Signals vs. Output

At a time when transportation and communication were incredibly costly if not impossible, large firms where everyone worked in the same building at the same hours greatly reduced transaction costs.  Today, there are cases where transaction costs and other costs of doing business are actually higher when colleagues work together in the same building.

In a large, complex workplace full of professional obligations, hierarchies, duties, friendships, tensions, and coordination problems, signals can become as important as outputs, sometimes more.  What you produce is one thing – so long as you create more value than the next best alternative for the cost, you’re good for business.  Except you don’t work with calculators, you work with humans.  What your colleagues perceive to be your value – or worse yet, your activities – will determine your compensation and responsibilities.

In order to make sure you are in good standing, you have to produce not only what’s on your job description, you also have to signal to your coworkers that you are valuable, and a generally decent person with whom they want to work.  A common signalling mechanism is to talk to your coworkers a lot, about work and non-work related things.  Another is to hardly talk at all because you’ve got your face buried in your monitor all day looking like you’re really focused.  Another is to send lots of emails or call lots of meetings.  Of course if you’re not producing anything, these signals will only get you so far.  But it’s surprising how far they can get people in some work environments.  That’s where this business of being in the same building comes in.

It’s a lot harder to get away with signaling value instead of producing it when you are stripped of the shared office environment.  You can’t be seen at your desk looking busy because you’re not seen at all except via video conference.  You can’t chat up your coworkers unless you have something specific that warrants a call or email.  It’s more cumbersome to call meetings, so you have to think more carefully about whether a meeting is needed before doing so.  Emails can fly with ease, but without the face time, you risk having them misinterpreted and have fewer ways to gauge if they’re annoying people; this tends to make them more risky and costly.  In other words, many of the signalling options are not open to you, so productivity is the major way to measure your performance.  This is good for value creation.

Many people see the downsides of remote work – loss of camaraderie, loss of easy pop-in conversation, technical problems with conferencing, etc.  These are real costs, but they are the greatest in the initial training months for new hires.  After a modicum of familiarity with the people and processes of a workplace is achieved, these costs go way down.  As far as camaraderie, a growing number of people seem to maintain some of their best relationships via Facebook today, so it is not impossible to achieve a pretty deep level of kinship among remote workers who might get together in the flesh on occasion.  As for those pop-in conversations, those are actually more of a cost than a benefit.  When you don’t have the ability to invade someone’s office for five minutes any time you’re walking by, you find more efficient ways to bundle your questions together, or you ask via email which allows them to respond when it makes the most sense, or you call or text if urgent.  Communication prioritization tends to emerge, improving efficiency.

Another objection is that some people just aren’t wired for remote work and couldn’t get anything done outside an office environment.  It is absolutely true that individuals have different work habits and different ways of getting in the creative zone, but this objection strikes me as far-fetched.  If an employee really can’t produce anything unless they are seated in a room full of other employees, maybe they’re not getting anything done anyway.  The people that coworkers worry about working remotely – “Oh man, if that guy worked remote, I’d never get responses from him and he’d be at the beach all day” – are probably people they should be worried about in the physical office.  If a person couldn’t produce without all the trappings of the building, chances are good they are not producing with them, but rather taking advantage of all the signalling devices remote work does not offer.  Perceptions are easier to control in an office, therefore the cost of producing less is lower because you can make up for it with signals.

If you call a remote employee and they don’t answer in a few minutes, you start to wonder if they’re working at all or just gallivanting about town.  The inability to see them around during the day raises suspicions when they are slow to respond.  This forces them to build trust by a reputation of quality and timely work to stave off any negative perceptions.  Contrast that with popping in to talk to an on-site employee.  If they’re not at their desk, you don’t think anything of it.  You know they’re in today, so you just assume they had to step out for a minute.  Just by being in the building and being visible, they buy themselves a little more good-will and can get away with a little more.

Clearly there are some kinds of work that make remote locations far more difficult, and some make it impossible.  But the technology available today makes remote work incredibly attractive to employees and employers (check the cost of office space in any major city).  Most workplace cultures haven’t really adapted to this shift in transaction costs and still place a premium on being in the building; to their detriment.  There are great and growing benefits to remote workers – and taking it a step further, to contractors for many if not most roles – and firms would do well to explore them.  Try making one department remote for a month and see what happens.  You might be surprised.