New study reviews decades of findings on effects of physical work environments on firms’ organizational processes and outcomes

As the COVID-19 pandemic hit in 2020, many companies transitioned to remote and hybrid work models, but many firms have rescinded or revised these policies, requiring employees to return to the office at least part-time. In a new study, researchers examined the effect of physical work environments on organizational processes and outcomes.

Their analysis identified two major themes: 1) task accomplishment, or how physical work environments influence physical and mental health, motivation and attitudes, and work processes, and 2) resource position, or how these environments affect firms’ tangible resource position, ability to attract and retain human resources, and shaping of intangible assets such as organizational culture and reputation.

The study was conducted by researchers at Carnegie Mellon University, London Business School, and Singapore Management University. It is published in the Journal of Management.

“The significance of physical work environments has gained heightened attention in managerial and academic circles, especially following the rise and revision of remote and hybrid work models spurred by the pandemic,” explains Sunkee Lee, Associate Professor of Organizational Theory and Strategy at Carnegie Mellon’s Tepper School of Business, who coauthored the study. “This renewed interest calls for a comprehensive assessment of their organizational implications.”

Research on physical work environments—the dedicated tangible spaces where employees carry out professional tasks—has accumulated across various disciplines, levels of analyses, contexts, and dimensions. But the work has largely been fragmented within each domain and has, at times, revealed diverging and contradictory effects of the same aspects of the environments. This has limited a comprehensive and balanced understanding of how these environments influence firms’ operations and performance.

In this study, researchers analyzed and synthesized decades of research across various disciplines using a conceptual framework that defines physical work environments along three key dimensions: ambience, spatial configuration, and aesthetics. They analyzed these dimensions for their effects on both internal stakeholders, such as employees, and external stakeholders, including clients, suppliers, and investors.

Workplace ambience, spatial configuration, and aesthetics affect outcomes related to task accomplishment, including physical and mental health, motivation and attitudes, and work processes, the analysis concluded. While features that produce excessive stimuli can harm employees’ health and motivation, appropriate designs can enhance these factors. Similarly, spatial attributes that foster encounters and access can either facilitate or hinder work, depending on the task and the organizational context. Therefore, consciously aligning the features of the physical environment with intended outcomes helps achieve desired results, the authors suggest.

In addition, physical work environments can shape a firm’s resource position, including tangible resource conservation/expenditure, human resource acquisition/loss, and intangible resource conferment/revocation. For example, open-plan layouts can conserve resources through efficient use of space, while costly or poorly designed features can boost operational and maintenance costs, undermining companies’ tangible resources.

Firms can also communicate their values and strategies through physical work environments, whether intentionally or not. Effective signaling can attract talent by resolving information asymmetry, while mismatches between workspace design and employees’ perceived status may lead to negative outcomes, such as loss of human capital. Symbolic features can further influence intangible resources like legitimacy and credibility, which are essential for a firm’s competitive advantage.

“In my view, physical work environments remain relevant; it is how they are used that makes the difference,” concludes Professor Lee.