Uber Technologies, Inc., often referred to as Uber, is a multinational ride-hailing firm that has its headquarters in San Francisco, California, and operates in over 63 countries around the world. According to Ferrell and Hartline (2017), the company offers a wide range of services that include ride service hailing, micro-mobility systems, peer-to-peer ridesharing, and food delivery services. The company has revolutionized the taxi industry not only in the United States but also in various other parts of the world. When it started its operations in 2009, it gained massive popularity rapidly in the United States. The management of the firm expanded their market coverage to Europe, Asia-Pacific, and Africa, and the firm registered impressive success. The management sacrificed high profitability as a strategy for rapid growth.
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In some parts of the world, Uber cut the cost of using taxi services by over 80%. It explains why it was an instant success in almost every market it explored, both in the developed and developing economies. It also enhanced convenience for customers. They no longer had to go to a specific physical location for their ride. They only had to use the Uber application, enter the destination and wait for the driver to arrive at their doorsteps. It was a revolutionary product in the market. Despite the success that the company registered, it has also been faced with various strategic challenges that threaten its sustainable growth both in the local and international markets. One of these challenges is the growing cases of disgruntled drivers all over the world. The paper will focus on analyzing this problem, determining how the current top leadership of the firm is addressing it, and proposing ways in which it can be addressed.
Situation Analysis: Strategic Challenge that Uber Faces
When Uber started its operations in different countries around the world, it quickly cannibalized the traditional model of taxi services because of its low pricing and convenience. Players in this industry had no other option but to become partners of this company to survive. Uber drivers are not employees of this organization. Instead, they are referred to as independent contractors, which means that they are not legible for overtime, minimum wage, insurance cover, workers’ compensation, and many other benefits that employees of other companies have (Perera & Albinsson, 2020). They are expected to work as business partners whose earnings directly depend on their output.
The issue that has led to the dissatisfaction of drivers is that the company sets the rate that is charged from one location to another. Most of the drivers feel that the rates are so low that they can barely meet their needs. Given the fact that a driver has to fuel and maintain the car on their own money and share their profits with the firm, most of them complain that the business is becoming less viable (Ukkusuri & Yang, 2019). They believe that the company is interested only in making profits by attracting more customers to its platform through low pricing without considering the challenges that their drivers go through. The number of drivers in major cities has also increased considerably making it difficult to find a regular flow of customers.
Challenges and Potential Consequences to the Firm if it Fails to Act
Uber relies entirely on its drivers for its revenues because of its business model. It does not own the cars that the riders use and the management cannot define how and when they have to go to work. Cases have started emerging where some riders are refusing to use the app because they believe the business model is unfair to them. Some of these drivers make deals with the clients so that they do not share the earnings with Uber. Other drivers have opted to use rider apps offered by competing companies such as Lyft and Ola Cabs. The current challenge may pose serious consequences if the management of the company fails to address it effectively and in a way that will make drivers satisfied.
The biggest challenge may be a massive exodus of drivers from its platform to that of the competitors. As explained above, Uber does not own the cars and it does not consider the drivers of its employees based on the contract it has with them. It means that these drivers are independent enough to quit working for the company at any time, especially when they feel they are not valued by the management. One of the options that they have is to work with rival companies offering the same services at better rates or use the traditional model of operating a taxi in places where they are assured of a regular flow of customers who may not necessarily need to use the application (Perera & Albinsson, 2020). Earnings of the firm may drop considerably, and if nothing is done within the right time, Uber may be forced out of the market.
The attitude of Various Leaders to the Challenge
The top management unit of the company directly involved with trying to find a solution to this problem includes Dara Khosrowshahi who is the chief executive officer, Nelson Chai the chief financial officer, Tony West the chief legal officer, and Jill Hazelbaker who is the senior vice president and head of marketing and public affairs. The four top managers have expressed their commitment to addressing concerns that their drivers have. Dara has always reiterated his commitment to improving the welfare of his employees and partners around the world. He has a positive attitude towards solving the plight that drivers face at work. The chief financial officer, the marketing director, and the chief legal officer have all expressed their concern over the issues raised by the drivers. However, they know that addressing the problem to the level that drivers consider satisfactory may be a big challenge. Many other companies are currently offering similar products in the global market and they all charge almost the same price as Uber for their rides.
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Drivers around the world are demanding an upward adjustment in pricing as a way of making their business sustainable. As Çetin (2017) notes, the challenge is that if this company increases its prices, then customers will opt to use the services offered by the competitors. That can easily force it out of the market. The strategy that it employs must take into consideration the interest of customers. Dropping the commission that it takes from drivers for every ride may significantly reduce its profitability in the market. Reduced earnings may limit its growth and market research activities. Although these top leaders are committed to solving this problem, finding the right approach has remained a major challenge to them.
Operations Analysis: Options of Addressing the Problem
The current problem that Uber has with its drivers needs an urgent solution to ensure that it remains sustainable. When the company started its operations slightly over one decade ago, the competition was almost non-existent (Ukkusuri & Yang, 2019). For that reason, it had strong bargaining power with the drivers. Drivers had no alternative but to follow the guidelines that the management provided. That is no longer the case as new players were introduced into the market. Drivers currently enjoy some form of freedom, making it necessary to redefine the company’s approach to managing them. The following are the two options that the management of the company can consider in addressing the problem.
Option 1: Absorbing Drivers as Part of its Employees
One of the options that the management can embrace is to employ all drivers as part of its workforce. In such a case, the company will need to own the cars as well. It may be an expensive approach and a major shift from its primary business model. However, it will grant the firm full control of its drivers all over the world (Ferrell & Hartline, 2017). The management will be able to dictate when employees will go to work and locations where they should be stationed. Cases, where drivers switch off their apps to steal from the company, will be significantly reduced. The biggest challenge of this strategy is the massive increase in the cost of operation. Buying new cars, paying drivers, and increasing taxation will all inflate the expenses of the company.
Option 2: Increasing its Prices to Match Realities in the Market
The second option will require the management to increase the cost of its rides to reflect realities in the market. When using this option, the company will maintain its original business model. The biggest advantage of this strategy is that it will not involve any significant increase in expenses for the firm. The strategy may enhance the revenue of the company if it succeeds in the market. However, it is essential to ensure that it does not backfire on the firm. If customers consider the increase exploitative, they will use alternative products in the market. The only hope of the company will be that as a market leader, other rival companies are likely to follow the same path as a way of protecting their drivers as well. It may be necessary for the marketing department to redefine how drivers should interact and engage with clients so that they can feel there is an enhanced value to reflect the additional increase of the price (Perera & Albinsson, 2020). The change of price should accurately reflect on issues unique to a given market around the world.
Stakeholder Engagement Plan
Addressing the problem that Uber currently faces will require close coordination of various stakeholders to achieve the desired goal. Developing a stakeholder engagement plan is essential in defining how they should coordinate various actions. In this plan, stakeholders will be limited to the top four managers of the company. As shown in figure 1 below, the first step is for the chief executive officer to set the vision for the firm. In this case, the goal is to meet the demands and expectations of drivers all over the world. When the vision is set, the next step is stakeholder mapping, where the chief executive officer will identify specific stakeholders who will play different roles in implementing specific options for addressing the problem.
The third step involves preparation (Ukkusuri & Yang, 2019). Stakeholders must put in place systems that would facilitate the process of meeting specific goals. The fourth step is the actual engagement process. The chief executive officer, working closely with the chief financial officer, chief legal officer, and the vice president heading the marketing department should discuss the two options available for the firm. They should focus on identifying the strengths and weaknesses of each option and the financial capacity of the firm to implement them. The final step is the action plan based on the outcome of the engagement process.
Conclusion and Recommendations
Uber is currently the dominant player in the mobile application taxi industry in the global market. The company recorded impressive success in its initial years of operation, but currently, the firm is facing numerous challenges not only in the home market but also abroad. One of the main issues identified in this case is the growing incidences of disgruntled drivers. They feel that earnings from their operations can barely meet their needs. The top management unit of this company is presented with two options that it can use to solve the problem. It is recommended that the company should consider the second option of reasonably increasing its prices to reflect realities in the market. Although it may appear risky, and the increased price will increase the earnings of drivers, making them more loyal to the company. It is also the most cost-effective approach of the two options and it does not involve changing the business model of the firm.
Çetin, T. (2017). The rise of ride-sharing in urban transport: Threat or opportunity. Norderstedt, Germany: Books on Demand.
Ferrell, O. C., & Hartline, M. D. (2017). Marketing strategy: Text and cases. Boston, MA: Cengage Learning.
Perera, B. Y., & Albinsson, P. A. (2020). Uber(Corporations that changed the world). Santa Barbara, CA: ABC-CLIO.
Ukkusuri, S. V., & Yang, C. (eds.). (2019). Transportation analytics in the era of big data. Cham, Switzerland: Springer.