Remote Work vs Office Work: Cultural Stagnation or Divergence?

Over the last few weeks, we’ve seen the debate on remote work becoming more and more intense. 

One of the most interesting announcements from the last few weeks came from Tesla’s CEO Elon Musk, who told employees they could continue their hybrid work arrangements as long as they spend at least 40 hours a week in the office.

This was, of course, a tongue-in-cheek announcement that basically told Tesla employees that from now on, they won’t be working from home anymore. In fact, Mr. Musk emphasized that these 40 hours must be at the main Tesla office, and not a satellite location. 

This was followed by VC’s and founders, claiming support for the same: 

Over the last two years, remote work became more and more contentious. For most firms it was clear that if a job offer included the requirement to be in the office full time, the likelihood of a candidate accepting was nearly zero. 

At the same time, many managers I spoke with believed that employees will ultimately return to fully working in an office environment, as working from home (while quite productive and definitely time-saving for many employees) hurts innovation and leads non-top performers to shrink. In particular, as a firm scales, it attracts fewer “top performers” and more “average” employees. This requires more supervision and control, which are harder to do in a remote environment. While nothing is impossible, this setup is much harder and requires the implementation of processes. But since firms can only have a limited number of processes before they choke under the complexity, a firm that relies on remote work has to implement processes that help control employees and enable communication rather than processes that focus on the customer value proposition. As usual, no optimal solutions, just tradeoffs. 

I wrote about this topic before: you can have an efficient solution, and you can have a fair solution. But a solution that is both fair and efficient is not possible. And given that firms compete on efficiency, my prediction was that firms will ultimately choose to return to the office. But there is more than one equilibrium, and hybrid work is definitely one of them. And as with any multi equilibria situation, it’s hard to predict which one will ultimately prevail. 

What Changed?

We are at the confluence of three important, yet opposing trends:

First, we are entering what seems to be a recession, so firms are cutting costs, and many are laying off employees. Firms are starting to think about how to decide which employee to fire. For the last few years, given the available capital, the need to deliver on the promise for growth, and the significant shortage of skilled labor, firms had to hire fast. This meant that when hiring , firms compromised on both skills and cultural fit. But now that firms need to downsize: should they start with those who don’t fit in well or those who underperform?

Second, COVID is still around, and it’s no longer a pandemic, but endemic. We need to get used to living with it, and can no longer use it as an excuse to avoid returning to the office. I know this is not the only reason people want to work remotely, but it was what prompted everything, and remains a factor for many firms to not make returning to the office mandatory. 

Third, the labor market is still tight. US unemployment is at an extremely low level (3.6%), which means that retaining good employees is hard, and looking for employees is very competitive. 

In an effort to reconcile the first and third factors, the idea is quite simple. At least for the next few months, those who are going to be laid off are going to find new jobs. Firms are still hiring, and good employees are still needed. But as firms downsize to cut costs, laying off the “wrong” people may start an avalanche which might lead other good employees to leave as well, essentially derailing the firm completely. 

So for firms that need to cut costs while maintaining their competitive advantage, while also growing, and all while deciding between remote vs in-office employment, the burning question is: How does one decide on all these issues? 

And what makes this decision even harder is the need to navigate the cultural landmine associated with insisting on the work environment. It’s much harder to build a strong culture when working remotely, so firms have to choose culture, policies, and which employees to keep. 

Back to Elon Musk 

One way to interpret his announcement is not only as a cost-cutting exercise (Tesla does need to cut costs), but one that is targeted at those who don’t want to return to the office. The underlying assumption behind this is the one expressed in the Tweet above by Delian: those who are willing to work from the office are “top performers,” and those who like to work remotely must be “average” employees. 

And this is indeed one example of how firms are trying to navigate the cultural adversity of remote work in a tough economic situation. 

One of the main models on the evolution of a culture within a firm is the ASA model: Attraction-Selection-Attrition:

“A theory holding that: (1) individuals are attracted to organizations whose members are similar to themselves in terms of personality, values, interests, and other attributes; (2) organizations are more likely to select those who possess knowledge, skills, and abilities similar to the ones their existing members possess; and (3) over time, those who do not fit in well are more likely to leave. Owing to these three factors, the personal characteristics of those who work for an organization are likely to become more similar over time, leading to the consolidation of organizational culture.”

Mr. Musk is essentially accelerating the evolution of this model over the next few months. He announces the set of values: the office is where work is done, and anyone that doesn’t believe in that clearly doesn’t share the same values. It ensures that those who apply for jobs at Tesla should know this. Those who stay, know this. And those who don’t know or disagree will leave. 

It is easy to see how this may start a whole process of realignment of the entire economy. Firms that believe work can be done remotely will attract those who believe working from home is effective, and those who believe that work is done in the office will attract like-minded employees who prefer to be in the office. Given the many confounding factors, this natural experiment may not offer clear results, but it will be interesting to observe which one of these models will survive. For example, it’s possible that firms that promote in-office work will dominate in being able to execute quickly, but will have a hard time retaining employees. 

Now, I myself am making many assumptions here: that people can actually move jobs easily and have this flexibility, and that everyone has the means to set up an environment to work remotely. These assumptions are not necessarily applicable to everyone. 

But if Elon Musk’s “strategy” works, it’s going to create a very cohesive culture of people believing in working hard from the office, and in the superiority of their model (while their friends tell them about their experience working remotely). Some may think it's a toxic hustle culture. Others may think it’s a great recipe for building a cohesive team that is culturally aligned. 

So…What’s the Risk?

First, firms may lose out on top performers that don’t want to work in the office. Given the shortage of skilled labor, this may become a real issue. 

But this is part of a broader issue: that of cultural stagnation or cultural lag. 

“The term cultural lag refers to the notion that culture takes time to catch up with technological innovations, and the resulting social problems that are caused by this lag. In other words, cultural lag occurs whenever there is an unequal rate of change between different parts of culture causing a gap between material and non-material culture.”

As you go down the ASA model, you create an echo chamber of people around you who strongly believe that the model they currently employ is the right model. But what if it’s not? What if it is the right model, until it no longer is? 

And this is going to be primarily an issue for managers who grew up in a world where everything happened in the office. 

Every culture is built on three layers: the artifacts, the values, and the underlying assumptions. The artifacts (the physical location, the jokes, the jargon) are highly visible, but their impact on culture is limited. The question is going to be whether working from the office is a mere artifact that needs to be dispensed of (as technology enables people to work remotely) or is it THE most important artifact that ties everything together and without it all other elements of a strong performing firm cannot succeed. 

Some managers take the same stand as Elon Musk (just not with the same penchant for publicity), while others acknowledge that they just don’t know what the right model is. The latter group is making a choice to allow for a new culture to emerge. One that is more flexible and nimbler. But there is a risk here as well. A risk of cultural divergence, allowing “pockets” within the firm that have different values: Those who come regularly to the office and develop social life around it, and those who work remotely and have a different type of attachment with the rest of the team (or within their teams). 

Which risk is stronger? Stagnation or divergence? 

In my opinion, in the short term the latter, in the long term the former. 

Why?
As new technologies arise, and new cohorts of workers come to the workforce with different values, the inability to change is a much bigger risk than the inability to execute. But maybe there is no long-term goal. 

As usual, there is no right solution. It’s all about tradeoffs (sorry, I know). 

As firms decide on how to deal with the near future of a recession while trying to retain employees who got used to working in a hybrid setting, the question is going to be more pertinent than ever.