Collaboration, across cities, countries, timezones and continents, is becoming the norm. So what’s the downside?
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I wrote on Tuesday about why, as an investor, I’d bet on companies that allow flexible working, including working from home.
Today, though, I wanted to share some thoughts about what the trend might mean for us as employees. And, by extension, investors.
And, while I’m generally an optimistic, upbeat bloke, this one comes as a warning.
See many of the world’s best and largest businesses are allowing staff to work from home, which is good for the companies and good for their staff.
Some have literally said ‘you’ll never be forced to come to the office again’ while others like our own Atlassian have said they imagine staff getting together maybe four times a year, not to work, but to build connections that are harder to forge online.
Those are all to the good.
And, as a result, companies are retooling, literally and metaphorically, to make ‘virtual first’ their modus operandi.
Again, that’s to the good.
Making sure that wherever you are, you have equal access and opportunity to be noticed, rewarded, offered new roles and work collaboratively, is going to be the sign of a great twenty-first century business. And, in general, those companies will get the best people, because great people will gravitate to the best cultures and the best (virtual) workplaces.
But here’s where our story takes a slightly darker turn, at least for some of us.
In the euphemism-rich world of management-speak, some companies are making ‘salary adjustments’ for those who move to ‘more affordable communities’.
Or, in plain English, they’re going to try to make you take a pay cut if you don’t live near head office.
The rationale, of course, makes sense at first blush: if you don’t have to pay for expensive housing (and other costs), then you don’t need to be paid as much.
But when you look a second time, that’s errant nonsense. When was the last time a company voluntarily offered you more because they were worried about your ability to pay the rent?
You reckon companies pay more to buy widgets from a CBD manufacturer rather than a rural one just because the former has higher costs?
No, me either.
They pay a market rate for the product, and they pay the market rate for their employees, too.
And every manager is — explicitly or implicitly — hiring someone based on the return on investment they offer. If a highly paid software engineer produces more value than she costs, she’s hired.
Of course most companies would pay less — for both widgets and employees — if they could, but if an employee is worth hiring on a ‘big city’ wage, then there’s no justification to cut it if they go bush, just as there’s no justification to pay someone more if they voluntarily moved from the regions to the city.
Of course, that doesn’t mean companies won’t try it on!
That’s only the opening skirmish, though. And, in all likelihood, only a sideshow to the main game.
Let’s do a thought experiment.
Before 2020, the vast majority of businesses were set up just the way businesses had been for the past two centuries.
Everyone worked in close proximity to each other, usually in a single head office (with some state or regional offices, as required). Recruitment was done locally, originally with an ad in the paper, and then online, but still with a specified ‘location’.
Which made sense. Offices were full of paper. Meetings were held in person. Customers and suppliers were often located in close proximity. Email was — is — a thing, but most of the conversations were in person.
And if you happened to be the only one or two people dialling into a meeting in which the other 10 were in a single room… well, you know how useful that was. The lines were dodgy, the microphones and speakers sounded like Edison’s prototypes, and trying to work out what was being said, to whom, in between the on-location jokes and whispers was a Herculean task.
Now, let’s fast forward.
Shopify Inc (NYSE: SHOP), the webstore software business (I own shares, for the record) has now gone completely the other way. Even if you’re in the same office, you are told to dial into your Zoom Video Communications Inc (NASDAQ: ZM) meeting from your own PC — ‘one person in every square’ — to make sure the meetings are both equitable and productive.
Slack Technologies Inc (NYSE: WORK), Teams and other messaging apps are a primary means of group communication.
Collaboration, across cities, countries, timezones and continents, is becoming the norm.
In many cases, it no longer matters how close or far apart you are. Distance is becoming all-but irrelevant for many, many professions and companies.
So where’s the downside?
Well, let’s play this out.
Let’s say that a Melbourne-based creative agency goes full-digital. Its staff love it. Customers and suppliers get used to it. It becomes the way things are done.
Then, the company needs a new copywriter.
Instead of putting an ad in The Age, or on Seek, using ‘Location: Melbourne’, it decides to simply look for the best person… anywhere.
Maybe they hire a gun advertising exec from New York or London. That’s a job lost to the locals.
But play it out a little further.
Instead of offering a $100,000 salary — the going rate in Melbourne — the company decides there might be equally capable people in Auckland, Hanoi, Beijing or Buenos Aires.
So they put out a global ad, offering $50,000 for the job — well in excess of the going rate in some of those cities — and fill the role.
Now, maybe you’re thinking a South American native might not know the cultural nuance well enough to write ad copy for Australia. Or that employment law here or there might put a spanner in the works.
You might even be right — I deliberately used an example that had those wrinkles.
But you only need one person — say an Aussie ex-pat that went to Vietnam with a partner — to solve the cultural challenge. And you can bet the workplace laws will change quickly to keep pace with the reality.
It is, I hope you’ll see, the next phase of a phenomenon that’s been playing out for years — the standard of living in the developed world has increased significantly thanks to the offshoring that’s pushed prices down (or at the very least, limited their rise) here at home:
The computer that’s halved in price while doubling in capacity.
The $4 no-brand t-shirts in K-Mart that have supplanted the $40 Billabong ones.
The car that costs the same today as it did in 1998, despite being safer, handling better, having a list of standard inclusions that weren’t even options back then, and a fuel economy that doubles the range of a single tank of juice.
Yes, that’s technology, in part. But it’s also labour costs.
The same labour costs that have impacted blue-collar jobs for the past 30 years, and might now start to press in on white-collar ones.
I’m not saying it’s welcome. And, frankly, as an investor, my industry is in the gun as much as any. I’m just saying that, in time, we’ll see multinational workforces even in local-only businesses.
When a job can only be done in Melbourne, you’re recruiting from a small pool of qualified, experienced professionals, and in a market where your competitors have already set the going rate of pay.
But when it can be done anywhere? That’s when wage arbitrage comes into play. And high-wage economies like Australia potentially have the most to lose…
Now, I take no joy in making that case. And the impact for investors is far from clear.
In general, though, the future is likely to continue to benefit the owners of capital (shareholders among them), and it’ll be important to continue to think global — both in terms of the companies you own, but also the potential competitors.
Culture will matter. So will a company’s brand — both for employees and customers. Innovation will continue to win. And a focus on costs, particularly if competitors lower theirs through offshoring, will be important.
And, dare I say it, if you’re in an industry that’s likely to be impacted, consider this a clarion call to save more and invest more — becoming financially independent is the best way I know to wrest back control of your financial future, and protect yourself from changes that may be outside all of our control.
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Motley Fool contributor Scott Phillips owns shares of Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Shopify, Slack Technologies, and Zoom Video Communications. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool Australia has recommended Slack Technologies and Zoom Video Communications. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.