Enabling Innovation Through Office Design

Work has become more mobile and team-based, but most organizations have been slow in changing their workplaces to reflect the new reality

There is a growing corporate understanding of design's role in achieving innovation, not only for products but also for services. In contrast, there is still almost no recognition of the role of workplace design in enabling innovation.

Open-plan, or landscaped, offices were introduced in the 1950s, originating in Germany with work by the Quickbourner consulting firm. The objective was to facilitate communication and workflow by locating a supervisor together with his group in an open, irregular arrangement of desks and other furniture. A few companies, including Herman Miller (MLHR) in the U.S. began manufacturing "systems furniture" that allowed these more open offices to be created without building interior walls, and providing flexibility to change.

From the 1970s through the 1990s, as the corporate use of systems furniture grew, responsibility for the design and maintenance of office space usually fell to the corporate facilities manager, who was generally rewarded on how many people could be put into the least amount of space. "Office performance" was more about effectiveness of HVAC (heating, ventilation, and air conditioning) than the people who had to work there. And "knowledge management" (how a company identifies, creates, and distributes knowledge that is important to its success) became the province of the IT department. The most efficient application of systems furniture became straight lines of cubes wired together (now neighbors could communicate by phone or e-mail rather than in person).

Ignoring the Benefits of Human Interaction

Seemingly practical, all of this ignored the importance of tacit knowledge—information that is in the heads of employees but not written down—as well as the business value of chance encounters, which a growing number of CEOs trumpet as the source of much innovation.

Today, of course, the nature of work is changing. Among other things, it's more mobile, cognitively complex, team-based, and collaborative, and new generations are entering the workplace. And yet with all of this, most organizations have not changed the place where their people work. The California Management Review recently reported that "less than 5% of U.S. corporations tie the workplace to corporate strategy or see it as a tool for improving organizational performance."

In a 1999 Harvard Business Review article entitled "The Human Moment at Work," psychiatrist Edward Hallowell points out that the anxiety many people feel at work has a simple antidote: a personal moment between two individuals in the same place at the same time. This encounter might take only a few minutes, but "the positive effects of a human moment can last long after people…have walked away," wrote Hallowell. "People begin to think in new and creative ways; mental activity is stimulated." But, he warns: "I can tell you without a doubt that virtually everyone I see is experiencing some deficiency of human contact…People feel lonely, isolated, or confused at work." Eight years later, with our overreliance on e-mail and technology, the situation has not improved.

Over the past 12 years, a small but growing number of chief executives have been involved in long-term efforts to change their companies' cultures toward being more open, collaborative, and innovative. Usually toward the end of this process, these CEOs have led an effort to change the design of the workplace to facilitate this new culture. The results have been very open workplaces with the same workstations for everyone in the company, with spaces enabling people to see each other and connect easily during the day.

Overcoming Rigidity at Alcoa

One of the classic examples of office design having an impact on every part of a business is Alcoa (AA). When Paul O'Neill became CEO in 1987, the company was struggling. Aluminum prices and profits were falling.

O'Neill did some reorganizing, but still felt that something was wrong. There was rigidity in the way people worked; the existing headquarters building in Pittsburgh was too large and the configuration of the space was wrong. There were small floor plates with 8-foot ceilings and small windows with a very limited amount of light.

O'Neill worked closely with Marty Powell, principal of architecture firm the Design Alliance in Pittsburgh to design a new six-floor HQ. "The most important thing was for people to be able to associate with each other in an open way, almost because the space demands it," O'Neill says. Even before the new building was started he moved the nine most senior executives, with their assistants, from large, private offices to a completely open-plan environment. It was a clear signal to the rest of the firm of what the future held.

In the new building everyone, including O'Neill, got a 9-ft.-by-9-ft. open area. No one was too far from the new 11-ft.-high windows through which natural light streamed. At the entrance way of each floor is an open kitchen area to encourage informal encounters. And O'Neill and his design team factored in enough meeting space so that every employee in the building could be in a meeting, out of their assigned work space, at the same time. Escalators were designed to be faster than the elevators to encourage workers to see and be seen.

Improved Performance

When I asked if the redesign had been effective, O'Neill turned the screen of his computer around to show the growth of Alcoa's stock price. The company's revenues grew from $1.5 billion in 1987, when O'Neill became CEO, to $23 billion in 2000. (He left the company in 1999.) And while it's clear that office design was only one factor in Alcoa's growth, O'Neill was adamant that it had a significant impact on the business.

SEI Investments (SEIC), based in Oaks, Pa. is a leading provider of investment accounting and administrative services and provides another good office design case study. The firm processes more than $50 trillion of investment transactions annually. In the late 1980s the company, in the words of CEO and founder Al West, was "doing O.K." Growth was 15%, but West was frustrated with the silo mentality of the three internal divisions (technology, asset management, and pension consulting) that neither collaborated nor cross-sold services. Perhaps surprisingly, he also felt that it was "not a fun environment." With these thoughts in mind, West began a seven-year reinvention process to shake up the business. He wanted his people to "get out of their box, to think differently."

The reinvention involved a radical organizational shake-up. But during the process, West and his management team realized that the firm's existing facilities, which they had tried to retrofit, simply could not support their new culture. In choosing an architect, Meyer, Scherer & Rockcastle, West said: "We didn't have a design run-off, we had a cultural run-off." To West, the challenge was no less than to create a space to enable the new culture to function.

Furniture on Wheels at SEI Investments

The resulting workplace is a series of two-story buildings in an irregular arrangement next to a wilderness area. Everyone in the company works at a completely open desk area. All the furniture is on wheels, as West wanted people to be able to move when they wanted to, with "no barriers to change." In addition, there was no need for an electrician or tech support when an employee had to move a desk: As a result, the cost of moving one person dropped from $1,400 to 0.

In 1996, after it moved into its new campus, one of SEI's divisions had a 90% close rate—double what it was previously—if a potential client was brought to its campus. The new SEI space was not intended to be a showplace, but it became one.

Earnings grew 40% each year between 1996 and 2001, with no increase in workforce. The average rate of return since the move has been 28%.

"Most people have to work in space that's too small for their spirits," says Jeff Scherer, who was principal architect on the project. "The design of the workplace can really unlock the spiritual side of the individual and their contributions manifestly increase."

Other executives, including Larry Page and Sergey Brin of Google (GOOG), Barry Griswell, CEO of Principal Financial Group (PFG), and Jon Fredrik Baksaas, CEO of Telenor (TELNY.PK), understand that the design of the workplace is essential to enable a company's most important asset, its people. The objective for all of these leaders is to create an open culture of collaboration and shared purpose.

Uncoupling Space From Compensation

Of course, simply redesigning an office will not ensure business success. But innovation is about the development and implementation of new ideas. This requires different people from different backgrounds and disciplines connecting and thinking about opportunities differently. This will not happen in a space that separates people from each other and prevents easy contact. The CEO must uncouple space from compensation: An office is not an entitlement, but can be a resource to enable an organization to reach its full potential.

As Winston Churchill said in 1943: "We shape our buildings, and afterwards our buildings shape us."

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