Noel Hodson - The Economics of Teleworking

The Economics of Teleworking
Noel Hodson
SW2000 Teleworking Studies, Oxford, UK
TEL 00-44-1865-60994
FAX 00-44-1865-64520

Telecommute `95, Santa Clara California
7 - 10 November 1995

Working Environment News

The Economics of Teleworking

Teleworking and Employment in Europe

Teleworking Explained

The Information Society is being driven by major investments from the IT industry, for example the $120 million budget launching Microsoft Windows 95, and by Governments in Europe (pump priming 87BECU) and the USA (pump priming $100-400B). With the very large investments being made and with continuous advances in the power and user friendliness of equipment, we are all being forced to accept change.

Why are these changes seen by Government as "a good thing" for society? The vision can be illustrated as follows:

The USA recently announced that, unlike France, they will suspend all nuclear testing; instead, they are creating a new supercomputer containing 9,000 Pendium chips in parallel, capable of 3 trillion calculations per second. This supercomputer will simulate atomic explosions so accurately that no real explosions are needed. If a Pentium chip were classed as equal to one candle power of illumination. Imagine the linking of 9,000 people with well structured, relevant communications all working on a shared task. How many trillion calculations per second are they capable of? What extraordinary rewards of intelligent cooperation might they reap for mankind? As Andrew Page, founder of ECTF, urges, "Lets wire the World before it falls apart."
Think of Mission Control Houston. The future of organizations lies in ever larger teams of ever more highly educated and specialized people working on more complex tasks. And much of the work will be vocational, as creating and distributing goods and services becomes fully automated.

What does it cost to drive this vision? The main cost is the stress of change, and more change, and more change. There are better ways to run organizations. There are better ways to provide food, clothes, homes, transport, education, health-care, entertainment, and all the other material benefits we enjoy. There are better ways to vote democratically, to control crime, to have clean air, clean water, and peaceful living areas. The information society and its technology provides the tools to make the changes. One of the fast growing applications of the information society, as identified by Presidents Bush & Clinton and Vice President Al Gore, is Telecommuting. The second growth area is IDLE (Interactive Distance Learning) - next year is the Year of Lifelong Learning in Europe; after all, if we are not working, we have to do something with our time.

The main benefit of the growth of Telecommuting is an improved lifestyle for all people. Telecommuting is more productive, gives more leisure time, more education, less pollution, and a healthier and wealthier society. For thousands of years, we have invented ways to reduce the daily grind and to reduce poverty and to reduce work. We now have the means to achieve all these ambitions. In Holland they acknowledge "jobless growth" is happening in their economy i.e. increasing real wealth with fewer jobs. How do we redistribute the fruits of our labors to abolish work, redistribute jobs and maintain social order? All change, even change for the better, is threatening. Perhaps it is better to smash the Internet and sabotage Windows 95 now before the changes go too far - people should never have been taught to read and the wheel should never have been invented.

In most cases, starting telecomutting has no cost to business profits and income. On the contrary, the reason that the financial services sector in the USA and the UK has been first to embrace computerization, telephone banking, telephone dealing, telephone selling, and other precursors of telecommuting is that it is very profitable for them to do so; and banks and insurance companies are able to count the costs and the benefits more accurately than most.

Productivity
The basic driver for employers, as case studies show, is that telecommuters are 20% - 45% more productive, and the direct costs of employment are $5000 - $8000 less per annum. The "effortless increase" in productivity stems from the fact that all the hours saved from repetitive commuting, travel, or office gossip are equivalent to 30 working days per annum. For example, I used to commute from Oxford to London every day, a journey of 4 hours. I was spending the equivalent of 120 work days, sitting in my car being poisoned by exhaust gases - that is half a working year - not a prductive way to spend time. Telecommuters don't do that. An unresolved argument is how to value telecommuters time: in our workshops, we apply sales or output values to extra time that telecommuters spend working as a trade off for the right to stay at home.

The average output value per person per day, according to 13 million employees, worldwide, of 100 Fortune Magazine top companies, calculates to just under $1,000 per day. Salary costs are about a third of the output value.

The direct costs saved are from office space, travelling costs, and other factors. Even after covering all additional costs of Equipment and Call Charges, an employer can expect to benefit by Once Time the Salary of an employee converting from full time commuting to full time telecommuting at home; i.e. if the salary is $50,000 per annum, the employer will in most cases gain $50,000 every year. There are of course exceptions to this average rule.

There are profound implications for jobs and for the import and export of work behind these substantial net benefits to employers.

The very stressful and deep changes implied could not happen if the people making up an organization did not want them to happen. But teleworking also benefits employees. Telecommuters like teleworking. 68% of people who telecommute want to continue, 32% want to return to central office working - and should be allowed to. Unions and other bodies are concerned about ensuring the rights of workers. An average USA telecommuter, with young children at home, will gain from one-eighth (1/8) to one-sixth (1/6) of their pay when they change from full time commuting to full time telecommuting (i.e. at home - the amounts saved are less at local telecenters or working from rather than at home). This is substantial extra money in telecommuters' pockets, after deducting all work-related costs. They also save large amounts of time. People like telecommuting, and organizations are made up of people. Even some Chief Executives are suspected of being human. A "Corporation" literally means a "body of people working" and if the people like it, so ultimately will the Corporation they comprise.

The nation benefits from telecommuting. The European Commission project "Teleurba" run by Christine Gautier, CATRAL, Isle de France in Paris, showed that reducing rush hour traffic by just 4% frees up the roads and allows all traffic to flow, reducing fuel burnt and exhaust gases (every gallon of fuel burnt makes 1,800 gallons of poisonous gas). This reduces street level pollution and helps asthmatics and improves health generally. Healthy people work better.

TeleworkAudits^(TM)
I have spent 7 years, visiting employers' premises and working on the detailed cost/benefit calculations for telecommuting. They can now all be done in a few days, at little cost, by having your colleagues complete the TeleworkAudits^(TM) questionnaire. The disks capture all the information needed to calculate the costs/benefits to employers, to employees, to the self-employed (who gain both the employers and the employees benefits and therefore are the largest group of telecommuters) and to calculate the environmental equation. The disks also collect attitudinal information which highlights people's anxieties about telecommuting and may form a platform for psychological profiling. TeleworkAnalysys^(TM) then creates all the reports an employer needs, details all the costs, all the benefits, and all the likely problems. The disks can be obtained from John Edwards, Telework Analytics International, Inc. MD 20859 USA, TEL (301) 417-1444 FAX (301) 417-1443. A Spanish language version will also be available shortly. TeleworkAudits^(TM) will save you months of data collection, trials and calculations - don't reinvent the wheel, buy a TeleworkAudit and get the results fast at low cost.

There is an obvious impact of telecommuting on the uses and values of commercial and family household property. In the USA some top quality commercial property is being sold-off by big organizations or stands empty. In New York, central city offices are being converted into homes. This trend has just begun, and I believe it will accelerate rapidly. Examine your own office needs.

Pyramidal => Flattened => Horizontal => Networked
So where are organizations heading in this stormy sea of change? Organizations will shortly have to adopt telecommuting methods - or die. As the younger generation, the Nintendo generation as Gil Gordon calls it, who are completely familiar and comfortable with computers and communications, take their places in organizations and start their own businesses and start making investment decisions, they will not invest in marble clad headquarters buildings; they will not buy fleets of expensive cars to leave in the company's garage; they will invest far more in computers and telecommunications; they will invest far more in training for dispersed working; they will not care what their employees wear or at what time of day or night they do their work - as long as they deliver. They will employ people living, perhaps at lower costs, in remote places, miles from the office - as long as they are good at the job and deliver.

Organizations are changing from the traditional, centrally based, commuting workforce type to the networked, computer serviced, dispersed type relying on advanced communications - just as the major banks and insurance companies in the UK and the USA are doing today. The costs and capital involved in a networked organization are a fraction of the costs and capital required for a traditional organization. The old cannot possibly compete with the new. We must all embrace the changes being forced upon us by technology or retire from business.