Chicago Booth Review Podcast Does Remote Work Kill Productivity?

Michael Gibbs: In the office, you can get the focus time, but I think being in the office is arguably maybe even more important for innovation than it's for productivity.

Hal Weitzman: The COVID-19 pandemic caused perhaps the fastest ever shift in working patterns. One day, many of us were working in offices, the next, we were working remotely and would be for years. What effect did that have on our performance?

Welcome to the Chicago Booth Review Podcast, where we bring you ground-breaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today I'm talking with Chicago Booth's, Mike Gibbs, an expert on the quantitative effects of remote work.

While some employees are still working remotely, many organizations have called their employees back full time. In much of these cases, the in-person requirement is driven by a sense that in-person work leads to improved productivity and innovation. Gibbs has real data that can inform the debate. So what do we lose and gain by being in-person or remote?

All right, Mike Gibbs, welcome to the Chicago Booth Review Podcast.

Michael Gibbs: Thank you.

Hal Weitzman: You're here to talk about work, hybrid work, remote work, and what effect it has on innovation. So let's start with that. How do you measure innovation at work? What do we mean by innovation? How do we measure whether it's working or not?

Michael Gibbs: Yeah, the first answer is it's not easy to measure, right? It's kind of nebulous. A lot of research on innovation is looked at things like patent activity as a proxy. Some has used surveys, or I'm familiar with a famous study by Ron Burt, one of our faculty members in which he had respondents in a company come up with new ideas, and then he passed the ideas around to their colleagues and asked them to rate them. So that was kind of an interesting one. They're not real examples though, and I mean, some of them might've been implemented at work, but it's a way to try to get some measure of innovation.

The way we measured in the two studies that we've done with data from an Indian company, HCL Technologies, is they have a very robust employee suggestion system, which they've had for 15 years or more. It's a very big part of their culture because a CEO who came in about 15 or so years ago wanted HCL to become more innovative and wanted to build a culture in which every employee's thinking part of my job is to come up with new suggestions. They might be small ones, they might be big ones. So for many, many years they've had this intranet system.

And I remember one time speaking to a student of mine at our Asian executive MBA campus, and he's a senior executive at HCL, and he's describing the system to me. So this will tell you how I get data. And I stopped him after a minute, I said, "Wait a second. You have a data set of employee ideas." And he said, "Yes." And I said, "May I have it for research?" And after about two years or so, wrangling with lawyers and so forth, we got access to the data. So what's very nice about these data is these are real suggestions in a real company intended to be implemented, not just a proxy or-

Hal Weitzman: Right. It's not a lab experiment, it's a field [inaudible 00:03:20].

Michael Gibbs: Yeah, where you try to come up with an idea or looking at patents, but those are useful. But this is, I think, very rare and it's going to be very hard to get data like this.

And then to answer your question a little bit further, but the main two measures of innovation we have are the quantity of ideas that employees suggest often with colleagues and the quality of those ideas. So quantity is easy. Quality we can measure a couple of different ways. Every time an idea is suggested, it has to get vetted through several stages before it might get implemented. And in each of those stages, it could be rejected.

The company is using significant resources. They're taking senior executives whose time is very valuable, having them look at these ideas, which might've been submitted by a custodian, you never know, discussing them with each other. And the second nice aspect about this is it's a subjective evaluation of the idea. It's not quantitative, so the executives are taking into account all of the intangible aspects of the idea, the possible ways in which it could help corporate culture or foster a strategic initiative or build better client relationships or whatever it might be. So it's a very holistic evaluation.

Hal Weitzman: So the first thing I note is about the study is this is obviously a company that takes innovation extremely seriously because not only... I mean, every company or most companies will say, "Yeah, we really care about innovation." In this case, they are setting up a whole infrastructure and devoting time to evaluating these ideas and trying to work out which would be adopted. So that sounds a little bit unusual, but the thing I wanted to ask you is do you have any sense of how big these innovations are? Because some of them, I'm guessing, are smaller and some of them are bigger, and a really big innovation might be something that the management is more wary of, leery of. So do you have a sense of the size of the innovation, the disruptiveness, if that's a word?

Michael Gibbs: We have a little bit of a sense of that, although it's... I'm not sure the data are good enough to look at it in much detail, but for ideas that are ultimately get implemented, retrospectively the company tries to estimate what were the effects of the idea, and particularly the financial effects, the profitability.

Now, not every idea is intended to have financial benefits, but we do have those measures. One employee suggests an idea, which ended up with profitability of 20 million, for example. So there are some big ideas, and then there they're of course small ideas as well.

Hal Weitzman: Okay. So what's fascinating about your work with this particular data set is you've been looking at this pre-pandemic, during the pandemic, and afterwards. So there's a lot of anecdotal stuff about remote work doesn't work or companies calling people back to work perhaps with limited data. But you've actually got the full scope of what it was like before the pandemic when everyone was in work, during the pandemic when most people were not at work or not physically at work, and then now in this hybrid situation. So let's go back to what, in this particular company, what things were like before the pandemic? What was just kind of the level of innovation, and what did your initial research show?

Michael Gibbs: So the initial research we published was in 2017, pre-pandemic. And at the time the company had the suggestion system going for many years. It was robust. They were very happy with it. The data set they gave us had over 5,000 employee ideas, but they were wondering, can we make this platform work even better? So they decided to experiment with an incentive, a financial incentive. We didn't help them design the experiment, but we got the data from it, and they did it in the proper way.

So they picked up a set of client teams, and they randomly assigned some of them to get the financial incentive and some of them to not. So we have a treatment group and a control group. And this is interesting partly because most psychologists will tell you that financial incentives will undermine creativity and intrinsic motivation for innovation, so it's a perfect experiment. And there are many, many studies of this kind of thing using undergraduates in labs, which are kind of artificial, but-

Hal Weitzman: In other words, people would just put in ideas for the sake of the incentive rather than because they've actually got great ideas.

Michael Gibbs: Yes, yes. So there's this long debate between economists and psychologists and social psychologists about extrinsic motivation versus intrinsic motivation, this idea that extrinsic motivation, financial incentives may crowd out someone's motivation that is intrinsic to the nature of the job, and it's very difficult to get data on this in the real world, but our first study did have that.

And so what we found is that the incentive actually reinforced innovation in a positive way. We found that more people tried to participate in coming up with new ideas, they came up with fewer ideas per person, so on net, total number of ideas did not change, quantity, because more people were trying to come up with ideas, but they were coming up with fewer. But here's the crucial part, the ideas that they were coming up with when they were given the incentive were of higher quality, so fewer ideas, but of higher quality per person.

I mean, you can sort of think about what's the trade-off here. I can come up with a lot of ideas that are kind of off the cuff and they're not big ideas, but if I'm motivated to think about only high quality ideas, I'm going to try harder and I'm going to come up with fewer high quality ideas. And that's exactly what we observed. And the reason for that is because think about designing an incentive for an employee suggestion system. There's sort of two rough ways you could go. The first is I'm going to give you a reward for every idea you come up with. What are you going to do? Give me an idea, Hal.

Hal Weitzman: Abolish all meetings.

Michael Gibbs: Great.

Hal Weitzman: I get my $10?

Michael Gibbs: You get your reward. It's a stupid idea, Hal. It's rejected, no offense. But HCL didn't do that. They're not rewarding a number of ideas. They're rewarding ideas which were actually implemented. So they've passed through all the hurdles, the supervisor, the executive team, and possibly the client review as well.

And so what we found is that the incentive increased creativity. And then the next thing we did is we divided employees into those who were suggesting ideas without the incentive and those who weren't. And that first group we referred to as we assumed that they have stronger intrinsic motivation to innovate at work, all right, based on their behavior before the experimental incentive was put in. And then we tracked them and how they reacted to the incentive. What we found is those who with high intrinsic motivation before the incentive were offered also responded positively to the incentive. It didn't undermine intrinsic motivation, it reinforced it. I think the reason is because when you give people an incentive that's based on a sensible objective that is aligned with creativity, you can motivate more creativity.

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All right, Mike, so we talked about what happened at this company before the pandemic. Then the pandemic hits, most of the employees are not working physically at the office. What happened?

Michael Gibbs: Well, like the rest of the world in mid-March 2020, 98% of HCL employees started working from home within a matter of a week. This was pretty easy for them because they all had their work devices, laptops and tablets and phones and everything from the company. So what we did is we worked with the company to collect data on employee performance before the pandemic and during the pandemic. They have a very rigorous performance evaluation system. Every employee is given certain measures and targets by their supervisor aimed at their primary work activity, and they're measured on this numerically, and then they're measured ultimately on their performance as a percentage of the goal that they achieve. So you and I might have different measures, but we both have a measure scaled 0 to over 100%.

And another thing that the company has is they have software on work devices, which tracks employee work activity. So we knew when they're working, when they were not working. So what we found is when the pandemic hit, there was a dramatic decline in productivity. HCL employees' performance declined a small amount, but the amount of time it took them to perform their work rose significantly, and their performance per hour worked fell by something like 18% depending on the measure you look at. This is a huge effect.

Hal Weitzman: So they're doing the same amount of work, they're just taking them longer to do it.

Michael Gibbs: Yes, exactly.

Hal Weitzman: Okay. And I mean, they're distracted? What is going on, do you think?

Michael Gibbs: I think part of it is that they were distracted. We found that they were spending more time in online meetings on Microsoft Teams, they referred the equivalent of Zoom, and many of these meetings were short meetings, but large group meetings. So it looked like the teams were coordinating with each other, the supervisors having an all hands on deck meeting twice a day or whatever it's going to be, but there was more times spent on these kinds of communications.

A second indicator that they may have been distracted is we found that the biggest source of productivity for these employees was what they called focus time. This is a measure that was provided by the vendor who had the software that tracks employee work. Focus time is defined as periods of two hours or more when you're not being interrupted by any kind of communication with anyone else and you're doing your work on the approved apps, you're not playing solitaire on your laptop or something like that.

What I learned from that is to turn off my devices when I really need to do work. Focus time matters a lot, but it also suggests that productivity fell so much because people were being distracted. And that might be because they have kids at home or family, but it might be because people are constantly messaging each other, and these Zoom meetings are being set up, and you have to attend them and so forth.

Hal Weitzman: Right. I mean, there certainly was... It's anecdotal, but one feels that there were more meetings during the pandemic of kind of checking in type meetings. And what you're saying is those are actually a bit of a productivity killer.

Michael Gibbs: Yes.

Hal Weitzman: And did you do...? So your initial research is on innovation. This is a bit of a switch to productivity. Is there a connection between the two?

Michael Gibbs: Yeah, I think so. I mean, innovation is part of your work. Other things are part of your work. We're measuring two different aspects of it for sure.

Hal Weitzman: I mean, if you have more of that focus time that you talk about. Ironically, when you're in the office, you get more time to focus, which many of us with kids and pets, et cetera, will understand. So if you have more time to focus and there aren't as many of those short checking in type meetings and you can actually scroll yourself away to do that work, will it then prompt you to be more innovative?

Michael Gibbs: Being in person I think improves productivity. We're not quite sure what the reasons are now, but I think it may well be that working at home is distracting and there are too many temptations to turn on Netflix or get on the treadmill or something. In the office, you can get the focus time, although you're going to get people knocking on your door as well. But I think being in the office is arguably maybe even more important for innovation than it is for productivity, because a lot of innovation comes from collaboration and accidental interactions with other people and getting perspectives from people that are different than you. They have different knowledge or experience or insights and that's hard to happen virtually.

Hal Weitzman: So I'm guessing, Mike, that the employees quite like working from home. It's more convenient, and there's other research, isn't there, that shows that you're saving a huge amount of time typically by not going commuting back and forth to the office, and that time also adds to employee well-being and presumably their focus and productivity when they're actually at work. So how do you think about lower productivity in the way that you measure, it takes longer time to do tasks versus the benefits that people get from working remotely?

Michael Gibbs: These are trade-offs, and they're very important ones. The word productivity I'm using in a very specific way, employee performance per hour, which is I think the traditional way that we mean it as a labor economist. Much of the writings on this uses productivity as sort of a broader, more macroeconomic measure, so it's important to distinguish between those. So when you hear that remote work raises productivity, usually those claims are including the benefits of reduced commute time or other work-life balance benefits to an employee. The benefits are largely not accruing to employers, but that doesn't mean employers don't care about them because if this is something that's valuable to an employee, then it should be part of the benefit package, the terms of employment that can be worked out between employees and employers.

Hal Weitzman: Well, particularly because this happened at a time when people wanted to be home during a pandemic, people did not want to be in the office, so there's presumably some benefit from saying to people, you don't have to be, you can be at home.

Michael Gibbs: Yes, for sure.

Hal Weitzman: And so I guess my question is, you looked at one company in a specific sector, in a specific country, how generally applicable do you think this observation is about productivity? Or is it just impossible to say?

Michael Gibbs: We don't know yet. We need more studies. There are a few studies out there. There's one study of call centers which found that those working from home were more productive. There's a later one which found the opposite. There are several studies of collaboration, say, in universities and what happened to social networks during the pandemic, and they are consistent with our findings. I think we're the only ones who are measuring productivity in as rigorous way as we are. There's a recent study of hybrid work, which measures productivity, and it's a pretty good measure. I don't think it's quite as good as the HCL measure. They have measures of lines of code written by programmers. There's a question about what's the quality of that work.

And there's some studies measure productivity basically as a survey question, are you as productive as you were before? And I think those should not be given as much weight because when you ask someone, "Are you productive working from home?" What are they going to say? They're going to say, "Absolutely. I'm more productive working from home. I don't ever want to go to the office again."

Hal Weitzman: All right, Mike, well, you talked about hybrid work, yeah, and I want to have you back to talk more about hybrid work, but for the moment, thank you very much for coming on the Chicago Booth Review Podcast.

Michael Gibbs: Thank you, Hal. It's been a pleasure.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research.

This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman, thanks for listening.