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Is there a hybrid working ‘sweet spot’ or will innovation suffer?

A hybrid working ‘sweet spot’ must balance benefits from more refreshed and focused workers in the short term with any hits to innovation due to fewer face-to-face interactions in the long term.

Blog post published on 1 October 2024 by Rob Johnson

Office attendance among central London workers was at about 70 per cent of pre-pandemic levels in June this year, according to our recent survey. With a bit more enforcement from employers – as seen in headlines recently – this could creep up towards 80 per cent. Could this be enough for city centre firms to reap the productivity rewards from face-to-face interaction, while maintaining some flexibility for their workforce? Or could continued hybrid working come at the cost of innovation, in the long term?

This was one of the themes explored when Centre for Cities sat down with Harvard professor Ed Glaeser to discuss the future of cities as places of work, consumption, and economic activity (listen to the podcast here). This blog picks up the discussion, exploring the link between hybrid working, productivity, and innovation for the future of these global cities.

The search for the hybrid working ‘sweet spot’ has not yet struck gold

Attitudes of employees and employers, along with the overall slowdown of the return to the office since the pandemic, points toward current levels of hybrid working approaching a ‘new normal’ in central London. So central London office activity at around three-quarters of pre-pandemic levels could be here to stay.

Is this such a problem? If increased productivity is a simple aggregation of face-to-face interactions – as it’s often characterised in the academic literature – then permanently cutting a chunk of them out of the working week would clearly have an impact.

But it’s reasonable to assume there are productivity benefits of hybrid working too. Task specialisation could mean home work is saved for tasks which require fewer distractions, while collaborative work is concentrated on office working days. A more refreshed workforce with more time flexibility – the most common reasons for home working cited in our survey – could be more productive.

So there may be a ‘sweet spot’ that balances the productivity benefits and costs of home and office work. Where this sweet spot exists for central London office workers, if it exists at all, is unclear. As Centre for Cities argued in 2023, 50 per cent of pre-pandemic office working levels was probably too low. But at 70 per cent? 80 per cent? Things become more uncertain. And the smattering of recent evidence on the productivity impacts of hybrid work is mixed at best.

Hybrid work could boost city productivity today but harm city innovation tomorrow

An emerging strand of post-pandemic literature suggests that for high-skilled, knowledge-based workers (the kind you find in city centres), hybrid work could harm innovation.

Here, it is useful to distinguish between productivity gains from increased efficiency on existing, familiar tasks, and productivity gains from learning unfamiliar tasks, and coming up with ideas for new ones. This latter part is innovation – these are new ideas and creative pursuits, derived from collaboration and knowledge transfer between colleagues, that will increase productivity in the long term.

The emerging literature makes this distinction, and finds it is this innovation aspect that seems to suffer at the hands of hybrid work:

A study of an Indian software firm found home working reduced the rate and quality of new idea generation;

Analysis of a large American software firm, engineers collaborating remotely were more productive in the short term, but got fewer pay rises and promotions in the long term than those collaborating in the office, due to less mentoring and exchange of ideas;

Analysis of US Microsoft workers suggests hybrid working is better for ‘focus’ work, but at the expense of collaborative work; and

Experimental evidence suggests virtual communication curbs generation of creative ideas, questioning the idea that communication software can be a costless win-win for both flexibility and collaboration.

Our survey findings also pick up this short- versus long-term distinction: workers both see themselves as productive when working from home today, but are concerned about the impact of hybrid working on their long-term development, in terms of skills, promotions, and pay.

Firms and policymakers would do well understand this trade-off

It’s early doors, but all this empirical evidence pointing in one direction raises a problem. There is only so much to squeeze out of being more efficient at existing tasks. It takes innovation – leaps forward, breakthroughs, creative ideas – to break the existing mould and really drive productivity in the long run. And this requires the serendipitous face-to-face interactions that hybrid work limits.

And so this trade-off should factor into both firms’ decisions and policymakers’ considerations, when searching for this hybrid working ‘sweet spot’. Some level of hybrid working may well be good for workers to get their heads down and crunch through familiar analytical or administrative tasks. But decision makers must be alive to the fact that, when it comes to innovation to drive productivity in the long run, there may not be a substitute for face-to-face, office-based collaboration.