How new coffee machines (and office design) raised revenues by $200 million

Intervention Business, 

Abstract

Spaces have a huge impact on our psyche. The office is a space where many of us spend a majority of our working time. It makes sense that they should be perfectly optimized to make us bring our best to work. But are they?

Past work has shown that the effectiveness of office design can be assessed in terms of density, social nature, and proximity of people.1 To improve on these metrics, offices are increasingly  networked, shared, and multipurposed spaces that redefine boundaries and improve overall performance. 

Recognizing this, a pharmaceuticals company used physical design change to nudge employees toward increased communication.1 They found that when their salespeople increased interactions with co-workers from other teams by 10%, also known as increased exploration, their sales also grew by 10%. Capitalizing on this, the pharmaceuticals company replaced their small and frequent coffee machines with fewer, larger ones. This resulted in increased co-worker exploration and a sales increase by 20%, or $200 million, by the following quarter.

Rating = 4/5 (Improves revenue and employee wellbeing; only correlational data collected)

The impact of a pharmaceutical company’s office coffee-centric redesign
Condition Results
1 coffee machine per 6 employees and small cafeterias Industry-standard quarterly sales

Industry-standard quarterly revenue

1 machine per 120 employees and one large cafeteria for all employees 20% increase in sales in one quarter

$200 million increase in revenue in one quarter

Key Concepts

Correlation: An association between two variables. A positive correlation means that both variables move in the same direction, while a negative correlation means that as one variable increases, the other decreases. However, correlation does not equal causation!

Exploration: In the context of team environments, when someone interacts with people from many other social groups. This is a key element of successful communication. For another case of exploration, check out online retailer Zappos’ Downtown Project.

Nudges: Techniques to change people’s behaviors in predictable ways without forbidding any options or significantly changing economic incentives.

Physical design change: A type of nudge that focuses on changing the physical environment to facilitate performance of a desired behavior or to create barriers for an undesired behavior.

The Problem

Stagnating revenue

Companies need to change their spaces to reflect how people work. Higher level members need to consider: if something is going well, could it be even better?1 This was the case for a pharmaceutical company, whose 50 executives were responsible for almost $1 billion USD in annual sales. These executives wanted to increase their overall sales, but didn’t know how. Even when they did see increases, they weren’t sure why it happened and how to reinforce it.

How exploration can help

Companies often either fail to increase their sales past a threshold, or they fail to meet baseline sales quotas.2 Why? Empirical studies show this can be attributed to a lack of preparation: companies will focus on their products rather than their strategies for actually selling the product. In the pharmaceutical world, physicians may wholly decline to entertain salespeople or might not be interested in the product based on the salesperson’s pitch.3 However, using behavioral science to increase employee exploration and collaboration, as an extension, is a great tool to address this. Salespeople can pick the brains of their co-workers in marketing, adding a new set of strategies to their sales toolkit that may have been otherwise overlooked.

Design

Pentland’s 3 elements of communication

The pharmaceutical strategy can be traced to computer scientist Alex Pentland’s 2012 article, “The new science of building great teams.” 1 Pentland used sociometric badges to track how people talked to each other, who talked to who, how people moved around the office and how people spent their time. Based on this, he identified 3 key elements of successful communication:

  • Exploration: Interacting with people in many other social groups.
  • Engagement: Interacting with people within one’s own social group, in reasonably equal doses.
  • Energy: Interacting with more people overall.

Correlation between exploration and sales

Spaces designed to include Pentland’s three elements increase the likelihood of “collisions” and create positive outcomes. The pharmaceutical company did just that,1 giving sociometric badges to the company’s 50 executives. The data collected over a few weeks showed that when a salesperson increased interactions with co-workers from other teams by 10% – that is, they increased exploration – their sales also grew by 10%. This correlation indicated that there was indeed a relationship between exploration and sales, which could be tied to employee performance. This naturalistic observation, a research method in which people are observed in their natural settings, provided good data to work with.

Using coffee breaks to increase exploration

Based on their observations, the executives wanted to know how to change their office space so that salespeople would keep running into co-workers from other departments.1 At this point, the company had approximately one coffee machine for every six employees, with the same people gravitating to the same machines every day, congregating within their departments. Recognizing the importance of exploration, the company invested several hundred thousand dollars to remove their existing coffee machines and build larger, fewer ones. There was now one machine for every 120 employees, and the company also replaced its smaller, targeted cafeterias with a large one for all employees.

The pharmaceutical company’s office redesign exemplifies the COM-B framework for behavioral change, which focuses on the interaction of capability, opportunity, and motivation to influence behavior.4

  • C(apability): Salespeople at the company had the physical capability to visit the new coffee machines and cafeterias, as they previously did. Based on their job responsibilities, they had the psychological capability to interact with co-workers.
  • O(pportunity): Salespeople at the company had the opportunity to visit the new coffee machines and cafeterias, as such actions are not expected to deplete financial or material resources any more than their previous visits. They also had the social opportunity to interact with co-workers from other departments, as they were likely surrounded by others, ensuring coffee breaks were a social activity.
  • M(otivaton): Salespeople at the company remained as motivated as before to get a cup of coffee and to eat lunch in the cafeteria, if not more, due to their increased chances for social interaction. 
  • B(ehavior): As salespeople visited the new coffee machines and cafeterias, and increased their exploration, they would be motivated to continue this behavior due to its benefits (i.e. interacting with new and interesting people, sales growth).

Results and Application

A $200 million increase in sales

The result of the company’s large investment in coffee machines and cafeterias? By the following quarter, sales rose by $200 million USD, equivalent to a 20% increase.1 Their sales growth easily made up for investments toward the company’s physical design change. As the work environment nudged employees towards increased exploration, the company finally saw the sales growth it sought after.

Remember to goal-set before discarding your coffee-machines

While the pharmaceutical company’s physical change design clearly worked to bolster exploration and sales, it is important to note that not all companies will benefit from the same strategies.1 Before changing their workspace, companies must first understand what they are trying to achieve. Individual productivity, for example, may not benefit from the open and collaborative design that helped boost sales at the pharmaceutical company. Only after identifying the goals of physical design change can a workspace be assessed for its value.

Related Applications

Industry

Application

Impact Investing & Private Equity Re-designing office spaces could be one way to foster the creativity necessary to make investments that are both financially and socially optimal.
Education Classrooms can be rearranged to improve educational outcomes. Based on the subject and desired outcome, a classroom can be designed to encourage more exploration, engagement, or energy.
Public Policy Government offices could also be designed in a similar fashion to increase productivity or creativity.

Ethics

  • Intervention increased the well-being of many employees.
  • Researchers procured employee consent, did not share data with employers.
  • It is unclear whether certain groups (e.g., introverts) were underserved by the intervention.

Yes

Room for improvement

Insufficient information/Not applicable

Welfare
Does the intervention demonstrably improve the lives of those affected by it? The intervention was shown to increase revenue and productivity. Related interventions have been shown to drastically decrease feelings of isolation.
Does the intervention respect the privacy (including the privacy of identity) of those it affects? Employee data was reported anonymously. Employers were not given access to any employee data collected
Does the intervention have a plan to monitor the safety, effectiveness, and validity of the intervention? While there are various quantitative measures for effectiveness, there is no discussion of safety or validity
Autonomy
Does the intervention abide by a reasonable degree of consent? Employees were asked to consent to the experiment beforehand, and they could opt-out at any time
Does the intervention respect the ability of those it affects to make their own decisions? The researchers allude to the fact that introverts might be forcibly underserved by the intervention, since social interactions tend to tire them out faster 
Does the intervention increase the number of choices available to those it affects? The number of choices stays the same
Equity
Does the intervention acknowledge the perspectives, interests, and preferences of everyone it affects, including traditionally marginalized groups? Most of the discussion centres around the interests of employers and extroverted employees. However, aside from a brief mention of introverts, there is no discussion of potentially unheard or underserved perspectives
Are the participants diverse? There is no discussion surrounding the diversity (or lack thereof) of the participants involved
Does the intervention help ensure a just, equitable distribution of welfare? There is no discussion of how the intervention might help or hinder equitable causes

Related TDL content

Are workplaces the key to sustainable cities?

The design of a workspace can increase collaboration and bolster sales, as seen through the case of the pharmaceutical company. What about boosting sustainability? Aside from physical design, organizational design is also an important aspect of every organization. This article explores how organizational design of the workplace can nudge people to be more environmentally conscious.

TDL brief: Pharmaceutical companies

While sales are important for ensuring a company’s success, pharmaceutical companies have much more to worry about beyond their sales numbers. Our brief provides an overview of the issues pharmaceutical companies must be aware of, and how they can use behavioral insights to address said issues.

Sources

  1. Waber, B., Magnolfi, J., & Lindsay, G. (2014, October 1). Workspaces that move people. Harvard Business Review. https://hbr.org/2014/10/workspaces-that-move-people
  2. Schneider, J., & Hall, J. (2011, April 1). Why most product launches fail. Harvard Business Review. https://hbr.org/2011/04/why-most-product-launches-fail
  3. BlueNovius.(2018, May 23). Pharma sales reps are struggling – Here’s why. https://www.bluenovius.com/healthcare-marketing/pharma-sales-reps-struggling/
  4. Flanagan, A. E., & Tanner, J. C. (2016). A framework for evaluating behavior change in international development operations (IEG Working Paper 2016/No. 2). Independent Evaluation Group. https://openknowledge.worldbank.org/bitstream/handle/10986/25872/110890-WP-PUBLIC.pdf?sequence=1