This is a pretty hot topic as we sit here in such uncertain times. Economic downturns and other societal difficulties have often been the catalysts for major structural changes, both in business best practices and society at large. So are we really going to see widespread fleeing of companies and tech employees away from the major tech hubs? Will we see accelerated adoption of companies using distributed teams as well as encouragement of remote work? These are trends that in my opinion have already been in process for many years, especially in high tech industries. But how fast and how far will they ultimately go? Lets take a look at what I consider the most important factors which will determine the extent of these trends going forward, post-crisis:
Multiple trends aligning
The ideas of distributed teams and remote work done away from the core tech hubs such as Silicon Valley, Boston and New York has been happening for a very long time. These trends are near and dear to my heart, and I feel particularly qualified to comment on them. I started my own management consulting and interim management business 20 years ago. Since then, much of my work has been done remotely, with client companies around the United States and the world as well.
In addition to the remote/distributed aspects of my business, I have made my home in San Diego, CA. Not exactly a tech backwater, but the tech company roll call is well short of the size of the huge tech hubs such as Silicon Valley, New York and Boston. I do occasionally work with local San Diego companies, and of course there has always been a travel component to visit my clients at their headquarters. But for a very long time, the great majority of my day-to-day work has been done remotely.
So I have had a long-term involvement and “front-row view” of the development of these trends in the software and hardware tech industry. I started my consulting business when phone and fax were still the primary “remote tools” available. Things picked up considerably with the availability of now mundane remote communications tools such as email. In more recent years I have found such applications such as Slack, Skype and Zoom, among others, to be extraordinarily helpful and efficient with respect to the ability to successfully work remotely from my clients.
The recent, severe economic downturn and pandemic has brought the terms “social distancing” and “shelter in place” almost instantly into our everyday lexicon. The vast majority of white collar workers in the US and in many places worldwide have just as instantly become remote workers and part of a distributed team, by necessity. In combination with the longer-term trends of high costs in major tech hubs, improved remote/distributed online tools and work/life balance concerns, this crisis appears to have the possibility of being the catalyst for a more rapid acceleration of these related trends.
High costs and Labor shortages in tech hubs
It’s not getting any cheaper to start up and run a company in Silicon Valley or New York. At some point the high cost structure for both companies and their current/potential employees will cause an outflow of new startup and expansion activity to to lower cost areas. The cost of office space in the major tech centers such as San Francisco is through the roof. Personal living costs are no better. Even with very high salaries compared to other locations, potential employees are often forced to share an apartment with 4 or 5 of their closest friends for it to make economic sense to live there.
In addition to these high personal costs, the cost of employee labor has been bid up in the major metro tech centers by a chronic scarcity of key tech skills as well as the extremely low unemployment rate. This was the case before the pandemic hit, at least. In the medium to long term all of these factors should increase the number of companies seeking to start up or grow OUTSIDE of the traditionally fashionable tech hub locations. Perversely, the severity of the economic downturn is likely to slow this exodus in the short term, as infrastructure and employee costs may be temporarily cheaper. So it’s unclear yet if we’ve reached a tipping point on the exodus from tech hubs. But basic economics says it’s inevitable and only a question of time.
Online tools, infrastructure, labor costs and work/life balance
There are a number of key factors that will drive the “work from home” and distributed team phenomena forward as we move past the artificially enforced conditions of the pandemic:
- The ability to choose the very best workers among a much wider talent pool, rather than just who’s available (and affordable) in a single locale
- Greatly reduced or even NO real estate-related expenses (in the case of a fully virtual operation)
- Ability to attract top talent who have work/life balance concerns
- The Internet is only getting faster over time, which drives the creation of more sophisticated online tools
- We will quickly move way past online tools such as Slack and Zoom; I’m seeing a great deal of startup activity around areas such as remote corporate security and distributed team management
Again, the subject trends have been happening (relatively slowly) before the pandemic hit. A new and positive experience for some workers and companies during this enforced work-from home period will likely lead to an acceleration of this already ongoing trend.
What else needs to happen for these trends to continue to accelerate?
Among other things, some long-standing traditions and fears must be overcome:
Capital must flow in a more “geographic-agnostic” way. There’s an old saw that VC’s will often use as a “nice no”: they will only invest in ” companies driveable from their office or residence”. I’ve always felt that was silly and locks VCs out of a lot of good deals. But there is a lot I’ve always found puzzling about traditional VC business models, so lets not get diverted here. Whether it made sense or not, in this advanced Internet age it will need to change. Or the trend away from major tech hubs will likely fizzle. Capital is king.
Tech companies must manage in a more modern manner. It amazes me in this day and age that many managers still feel that if they can’t see Johnny or Sally, they’re likely goofing off. This is essentially a fear of lack of control and raises the question of the difference between communication and proximity in the ability to manage. Most managers even today find comfort in having someone in the office or cube next to them. I find this approach to management surprising in today’s modern business environment, especially the tech business where our modern collaboration tools are created. I’ve been working largely remotely for 20 years; I can tell you that communication trumps proximity every day of the week. .
If you hire folks that fit this “goofing off if out of sight” description in a software or hardware business, you’ve got a real problem. Proximity probably won’t help much with these kind of employees. But even if you disagree with this, there are many new management tools available to tech company managers to monitor and analyze output and productivity, regardless of location. Without a change in this old school attitude, the growth of distributed teams and remote work will be retarded.
Elimination of “geographic discrimination”. There has long been an attitude among those based in the major tech hubs that I refer to as “If you don’t work in the Valley/New York/Boston how good can you really be?” It certainly doesn’t apply to everyone in major tech hubs; generalizations are of course always dangerous. But I’ve seen this smugness bordering on prejudice often enough that I believe it really is a thing. If management can’t grow past this short-sighted attitude, the flow of activity away from tech centers and toward distributed teams and remote work will happen much more slowly.
So will these existing biases be serious impediments to the trends we’re discussing? Conversion to these approaches won’t be universal by any means. But I have a hunch that more and more “old school” managers will be taking the leap into the near future, due to their backs being put to the wall in the current economic environment: Necessity tends to be the mother of re-invention of both people and businesses, especially in the tech industry.
My forecast on remote work, distributed teams and exodus from tech hubs
I hear prognosticators say about the current crisis that “this will never be the same, that is changed forever”. I’ve heard predictions that the office buildings will be empty and that rents will take a nosedive because everyone will be working from home. Companies will flood out of Silicon Valley right away. All sorts of stuff; I consider the predictions of extreme change to be a bit premature and likely overstated.
I do believe there will be changes from this crisis, however, but more at the margins. I’m not expecting that the forced, dramatic overnight changes we have experienced will be largely sticking in the medium term as we “open up”. Folks that like the office and have a real need to manage in a high touch manner will have greatly missed that on-site environment. Those folks will likely double-down on that way of organizing and management style. Other managers who were already a bit more adventurous in their management approach may see inefficiency in office life, as well as deciding that they are ready for a bit more work/life balance themselves. They will likely accelerate their adoption of a more “virtual” organization and operating style. So work from home will continue it’s previous ascension before the crisis, and maybe accelerate a bit. But I wouldn’t worry about all of those office towers being torn down anytime soon.
I also feel that the trend toward distributed teams OUTSIDE of the traditional tech clusters will accelerate faster. This works particularly well in businesses such as software where there are no physical goods and has been happening in larger companies for a while, often through M&A as a catalyst. Over the last 5-10 years or so I’ve also worked with a number of early stage software company clients who started up and grew quite effectively with an almost completely decentralized employee model.
Rather than a completely decentralized model, it may become more common to have a traditional, central physical headquarters, albeit with a much smaller HQ staff. The bulk of employees would be widely distributed in locations of their own choosing or clustered in smaller offices in lower cost cities. There of course is no perfect operating models and there are pros and cons to a decentralized model, as well as one with a sole physical location. But once a management team gets over the fear of a decentralized approach, I have found the net operating efficiencies can be very high. So I feel that on overall we will see a slight acceleration of these long-standing macro trends as a result of the shock of the current crises.
That’s my own very personal view of the trends towards decentralization of tech businesses away from Silicon Valley and other traditional major tech hubs. I’d love to hear from tech founders and CEOs how you see these trends moving forward. Please use the comment field below to illuminate us on how you view these approaches for your own company, as well as your own forecast for the tech industry as a whole .
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. To ask a question or discuss a consulting or interim engagement, contact Phil directly at [email protected]
If you liked this post please share it with your colleagues using the “share” buttons below: