The ‘work from home’ model has proven to be successful for many businesses and has emerged as a saviour amid the COVID-19 pandemic. Globally, all industries are witnessing the impact of the disease and how long will it last remains uncertain.
All businesses are experiencing challenges in acquiring new clients and many existing clients have started relooking at their contracts. This, in turn, has intensified the pressure on cash flows, forcing enterprises to relook at their existing business models to reduce costs.
In India, right from the announcement of the first phase of the lockdown (and in some global companies, even before the announcement), IT/digital companies allowed their employees to work from Home (WFH) as per government’s mandate. As a result, about 90 per cent of employees worked from home, with 65 per cent of them from homes in metros and the rest 35 per cent in small towns.
Many IT companies in India had to move employees’ desktops to their homes as they could not procure laptops in such large numbers at short notice. Also, there was a critical aspect of ensuring compliance and security. Despite all these, all of India’s IT majors successfully executed this humongous shift and nearly 4 million IT employees started WFH ever since India announced what is arguably the world’s largest shutdown.
Surprisingly, the transition from office to home has relatively been smooth from a business perspective. Clients did not face much disruption and there wasn’t any reduction in quality or productivity. This could be due to existing quality processes that IT firms have been following. The other reason obviously is the availability of cheap internet bandwidth.
Of course, employees do say they miss their water cooler conversations and day-to-day interactions, but nevertheless have embraced WFH. But, according to Gartner Research, some employees may work from home permanently even after the COVID-19 crisis.
“Over the next 5-10 years, I think we could have 50 per cent of our people working remotely, but we’re going to get there in a measured way. I think Facebook will be the most forward-leaning company on remote work at our scale, and we’ve been working on a thoughtful and responsible plan to do this,” posted Facebook CEO Mark Zuckerberg.
“There are still a lot of open questions about how this will work, so we’ll need to keep learning and improving as we go,” he added in the Facebook post. Other global majors like Microsoft, Google and Amazon have also decided to adopt similar strategies.
Indian IT Major TCS has gone on record to say that post-COVID, 75 per cent of its employees would work from home permanently. Until 2025, Tata Consultancy Services (TCS) has planned to allow 75 per cent of its 4.48 lakh employees globally (including 3.5 lakh in India) to work from home, up from the industry average of 20 per cent before the pandemic.
The new model called 25/25 will require far less office space than occupied today. “We don’t believe that we need more than 25 per cent of our workforce at our facilities in order to be 100 per cent productive,” according to TCS chief operating officer NG Subramaniam. TCS calls this model as the Secure Borderless WorkSpaces (SBWS) model.
On the sociological aspects, “The division of labour—what men and women should do in households—will change with prolonged WFH. There will be a broad spectrum. The skill level of women will be the determinant,” says Vignesh Illavarasan, professor of sociology at IIT Delhi’s School of Management.
“The extant power dynamics shall continue with some moderation. The physical space in the home will be altered to accommodate WFH. This will impact the nature of interactions within the homes,” he adds.
Using workflow software and video conferencing tools, businesses have quickly adapted to what is now a clichéd usage ‘new normal’. Online is clearly the ‘new normal’ as companies embrace remote working and rapidly digitise operations to ensure continuity of business.
While it appears that employees and businesses will gain from WFH in both short and medium terms, behavioural changes might not be all that rosy as thought out to be. WFH would result in a significant reduction in real estate prices, especially in IT hubs like Bengaluru, Gurgaon and Chennai.
“There, indeed, would be an impact on commercial real estate because of this move,” says Ganesh Vasudevan, founder and ex-CEO of indiaproperty.com. “The flip side is that this could also mean opportunities for shared offices and shared living spaces. I could have a team of my data analytics in Karaikudi and when they come to Chennai for review meetings, it could be at a shared office space or business centre,” he says.
Going forward, new employees might not have to relocate, the existing ones could even move back closer to their families and to cheaper or more relaxing areas of the countryside. The reduction in demand will lower the prices of houses in crowded cities that won’t be crowded anymore.
Though it appears to be good, in the short run, people who were over-leveraged to purchase houses will suffer and there might be a crash in commercial and residential real estate. This, in turn, will have a negative impact on construction jobs in India, arguably the largest job creator, leading to wages shrinking in the construction industry.
The WFH culture is also likely to have an impact on wages in the IT industry as salaries offered by software companies stand to go down. An IT company that is headquartered in Chennai can have employees from Warangal, Virudhunagar or Vadanagar, who could be working from their homes and yet be as productive and competitive as their Chennai counterparts.
The salaries of people in metropolitan cities will have to come down as there will no longer be the need for a premium (city compensatory allowance) anymore that they currently enjoy because of living in cities. If it goes down a lot, they might have to consider moving out of cities because their real estate commitment would be the only factor holding them. This would end up being a vicious cycle.
Economics of output and employment multipliers
Every industry has what is called an output multiplier and an employment multiplier (job multiplier). The output multiplier refers to the ratio of change in the total output that is required from all sectors of a regional economy to the direct change in the basic output of a particular sector of the economy.
On the other hand, a job multiplier is a way to measure how important an industry is when compared to other industries in the region (i.e) how many jobs does the local economy create because of one job in the particular industry.
The Output Multiplier for the IT sector varies from 1.11 to 3.22 (For ₹1 lakh of the output of industry, the local economy would enjoy from ₹1.11 lakh to ₹3.22 lakh). The employment multiplier for the same industry is in the range of 0.23 to 5.45 (One direct IT job creates 0.23 to 5.45 indirect jobs) depending on the state.
These multipliers would get affected by the new WFH scenario that businesses are embracing at breakneck speed. Job multipliers are typically tied to a specific industry. Industries with a higher sales to labour ratio typically have higher job multipliers.
There would also be an effect on the new employees’ salaries, which would, in turn, have an impact on local real estate and development companies, retail shops in the area and new purchases of vehicles. With each industry, a different multiplier will be in effect. But when all those multipliers as considered as an aggregate, there will likely be a large impact on the economy.
Local economies in IT hubs will also suffer. Cities like Hyderabad, Bengaluru and Gurgaon that had been complaining and painting IT companies as the villain for ‘local economy inflation’ might soon realize that it was those IT companies that have been actually feeding the local economy.
The moot question is who will carry the burden and who will pay for all the entitlements that governments there had promised everyone?
The answer is we don’t know!