On Virtual Firms

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We’re working with a Sussex firm that is coming to the end of its lease on 2,500 square feet of office, meeting and server space. It’s at a fork in its corporate development. Many of its staff live up to 100 miles from the office and work on client sites and at home from time to time. So should it now go ‘virtual’, and embrace the ‘cloud’ to reduce costs and improve the employee experience? Should it let the lease lapse and go completely ‘virtual’?

We presume of course that there is no overarching need for a physical presence for example for manufacturing or assembly and that the firm is in a position to chose.

Many ‘virtual firms’ have a minimalist headquarters and a few support staff. Others have no headquarters and the support is virtual too. The ‘cloud’ refers to the provision of computing, communications and data services by third parties such as Google with access to these services and their use via the Internet. It presumes that staff have good Internet connection wherever they are or that they can synchronise with local copies of work from time to time. There are four areas of impact that help in the decision about whether or not to go ‘virtual’: clients, staff, performance and culture.

The firm needs to identify its clients and their needs and expectations. Often corporate or governmental clients expect a corporate centre. Their buying decisions are formed when they visit and they judge the style and perceived professionalism they find in place. If there is no corporate centre, a proxy must be developed. Many third parties provide meeting facilities that can be personalised though pretence should be avoided. Clients must know that the firm has no headquarters and that they will see the benefits of this in pricing and service. Other methods must be found for giving impressions of style and professionalism. Presence must be developed so that when the client completes due diligence he gets the right answer – a reliable, professional, sound entity.

Staff opinion about home working and virtual firms varies. To some extent it is an age thing. On the one hand older people tend to have the maturity to get up in the morning, go to work in a home office, communicate with colleagues and manage their time and effort adequately. Younger workers, on the other hand, tend to have lived through the virtual revolution, making use of social networking to replace actual interaction. They have the innate ability to multi-task and to run multiple communication threads. They live their lives already embracing all the techniques needed to run the virtual firm. Unlike their older colleagues however, they tend not to have built the personal structures and disciplines to work without hour by hour interaction with colleagues. Both young and old may need help in developing personal home-working skills.

The firm’s performance needs to be modelled, both when it was a centralised firm and once it becomes virtual. The biggest attraction to the firm of ‘going virtual’ is reduced costs. A firm will pay something between £20 and £100 per square foot of office space including the rent, Council Tax, electricity and other utility services. This means that for our example firm, there’s an apparent saving of about £100,000 per annum. This needs however to be balanced with added costs of service provision in the workers’ homes. Staff will need their employment contracts to be changed to state that they are ‘ordinarily based from home’ and will need to be paid travel expenses whenever they move. Meeting facilities will also need to be provisioned whenever needed. Nonetheless, it should be that home working and virtual operation is significantly cheaper than a centralised office. In addition, for a growing firm, the whole business of relocating families disappears making recruitment of quality staff a whole lot easier and if a good work-life balance can be struck, employee job satisfaction should rise.

Finally, we need to address the change in culture that will inevitably result from going virtual. Staff go from being best mates to being distant acquaintances. Management will have less ability see their staff and to chat casually. Management’s accessibility is eroded. Their ability to provide leadership is much reduced. It is in culture that the greatest impact will be felt. To counter the negatives in culture, management must implement all the infrastructure of the physical firm. This starts with proxies for the coffee machine, for lunch time banter, for weekly stand up meetings, for formal monthly meetings and for the informal chats. Some must still be physical whilst others can embrace the cloud. The biggest challenge is in tacit communications and information transfer – and in the virtual firm information must be managed rather than left to chance.

So on balance, where are we at? Should the firm go virtual? Any firm discussing the options should first draw up a statement of what the firm values most. The McKinsey 7-S framework forms a good base for this description. There are many references to 7-S available through search engines. The firm can then say how it meets its organisational needs as a physical, centralised entity and then as a virtual firm. If there is a net benefit, go virtual. If there’s no net benefit at this point in time, don’t, but remember that what’s inappropriate now may have advantage later.

If you’re a manager of an SME and you’re looking to embrace change, talk to TimelessTime.

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