Operating virtually can make your employees happier and your profits larger. But it comes with a special set of challenges

After a lecture I gave recently, an audience member stood up and told the story of a service company that had converted to a virtual operation. The managers were looking for a way to cut the company's operating costs. So they installed a corporate E-mail system, bought laptop computers for their sales and service people, and sublet their offices. The results were disastrous. Sales dropped, turnover skyrocketed, and frustration reached an all-time high.

The managers of that company were working from the common misconception that all you have to do to become a virtual company is supply your employees with the right electronic tools. Nothing could be further from the truth. Virtual operations come with their own set of management challenges, and managers must be skillful enough to recognize those challenges and rise to them.

Business, at its heart, is a highly personal activity. To date we don't have electronic tools that can replace the richness of face-to-face contact. Whenever you substitute electronic tools for a physical work space, you lose the synergy of daily contact, and you risk alienating workers from one another and from the company's goals.

One of the attractions of operating virtually is the promise of immediate productivity gains from adding work-at-home and remote workers to an organization. Those gains have been documented in several studies. However, my experience suggests that in the long run, productivity drops if managers aren't alert to the potential problems of reduced informal contact, improper work spaces, and increased friction between remote and on-site workers.

There are steps managers can take to prevent those problems from the outset. Some cost money. Are the costs worth it? Every year at VeriFone, we reevaluate whether a virtual operation still makes economic sense. And every year we find that the benefits of locating our staff and other resources near customers or centers of technological know-how (for example, we have a UNIX programming office in Bangalore, India, a site of UNIX expertise) outweigh the loss in internal operating efficiency. In fact, close customer contact has enabled the company to grow much faster than it would have as a traditional, centralized company.

Here's a list of what managers need to do to make a virtual operation work:

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1) Make sure your senior managers operate virtually at least part of the time. There is no substitute for a manager's keeping a finger on a company's pulse, and the best way to do that in a virtual company is to be virtual. Sitting in a central office without plugging into the virtual culture is almost a guarantee of failure. You don't know what's going on, and you signal your employees that operating virtually isn't really important.

At a practical level, operating virtually means learning how to type and how to use a personal computer. Learning to type in midcareer can be daunting, and many senior managers have so far been able to relegate computer work to their support staff. But in a virtual operation, the jig is up. Senior managers must be in the virtual culture to experience the operating issues firsthand and do the necessary fine-tuning when the need arises -- and it will. There is excellent software on the market for learning basic typing and PC skills, including Mavis Beacon Teaches Typing (from Mindscape, 800-283-8499) and Individual Software's Learn to Type Quick and Easy (800-822-3522). VeriFone has recruited several senior managers from Fortune 100 and 500 companies and trained them to type and to survive in a virtual company. They not only get it, but now say they can't imagine operating any other way.

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2) Visit your remote offices frequently. It may seem paradoxical for a company that prides itself on operating from all corners of the world to require that its top-level managers meet face-to-face with staff at remote offices as often as possible, but it's crucial. It's the only way to develop and strengthen relationships with staff and customers.

At VeriFone, the CEO and senior managers meet face-to-face for one week every six to eight weeks to sort through issues and chart strategy. The senior managers are scattered around the globe at remote offices, and we purposely rotate meeting sites. During the week, each senior manager makes sure to mingle with the staff assigned to his or her remote office -- home workers and those at customer sites are brought in too -- and we have an all-hands question-and-answer period, in which all employees have a chance to ask -- in writing or verbally -- about any aspect of the business.

Outsiders often marvel at the amount of time our senior managers are on the road, assuming that travel is expensive. But because we schedule all our major corporate, regional, and business-unit meetings at least a year ahead, we save substantially through advance-ticket purchases. Last-minute travel is kept to an absolute minimum.

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3) Make sure that employees have a work space that promotes productivity. In my experience, one of the main causes of productivity decline in virtual organizations is inadequate work space. Physical work space is so important that companies should provide written guidelines for home offices. At a minimum, a home office must be a separate room, with a door that closes. And people who work at home need a separate work phone with its own answering machine and at least one other phone line for E-mail and faxes. When people put their office space where household functions go on -- the kitchen table or the bedroom, for example -- they have a hard time taking a break from work. Every time they see papers piled up, they feel guilty and sit down to do some task. That accounts for the short-term productivity increases among home workers that researchers have documented. But business is a marathon, not a sprint. In time those workers become bone-weary, and their productivity slumps. One of my biggest tasks as a manager of virtual employees is seeing to it that home workers take enough breaks. I don't worry about people goofing off; I worry about them working themselves to death.

Managers need to educate their remote workers about why a separate office, separate phone lines, and breaks from work are so important. In addition, managers should visit home workers occasionally, both to make face-to-face contact and to see what else the company can do to make the home-office setup more productive.

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4) Help remote workers form strong ties to people at the central office. People who work out of their homes or at customer sites also need to spend some time in an office with their colleagues.

Any face-to-face meeting -- a regular status meeting or an annual, sales, or planning meeting -- is an opportunity for cross-fertilization. When you set the agenda, schedule more time for socializing than a centralized company would. And give each office within the organization the opportunity to host so that employees who aren't involved in the meetings get a chance to socialize with colleagues. Some managers are bound to wonder if such organized socializing is a waste of money. But I believe that forging those ties creates both a sense of belonging and the personal relationships that are necessary for remote employees to work effectively.

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5) Find ways to compensate for the loss of daily face-to-face contact. When you become a virtual organization, your staff suddenly loses all those interactions in the hallway, in the elevator, and by the watercooler that help move projects forward and smooth out conflicts. There are several ways a virtual company can compensate:

Encourage workers to videoconference with, not just E-mail, their remote colleagues. Telephone conversations also encourage informal interaction.

Set policies that help employees know when to set up a face-to-face or telephone meeting or a videoconference -- if they're having a major disagreement, for example. When workers do most of their communicating by E-mail, small irritations easily grow into major conflicts. Learning how to disagree remotely is an important component of being able to operate virtually.

Create an on-line chat area where employees can drop in to schmooze during breaks.

Ask employees to create a personal home page that describes their interests and hobbies and then create an index for easy reference. Employees who are traveling can use the pages to find a fellow employee to get together with for, say, a hike or a game of bridge.

Make your on-line communication systems available to the spouses and children of employees. At VeriFone, for example, we have VeriPal, a pen-pal network (via E-mail) for employees' children. Linking employees' families helps create a sense of community.

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6) Counteract the sense among remote workers that they're missing out on key business advances. A big psychological problem for remote workers is the feeling that the "action is elsewhere." Managers can counteract that feeling in several ways:

Send remote workers frequent, even daily, updates about what's happening in the company. It's especially important to show how specific remote workers are affecting the company's progress.

Give each employee an opportunity to contribute to the annual and long-term planning processes. Electronic tools make that easy. Once a plan is completed, present it in person to all employees, allowing them time to ask questions and express concerns.

Develop a clearly worded corporate mission and vision statement so employees know where the company is heading and how they fit in. Periodically distribute reports of individuals' actions that exemplify the company's mission and vision.

Set up employee discussion groups to talk about the problems of working remotely and to brainstorm about solutions.

Working virtually is a relatively new concept. Today's practitioners are the pioneers for the way I believe most business will be conducted 25 years from now.

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William R. Pape (will_p@verifone.com) is a cofounder of VeriFone Inc., with headquarters in Redwood City, Calif. He was the company's first chief information officer.