Abstract
The business report is based on the company WeWork and focuses on two fundamental analyses: the challenges of WeWork and the evaluation of improving resource management and enhancing productivity and performance. It is described that WeWork company experiences vital challenges that include top leadership shake-up, corporate governance, and resource management. The report demonstrates how these key challenges influence organizational profit, performance, and people. In evaluating how the company will improve resource management and enhance productivity and performance, the report provides strategies that are analyzed with a focus on how they lead to increased profit, performance, and productivity. Some methods discussed include business and operations model alignment, human resource management, good corporate governance and sustainability, change management, and working capital (Catarino, 2021).
The business report concludes by providing five significant recommendations that WeWork company can implement to realize increased productivity, performance, and profitability. These recommendations include proper capital management, creating a business model that integrates aspects of WeWork’s operations and managing resources through human resources and operations management systems. In addition, the report recommends that WeWork adopt corporate governance principles combined with sustainability. In addition, it indicates that the company needs to change management with the help of an outside consultant or be guided by internal principles.
Introduction
WeWork Inc. is a U.S.-based office space provider that offers co-working spaces for persons and businesses. The company was founded in 2010 by Miguel McCelvey and Adam Neumann. The company started as a single office and by 2019, it had grown across 29 countries with global memberships. The company’s primary service is to provide offices to large, medium, and small enterprises in a vast array of cities surrounding it (“WeWork,” 2015) (See Figure 1). The company’s business model’s prime feature is its approach to operations as it began by renting premises in buildings, improving them, and then renting them out as offices to its employees while making profits.
Large companies such as WeWork occupy an essential role on the stock exchange. WeWork’s current key shareholders are SB Investment Advisers (UK) Ltd with 57.2%, Fidelity Management, and Research co. LLC with 9.19%, Adam Neumann with 6.26%, and The Vanguard Group, Inc. with 4.61%. Other shareholders include Benchmark Capital Management Co. LLC 2.74%, State Path Capital LP 2.05%, Insight Venture Management LLC 1.76%, Cohen and Steers Capital Management, Inc. 1.19%, FIAM LLC 0.94%, Ancient Art LP 0.84% (Purwanto, 2020).
Considering the corporate level, board, and management, the company had two people who were key to its success: ex-CEO Adam Neumann and Softbank CEO Masayoshi Son. Initially, Adam Neuman and Son’s had their vision aligned and performed well, communicating with each other with trust. Softbank invested heavily into the firm until time changed everything severely, ending with Son’s regret for putting his faith in Neuman. WeWork’s weak management team resulted in poor project management practices and delayed milestones. Shareholders questioned Neumann’s spending plans severally as the cause of the company making losses. Over the past years, the company encountered misalignment amid core strategic values, objectives, and leadership styles. Lack of organizational commitment, such as not caring for employees, influenced negatively the company as they lost trust.
Every major company works hard to rank first among its competitors, and the case of WeWork is no exception. The company’s workforce includes more than one thousand employees and its devastating condition, it became a challenge for shareholders to stay focused (Firmansyah, Maharani and Wihadanto, 2022). For the above reasons, the WeWork case study is suitable for analysis in this paper (“Harvard Business Review,” 2020). The report involves identifying the business problems and current challenges towards its development, strategies for improving profit and performance, a summary of the analysis, and proposing recommendations and changes to avert the obstacles (Langevoort and Sale, 2021). The paper discusses the current challenges of WeWork, which negatively impact the business’s costs and profitability, valuation, and long-term survival. Problems in the company’s work processes affect the company’s reputation among allies, competitors, and shareholders. This paper provides examples of a plan to improve profit margins and productivity.
Analysis of WeWork’s Main Challenges
Failing to Safeguard the Interest of Stakeholders’
WeWork’s current management team adheres to a corporate governance strategy, the essence of which is that senior managers, in collaboration with shareholders, manage all processes in the company, which has brought a boost to profit margins. Previously, the company had no separate control and ownership, which contributed to its making of lossesIn the company’s past, the business did not consider the interests of investors, as Neumann made decisions on its own and did not consult with shareholders, which led to wasted budgets. In an organization, the shareholders’ model is underpinned by objective of maximizing wealth using productive, allocative, and dynamic efficiency. To improve the company’s earnings performance, senior managers and business owners must make decisions that satisfy investors.
Financial Performance
The financial performance of WeWork company was based on an analysis of financial ratios such as debt/equity, working capital, net profit margin, and earnings per share. The net working capital for WeWork increased from 2016 to 2017 by 444.67% and decreased from 2017 to 2018 by 51.58%, with its current ratio rising by 77.23% (“Economist,” 2021). Therefore, it was noted that raising working capital can positively affects the company’s productivity and promotes profitability. The WeWork company’s equity return was above 20 percent, which showed that the company could make a good investment and fetch profitable long-term returns (“www.macrotrends.net,” n.d.). A lack of investment in the company would pose little productivity and fewer profit returns. An analysis of the company’s finances showed that the company was projected to run out of cash in November 2019, even though it was funded by venture capital
Net profit margin is essential for measuring the company’s overall profitability. Over the past years, WeWork company has been experiencing a negative net profit margin, which shows that its production costs were higher than the total revenue earned. Net income margins were negative due to inadequate communication between managers and company owners. In a situation where the managers have regular communication, this will probably avoid the risk of unnecessary waste of the company’s finances. Based on this margin, the business model was unsustainable and requires consideration of external factors or unexpected expenses being incurred (“Iveypublishing.ca,” 2022). Table1, 2, and 3 show financial ratios and cash flows for WeWork in the previous years.
Table 1: Annual Cash Flow Statement in Millions
Table 2: WeWork’s Financial Ratios
Table 3: WeWork Earnings Per Share
Top Leadership Shake Up
CEO Adam Neuman has worked for WeWork for almost a decade since its inception. His role in the firm ended abruptly in late 2019 following his announcement to step down as he saw himself as a substantial distractor to IPO plans. Pursuing IPO plans includes boosting the company’s public profile and raising capital (Rothstein et al., 2021, p.9). The company can generate publicity and secure better terms from lenders by going public. If the managers have regular communication, this will probably avoid the risk of unnecessary waste of the company’s finances. Neumann managed working capital competently, showing that the company could pay its current liabilities with current assets. This would show the company’s liquidity level, improving its reputation with creditors and getting better terms from them to receive and pay out funds. Therefore, not achieving IPO plans were likely to negatively impact the profit and performance of the We company and its people. The IPO of WeWork was delayed indefinitely when CEO Neumann stepped down, causing the company to lose cash and rapidly approach insolvency. The risk of bankruptcy could have left the company unable to meet its debt obligations (Pendergraft, n.d.). The change in senior management put the business in a difficult position, affecting stakeholder decisions when making bond and equity investment plans. The gap created by the departure of the CEO demonstrated how important leadership is to the business. It showed that recovery and future growth are tied to CEO alignment and performance and the duality of the chairman and board. New CEO Sandeep Mathrani had experience managing the CEO of Brookfield Properties Retail Group. The new CEO was supposed to fix the problems of business expansion by changing the business model and top management team (“StartupTalky,” 2020; Rothstein et al., 2021, p.13). However, it has been shown that this shakeout can cause uncertainty and require more time to implement cultural change.
Corporate Governance: Global Restructuring, Cutting Cost and Improving Profitability
In September 2019, the company’s board of directors found itself in a quandary as the company filed its IPO prospectus in August of that year. As a result, the company found itself in the spotlight as the media focused increased attention on its IPO and potential conflicts of interest related to the behavior of the chairman and CEO. Investors lost confidence and questioned the chairman’s ability to run a large public company. According to the IPO prospectus from 2016 to 2019, the company suffered losses as its operating expenses outpaced revenues (“WeWork,” 2015). The company’s business model involved leasing properties, renovating them, and renting them out to potential customers at an increased cost (“Farrell & Brown,” 2019). Despite the company’s losses, the CEO promised to donate $1 billion to charity within 10 years of the IPO.
Adam violated all standards of work ethics by throwing noisy office parties and firing employees to cut costs he spent on his wishes. He created a culture of nepotism, hiring his cronies and family members into high positions and paying them hefty salaries. The blame for such chaos lies not only with Adam, but also with the owners of the company. They allowed this to happen by not creating daily communication between managers and owners.” (“Iveypublishing.ca,” 2022). The CEO also used company employees to repair things in his home. Adam ensured that he maintained control of the company by maintaining a high level of stock for every vote of investors’ common stock..
We’s financial position was aided by its expansion strategy, in which it bought and leased real estate and purchased small office space from competitors. By following this expansion plan, the company did not grow, but instead continued to get smaller, which the CEO realized only after investors expressed concerns about the use of the company’s resources. It was also noted that the company was projected to run out of cash in November 2019, despite being funded by venture capital (“HBR Store,” n.d.).
The lack of transparency regarding the company’s use of resources negatively affects the company and creates unclear paths to profitability (Ullah et al., 2019). By increasing revenue and profits, the company maintains its competitive advantage in the marketplace. However, the loss of employee confidence due to layoffs and associated stigma can make it problematic to attract high-performing employees in the future (Dishman, 2019). With the current state of the company, retaining and attracting new tenants will be necessary to improve profitability and performance (Stanford Graduate School of Business,). Growth in the flexible workplace sector is a factor that will ensure this goal is met. In addition, membership plans will need to be reviewed to increase business.
Resource Management
As WeWork company went public through a merger with BowX Acquisition corporation, its most significant challenge was balancing internal resources for the next growth phase. WeWork company had limited resources and was required to decide how to balance supporting its core real estate products for external customers. Internal factors have the potential to affect how a business meets its objectives. Having balanced resources internally increases business operations’ profitability and effectiveness (Ulaga et al., 2019, p.17). Mathrani believed in making WeWork company regain its reputation and well-positioned for continued post-pandemic success. Provision of resources by the company board help in achieving performance.
Profitability is realized when there are adequate resource allocations in the company. High uncertainty required extra resources in conjunction with increased office space after post covid to sustain the real estate product and grow the technology used in business. The current financial performance and debt were depicted to raise the debt of venture capital investors when they were classified as liabilities, unlike equity. Increasing the occupancy rate could cause high returns and improve the balance sheet.
Evaluation of Improving Resource Management and Enhancing Productivity and Performance
Today, WeWork needs strong leadership to avoid the risk of bankruptcy and increase profits. Sustainable leadership is associated with an organization’s competitive market advantage because it provides opportunities by shaping innovation, long-term success, sustainable competitive advantage, and continuous improvement (Krekel et al., 2019). As a leadership style, sustainable leadership will help to cope with sustainable challenges and gradually increase the company’s performance through technological integration. (Balda, 2018). A similar style is followed by the current head of Matrani, who has established constant communication between managers and owners, moved employees to work remotely, etc. Through this style, the firm will also incorporate environmental, social, and economic goals into its operations without compromising resources for future use.
Business and Operations Model Alignment
WeWork’s business model is relatively straightforward and involves sourcing office leases from landlords in locations that they see as potentially vibrant and with sustainable entrepreneurial centers. As a result, for WeWork to effectively apply the business and operating model, departmental goals and visions must be considered to help employees collaborate effectively and update organizational processes. In addition to the business model, workflow customization must be given attention. Proper organization of work processes increases the acceptance and implementation of management decisions by distributing tasks among staff (Rothstein et al., 2021, p.13). An aligned model will include proper and efficient management of resources, which will increase the profitability and efficiency of employees. (Bulls and Bears, 2019). WeWork intends to pursue service excellence through an innovative business model focusing on workforce efficiency and increasing company productivity. Together, the business model and properly configured work processes will allow the company to improve its reputation among competitors and gain the trust of the company’s shareholders and customers.
Human Resource Management
WeWork has recently been experiencing staffing problems with leaders and managers leaving the company. Some are believed to be in the process of going, even as the company grows. Employee retention indicates the company’s health, and employee flight is a concerned (“HBR Store,” n.d.). Human Resources ranks lowest at WeWork compared to other companies and departments, suggesting that this department needs to be at its best to help increase employee productivity and efficiency. As with any company, WeWork’s human resources directly impact the work environment and success. A high-performing workforce helps run a company that aims to foster more effective employee commitment and engagement to achieve high productivity levels. Implementing a flatter structure creates satisfied employees who are satisfied, motivated to work, have a common goal, and understand the values and behavior of the business (Eaglesham & Grind, 2020, p.13.). Performance management attempts to maximize the importance that employees develop to maintain and improve performance in line with the company’s goals. At WeWork, human resource management must create a productive workforce and use monitoring software to improve time management and quality at work (Macke and Generic, 2019). Using a monitoring tool will make it easier to track employee productivity at all levels, from line workers to senior managers. In addition to software, strategies regarding employee retention need to be considered. For example, it is possible to hire several consultant psychologists in the company whose goal is to work with employees who experience emotional burnout, which is a frequent problem with office employees. It is also possible to conduct anonymous surveys among the workforce, in which people can express what exactly displeases or hinders their work in their opinion (Mahapatro, 2022, p.11). Using employee problem identification and satisfaction strategies for workforce management at WeWork will lead to increased productivity and improved employee versions (Stone et al., 2020, p.5). Software and psychological assistance in the team can encourage good performance, eliminate errors in payroll and HR processes, and reduce employee turnover.
Good Corporate Governance and Sustainability
At WeWork, incorporating corporate governance will contribute to sustainable development and sustainable values. The company uses a simplified organizational structure, which in practice has weaknesses in performance (see Figure 3). The correct organizational structure affects the further development of the company, and the structure determines how long the company can compete with other businesses in the field (Almagtome et al., 2020, p.5). The system is an indicator of the flow of information in the organization. Adopting a corporate culture that is built on the ability to choose the format of work (remote or in the office), increased payment for recycling and the ability to change deadlines is one way to encourage employees and shareholders to reserve energy, reduce waste, reduce costs and promote other environmental factors (“Harvard Business Review,” 2020). Good governance improves efficiency, transparency, accountability, and the rule of law at all levels. It promotes effective management of financial, economic, natural and human resources for equitable and sustainable development, guaranteeing public participation in decision-making.
Change Management
The interconnectedness of senior managers and their permissiveness on the part of owners created an environment in which the rank-and-file employee could not get promoted. Using the cultural web would provide an opportunity for a company to look at its culture and change it (Bloomberg Markets, 2022). It is necessary to review the corporate culture that has been formed, subtract logical errors in management, and create new strategies for effective employee performance. As WeWork strives to change and become efficient and profitable, culture is the focus during organizational change (Cheng et al., 2021, p.4). Culture affects employee morale, turnover, and productivity (Platt et al., 2020, 5). By following the many critical elements of corporate culture, WeWork can achieve increased productivity if the power structure is well aligned. The power structure also affects communication within the company, so having a well-structured communication channel will help improve productivity. Control systems also play an important role in improving productivity, for example, proper financial procedures, compensation, and quality systems must be evaluated to ensure the smooth operation of the company. Improving the organizational structure of the company will facilitate employee communication and collaboration, thereby contributing to organizational goals and increased productivity (Ulaga et al., 2019, p.7). All of WeWork’s senior management will need to use their power from time to time to influence organizational change and elevate operations to a level that promotes growth.
Working Capital
A company’s working capital includes current assets minus current liabilities, which allows the company to maintain sufficient cash flow to meet short-term operating expenses and debt obligations. Managing working capital requires monitoring an organization’s assets and liabilities to maintain sufficient cash flow to meet short-term debt obligations and operating expenses (“Newsroom” n.d.) (see Figure 2). Managing working capital helps keep the net operating cycle running smoothly, including managing accounts payable, accounts receivable, and inventory. Through proper working capital management, a company will be able to save its cash when it decides to stretch out payments to suppliers and make the most of available credit or spend some money on purchases. In this way, the company increases profits, gains credibility with creditors, and has a steady income. Proper working capital management leads to the financial health and operational success of a business (“WeWork,” 2015). The ability to manage working capital indicates good business management by maintaining a strong balance between liquidity, profitability, and growth..
Conclusion
WeWork used a simple business model that involves leasing office space from landlords, breaking it up into smaller pieces and then renting it out to members at a profit. The company faces problems that affect its profitability, productivity and personnel. These problems include internal financial performance, changes in senior management, corporate governance, and internal resource management. Failure to protect stakeholder interests affects overall business performance and results in a loss of reputation, which ultimately reduces the company’s profitability. In addition, it was stated that the previous system of corporate governance lacked sound corporate governance; increased costs and a simplified structure reduced the company’s profitability. The analysis showed that the poor resource management the company faced had a negative impact on profitability because it increased losses and decreased labor productivity. Productivity is negatively affected when a company fails to protect the interests of critical stakeholders, experiences poor financial performance, and has unsustainable leaders with unstructured management. Limited resources that are poorly managed also make it difficult to evaluate the performance of individual employees because they cannot perform at their optimal level. A successful organization relies on its employees as the first line of shareholders. Their practical and effective performance depends on various aspects, including organizational structure and culture, stakeholder outreach, resource management and financial performance. At WeWork, the problems described have had a devastating impact on employees, resulting in increased employee turnover and decreased performance. After the critical difficulties that affected WeWork, the new CEO adopted a series of recommendations to improve profitability, productivity, and people performance..
Recommendations
Based on the above discussions, several recommendations were made to promote company productivity, profitability, and people’s performance. Firstly, it would be necessary for the company to adopt corporate governance principles that are integrated with sustainability. These principles are underpinned by fairness, responsibility, accountability, and transparency, and they are inherently related to the organization’s social responsibility, which will promote growth and increase profit. Second, new managers can try using the kaleidoscope method to identify new types of strategies in the company. With this method, managers can assign the time the company needs to achieve results, the scale of work required, and how to retain the necessary assets. After considering the level of diversity among the group of employees to whom the changes will be applied, predict possible problems and eliminate them at the beginning of implementing strategies. Lastly, the ability of organizations to implement changes, the company’s resources necessary to implement the plan, and the readiness of the workforce to change are considered. This method will allow us to study the idea the management wants to implement, the possible risks, and how to implement it with the minimum costs for people and the company..
Thirdly, it is recommended that the company have effective resource management about organizational human resources and operations. Since the company’s current status is that it has limited resources, having a resource management plan will make it avoid unnecessary losses and effectively effect change. Working capital management will also be vital to increasing current assets and minimizing liabilities, creating an environment for generating more revenues and minimizing losses. Lastly, the company will be required to have a new business model that reflects technology and real estate aspects. Integrating new technology that conforms with organizational operations and structure will promote efficiency, increase employee performance, and minimize errors. New technological skills in the business will also advance employee competencies that will result in improved productivity and performance. By changing the business model, the organization will focus on implementing changes and remaining objective towards fulfilling its vision.
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Appendices
Table 4: WeWork Earnings Per Share
