Aetna Lost $1 Billion Last Quarter By Not Allowing Employees to Work from Home

The insurance giant learns the hard way that forced collaboration doesn't create innovation.

A few weeks ago, it was pointed out that IBM is committing cultural and creative suicide by forcing employees to come into the office rather than telecommute from home.

When Yahoo made the same bonehead move, it didn't do anything to halt that company's slide into irrelevance.

Well, we were researching trends in work-from-home and came across an estimates from the market research firm Global Workplace Analytics on the economic value of telecommuting to the companies that implement it:

"If those with compatible jobs and a desire to work from home did so just half the time (roughly the national average for those who do so regularly)... a typical business would save $11,000 per person per year [and] the telecommuters would save between $2,000 and $7,000 a year."

If that's true, when a large company no longer allows its employees to work from home, it should cost the company around $11,000 per employee.

Let's see if that estimate checks out in the real world, shall we?

Last October, insurance giant Aetna, which (like IBM) used to tout its liberal telecommuting policy, told all its employees that they must now schlep to the office every day.

Why the change? According to a company spokesperson the change was made "with the goal of increasing collaboration and driving innovation."

If that sounds familiar, it's because thousands of pundits and executives seem to think that there's a causal connection between "collaboration" and "innovation," when, if anything, they're mutually exclusive.

Don't believe this? Well, let's take a look at Aetna's numbers to see how well their strategy worked.

According to their SEC filings. Aetna's revenue for the third quarter of 2016 (the last before the announcement) was $15.8 billion. Aetna's revenue for the first quarter of 2017 (the first full quarter after the announcement) dropped to $15.2 billion.

So much for collaboration and innovation, eh?

Apparently, nobody in Aetna's top management figured out that there might be a productivity cost when you effectively cut the pay of thousands of employees by spend time and money commuting.

But size of the failure of Aetna's strategy to increase revenue is dwarfed by the drop in the company's profits for those two quarters, which plummeted from a quarterly net income of $604 million to a net loss of $381 million, a difference of almost $1 billion.

Why the huge loss? A quick look at the company's financials reveals that Aetna's General and Administrative Expenses line item exploded from $2.4 billion in the third quarter of 2016 to a whopping $3.4 billion in the first quarter of 2017.

Since Aetna has about 49,500 employees, that rise of $1 billion in personnel expenses comes out to a loss of around $20,000 per employee--almost twice the $11,000 per person that Global Workplace Analytics predicted.

What's crazy about Aetna's "no-more-work-from-home" strategy is that according to Gallup, employees who spend 60% to 80% of their work hours off-site are more than 30% more likely feel "engaged" at work than those who report to the office each day.

In other words, the pursuit of innovation through collaboration is a dumb idea but, even if it weren't, you'd get more collaboration (in the sense of employees being engaged with their work) if you allowed employees to work from home most of the time.
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Item Reviewed: Aetna Lost $1 Billion Last Quarter By Not Allowing Employees to Work from Home Rating: 5 Reviewed By: PRASHANT ENTERPRISES