Introduction
The current CEO of Wework Inc, Sandeep Mathrani, continues to deal with various challenges to make the recently incorporated public company as effective and efficient as possible. The organization was founded in 2010 by two entrepreneurs, Adam Neumann, a former Israeli military officer, and Miguel McKelvey, a renowned architect (Roggero, 2019). Its first project was an office in New York Grant Street, and the company benefitted greatly from the services of McKelvey in its early days. In 2012 the company enjoyed a significant financial boost when it raised funding of $ 17 million from Benchmark, a venture capital firm (Siegel & Strabo, 2021; Gupta & Singh, 2019).
The Economist (2021) stated that over the next seven years since receiving the funding, the real estate comes technology company continued to expand exponentially. By 2019 when the company decided it needed to go public, it had 518 locations in 111 cities across 28 countries and over 500,000 global memberships (Siegel & Strabo, 2021). For effective and efficient leadership initiatives to be developed, the challenges that Wework faced have to be analyzed, and recommendations proposed.
Analysis of WeWork Challenges
Leadership Issues
Leadership Ethical Issues
After a series of allegations and running Wework in a manner that was not profitable despite generating increasing revenue, Adam Neumann, the founder, and CEO of Wework stepped down in 2019. Neuman has since been criticized for many things, including trying to make Wework valuation bigger than it was when the company was doing an IPO in 2017 (Catrino, 2021). With an equity value of $12.8 billion and a private valuation enterprise value of $ 47 billion, the company looked very profitable and doing well (Siegel & Strabo, 2021). However, the S-I documentation given to the SEC as the first step of an IPO revealed numerous problems facing Wework (Borgenicht, 2020; Crabb, 2020; Markovich & Meagher, 2021). This resulted in many people not having an interest in Wework’s shares
First, it was identified that despite huge revenues, the company was not profitable, and thus there were significant questions on how Wework’s expenses were being managed. It was discovered that the CEO offered themselves significant and unjustified remunerations (Westbrook, 2020). The documentation also revealed that the CEO had been granted excessive and unhealthy voting powers (Wiedeman, 2020).
Neumann had not ethically run Wework, which contributed to his stepping down. WeWork’s leading financier Softbank valuation of $ 47 billion also proved to be misleading, with many analysts saying the company was worth between $ 20 billion and $ 47 billion (Siegel & Strabo, 2021). Masayoshi Son, the founder, and CEO of Softbank like Neumann, was also found to be an unethical leader. A charismatic leader Son confessed that he informed Neumann that organic growth was not enough for Wework. It has also been argued that Neumann’s unethical approach to work and excessive risk-taking began when he accepted massive funding from Softgroup.
Conflict of Interest Challenges
It was also revealed that the CEO’s wife, Rebekah Neumann, had been given the mandate to appoint the next leader for the company should Neumann die. There was also a challenge with some of the compensation packages. Among them was a payment to the CEO of $ 6 million for allowing the company to use his trademark “We” in the company name (Pendergraft, 2021). As some critics say, the lack of profitability resulted in the company laying off 1/3 of its employees because of significant cashflow concerns.
Allegations also revealed that Neumann was misusing the company’s assets and smoked Marijuana in his private plane. In the aftermath of the failed IPO, the company faced dire financial constraints and was almost running into bankruptcy. Therefore, Neumann had to step down and was replaced by Artie Minson and Sebastian Gunninghan until a new CEO was appointed. Likewise, Softbank announced its investment in Wework equity; therefore, the great voting powers that rested on Neumann were diluted. Having vested voting powers on an executive director and his family was a significant issue that culminated in the leadership shakeup.
Management Shakeup
When Neumann was asked to step down as the CEO and Minson, and Gunningan asked to fill his position, the organizations experienced and declined often associated with shakeups. Management shakeup has been defined as a situation where an organization’s executive or senior member is asked to step down or reassign different roles (Wise, 2022). It is often associated with employees’ demotivation, operations’ disorganization, and lack of strategic plan (Schermerhorn, 2020). In the transition period between Neumann leaving and Mathrani being appointed, the company experienced the worst financial situation running out of money and almost becoming insolvent. However, the situation changed soon after Mathrani has appointed, thanks to his excellent turnaround plan supported by his extensive knowledge in management.
Cash Flow Issues
Valuation Decrease
Operation cashflows in Wework have been negative since 2018. This reduction in net operating, financing, and investing cash balances has worsened even though Wework has received funding from Softbank, a Japanese-based conglomerate (Catrino, 2021). The decrease in cash balances and operating income was caused by the inability of the Japanese company to afford extra funding.
Layoffs
In April 2020, WeWork’s CEO took a tough stand by laying-off thousands of company employees. This move did not come as a surprise and was not solely caused by the pandemic since the company had performed such a move five months ago. Mathrani explained that he conducted the layoffs as best as a leader could (Cheldi, 2021). All employees who were to be laid off, and those remaining were shown dashboards of how the organization was performing.
The charts showed that the company was not sustainable with the salaries it gave its workers every month. In any case, the CEO conducted a strategic analysis where he identified the roles played by every employee and the overall contribution to the organization’s revenues and sustainability. Most of the layoffs encompassed removing whole departments and teams that were seen to be less productive. Mathrani explains that this was a big challenge for him and the executive team since the productivity brought by each department was hard to ascertain.
COVID-19 and Declining Revenues
Wework faces a diverse range of challenges that the leaders must be aware of if they are to help the organization solve them. One of the significant challenges faced by the company was the COVID-19 outbreak which occurred immediately after Sandeep Matharani took over as the Chief Executive Officer (CEO). As the CEO recalls, he planned on reducing the selling, general, and distribution expenses by $ 1 billion, which he hoped would make Wework profitable (Satish, 2021). However, this strategy was based on the assumption that revenues remained flat. However, COVID-19 and measures set out to restrict it resulted in Wework’s profits falling considerably. The company could do nothing about the falling revenue; therefore, to ensure profitability, the company was forced to cut expenses even on a larger scale. As discussed in this report, this move has caused Wework to bear a wide range of other challenges and problems, some of which have since been solved while others persist.
Operation Management Issues
Layoffs and Reputation Challenges
Layoffs come with a wide range of negative impacts on an organization. One major challenge organizations face in performing this complex, but the strategically important decision is risking a bad reputation. Layoffs, when not well conducted, could result in people viewing an organization as unethical and negatively influencing its profitability. It could also result in an organization not having the ability to bring talent to its team and demotivating existing employees. Initiatives taken by Wework when conducting the layoffs in 2020 were efficient and effective though challenging (Platt & Edgecliffe-Johnson, 2020). The first task was to create a good brand image in the press, and this role was given to Lauren Fritts, the organization’s Chief Corporate Affairs and Marketing Officer. Since the journalists were first very critical and vocal on the Wework layoffs, the CEO instructed Lauren always to keep them updated on the proceedings.
Furthermore, the challenge of employees being dissatisfied because of a lack of information was solved by having an internal memo distributed to all before the information went public. Despite all these measures, the layoffs negatively impacted the organization. Mathrani stated that the negative reputation was a trade-off that Wework would take and that improved revenues and operating profits would offset this negative image and brand.
Leasing Term Financial Issues
When Mathrani took over as the CEO, some lease contacts and terms were operating at a loss and had to be renegotiated. This presented a significant risk for the organization since the process could result in better terms or some property owners withdrawing their contracts (Park, 2022). Losing many contracts would lead Wework into disaster. Therefore, the company was challenged to determine the level of compromise that would benefit the organization and the property owners. Mathrani explains that he knew this was a big challenge since most landlords put much money into setting up their property and are tough negotiators.
The renegotiating process was challenging for the company and required excellent domain knowledge. Mathrani, a former landlord and real estate developer used his prior skills to negotiate favorable contracts for his company. Nonetheless, his plan was the catalyst for tough economic times when most other companies asked the landlords to cut the rent expenses or could not pay. Mathrani’s strategy was different as he sought not to get an immediate rent cut but a favorable future contract term with the landlords.
Challenge in Keeping Its Members
During the pandemic and in the post-pandemic era, Wework has also faced the challenge of keeping its members. In 2020 when the pandemic was at its peak, most members could not afford rent because of reduced operations and a recession. Therefore, the company had to offer them better terms or risk losing essential allies. This challenge was, however, not solely caused by the pandemic, as analysts have come to discover. When the company announced that it would make an Initial Public Offering (IPO), most customers were concerned that the business would remain the same or that changes in ownership would cause changes in operations.
When the attempted IPO failed in 2019, the members were even more concerned that the operations of Wework would continue. Others were ashamed to be associated with an organization with a failed IPO. Many economic analysts were concerned about why the IPO failed and wondered if the company had unseen shortcomings. Mathrani explained that he had to get out and explain to the members that everything was okay.
Identity Challenge
Since being founded in 2009, Wework positioned itself as a real estate company, but the global pandemic in 2020 shifted it to an almost technology company. The company had integrated modern technology in making the bookings, monitoring the office space, and organizing its spacing. In this attempt, the organization’s leadership identified that it could make extra income by selling this technology to other organizations in the business. As it turned out, the project was a great success, resulting in Wework putting a great effort into distributing the technology. Despite the promising outcomes of diversifying into technology, managers of Wework were deeply troubled and feared that this presented a significant risk. Moving very far from core operations had negative consequences in the past, and Mathrani wondered about the level of investment in technology acceptable for the company.
Challenge of Going Public
In 2019, Wework attempted to go public by merging with a unique purpose acquisition company (SPAC). However, the plan was indefinitely altered when the company Bow X decided it would not merge. This move, as previously explained, affected and continues to affect the public view of the company as some members fear the company could have noticed a specific unrevealed risk. However, in 2020 the same company merged with the technology side of Wework, a move that gave the CEO a big challenge. Mathrani has since had to figure out how to balance the company’s internal resources between the two major divisions of the organization. Since the company has limited resources, choosing where to invest more remains a highly controversial and uncertain decision that the CEO has to take and trust his gut that it will be the best decision. Since the company is also partially public, Mathrani has to explain the rationale of his decision-making to the board and the shareholders.
Marketing Issues
Before the significant funding from Softgroup, Wework mainly relied on organic growth, invested in actual estate-related companies and organizations, and a vast portion of its market was based in the US. Wework relied on sweat capital, and prior to 2017, the company only had funding averaging less the $ 50 million (Siegel & Strabo, 2021). However, as the company continued to grow, it gained media attention. Conversely, this resulted in the company being able to obtain debt leverage as well as issuing additional ownership. In 2018 when the company knew it could get additional funding whenever it wanted, the marketing and mode of operation changed and became more careless. The company began to try new types of businesses and expand geographically.
Organization Culture Issues
Inconsistency Challenge
One of the significant challenges that Wework has had to deal with in the past is a lack of consistency. One inconsistency occurred in 2019 when Wework gave its employees hope that the company would go public with a valuation above $40 billion (Pendergraft, 2021). The worker got excited about the development of things and hoped they would all get rich after the IPO. A weak organizational culture of demotivated employees was created when this plan failed. The employees lost their previously solid values and demonstrated the behavior of a group not ready to serve. Inconsistency can be noted using behavioral artifacts.
Wework change can be noted in the behavior of the then-current CEO. Neumann lost direction and began to take significant uncalculated risks due to the inconsistency in the organizational culture of Wework. Using the iceberg model of organizational culture change, Softbank and its CEO could be said to be the unseen roots behind the change in operation strategy that happened to Wework. This behavior change demonstrated the values that Wework held (Cheng & Maiden, 2021). One area in which Wework has proved to be consistent is the layoff culture which now is seen as usual. The dismissal culture can be classified as an underlying assumption under Scien’s model of organizational culture.
Ambiguity and Poor Communication
Poor communication and ambiguity result in a weak organizational culture since staff members do not know what is expected from them. Improper communication and ambiguity in Wework were demonstrated in a manner that was a significant inconsistency in terms of values, shared beliefs, and artifacts. Wework had no great works of art to unite its community, a commonly shared belief as organizations with a great culture do (Gleason, Kannan, & Rauch, 2022). The values shared by the real estate and technology company were all erased when the executive team began to act unethically and merge and acquire teams without shared values.
Problem with Talent Management
Wework has had and continues to have a challenge with its employees and how to manage them. Dozens of human resource managers and thousands of employees have left the company and continue to leave in the last three years. The company also continues to struggle with recruitment issues since employees talented individuals avoid joining a team with a bad reputation. The company CEO Mathrani consistently explains that the decision to lay off staff will justify itself since the company will generate higher Earnings Before Interest Tax Depreciation and Accruals (EBITDA) margin. Despite the dismissal, analysts still use employee satisfaction and turnover as a Metrix of an organization’s overall performance and well-being.
Technological Issues
Desire to Be a Technological Organization
One of the significant factors that led to Wework’s weak organizational culture was the wish for the company to be a technological company while still being a real-estate one. It employed machine learning experts and engineers and used high-level technology to automate business systems. The management team argued that this move would make Wework more stable since it would not be subjected to the volatility seen in real estate organizations (McArdle, 2019). However, analysts refused to buy into this model, arguing that in case of a recession, Wework would fail because its customer base comprised of freelancers and small businesses would be the first to be unable to afford rent.
Shift to Hybrid Work
In the aftermath of the COVID-19 pandemic, Wework changed from the traditional brick and motor work culture to more hybrid and flexible work. The shift made the company more effective but also had some negative impacts. First, employees in a hybrid work environment are more likely to face burnout and work with abnormal workers. The CEO has also had to deal with the challenge of increased technology reliability, which could result in massive losses should systems fail. The company also opted to redesign its office layouts using modern technology. This has brought a new market of setting up the company as a technology one, but Mathrani remains cautious to avoid mistakes made by previous CEOs.
Talent Management, Retention and Acquisition Challenges
Wework has in the past been forced to fire some employees in the effort to make its cost structure sustainable. At the same time the company has been seeking to employ technically skilled people like engineers, Machine learning experts and analysts. The company has not made an effort to ensure that the employees are well trained. Moreover, there has been a challenge with employee retention since many have chosen to leave because of dishonesty showed by previous leaders.
Conclusion
Recommendation for Improvement
Leadership Systems Overview
There is a series of actions that Mathrani should take if he is to ensure effective and efficient leadership for Wework in the future. Systems Leadership is a form of management where each employee and staff member should take responsibility and be their leader. Organizations that integrate systems leadership into their values rarely need layoffs and restructuring as Wework has had to in the past. To ensure systems leadership, the company should recruit self-driven individuals and train them to self-manage. The organization must also adopt a regenerative leadership style where they understand the ever-changing nature of the business environment and act accordingly. The executive team of Wework should also adopt a sustainable leadership style where they take time and view the consequences of their actions from a broad context (Park, 2022). All actions taken by the company should always be value-based, with employees, operations, customers, and financials considered.
Organization Culture
Management should integrate Schein’s model of organizational culture where they set values, ensure the values are followed by observing artifacts, and ensure there is a repetition of the values until they become assumed values. All corporate workers in the organization should always try to find hidden facts using the iceberg model (Thordal-Christensen, 2020). The CEO should use this model to see if technology adoption is making Wework not focus on its core activity, real estate. The ice berg model could be used to calculate the effect that a particular organizational culture could bring to the company’s revenues. Mathrani should lead by example and use the top-down method where managers demonstrate and live by the values they expect from their employees. The leader could then market his behaviors using the various tools available to him to ensure each employee understands the culture they are expected to maintain.
Change Management Tools
Mathrani should use the Kotter Management tool when initiating change. The CEO should create a sense of urgency to ensure employees understand its Importance. He should also ensure employees form powerful coalitions. The coalitions can be achieved through small office spaces or events that boost interactions. A vision for change should be created, and everybody must understand where the company wants to go (Mohamad Mouazen, 2019). Then communication of the vision and removing any obstacles that could prevent change should follow (Wentworth Behson, and Kelley, 2020). Wework can make this change more manageable by creating small wins, building on them, and anchoring them into the company culture.
Knowledge Management
One of the most organic ways for the CEO to initiate change in an organization is to improve the workforce’s knowledge. Technology is one of the best tools to accelerate knowledge and processes in Wework (Trathipa, 2020). All employees, technical or otherwise, should be taught how to automate systems to avoid repetitive work. Automation and technology can save employees time and make them focus on more critical aspects of the business. Management should also ensure they use data-driven decision-making in all business fields. To ensure this, the company should invest and have the best data science and machine learning talent.
Ways to Cut Costs and Make Processes More Efficient
One of the ways that Wework can cut costs is by encouraging remote work for employees who prefer a virtual setting. Integrating a hybrid culture will cut the organization’s expenses for rent and likely make employees more comfortable (Yangm Bisson, and Sanborn, 2019; Konrad-Märk, 2021; Terkamo‐Moisio, 2022). Mathrani can also cut costs by removing all unimportant business operations which are not profitable and do not show any promise in the future. Finally, Mathrani should consider changing the layoff principle of removing entire unproductive departments and instead lay out 20% of the most unproductive employees.
Reference List
Borgenicht, N. (2020) Can WeWork survive its Botched IPO? In SAGE Business Cases. SAGE Publications: SAGE Business Cases Originals.
Catarino, P.A.C. (2021) Wework Ipo: The Ipo that never was (Doctoral dissertation).
Cheldi, S. (2021) The billion-dollar wonderland: A case study in struggles and lackluster regulation of unicorn firms.
Cheng, Y. J., Maiden S. E (2021) WeWork, but does corporate governance work? Harvard Business Publishing Education.
Gleason, K., Kannan, Y.H. and Rauch, C. (2022) Fraud in startups: What stakeholders need to know. Journal of Financial Crime, 29(4), pp. 1191-1221.
Gupta, G. & Singh, S. (2019) Case study on factors behind WeWork’s IPO implosion. Indian Institute pf Management Ahmedabad. Web.
Konrad-Märk, M. (2021) Remote innovation: How remote work relates to open innovation. In ISPIM Conference Proceedings (pp. 1-20). The International Society for Professional Innovation Management (ISPIM).
Pendergraft, G. (2021) The rise and fall of WeWork. SAGE Publications.
Platt, E., and Edgecliffe-Johnson, A (2020) ‘WeWork: How the ultimate unicorn lost its billions’ Financial Times. Web.
Markovich, S. and Meagher, E. (2021) The harder We fall: The We Company’s 2019 IPO Fiasco. In SAGE Business Cases. Kellogg School of Management.
McArdle, M. (2019) What’s making tech unicorns lose their magic? Washingtonpost.
Mohamad Mouazen, A. (2019) Transactional and transformational leadership styles: Bibliometric review, relationship with adkar and kotter change models (Doctoral dissertation, Universitat Rovira i Virgili).
Park, J.J. (2022) ‘Investor protection in an age of entrepreneurship.’ Harvard Business Law Review, 12, p.107.
Prathipa, R. (2020) ‘Employee insight towards growing importance of technology in management of logistics and supply chain management with special reference to Coimbatore.’ Asian Journal of Management and Commerce 2020, 1(1), pp. 15-18.
Roggero, R., (2019) Coworking spaces and the WeWork phenomenon.
Schermerhorn Jr, J.R., Bachrach, D.G. and Wright, B., (2020). Management. John Wiley & Sons.
Satish, D. (2021) Financial statement analysis and valuation dilemma of WeWork (The We Company). IUP Journal of Accounting Research & Audit Practices, 20(4).
Siegel, R. and Strabo, J. (2021) Wework in (2021): The next chapter. Harvard Business Publishing.
Terkamo‐Moisio, A., Karki, S., Kangasniemi, M., Lammintakanen, J. and Häggman‐Laitila, A. (2022) ‘Towards remote leadership in health care: Lessons learned from an integrative review.’ Journal of Advanced Nursing, 78(3), pp.595-608.
Thordal-Christensen, H. (2020) ‘A holistic view on plant effector-triggered immunity presented as an iceberg model.’ Cellular and Molecular Life Sciences, 77(20), pp.3963-3976.
The Economist (2021) ‘A chastened WeWork lists on the New York Stock Exchange the company is better disciplined, but still unprofitable’. Web.
Westbrook, A.D. (2020) ‘We (‘re) Working on corporate governance: Stakeholder vulnerability in Unicorn Companies.’ University of University of Pennsylvania Journal of Business Law, 23, p.505.
Wise, J. (2022) NHS faces leadership shakeup after review finds evidence of discrimination and bullying. Web.
Yang, E., Bisson, C. and Sanborn, B.E. (2019) ‘Coworking space as a third-fourth place: Changing models of a hybrid space in corporate real estate.’ Journal of Corporate Real Estate.
Wentworth, D.K., Behson, S.J. and Kelley, C.L. (2020) ‘Implementing a new student evaluation of teaching system using the Kotter change model.’ Studies in Higher Education, 45(3), pp. 511-523.