GRE) organization in developing a new facility. His idea: a shared office that staff members who spend much of their time with customers outside the office would use as needed, without having assigned workstations. The objective: creating an environment in which teamwork would flourish while reducing real estate costs.

The GRE unit, then in the early stages of developing AT&T’s Creative Workplace Solutions strategy, had not yet planned the type of facility Miller envisioned. So he and GRE’s planning director, Thomas A. Savastano, Jr., formed a team to consider the alternatives. The team rejected several scenarios. One would have refitted a building already occupied by Miller’s group, but that would have disrupted existing operations. Instead, the team opted for a three-part plan: redesign vacant AT&T space in Morristown, New Jersey, as a shared office; move 200 employees from five traditional office locations and 25 others from three satellite offices to the new facility; and redeploy the space to be vacated.

Shared Office Metrics in Morristown

The total group included 58 salespeople, 101 technical specialists, and 66 management and support staff. Miller knew that the staff would need full-time space in the new facility. But he estimated that at least 60% of the sales and technical people would be out of the office with customers at any given time and therefore could share work space. At the time, the GS organization was beginning to transform its technical specialists into virtual resources; that is, rather than dedicating individuals to specific customers, these individuals would float from one account to another as needed. That change, Miller reflects, eased the transition from a conventional to an alternative workplace.

The new shared office works as follows: Through their laptops, employees log onto a system to reserve a workstation either before they arrive at the building or when they enter the lobby. Once there, they retrieve their own mobile file cabinet and wheel it to their reserved space. The workstations are six feet square and are arranged in pairs with a C-shaped work surface so that two people can work apart privately or slide around to work side by side. The reservation system routes employees’ personal phone numbers to their reserved space. As one occupant says of the new arrangement, “I don’t know who is going to sit next to me tomorrow, but interacting with different people all the time helps me think about customer issues more productively. I’m always getting a new perspective and new ideas from others’ experience.”

AT&T has installed three low-tech features in addition to its high-tech systems. A café encourages people to mingle for coffee and conversation about new sales, customer solutions, and office events. Two large chalkboards allow people to leave messages for others; this feature also reduces the paper flow within the office. And three types of enclosed space—phone rooms, “personal harbors,” and team rooms—accommodate private meetings and teleconferences.

AT&T’s project shows how significant the tangible and intangible results of an AW initiative can be. It cost $2.1 million to develop, including construction, furniture, equipment, and systems. But the investment was well worth the effort, as the accompanying table shows. Annual savings alone amount to more than $460,000, or $2,000 per person. Over five years, the company will avoid nearly $2 million in costs associated with running a traditional office. In addition, individual space was halved, and team-meeting space doubled. Finally, the project has produced closer teamwork, better customer service, and greater employee satisfaction.

Will you invest in the tools, training, and techniques that make AW initiatives work?

To improve the chances of an AW program’s success, all who are involved must be armed with a full set of tools; relevant training; and appropriate, flexible administrative support. Are you committed, for example, to providing standardized computer software for people working in all locations? Accessible, qualified technical assistance? Do you have the financial resources to provide the above?

Too many AW programs are undertaken with only partial support from the organization. Confusion and frustration inevitably ensue, not to mention drops in productivity. These programs are only marginally successful and might ultimately fail. When an employee at home can’t communicate with other employees or clients, access the right information, or easily reach a help desk to solve a technology problem, the initiative is destined to fail. As AT&T’s James puts it, “The technology has to work from the start. When you’re asking people to give up their space and all that goes with it, you owe it to them to make sure that the systems are flawless. Because employees are mobile, the tools they use are their lifeline. They can’t survive without them.”

If you have answered “yes” to the foregoing questions, you could seriously consider an AW program. The next step is to drill down into the economics of AW initiatives.

Tangible and Intangible Economics

As I suggested earlier, the main reason for AW programs is to reduce current costs and avoid future ones. For established organizations that are pressed for cash, the savings from relinquishing space and making better use of what remains can dwarf the necessary investment in equipment and training. For young organizations, an AW program can give managers a viable alternative to expensive, long-term lease commitments.

But for the typical enterprise, the economics of the alternative workplace are more complex, and the decision to adopt an AW program rests as much—or more—on intangibles as it does on simple financials. Jerome T. Roath, IBM’s manager of infrastructure expense, says, “The obvious savings from real-estate cost reduction may hide qualitative improvements in employee satisfaction and customer service that are less measurable but no less important and in the end might justify an [AW] program.”

On the flip side, AmEx’s Goeltz comments on how a business might think about satellite locations: “Instead of 2,000 people concentrated in one place, one could consider 100 sites of 20 people each around the country. That might cut real estate costs tremendously. But there would be other critical issues to address. For example, would the company provide cafeteria and health club facilities or instead provide allowances to help people pay for their own? And how does one coordinate HR activities across a dispersed group?”

Managers should look at the economics of a potential AW program from three perspectives—the company’s, the employee’s, and the customer’s—and weigh the tangible and intangible costs against the respective benefits. Tangible setup costs for the company include hardware, software, training, and any equipment or furniture the company provides; ongoing costs include allowances, phone charges, and technical support. In home offices, employees provide their own space and some, if not all, of the furnishings and equipment. Intangible costs for the company and its employees include the time spent learning new work habits and ways of communicating with colleagues and customers.

Aside from real estate savings, the organization benefits from increased employee productivity, recruiting, and retention—usually because AW employees have both more professional and more personal time. In one AT&T unit, for example, the average AW participant gained almost five weeks per year by eliminating a 50-minute daily commute. Employees in home offices and other remote locations also can be more efficient during the workday because they have fewer distractions and less down-time. As AT&T’s James notes, “When I have 30 minutes between meetings, I can load in my disk and be productive on the spot.” Customer satisfaction also improves: as customers become comfortable communicating with the organization electronically, they can reach employees more quickly and receive more direct, personal attention.

Intangible benefits include closer teamwork and greater flexibility. The simple act of removing the walls that separate people in traditional private offices often fosters teamwork. Stephen M. Brazzell, AT&T’s vice president for global real estate, says, “Connectivity between individuals and groups comes in many forms, both physical and electronic. Those in shared offices tell us, ‘The new arrangement works. It really helps us communicate quickly and effectively because we’re all together.’ There is a definite improvement in communication, and communication means productivity.” What’s more, meetings in the alternative workplace take less time because participants manage their time better; they meet not just to discuss issues but to resolve them.

The act of removing the walls that separate people in traditional offices can foster teamwork.

The U.S. Army’s Reimer highlights the importance of intangible benefits in his widely dispersed organization: “The biggest benefit I have found is that leaders who are ‘far from the flagpole’ in places like Bosnia and Korea have direct access to me and to my latest thoughts on many issues. In turn, I receive feedback from the field army as quickly as I would from my staff at the Pentagon. This empowers our leadership team, and it allows the army to speak and act with one voice on rapidly changing situations.”

A crucial intangible benefit of an AW program is the value that employees place on increased personal time and control. Although they tend to work longer hours and may even have difficulty leaving their home offices, AW employees find the promise of flexibility attractive, so they are easier to recruit and retain. As Reimer says, “We are now training soldiers when and where it is needed. This not only reduces costs and improves readiness, but it also reduces the time soldiers spend away from home and family—an ever-increasing burden with our intensive training and operational requirements. This helps us retain quality soldiers and their families.”

The chart “AT&T’s Creative Workplace Plan” illustrates one company’s assessment of its tangible economics. Over the next five years, AT&T’s initiative is expected to generate annual savings of nearly $50 million as people become accustomed to and take full advantage of the new style of working. This will be a substantial contribution to AT&T’s overall aim of reducing annual occupancy costs by $200 million. The plan begins by defining the ratio of occupants to work space for each type of office, the square feet and cost per person, and the expected savings and payback. Shared-office and virtual-office workers use one-third to one-tenth as much corporate space as they do in traditional offices. Over time, these changes could yield annual savings of $5,000 to $10,000 per person. For a group of 100 employees occupying space that costs $24 per square foot, the savings range from $200,000 to $600,000, and pay-back ranges from one to three years. AT&T’s James, who authored the plan, estimates that some 34,000 employees—one-fourth of the total—could be accommodated in AW settings by 2003.

AT&T’s five-year plan reflects the significant impact of creative workplace initiatives on reducing total occupancy costs. The financial benefits result from five interrelated factors to be implemented over time: shifting from traditional to shared and virtual offices, adopting more efficient individual workspace designs, improving office utilization, reducing total company space, and adjusting the number of occupants using company space. The plan’s current benchmarks and overall projections are summarized below.

Benchmarks

Projections

IBM’s experience in the alternative workplace provides another good example of well-balanced cost-benefit ratios. IBM began piloting various AW options in 1989 to reduce real-estate-related costs and to explore the use of technology to support sales. But by 1993, the company’s profitability and competitiveness had declined to the point that more fundamental changes in corporate strategy were called for. In that context, the early pilot projects were transformed into a mainstream initiative in the North America sales and service organization—an initiative designed to improve customer responsiveness, reduce costs, and increase productivity.

Lee A. Dayton, IBM’s vice president for corporate development and real estate, recalls, “Two principles were—and are—at the heart of the initiative. First, we want to reduce our employees’ travel time. When they are traveling from one customer to another, or from the IBM office to the customer, they’re not productive. Second, if employees are at home or at a customer’s office, we want to eliminate the need to travel to an IBM office. And if they’re not going to work in an IBM office, we want to eliminate the dedicated space with all of its overhead and services.”

Currently, IBM’s entire U.S. sales force can operate independent of a traditional workplace. More than 12,500 employees have given up their dedicated work spaces, and another 13,000 are capable of mobile operation. IBM also has implemented mobility initiatives, involving some 15,000 employees in Asia, Europe, and Latin America. Thus, approximately 17% of IBM’s total worldwide workforce is sufficiently equipped and trained to work in AW formats, and one-third of all the company’s departments have at least some mobile employees.

The results? In 1992, worldwide occupancy and voice-IT expenses (that is, phone-based communication charges) totaled $5.7 billion. By 1997, the total had dropped 42% to $3.3 billion. During that period, real estate savings totaled $1 billion from mobility initiatives alone. Even more telling, worldwide costs per person declined 38% from $15,900 to $9,800 and the combined ratio of occupancy and voice-IT expenses to revenues dropped from 8.8% to 4.2%—a 52% improvement. (See the chart “The Economics of Mobility at IBM North America” for a breakdown of these measures.)

IBM’s entire U.S. sales force can operate independent of a traditional office. More than 12,500 employees have given up their dedicated work spaces, and another 13,000 are capable of mobile operation. Managers monitor the performance of the company’s Mobility Initiative in several ways, including those illustrated at right.

The top chart shows the total occupancy and voice-IT costs for IBM North America. The middle chart, which breaks down those costs by employee, helps managers assess whether the Mobility Initiative is using space, information, and communications efficiently. The bottom chart, which shows total occupancy and voice-IT costs as a percentage of IBM North America’s revenue, helps managers assess the productivity and efficiency of the Mobility Initiative.

As Roath comments, IBM must keep close watch over voice-IT charges. They are still small compared with occupancy costs and other IT expenses, but they could explode as more people go mobile. Still, Dayton says, “The costs you incur with mobility—IT technology, communications, wireless costs—are all going down, while the relative costs of real estate continue to rise.”

Dayton also notes that the key to success is evaluating and managing the initiative with the ultimate business goal in mind: “We cost-justified our program based on reductions in spending, primarily from real estate. From the start, we allowed business managers to make the trade-off between real estate savings and investments in technology. And we insisted on saving more than we spent. Every laptop and cellular phone we bought for the initiative was cost-justified. We also introduced an annual worldwide scorecard that tallied cost and square feet per person. The scorecard applied to manufacturing and development departments as well as to sales and distribution. We published the results internally, and, of course, nobody wanted to be last.”

Looking ahead, John Newton, IBM’s manager of IT plans and measurements, believes that the company’s extraordinary cost savings will plateau: “The main short-term problem in mobility economics is that as more people go mobile, we still need a support structure for them. We are reaching a point of diminishing returns, because we can’t keep pulling people out of offices forever. There will be productivity benefits but not occupancy cost savings.”

Indeed, any organization adopting an AW initiative can be expected to reach a new plateau—with lower fixed costs, higher productivity, and greater employee and customer satisfaction than it previously experienced. But by redeploying some of the savings into better equipment, technical support, even the company picnic, the organization that benefits from AW initiatives can realize further dividends in employee commitment and loyalty.

Implementing an AW Initiative

If the economics are favorable, you should consider implementing an AW initiative. The following guidelines will help you chart your course.

Start with a pilot project and don’t overcomplicate it.

An AW program can be designed either for pilot testing or for full implementation. The choice will depend on many factors. If a company is hemorrhaging, then a full-scale rollout makes sense: the need for radical change to reduce costs will be clearly and universally understood. And if the company already is informational, with a large number of travelers and independent workers, then the risk of failing at full implementation is low. For most organizations, however, an AW program involves so many innovations and departures from deeply held norms that a phased, experimental approach is essential to test what’s acceptable and to change what isn’t. Because this is not “business as usual,” it will take extra management time and attention, talented staff, experienced consultants, and some expense to ensure success.

A phased approach to an AW program is essential in order to test what’s acceptable.

It’s a good idea to begin with obvious functions—such as personal sales, telemarketing, project engineering, and consulting—in which individuals already work with their clients by phone or at the clients’ premises. Such employees are largely self-directed and need only their phones and laptops to operate in the alternative workplace. Their input could be decisive in ensuring a successful project. In fact, IBM’s Dayton credits much of the success of his company’s initiative to the fact that it was a bottom-up effort. “We provided direction from the top about our goals,” he explains, “but we went deep into the organization to make the program work. Relatively low-level people helped plan it, and local management implemented it. We encouraged them to experiment. It was a peer-driven effort by and for the people who were going to be affected.”

David House, president of Establishment Services Worldwide at American Express, began an alternative workplace initiative in 1993 with a pilot project for 300 sales and account service reps in 85 field offices throughout the United States. By 1995, only 7 offices were needed, the participants were enthusiastic, and customer satisfaction rates had improved. Based on that success, a second pilot project was launched at the New York headquarters—a much tougher challenge. Alan Haber, AmEx’s project director, says, “The savings from a virtual-office program are much greater at headquarters than in the field offices because we have so much infrastructure and administrative support here. But there’s also more resistance to virtual offices. Many people like to come to this building and don’t want to give it up.”

On the benefits of an AW program, Goeltz comments: The benefits can be realized in terms of customers, employees, and shareholders. In terms of customers, if a company has a sophisticated, highly efficient network for communications and data manipulation—an essential component of a broad-based virtual-office initiative—then its employees should be able to respond more fully and more promptly to customer needs ranging from simple inquiries to more complex product demands. In terms of staff, we’ve found that we can draw from a broader pool of people because our employees can be in many locations. Through virtual-office programs, we might be able to attract people with proven records of success who can’t or won’t move to our office sites. If we can say to such qualified people, “We can offer you a stimulating, rewarding, well-compensated position, and you can work at home,” then that is good for the company and for the economy. In terms of shareholders, if a company is giving its customers better service and is realizing savings on real estate and so forth, then naturally there are substantial shareholder benefits.

House underscores the potential: Here’s an example of someone the company would have lost had we not been flexible in our work arrangements. A manager in one of our divisions was going to leave the company when her boss asked me if she could take an open position in our Chicago office but live in Michigan. I told him, “If she’s the right candidate, she can live anywhere.” She now goes to Chicago several times a month. When I talk with her on the phone, I don’t know whether she’s in Chicago or Michigan. She travels a fair amount of the time anyway, so it really doesn’t matter where she lives. This is a quality-of-life issue for the employee. But for the company, it’s an issue of finding the best person for the job.

Goeltz continues: The question is whether or not a virtual-office program dovetails with the kind of business a company does—whether it can serve an operational need or help improve performance. There are particular opportunities in financial services businesses like ours because our business is information. But each case—indeed, each department or division—must be considered separately.

The two managers agree that getting people to adjust to new ways of working is a major hurdle. Goeltz says: Consider the manager who is accustomed to walking into a traditional office and seeing 50 people. In the virtual office, midlevel managers relinquish direct, visual employee supervision. The key difference is that in an information industry, productivity is monitored through electronic systems, whether or not the manager is on site. How many calls does an employee handle? How well and how quickly? If a supervisor periodically wants to listen in on a conversation to determine how a customer representative is handling a call, it doesn’t make any difference whether that supervisor is in the next office or halfway around the world, barring time zone considerations. You don’t have to be physically present to monitor productivity, efficiency, and quality of customer service. But it is extremely difficult to change the mind-set that really wants that presence.

House concurs, noting that the change is equally challenging from the employee’s viewpoint: It takes discipline and confidence for people to feel good about this and say, “Look, I’m going to telecommute. I’m going to work at home two or three days a week, and I’m going to come in here for meetings only twice a week.” People have the feeling that if they’re not in the office—if they’re not seen—they’ll be overlooked. One of the ways to overcome that is to encourage telecommuting at senior levels of the organization and let the rest of the company see how it works. I really believe that acceptance of the virtual office is mainly a question of leadership—taking a position and showing that it’s now part of our culture.

Goeltz stresses the difference between encouragement and force: It is dangerous, at best, for senior management to mandate an AW scenario. What one has to do is to demonstrate the benefits that can be achieved from virtual-office concepts, satellite offices, and other arrangements that share the same principles. When the benefits are clear—be they cost reduction, improved customer service, or reduced commuting times—then people will be more likely to embrace the new way of working.

House observes that participants should understand the advantages and the limitations of the alternative workplace: The virtual office is not, and should not be, an all-or-nothing scenario. For example, it is far more difficult to have a brainstorming meeting over the phone, because you can’t have the same give-and-take and you can’t read body language. And yet it is also critical to understand that time spent in the central office—in the presence of colleagues—is not the same as it used to be. In the virtual office, if employees come to a meeting, it is for a particular purpose. Something has to be accomplished, or else the time has been wasted. In the traditional office, a group of people might meet to discuss a certain issue. In the virtual office, when people meet, they should decide the issue. In the virtual office, the old adage “Time is money” is taken to a new level: time is money, satisfaction, balance, performance, and a host of other things as well.

In foreign operations, pilot projects can be particularly valuable because they allow a company the freedom to experiment in an environment in which cultural and physical differences can be profound. For example, a proactive approach that works in the United States may be counterproductive or downright destructive abroad. The AW concept can best be nurtured in small-scale situations where the local leadership is enthusiastic, the employees are willing to innovate, and the work environment is conducive to change.

Segment the workforce you are considering for the alternative workplace, and assess the logistics of the proposed new arrangement.

Whether you’re designing a pilot project or rolling out a full program, the first step is to divide the target employees into three segments that define their ties to the workplace: office bound, travel driven, and independent. Employees are best grouped by position rather than by individual, and jobs should be analyzed in as much detail as the data allow. Figuring out the logistics of how employees will work together when they are no longer rooted to a traditional setting is a more straightforward task if you have a clear idea of what they currently do and how and when they do it. Various AW formats can apply to each segment, so the sharper this analysis, the easier it will be to design an appropriate program. The criteria below are not hard-and-fast definitions but guidelines that each organization should adapt to its own situation.

Office-bound staff members spend nearly all their time in a single, fixed, assigned location, whether they are working alone or as part of a team. Their workplace is typically composed of private offices, workstations or “cubes,” and meeting rooms. The more these spaces are clustered, the more team interaction occurs, but the harder it is to ensure individuals’ privacy. For office-bound workers, desk sharing may be applied in multishift operations where work patterns are predictable. For example, two or three people could be assigned to the same office or workstation during daily shifts in a round-the-clock operation, or up to six people could use the same space on different days of the week.

Travel-driven staff members spend at least half their time visiting sites outside their assigned locations, usually for transactions and projects. In fact, their performance is based largely on their capacity to spend as much time outside the office as possible, either with clients (for those in sales and consulting) or while working on projects (for auditors and engineers). Technology can release these travelers almost entirely from their assigned workplaces because they need face-to-face time with clients and colleagues.

Independent employees can set up anywhere and anytime with a computer, modem, and telephone line. In contrast to the other two segments, these employees do not need to be physically present at specific locations. They do not depend on direct contact with clients or colleagues, so they do not need dedicated, preassigned work spaces. Writers, consultants, and scholars are traditional examples of the independent worker. Today, however, individuals in many functions can work independently even though they are members of large, interdependent enterprises. Such people often favor a home office to avoid interruptions; to be close to their families; and to eliminate the time, expense, and stress of commuting. Independent workers also enjoy the freedom to set up their work space according to their personal tastes—an opportunity not offered in most corporate environments where uniform layouts and standard furnishings are the norm.

Make sure that managers and employees are clear both on performance objectives and on how performance will be measured.

In a traditional office, checking on employees’ day-to-day progress and altering the course of their work is a relatively straightforward process. But monitoring the performance of people you can’t see is quite different. It is all too easy for an employee to founder for some time without his or her manager’s knowledge. Setting clear goals from the outset—and agreeing on a way to monitor progress and measure performance—is critical to the success of any AW venture. As Karen Sansone, director of alternative work-place solutions for Lucent Technologies, puts it, “You must get down to basics. Is there a deliverable? How do you know whether the employee or department has done something of value? For some types of employees, performance is clearly measurable. For others, it isn’t. While considering different groups for remote work, managers realize that they need both to improve their understanding of what their people are doing and to focus on productivity. Remote work forces managers to think hard about the purpose and results of each job.”

Monitoring the performance of people you can’t see is not easy. Set clear goals from the outset, or your employees may founder.

Once objectives and measures are in place, the management challenge becomes adapting to a new style of working. Sansone continues, “Remote management is really about a different form of communication. For example, if an employee in a traditional workplace is having difficulty achieving an objective, he or she could pop into the manager’s office and say ‘I have a problem. I need your help.’ Or as a manager, you’d be checking in with them anyway. In a virtual office, people learn different methods. In conventional offices, employees sometimes wait at the door to catch their supervisors for a quick meeting. That’s a waste of time you don’t come across in the virtual office. What’s more, the virtual-office manager and employee set agendas for their conversations so that both are better prepared.”

Sansone and other managers agree that some direct contact is essential in the alternative workplace. “Performance evaluation and salary reviews must be done face to face,” says Sansone. “So much of the managers’ impact comes from sensitivity to individual reactions and the ability to gauge body language as well as words—reactions that simply are impossible to interpret over the phone or through E-mail.”

Managers in an AW environment, particularly one in which employees work from a distance, must also pay close attention to time management. When employees are in the office only once a week or several times a month, it is critical that their time is not wasted. In a conventional office, changing the time or the day of a meeting at the last minute may be inconvenient for employees; in a virtual office, it may disrupt their work plans for the entire day, or worse.

Equally important are the peer relationships—so critical to any career—that flourish automatically in the conventional office but could atrophy in the alternative workplace. Joel W. Ratekin, a director of the virtual-office program at American Express, describes the employee’s dilemma: “It’s a natural response for a manager to grab anyone who is sitting around the office to put out a fire. The remote worker may be even more effective because he may be more focused and might be able to devote more hours to the problem. But for that person to lead or be part of the team, the manager has to think of contacting him.” One AmEx unit uses a buddy system in which remote workers have on-site colleagues with whom they must talk every morning. What the employees talk about is up to them. The idea is to keep the remote worker in the loop by encouraging informal chats about new customers, product ideas, job transitions, office policies—the very topics that engage people around the water cooler in a conventional office.

Train for culture as well as technique.

So much is new and different about the alternative workplace that managers must reeducate people about what used to be intuitive aspects of office life: when they should work, how often they should communicate, whether to talk or type, and what to say when they do. From an early age, we learn how to live in organizations at particular locations. In the alternative workplace, we have to learn to be in and of the organization while not being at it; at the same time, we have to differentiate our work and family lives while we’re at home. Savvy leaders understand that organizational culture cannot be taken for granted in the alternative workplace because people are not physically together to create it. But in practice, it is not easy to create or maintain an office culture in certain AW formats—for example, when managers and the people they manage rarely meet face to face. Nor is it easy to figure out how much, or how little, a manager should be involved in helping employees balance the boundaries between work and home life.

In the alternative workplace, managers and employees have to learn how to be in and of the organization while not being at it.

Merrill Lynch runs a telecommuting lab to acclimate candidates for the alternative workplace before they formally adopt the new style of working. After extensive prescreening, employees spend two weeks at work in a simulated home office. Installed in a large room equipped with workstations in their conventional office building, prospective telecommuters communicate with their managers, customers, and colleagues solely by phone and E-mail. If they don’t like this way of working, they can drop out and return to their usual workplace. To date, nearly 400 people have successfully moved from the simulation lab to their own home offices. The lab has proved a viable way to minimize the risks of placing people in the alternative workplace.

All the organizations I’ve cited have developed extensive training materials and techniques to suit their particular needs and situations. AT&T’s James stresses the basics in a “survival training” course: How do I reserve work space? How do I route the phone and pager? How do I access the database? These companies also use rituals to teach new norms to AW participants—particularly those who will be working from home. Lucent’s rituals include such simple tasks as writing to-do lists, dressing for work, giving dependents a good-bye kiss when “leaving” for the office at the beginning of the workday, then tidying up the desk, forwarding calls, shutting down the computer, and watching the evening news at the end of the day. These rituals replace traditional office routines such as morning conversations, coffee breaks, even the commute itself. They also create the breaks between home and work that help maintain a balance. Lucent’s Sansone, herself a full-time “home officer,” believes that such rituals are critically important for telecommuters because they link the traditions of the conventional office to the new realities of the home office.

Similarly, AW employees adapt to “telework” by creating rituals to suit their new schedules. One Lucent office has established a Wednesday morning doughnut club where virtual-office salespeople drop in for chatter and coffee. They used to meet informally at the water cooler to talk about particularly rewarding sales or problems with customers. Now, Sansone says, they think in advance about what they want to share with the group and the kind of feedback they need. AT&T’s James has designed a café at one drop-in facility to encourage “casual collisions”: those spontaneous encounters that occur where people gather and communicate. “We also have upholstered chairs with fold-down tables that go across your lap so you can work at them,” she says. “It’s a different environment—like being back in college.”

Educate customers and other stakeholders.

Don’t expect customers, suppliers, and other stakeholders to understand your new work system immediately. Just as employees need time to ramp up, so too do your outside partners. They must be given the information and the time to adjust. So before launching an AW initiative, let customers and other stakeholders know what is going on. Explain how the new way of working may affect their contact with the organization, stress the benefits they stand to gain from the change, and be patient.

David Russell, a client marketing representative for IBM, says that his customers took a bit of time to adjust but notes that now communication is more efficient than ever: “I’m not in the office as much, so it’s more difficult to reach me in person right away. Initially, I think customers found that frustrating. But now they realize that I’m never more than a few minutes away from voice mail and that I can return calls fairly quickly. Many of them are in similar situations; so we communicate a lot more by voice mail. And people have learned that if they don’t reach me in person, they should leave a very specific message about the nature of their call so that I can start satisfying their needs immediately rather than playing phone tag.”

Keep an eye on how participants balance their work lives with their home lives.

If one of the key reasons you are implementing an AW program is to attract and retain employees who will add the most value to your organization, then you must ensure that they are capable of handling the balance between their work lives and their personal lives. Doing so requires a good deal of honesty on both sides. In large part, the solution lies in the employee’s ability to draw the line between work and home and to be confident that the line is in the right place.

AW employees must draw a firm line between their home and work lives—and be confident that the line is in the right place.

Two questions on IBM’s survey of its AW employees are “How well are you balancing your workload and personal life?” and “Does the company foster an environment that allows you to do that?” As Brad Geary, an IBM techline sales specialist, says, “Even if the company fosters such an environment, the real question is, How well are you doing? One of my teammates is in San Diego, and at lunchtime, he goes running on the beach. But he feels guilty that he’s out enjoying himself during that part of the day. The company can emphasize the message that as long as it’s made up for in some other way and you’re still meeting your objectives, it’s okay. But the employee has to believe it.”

Jeffrey Hill, a project manager for IBM Global Employee Research, agrees that the responsibility belongs both to the company and to the individual. Hill lives in Logan, Utah, and telecommutes with internal clients throughout the country. He reports to an executive in New York whom he sees only several times a year. He says, “It’s really about a change in mind-set. When I read the write-in comments on employee surveys, those who have been successful in mobility are really glowing about ‘coaching my daughter’s soccer team at 3:30 in the afternoon’ or ‘eating breakfast with my family for the first time in 15 years at IBM.’ But then there are others who say, ‘I’m always at work. I have my electronic leash. I’m never free.’”

What can be done in the corporate culture to help support a healthy balance? “We get a lot of suggestions that we should avoid highlighting Lou Gerstner’s habit of bringing suitcases of work home with him every night,” Hill jokes. But as he points out, the true solution lies in an ongoing effort by both the employee and the company to offer positive reinforcement continually, until and beyond the point where both sides are comfortable with the new work arrangement.

Organizations today are poised on the edge of a new frontier: the alternative workplace offers a profound opportunity to benefit both the individual and the enterprise. But beyond one frontier lies another—what one might call a mobility paradox. IBM’s Dayton explains, “We talk about mobility, but the next frontier is lack of mobility. The alternative workplace—and all the technology that enables it—is changing the way people collaborate.” Indeed, we are moving from an era in which people seek connections with one another to an era in which people will have to decide when and where to disconnect—both electronically and socially. Organizations that pursue AW initiatives—particularly those with home office arrangements—must be mindful of that paradox. For only those organizations that balance individual and corporate interests will realize the concept’s full potential.

A version of this article appeared in the May–June 1998 issue of Harvard Business Review.

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