You need to keep track of the work employees are doing, irrespective of where they're doing it... You assign them work and give them a deadline by which to complete it, and expect them to have either completed it or come up with a valid reason why not.
I've encountered office workers who did nothing all day, but always looked like they were working (they were browsing slashdot or similar, all day)...
I agree about the constant office distractions, seeing and hearing people constantly move around is extremely distracting, also them having the ability to disrupt your concentration at any time.
There are the other factors, commuting is a colossal waste of time and energy, and offices tend to be located in the most inconvenient locations (lots of other offices nearby, but no affordable residential property - long commute and over congested travel routes).
I used to commute an hour each way on an over crowded train and sat in a large open plan office, i hated it, could never concentrate and always sought to leave at the earliest possible time. It was always either too cold or too hot, there was always noise and random movement, always people interrupting me.
Now i do a mix of working from home, and working in an office ~5 minutes away where i have my own room. My office is quiet and comfortable, people generally don't interrupt me unless it's urgent.