Final Exam
Structure
The contingency theory explains that there is no one specific way that is best when it comes to leading an organization. This explanation is because of too many factors, both internal and external, that may alter the best strategy to lead in a given situation, meaning that the best approach depends on the situation at hand. Further, the theory explains that the effective organization structure depends on the structure aligning to the organization’s contingent factors. These factors range from size, task, uncertainty, and diversification. The growth of the organization leads to a structure that has high specialization and low centralization.
WeWork’s structure follows the rule of the contingency theory, whereby, from the onset, the organization starts with very few employees. The founders, even though ambitious, initially hired one employee who did numerous tasks. From the podcast, the employee, Lisa Sky, explains that she did sales, tours, IT, and even cleaning. This shows that the organization from the beginning had divisions or departments, which handled various tasks (Brown, 2020). For instance, the sales department was to bring in clients who would need co-working space for the organization. The number of employees increased just as the organization grew and diversified. The organization opened up offices in various regions, which would need employees working in different areas (Reader, 2019). This is where the low centralization applies. This structure requires coordination between the departments to ensure that the organization runs smoothly.
External Environment
Numerous uncertainties surrounded WeWork from the beginning. For instance, Bruce Sternlevit, a partner at one of the big tech companies in Silicon Valley. While Bruce was impressed by Adam Neumann’s confidence and certainty, he was skeptical that Adam was valuing the organization higher than it already was (Brown, 2020). Additionally, other uncertainties were facing the organization, such as the saturation in the real estate industry. Scott Galloway, a respected business professor, was interviewing Adam Neumann on why he was not worried that the big mogul companies in real estate could come and start the same co-working spaces and kick WeWork out of the market (Brown, 2020). Another uncertainty that faced the organization was the risk brought about by having a vast portfolio of leases and the likelihood of bankruptcy. For instance, IWG International, a co-working company with more than three thousand locations and more than two million customers, was forced to file for bankruptcy in 2003 after being unable to renegotiate its lease with its landlords (Reader, 2019).
The response of WeWork to the uncertainty was similarly geared toward the same beliefs. For instance, when on the risk of bankruptcy due to the numerous leases, Dave Fano explains that the company works with 30% of the Fortune five hundred companies, which are looking to reduce their fixed assets (Reader, 2019). Again, the organization has expanded to architecture, construction, and office management. The company was banking on getting lucrative and longer leases. On the valuation of the organization for more than its worth, Adam talked of the vision and the plan making it seem like he could see the organization’s future value. The response to the uncertainty was more of wishful thinking than reality.
Resource dependency theory explains that for an organization to acquire resources, it must engross in transactions with parties or other establishments in its environment (Daft & Armstrong, 2015). Similarly, WeWork from inception sought out investors to obtain funding for the organization to function. The organization is reported to have made an approximate of twelve billion in capital (Reader, 2019). Still, the organization acquired leases and became part owner of several buildings, which is needed for it to be able to provide co-working spaces, which were its co-business. Resource dependency explains that the transactions may seem advantageous, but they create reliance, which is not advantageous (Daft & Armstrong, 2015). These resources the business needs are often rare or not readily attainable. Similarly, WeWork had to lease and also depend on investors.
Population ecology explains that organizations are subject to inertia pressures and uncertain environments and leads to the organizations competing for capital, membership, and legitimacy. For WeWork, this competition was evident, given that the organization was venturing into an already saturated market in real estate. Even if the real estate moguls did not particularly venture into co-working, it was still a market that these companies were controlling. For this reason, WeWork sold a big dream to the investors, convincing them of guaranteed growth and significant returns (Castro, 2019).
Institutional theory, on the other hand, explains reasons for particular organizational behavior and the effect of this behavior on the organization. The pattern of behavior can range from routine, norms, or reasonable corporate standards. The theory suggests that the practices are copied and reproduced over time. WeWork got its first investors by promising high returns and massive growth. Investors copying the behavior focused on the growth promised, and it seemed that people followed the hype instead of the data. This behavior entailed focusing on unrealistic growth, eventually led to the fall of the organization. The board did not concentrate on reality or even their ability to executing the expansions.
Change
The dual-core approach is referred to as a change outlook which identifies process which are distinctive and which are linked to administrative change paralleled to technical change. The administrative change focuses on the structure and design of the organization. These changes are in terms of restructuring, grouping, and downsizing, among others (Daft & Armstrong, 2015). However, these administrative changes are less common compared to the technical changes. The administrative changes take place in response to the environmental sector and often are the internal-based process. The technical core, on the other hand, focuses on the conversion of resources into products and services, but it involves mostly technology and customers.
WeWork applied the dual-core approach, whereby the organization decided to change the way the rental industry was looked at. WeWork began first with hiring co-working spaces or various companies; then, the organization started to go a step further and implement the technical aspect too. For instance, the (Reader, 2019) points out that if the company had technology whereby if the room booked or a meeting was too big than required, then the technology would choose a better space more fitted for your needs. The company was using technology as a way to determine what spaces and products they should recommend to their clients and the price range. When faced with resistance, the organization used the approach to sell their product to the customers, whereby the technology would be used to create a space that is fitted to the customer’s preferences.
Power and Social Networks
French and Raven (1959) identified that there are five bases of power, which included Legitimate, coercive, reward, referent, and expert power. Referent power, in particular, originates from a person’s personality and characteristics, which creates admiration and respect from their followers (Daft & Armstrong, 2015). Expert power comes from knowledge, which means the followers respect and trust the leader because he has expert knowledge. Coercive power is based on the leadership position, and it can lead to resistance (Daft & Armstrong, 2015). Legitimate is inherited power. Adam Neumann was a charismatic individual and was able to win over people through his ideas and charm (Brown, 2020). He practiced Referent power, which explains that when people admire a person because of the way he deals with them, the influence is based on referent power. This influence is what Adam used when attracting investors and throughout the growth of the organization. His leadership was based on his characteristics rather than the position he held.
Synthesis
WeWork used the right and effective organization design given that the business had specialized teams in IT, sales, architecture, consultation, and other areas. Even though the organization failed the concept as right and the leader was able to influence people and gain massive capital for the business. The external environment provided enormous resistance, but the organization used technology and other innovative ways to attract its customers. It had clients in the forms of organizations, and it had been able to extend leases up to twenty-one months. The groundwork had been laid or the reorganization to achieve robust performance; however, the targets that the organization has set to achieve were unrealistic. The failure of WeWork was not that it was not performing; the failure was due to the massive expansion and the inability to look realistically look at the organization’s numbers and data (Cohen, 2019).
References
Daft, R. L., & Armstrong, A. (2015). Organizational theory and design (3rd ed.). Toronto, ON: Nelson Education