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The physical workspaces, infrastructure for virtual work, and management practices that comprise a company’s work environment dramatically influence corporate performance. CIOs have an opportunity to improve their enterprises’ competitive positions when they take the lead on efforts to redesign the work environment.

In the first edition of their 2009 seminal study “The Shift Index,” John Hagel and John Seely Brown found the performance of U.S. public companies in peril. Their research, updated annually, continues to reveal that public companies’ return on assets has dropped 75 percent since 1965, and the rate at which large companies lose their positions as industry leaders has more than doubled in 40 years.

Hagel and Brown, co-chairs of Deloitte LLP’s Center for the Edge, trace declining performance to long-term shifts in the global economy: growing consumer power, global competition, and technology disintermediation, to name a few. In response to those challenges, many corporate leaders have pursued short-term strategies—layoffs and efficiency improvements—to prop up financial performance. These strategies are often required to align cost structures with ebbing demand, but after a while, Hagel notes, efficiency measures yield diminishing returns.

“The more you cut, the harder it is to find that next set of costs to remove, and continued downsizing may actually hamper companies’ ability to compete,” he says.

To fundamentally improve performance and achieve long-term growth, Hagel and Brown argue companies need to focus on their talent—and more specifically, on finding ways to facilitate employees’ ongoing, on-the-job learning and development. Talent, they maintain, is the only resource with unlimited potential, and on-the-job learning (as opposed to traditional classroom or Web-based training) provides an effective and sustainable way to accelerate the performance of individuals, teams, and organizations by teaching workers essential skills in context, when they need them.

“While physical assets and intellectual property rapidly lose value, workers are the only assets that possess the infinite ability to constantly reinvent themselves and continuously push the limits of performance improvement,” they write in Work Environment Redesign: Accelerating Talent Development and Performance Improvement. “Thus, finding new and more powerful ways to develop talent is becoming a business imperative.”

Linking Learning, Work Environment, and Performance

Hagel and Brown solidified their views on the importance of learning and development while studying the work environments of 75 companies of various sizes, maturity levels, and industries. They sought to understand the connections among a company’s work environment, employee learning, and corporate performance. They found certain work environments foster the collaboration, knowledge sharing, experimentation, and networking that leads to what Brown calls “serendipitous learning,” not to mention faster problem solving and improved productivity. They also discovered evidence of sustained performance improvement among organizations with work environments conducive to on-the-job learning. Those companies experienced shorter lead times, higher rates of exception handling and error discovery, and sustained revenue growth or market share.

The message from their research, then, is that organizations seeking to improve their performance should consider redesigning their work environments to promote on-the-job learning and development. As Brown puts it, “Facilitating individual growth is essential to facilitating long-term corporate growth.”

By redesigning the work environment, Hagel and Brown mean more than just reconfiguring physical work spaces. They suggest enhancing the digital infrastructure required for virtual work, and scrutinizing the management practices that govern workers to make sure they’re not inadvertently stifling development.

“How organizations configure their work environments—from the layout of office space to the creation of online collaboration forums and new mechanisms for providing feedback—affects the extent to which they make the most of their talent,” says Brown. “Many companies haven’t adequately tapped the potential that comes from connecting teams to tacit knowledge inside and outside of their organizations.”

Think Big, Start Small

The notion of redesigning the work environment can sound expansive, expensive, and complicated, but in practice, it doesn’t have to be. Hagel and Brown say even small, low-cost changes can have a significant impact.

For example, $2.4 billion building contractor DPR Construction encourages collaboration on work sites by connecting its mobile trailers into a single “Bigroom” in which engineers, builders, managers, and subcontractors can work and congregate. On one project, DPR engineers noticed a team of subcontractors in the Bigroom using a software application to model concrete and reinforcing bar. The engineers decided to try using the same software to model a façade they were building—something for which the software had not previously been used. When the team modeled the façade using the application, they promptly identified several design and coordination issues that could lead to budget and schedule overruns. By simply connecting their trailers, DPR produced this chance encounter with subcontractors that led them to try new software, which ultimately resulted in a higher-quality façade design and a better-coordinated construction process.¹

In another example, DPR Construction started using tablets and cloud-based storage to view, update, and share electronic blueprints. While the technology required investment, it eliminated the approximately $2,000 cost for each paper roll of blueprint. Moreover, the cloud storage technology allows engineers to update electronic blueprints in real time and immediately share the updates with users. There are no longer instances of engineers working off different construction drawings, which has significantly reduced mistakes.²

“Technology has helped create a work environment at DPR Construction where engineers are literally on the same page and fewer costly construction mistakes are made,” says Hagel.

The CIO’s Role in Work Environment Redesign

Given the importance of information and digital technologies in helping people connect and communicate, Hagel and Brown believe CIOs can play a substantive role in work environment redesign, as catalysts for—or leaders of—these initiatives. “They can envision and implement the digital infrastructure that supports continuous, serendipitous learning, allows people to encounter each other in novel ways, and provides teams with the agility to assemble and disassemble on the fly,” says Brown.

The digital infrastructure may include tablets and cloud-based applications, as it does for DPR Construction and many other companies. It may also include wikis, online collaboration forums, and the kinds of reputation rating/profile systems common among consumer-focused online communities and social networks. In a corporate setting, these reputation/profile applications could help workers rate, identify, and connect with internal subject matter experts.

To kick off a work environment redesign effort, Hagel suggests CIOs start by identifying an underperforming area of the business, such as a call center or a demoralized sales department, where improvement could move the needle for the company. Another option: Look for opportunities to support on-the-job learning in the IT department.

“The idea is to find an area of the company where CIOs can showcase the opportunity associated with work environment redesign, demonstrate the impact, and begin evangelizing the potential to the rest of the organization,” says Hagel. “Many CIOs are looking for ways to have a broader impact on their organizations; work environment redesign gives them just such an opportunity.”