IV. CASE OBJECTIVES

1. To discuss Uber’s regulatory environment.

2. To discuss Uber’s challenges in Global Expansion.

3. To discuss the competitive landscape of the ride-hailing industry.

4. To discuss the challenges surrounding industry creation.

5. To discuss regulatory hurdles and government lobbying.

V. SUGGESTED CLASSROOM APPROACHES TO THE CASE

1. This is an excellent case for instructor-led discussion.

2. This is an excellent case for an exam or written case analysis.

3. This is an excellent case for a team presentation.

4. This is an excellent case for an individual or team strategic Audit.

VI. DISCUSSION QUESTIONS

1. How is ride-hailing different from taxis?

2. What was Uber’s pricing strategy?

3. How does Uber utilize marketing promotions to gain new customers?

4. Are Uber’s drivers employees or contractors?

5. Will ride-hailing eventually replace taxis?

VII. CASE AUTHOR’S TEACHING NOTE —Not Available

VIII. STUDENT STRATEGIC AUDIT

I. Current Situation

A. Current Performance

Background: Founded in San Francisco, California in 2009.

Aug 2013, raised $258 million from Google Ventures.

December 2014, Chinese Search Engine, Baidu, invested $1.2 billion, value at $66 billion.

In 2015, Uber earned $1.5 billion in revenue, tripled 2014 revenue.

Strategic alliance with Didi.

B. Strategic Posture

1. Clearly stated

2. Mission: Making transportation “as reliable as running water” everywhere, for everyone.

3. Objectives:

· Offer service to everyone, including luxury and affordable options.

· Remain cheap, fast, and efficient while trying new services.

· Transaction convenience—mobile payment globally.

· Growing revenue and earnings for shareholders.

· Merging intangible code and technology with the tangible world where customers live in.

· CEO Travis mentioned in an interview four Phases of Uber Objectives:

(1) Create the world’s biggest taxi networks, connecting riders with safe, reliable, and convenient transportation providers at a variety of price-points in cities around the world.

(2) Create the world’s biggest P2P logistics platform, allowing anyone to either request or provide physical delivery of a myriad of goods and services.

(3) Shift from 100 percent human-driven logistics to 100 percent machine-driven logistics. Profit immensely.

(4) World domination.

4. Strategies:

· Rapidly expand product offerings to utilize technology.

· Move things, not just people to improve convenience.

· Differentiation by being cheap and fast.

· Merging intangible code and technology with the tangible world its customers live in.

· Classifying its drivers as independent contractors.

5. Policies:

· Protecting community.

· Safety for all.

· Emphasis on convenience and affordability.

· Fight the laws against the taxi industry.

6. International: the core of Uber is to expand globally; their mission, objective, and strategies reflect their international operation.

II. Corporate Governance

A. Board of Directors

1. Eight members:

· Four internal and four external.

2. N/A

3. Privately held

4. Three external board member are successful lawyers.

5. Board members bring significant relationships with Google and Capital funds. Head of Global Operations is on board and has experience in international expansion.

6. High level of involvement.

B. Top Management

1. CEO: Travis Kalanick

2. Nine executives; one international leadership positions, sixty country-based CEOs.

a. Diverse background, main focus on product. Three product executives.

3. As a startup, top management is still very involved and responsible for the company’s performance over the past few years.

4. Uber has a clear plan for its strategic management.

5. Uber finished the environment scanning step in the strategic management process and is moving to strategy formulation.

6. N/A

7. Some strategic decisions are inconsiderate of privacy laws, sexism, and labor laws in different regions.

8. Executives held company stocks and are excited about the corporation IPO.

9. Structure around product, legal, and global expansion allows the company to cope with scaling challenges.

III. External Environment: Opportunities and Threats

A. Societal Environment

1.

a) Political-Legal environment

· Favorable changes in drunk driving laws which Uber can position itself as a “safe” alternative. (O)

· Differentiated political and governmental landscape in different markets Uber is in rendering political lobbying fruitless. For example, in Germany the government has not permitted Uber to operate to protect taxi drivers, viewing Uber as unfair competition. (T)

· Class action lawsuit from Uber drivers. If Uber loses, it is forced to treat the drivers as employees, not as independent contractor. The ramification is a significant increment in cost in the form of provision of auto and life insurances, employee benefit, and other expenses to the drivers. (T)

· Changes in privacy laws, especially in Europe, are making it more difficult for Uber to position itself in the markets using customer data. (T)

b) Economic

· Rise of shared economy in the US, increasing the potential for people opting for ride-hailing services and carpooling instead of owning a car. (O)

· Differentiated income level among people has allowed Uber to develop various products based on differentiated pricing strategy such as Uber Black targeted for higher income people and Uberpool for eighteen –to–twenty-five-year-olds which are generally students. (O)

· Pervasiveness of online commerce has given rise to Delivery Industry. Uber can tap into this market as part of fulfilling the vision of “moving everything.” (O)

· With an impending deal between OPEC nation for cutting supply of crude oil, the subsequent rise in oil prices will hinder drivers to offer more rides unless there is an increase in the price of a Uber ride. (T)

c) Social

· Rise of the millennial population, whose personality is generally defined by being fast and effective, preferring instant gratification, and share economy. (O)

· Adoption of “alcohol culture,” especially by millennial culture aids in contributing to Uber’s effort in positioning itself as a “safe” option. (O)

· Culture variation across Eastern European nations and Asian nations in using credit and debit card, which are the core factors in Uber’s operation. (T)

· Small road sizes in Asian nations, especially in cities. Uber may not be able to provide services like Uber SUV, or any Uber rides using Uber cars. (T)

d) Technological

· Rise of satellite technology making GPS technology faster and accurate. (O)

· Pervasive use of smartphones around the world, making use of applications feasible. (O)

· High cost for Internet and lack of access to broadband internet in many parts of Southeast Asia, South Asia, and Africa, will slow expansion in these markets. (T)

· Rise of autonomous driving technology and possible cost savings in the future. (O)

2. Yes, these forces are differentiated across the globe. However, some forces are similar as well. For example, laws regarding taxi services, data privacy, and automobile related laws are varied across the globe. On the other hand, the general characteristics of the millennial population are similar.

B. Task Environment

1. Industry

a) Threat of new entrants: High

· No, proprietary resource that cannot be copied by the competitors. Lyft has the exact same core business model and application technology as Uber. (W)

· Uber created a proven model for carpooling and ride-hailing using application and did not patent its technology fast enough removing barriers to entry, which is an investment in R&D for a proven model. (W)

· Rise of autonomous driving technology and companies perfecting that technology is a direct threat to Uber.

· Uber is the only ride-hailing service that has international access to market so far. Its sheer size will deter many local competitors to compete on a global scale. (S)

b) Bargaining power of Buyers: High

· Low-to-nil switching cost for customers for using different ride-hailing services. If Uber’s surge pricing is off by a dollar, the customer has instant access to Lyft, Fasten, and others. (W)

· High price elastic market. Customers are sensitive to price offerings from different ride-hailing services.

c) Threat of substitute products and services: High

· Availability of numerous ride services ranging from public transportation to cycling and walking.

· Entering in markets such as Denmark and Netherlands is difficult because of pervasive use of the bicycle for commute.

· Entering in Asian markets is difficult because of pervasive use of cheap public transportation. Impossible for Uber to compete with public transportation in terms of price in these markets.

d) Bargaining power of suppliers: High

· Suppliers are people with cars. Uber does not own vehicles.

e) Rivalry among competing firms:

· Intense price war between Uber and Lyft in highly populated cities in the US.

· Introduction of new startups such as Fasten and Grab.

· Introduction of international competition, such as Ola and Didi.

· Introduction of ride-hailing service, via application by taxi and limo industries.

· Intense rivalry with Google and Lyft in autonomous driving technology front.

f) Relative power of unions, government, special interest groups etc.: High

· Despite significant investment to establish a relationship with governmental authorities, Uber is still prone to operational hindrance from groups mentioned above. For example, in Germany the taxi drivers union was able to block Uber’s entrance with the help of German government citing unfair competition. Similarly, the state of California has filed a lawsuit for criminal investigations alongside nationwide class action lawsuit.

· Indian women rights’ activists were able to lobby the government for halt in Uber’s operation in the entire nation raising concerns for women’s safety (the ban has been overturned recently).

2. The key factors in the immediate environment, and current and future threat, and opportunities are given below:

a) Customers: Price sensitive (current threat).

b) Competitors: No core differentiation and price war (current threat).

c) Suppliers: Drivers are the suppliers and control the flow of supply side of business (current threat). Uber’s investment in autonomous driving can resolve this issue (opportunity).

d) Creditors: N/A

e) Labor unions: unions are strong, especially in Europe and Asia, and government might protect taxi drivers union like the German government did (future threat).

f) Government: Strong relationship establishment via lobbying (opportunity to define laws favorable to Uber).

g) Trade associations: N/A

IV. Internal Environment: Strengths and Weaknesses

A. Corporate Structure

1. Decentralized Management or Management by Objective (S)

a. The decision-making authority is decentralized to many units. Uber gives local community operation managers the autonomy to launch marketing campaigns. (S)

b. Uber is organized on the basis of a combination of functions, projects, and geography. Community managers of different cities, local organizations, and partnerships are used.

2. The structure is clearly understood by everyone in the corporation. (S)

3. The present structure consistent with current objectives, strategies, policies, and programs. Their objective of rapidly expanding product offerings to utilize technology is supported by the decentralized management.

4. N/A

B. Corporate Culture

1. Well-defined corporate culture, where Uber strongly values and encourages a culture of customer service and respect for both the driver and passenger.

2. Uber’s culture is consistent with current objectives, strategies, policies, and programs. Protecting community and safety for all is part of Uber’s policies.

3. Uber’s culture of rapid global expansion addressed important issues. More specifically, Uber’s global infrastructure was an advantage over their competitors to adapt to new markets. (S/O)

4. N/A

5. Uber takes each nation’s culture into consideration in which they operate in a marketing perspective.

C. Corporate Resources

1. Marketing

a. Uber uses a variety of marketing strategies and programs to promote its services. Strategies included “First Rider Bonus Coupon,” referrals, word of mouth, and special promotions in new cities.

i. Uber’s marketing objectives are implied, but the strategies and programs are clearly stated. Uber’s brand (in each city) is visible on social media accounts.

ii. Consistent with mission, objectives, strategies, policies, and with internal and external environments.

b. Uber is performing well in terms of analysis of market position and market mix in both domestic and international markets. Product offerings differ from city to city both domestically and internationally. E.g.: UberRush, UberSelect, and short-term services such as Uber ice cream, Uberboat, and Uberhealth

i. Customization, globalization. Meeting the demand with a supply.

ii. Promoted customer loyalty through brand, service, and product offerings.

iii. Yes. Globalizing services on par with plans of strategic global expansion.

iv. Yes. Promotion, price, product, and place are all strong in the marketing mix which allows for a competitive advantage. Word-of-mouth marketing is created through brand recognition, awareness, and loyalty. Promotional efforts are common (e.g.: $30 off the first ride for new users).

c. Yes. Uber uses a decentralized marketing strategy where they provide the local community managers the autonomy to promote campaigns adjusting to the conditions in which they operate. An example of this is Uber’s partnership with NFL’s Jaguars to allow Uber customers to purchase same-day tickets and coordinate their transportation on the app. (S)

d. Uber’s marketing adjusts in each city and country they operate in where product portfolios and market segmentation would adapt according to the city in which they operate in. E.g.: Uberboat offered in select cities and partnering up with organizations that have a cultural significance, according to the city they are operating in.

e. The case discusses different community managers that face the responsibility of the brand in each city they operate.

f. Each team recognizes the different cultural significance, depending on the city where they operate, and would strategically partner with different organizations to create an integrated service.

2. Finance

a) Financial objectives:

· Maintain growth in revenue in its +300 markets.

· Increase profitable markets from eighty to all 300 (to offset subsidies).

· Foster further growth-leading into an IPO.

· Increase product offerings and provide necessary funding for market expansion

i. Clearly stated.

ii. Consistent with its mission of reliable transportation everywhere.

· Growth and customer loyalty are building blocks to goals(expansion at the expense of current loss helps gain traction, market share, and sustaining leading market position).

· Push for greater revenues are to Uber’s strategy (waiting to reach appropriate size for market sustainability).

b) Privately held company. No public financial statements available. Revenues tied inability to leverage product offerings (rapid revenue growth). Currently expensing for growth allowing for the market to properly mature and sustain itself (major growth but no earnings).

i. Uber is looking to grow exponentially to a point where the market can sustain itself. Uber is operating at a loss to gain traction and establish “global domination” status.

ii. N/A

iii. Investors believe in future profitability; however, changes in competitor behavior, the introduction of driverless technology, etc. could prolong profits.

iv. Yes

v. $8.21 billion in funding as of 2015 is a competitive advantage—allowing for continued expansion and growth while sustaining large losses.

c) Lyft is also private. Uber’s revenues outshine traditional taxi industry.

d) N/A

e) 80/300 cities profitable. Funding to each city dependent upon regional needs and goals.

f) Optimize funding to ensure global growth goals. Direct the company into a successful IPO.

3. Research and Development (R&D)

a) Optimize supply/demand pricing algorithms, continually innovate tech platform (user experience on both ends),and leverage new innovations in autonomous technology to transform business model.

i. Clearly stated

i. Clearly aligned with corporate.

iii. Technology plays a fundamental role in corporate performance (app and maps are among key differentiators).

iv. Yes

v. R&D gives the company competitive advantage (e.g.: surge pricing patented). Understanding market needs and meeting with supply (First mover).

b) Growth and increased valuation. No profits as of yet.

c) Competent in tech transfer (global platform used in all 300 operative cities, work-teams dispersed in multiple locations). Concurrent engineering, as R&D and launched improvement are constant.

d) Technology discontinuity plays a large role. Utility and value come from the app and GPS (greatest strengths). Innovation needed to avoid tech disruptions (e.g.: autonomous cars R&D). Dependent upon cell-phone usage and popularity.

e) GM invested $500 million into Lyft for autonomous vehicle R&D. Uber partnered with Carnegie Mellon to understand how to leverage the new technology.

f) Yes. Product offerings slightly tailored in each country based on individual market needs.

g) Appropriately locating resources into R&D initiatives that will aid in corporate’s overarching goals and objectives

4. Operations and Logistics

a) Rapidly grow product offerings globally. Included UberX, UberXL, UberBlack, UberSUV, UberPOOL, UberTaxi, UberSelect, Uber for Business, and UberRUSH (UberEATS) to offer service for virtually every social and demographic group in the world.

i. In addition, short-term service and seasonal services, such as Uber ice-cream, Uber kitten, Uber board, Uber Health to utilize uber existing network to meet immediate needs of customers.

ii. This objectives is clearly stated but not significant enough to be implied from performances (main revenue from UberX).

b)Uber global infrastructure was the main advantage over local the competition. Lessons learned from difficult countries will be applied to future gains.

i. Factors to be considered in global operations include laws, affordable access to vehicles, mobile phones, and scarce gasoline.

ii. Depends on local CEOs to tailor hiring policy and operations to maintain customer satisfaction.

c) Uber service affects from

· Natural disasters: safety of drivers and guests, but can also present opportunities to operate while competition cannot (self-driving).

· Local strikes against Uber on salary, employee rights, and data privacy, sexism has been an ongoing issue, required capital to resolve.

· Constraint of smartphones, affordable vehicles, and gasoline and government nationalization depend on countries operated in are all risks for Uber.

d) Operations much leaner than traditional taxi industry. 160,000 active drivers with no salaries and that do not own any cars. Adequate support staff to maintain a high level of customer service on the app.

e) Low ETA in more populous regions (e.g.: cities). Fast service depends on the number of drivers in proximity to serve demand. Uber incentives drivers through bonuses for driving at locations or times that will have higher demand (to maintain efficiency).

i. Subsidizing drivers to increase supply aligns with the strategy of spend for growth now and reap the profitability later.

ii. Created efficient operational system that consumers can rely on; however, it may not be sustainable.

iii. Operations support strategic decisions.

iv. Yes. Reliability, ETAs, and pricing structure involve efficient operations that are unmatched in the industry.

f) Uber aggressively challenges outdated regulations. The company sometimes launched in new cities without approval from the local governments. (W/T)

g) Operations and logistics adjusted to conditions in each country (e.g.: legal hurdles, country-specific regulations) For instance, paying cash is an option in Vietnam to accommodate low credit card usage.

h) N/A

5. Human Resources Management (HRM)

· Classifying drivers as independent contractors is a crucial element in Uber’s business strategy

(1) Uber’s current HRM strategies, policies, and programs are clearly stated. (S)

(2) Yes, it is consistent. Because they are cutting costs by classifying the drivers as contractors, they are consistent with Uber’s objective of growing revenues. Also, the dual rating system is in line with the corporation’s objectives of ensuring Uber’s objective of connecting riders with safe, reliable, and convenient transportation. (S)

· Uber is currently facing a class-action lawsuit due to the corporation’s HRM in terms of improving the fit between individual employee and the job. Because the drivers are classified as independent contractors, they do not have reimbursements for business expenses and are not entitled to employee benefits. (W)

(1) Aggressive behavior (seen with governments and competition as well).

(2) Allowed for low costs, however, may not be the case if drivers become employees. Negative publicity revolving treatment of drivers has also caused a slight dent in reputation.

(3) Growth and profit are key objectives and using drivers as contractors are a means to achieve this.

(4) Low cost (contractors not entitled to employee benefits, no reimbursement on business expenses e.g.: gas, auto insurance).

(5) Dual rating system ensures drivers are up to standard in terms of service.

· Lyft and cab companies encourage tipping. Uber stresses contractual agreements with drivers (entrepreneurial spirit).

· Yes, Uber uses appropriate concepts and techniques to evaluate and improve corporate performance. The rating system not only asks for a specific rating, but also asks what, specifically, that driver excelled at (quick pick up, clean car, fast reliable, friendly, and also leaves room to make any comments). Uber also quickly reaches back to customers with any issues that they had with recent trips to better improve HRM performance.

· N/A

· No, HRM does not adjust to the conditions in each country. All drivers are treated as independent contractors rather than employees.

· N/A

Information Systems (IS)

· Uber uses a differentiation strategy to gain a competitive edge over their competitors via their IS strategies.

(1) Uber’s current IS objectives are implied.

(2) Yes, they are consistent with the corporation’s mission, objectives, strategies, and policies. For example, connecting drivers and customers faster via a simpler and more transparent mobile app. Additionally, after Uber purchased deCarta, it lined up with their strategy of lining up the right driver with the right customer to ensure a more accurate pickup location and time. (S)

· In general, Uber’s IS is performing well, where they have purchased deCarta mapping, which saved the company money. (S)

(1) Gaining competitive advantage where possible and avoiding dependency relationships where possible (purchased deCarta to avoid dependency on Google Maps and also have a mapping system that is unparalleled in the industry

(2) Previously, Uber has been criticized for its data privacy policies and violating customers’ privacy rights (travel records, sensitive geolocation data). They had to adjust its data privacy policies. (W) At the same time, they could sell deCarta services to competitors to yield additional revenue stream (O).

(3) Yes. Using cutting edge technology for cutting edge ridesharing solutions.

(4) Yes. Uber’s “surge pricing,” dual-star rating system for both the driver and passenger, system for calculating tolls all gave the company a competitive edge. Lastly, the simplicity of their mobile app, in comparison to Lyft, added value to their customers. (S). They also fixed the driver app interface to make it more simple and easier for drivers to see which areas where they were most likely to pick up passengers. This helped the company gain a competitive edge over competitors. (S)

· Lyft’s user interface was an almost exact replica of Ub

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