COVID-19 Impact theme #1 – Work From Home

COVID-19 has certainly resulted in a great deal of changes in our daily lives, some of which are temporary, some of which will be here to stay. Nonetheless, the pandemic will leave our lives, as a whole, forever changed. 

With that, we would like to introduce a four-part series where we explore a handful of ‘impact themes’ where COVID-19 has left its mark. Our plan is to introduce the theme, the impacts, and to highlight some actionable/investable ideas that are a play on each of the themes.  

Overview 

Working from home is nothing new nor is it terribly revolutionary in itself, but it has become an extremely important theme to consider as it is a prominent weapon in the global fight to end the spread of COVID-19. Without it, the lockdown would have been much shorter, the economic implications would have been much greater, and ultimately, infection cases would have been much higher. Not only is WFH an important theme to consider for its role in the fight against COVID, it has also been a stimulant for rapid digital reform across the globe and has had a role in altering many sectors of the economy. 

Forcing a massive wave of people to work from home led many companies to realize that a great deal of their work can be done remotely. Stanford Economics Professor Nicholas Bloom recently ran a Survey of Business Uncertainty with the Atlanta Federal Reserve and the University of Chicago in the U.S. Results of this survey indicated that the share of working days spent at home is expected to increase fourfold from pre-COVID levels, from 5 percent, to 20 percent beyond the pandemic. The survey indicated that the typical plan is that employees will work from home one to three days a week and come into the office the rest of the time. 

With the estimation that the average person working in an office space is expected to cut their time in the office you can probably begin to see the laundry list of societal ramifications. 

Work From Home Accelerating the Digital Transformation

You’ve likely heard much about Digital Transformation in recent years which is defined as automating and optimizing existing processes with technology. It’s our view that we’ll see a pick-up in Digital Transformation on the other side of COVID-19.  However, most of the trends surrounding WFH were already on the rise, but the pandemic and the resulting economic shutdown has led to an acceleration of these secular trends. 

Here is a shortlist of some technologies that are enabling WFH and assisting with this transformation:

Communication Technology: Applications that virtually replicate physical communications like in-person or group meetings. Thus far, it’s been the obvious posterchild for WFH. Common communication applications include Microsoft Teams, Zoom, and Skype.

VPN: VPNs (Virtual Private Network) extend private networks across a public network and enables users to send and receive data across shared or public networks as if their devices were directly connected to the private network. Most enterprises today operate their own private networks at their offices for data confidentiality and cybersecurity purposes.  VPN bridges employees’ personal networks at home to their corporate networks.

Cloud Computing Technology: Cloud computing is the on-demand availability of computer system resources, especially data storage (cloud storage) and computing power, without direct active management by the user. The term is generally used to describe data centers available to many users over the Internet. From an infrastructure perspective, we think this has and will be one of the most important underlying technologies as it enables access to applications and information remotely. 

Collaboration Applications: Generally, enable files to be shared among multiple members within an enterprise to create, edit and track changes collectively. Common Content Collaboration applications are Google Drive and Dropbox with enterprise versions coming from companies like Microsoft, OpenText, and Box.

Cybersecurity and Endpoint Management: While security has been increasingly important, a distributed workforce increases the risk to enterprises as workers access corporate resources from different points-of-presence. As such, we’ve seen a substantial increase in security related services and applications. Endpoint Management is an area that’s closely related to Cybersecurity. In a nutshell, an endpoint is essentially any remote device that sends and receives communications with the network to which it’s connected. While a device can be connected to a company’s private networks via VPN, remote work will drive up the need to detect, provision, deploy, update, and troubleshoot more remote endpoints.

IT Services: Perhaps the least obvious technology beneficiary for WFH. Large enterprises with limited internal technical skills will need to outsource and consult with industry experts to evaluate and determine which technologies are the best to deploy. And in many cases, once those decisions are made, they’ll rely on these IT Services companies to execute their deployment, and in some cases maintain them. While the global brand name here may be Accenture – in Canada, we have our own services powerhouse in CGI – which is held in our JMRD Watson All-Cap Basket. 

Hardware: Some obvious ones here. PCs, headsets, keyboards, smartphones and all other pieces of equipment required to setup a home office.

Implications on Cities & Commercial Office Space 

Another consideration is how working from home will impact cities. Some foresee that the growth of city centres will stall. 

During the pandemic, the overwhelming share of employees who shifted to telecommuting, previously worked in offices in cities. Some estimate that the loss of their physical presence slashed total daily spending at city centre restaurants, bars and shops by more than half.

Although, many companies will likely go back to their old way of doing things, even partial adoption could have big repercussions. People who only go to office a few days a week, for example, will be more willing to live farther away from the city, possibly affecting property values. It also would lower the demand for commercial office space and hurt sales at downtown restaurants and retailers.

Several major tech companies, including Twitter Inc. and Facebook Inc., have already committed to continued remote work as companies see some permanent WFH benefits like access to more larger hiring pool and reduced office space demands. 

Mark Zuckerberg announced that up to half of Facebook’s employees could be working remotely in five to 10 years, while Jack Dorsey went a step farther, giving Twitter and Square employees the option to work from home indefinitely.

Many executives in the financial sector have begun to calculate how much money they could save by downsizing office space in big cities, and about one in four financial and professional-services companies in New York City are planning to trim their footprints by at least 20%. 

 With all that considered, cities might have to reinvent themselves all over again.

Given the need for social distancing, the firms we talk to are typically thinking about halving the density of offices, which would lead to an increase in the overall demand for office space. But instead of building more office skyscrapers – which has been the dominant theme over the past 40 years – COVID-19 could dramatically shift the trend to industrial parks with low-rise buildings.  

High-rises in cities face two massive challenges post-COVID. First, mass-transit – the subway, trains and buses. How can you get several million workers in and out of major cities like New York, London or Tokyo every day with social distancing?

Second, elevators. Typically, before COVID, you could squeeze people into an elevator, with each person taking roughly four square feet of space. But if we enforce six feet of social distancing, we need more like 100 square feet of space, cutting the capacity of elevators by over 90 percent, making it impossible for employees to reach their desks during rush hours.

 Where will the workforce go?  The upside is this will be a boom for suburbs and rural areas.

Below is a list of some publicly traded commercial office REITs, down an average of about 28% YTD.

 Implications on Travel

According to estimates by the trade group Airlines for America, business travel makes up 60% to 70% of industry sales, making it the most lucrative part of the airline industry. Recently, half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19. 

Adam Pilarski, senior vice president at Avitas, an aviation consultant feels the same, saying “it is likely that business travel will never return to pre-Covid levels…it is one of those unfortunate cases where the industry will be permanently impaired and what we lost now is gone, never to come back.”

Although some leisure travel is perking up, the numbers aren’t yet enough. The six largest U.S. airlines ended last week with a combined market value that’s less than the $70 billion.  Zoom Video Communications Inc.’s software, along with other video conferencing platforms, is a major player in the demise of business travel as many executives and companies have been forced to hold meetings via video calls, which have proven to be effective enough to reduce or eliminate the need to fly cross country for meetings. 

Our Team’s Experience 

For our team’s perspective, the biggest change from working from home has been around communicating with other team members, clients and anyone else we would typically meet with in person. 

Until early July we had 18 team members working from 18 different locations and much to our initial surprise, it has been near unanimous consensus that our team communication has never been better.

All meetings for the last 3-4 months have been held using Microsoft’s workplace communication app ‘Teams’. Holding a meeting via Teams only takes a few clicks for everyone to join, regardless of location, which is much more seamless than trying to set a time for everyone to meet up in a conference room, or dial in remotely.  We have actually been holding more meetings, rather than less, while working from home. 

Our team is no exception to the rise in Microsoft Teams and video chat app usage and, as mentioned earlier, video conferencing has sort of been the poster child for WFH:  

 Another tech application that has allowed our team to operate near full capacity while working from home is Docusign. Docusign is a platform that allows you to securely send and sign documents electronically. Many of you may be familiar with Docusign either from using it with us or, if not, it’s likely you’ve experienced using it elsewhere. 

Implementing Docusign was something that was loosely in the works pre-covid but the pandemic pushed the firm over the edge on committing to it. This is another example of how our firm and many companies across the globe have been forced to adapt quickly due to COVID, and one of many examples of the acceleration of ‘digital transformation’ that we touched on earlier. 

Something else that the firm gave us to ease the transition to working from home was a budget to purchase WFH office equipment such as additional monitors, ergonomic chairs etc. This allowed many of us to create a home office space that was as practical and comfortable as working in the office.  

Investable WFH Companies

Below is a table of companies that have been identified as WFH beneficiaries for one of more of their products/applications. This group of names is up on average about 16% YTD vs the broad market S&P 500 which is about flat on the year.  

To quickly summarize, work from home is one of the most prominent trends that has emerged from the COVID-19 pandemic and the implications have been very impactful both in terms of the breadth and depth of their reach. Many of these implications will play a part in re-shaping the world as we know it for years to come.