Uber Company: Critical Issues in Business Management

Introduction

Innovation can be defined as a strategic change in the existing business aspects of the development of new ones that are aimed at the improvement of effectiveness, performance, and competitiveness (Research and innovation para. 1-4). The present paper considers the innovation of Uber company. According to the Uber case study, Uber was founded in San Francisco in 2009 as a black car service that achieved accessibility through technology use (GPS and smartphones).

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By 2014, it was operating in 35 countries and expanded the service line to include other colors; also, it started to focus on environmentally friendly cars and introduced delivery services. The principle of Uber’s business consists of matching customers and drivers with the help of free software for mobile devices.

The Nature of Innovation in Uber

Focus of innovation

The focuses of innovation include the technology push, which is related to the implementation of the newly developed technology (Vashist et al. 2012), and market-pull innovation that is driven by the market specifics (Timsit et al. 2015). However, nowadays, the push-and-pull model is reconsidered; in particular, it is established that both technology push and market pull are complex phenomena (Doblinger, Dowling & Helm 2015), which are typically important for innovation and can interact with each other (Di Stefano, Gambardella & Verona 2012; Godin & Lane 2013). Moreover, the focus of innovation may shift from market to technology and back (Lubik et al. 2012). Uber’s innovation appears to illustrate these ideas.

The market pull for Uber innovation includes the dissatisfying system of taxi work (Data Team 2015, para. 1). However, the technology push is also relevant: Uber positions itself as a technology company and proceeds to improve its app, which was revolutionary from the beginning due to the use of GPS in it (MacMillan 2016). Uber technology is believed to be the core of the disruption caused by the innovation (Vincent 2016). Uber uses its technology to satisfy a market pull (Data Team 2015), which clearly indicates a correlation between the two focuses.

Levels and Types of Innovation

Incremental innovation presupposes improving the existing processes, products, or services while radical change involves the development of new, different ones (Christensen 1997; Pisano 2015). Christensen (1997) also introduced the terms “sustaining” and “disruptive” which correspond to incremental and radical but should be regarded from the perspective of their impact (Naughton 2015). Also, “discontinuous” innovation is the change that results in a new form of satisfying a need (Christensen 1997).

Uber innovation, however impactful, was incremental because it did not introduce any new concepts; it employed the same idea as the one that produced eBay (Naughton 2015). Christensen, Raynor, and McDonald (2015) also insist that Uber innovation is not discontinuous: it did not introduce a new means of satisfying customers’ need for taxi service; it made the service better by adding GPS and lowering the price and then proceeding with other innovations (MacMillan 2016). Thus, from the perspective of service innovation, the Uber change is not discontinuous.

Innovation space.
Figure 1: Innovation space (Bessant & Tidd 2015). The green circles demonstrate the approximate position of Uber innovation between the notions of incremental and radical for every P that it has affected.

However, when regarded from the perspective of 4ps of innovation, the model of Uber appears to presuppose a change in the processes, position, and paradigm due to the spread of sharing economy and the introduction of the non-conventional way to request car service that has become popular (Bessant & Tidd 2015; Sen 2016). It can be suggested that the levels of the radicalness for different Ps of innovation differ (see Fig. 1).

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From the Doblin types, the network innovation can be added to those of the process and product performance (Deloitte Development LLC 2016): the relationship of Uber with the drivers defines this addition (Data Team 2015). Concerning open and closed innovation, Uber is more likely to correspond to the open model (Felin & Zenger 2014): it did not discover the model or the technology, and nowadays multiple companies mimic its app or business model (Christensen, Raynor & McDonald 2015).

Also, the innovation in Uber is continuous (MacMillan 2016), which implies that open innovation is a more logical choice for it (Steiber & Alänge 2013).

Diffusion speed. From the perspective of supply (Johnson et al. 2014), Uber app is simple to use, provides an improvement of the service, and is compatible with mobile devices (Data Team 2015; MacMillan 2016). As a result, Uber’s diffusion speed was quick in the European and North American markets (stated in the Uber case study). However, it was slower in emerging markets because smartphone penetration is lower there.

From the perspective of demand (Johnson et al. 2014), the emerging markets are less likely to have the innovators to try Uber because they are dominated by competitor incumbents. Therefore, the speed of diffusions differs for the two types of markets, which affects the innovation and product lifecycles. The product lifecycle involves stages of growth and maturity before the decline, and to prolong the growth stage, incremental innovations can be made (Dann & Dann 2011). Uber follows this strategy with continuous improvement of its application to avoid disruptions in the growth stage in both market “types” (MacMillan 2016).

Main Drivers of Uber Innovation

Demand-side factors like social and customer expectations are significant drivers for innovation (Triguero, Moreno-Mondéjar & Davia 2013), and they affected Uber. Customer satisfaction is crucial for business (Pekovic, Rolland & Gatignon 2016; Subramanian, Gunasekaran & Gao 2016). The expectations of Uber customers must have been affected by the 2008 recession (Terjesen, João Guedes & Patel 2016), which explains the interest in cheaper services, but the accessibility and quality of service appear to be the main expectations targeted by Uber (Christensen, Raynor & McDonald 2015).

A suitable example of the community expectations is one of Uber’s incremental innovations (Franks & Vanclay 2013): the choice to provide environmentally friendly service. The perception and reaction of stakeholders to technology are of vital importance for innovation decisions (Masini & Menichetti 2013). As a result, the choice to provide more ecologically friendly car service can be explained by the drivers of community and customer expectations (Bossle et al. 2016; Cai & Zhou 2014).

Value migration and the availability of technology are supply factors (Triguero, Moreno-Mondéjar & Davia 2013); they are connected to the pressure for greater cost-efficiency and efficiency per se (Tutusaus, Schwartz & Smit 2016). Value migration occurs when a new value-producing entity (method, model, and so on) is established instead of the previous one (Walters & Bhattacharjya 2013). In a changing world, value tends to migrate (together with companies’ capabilities and resources) (Christensen 1997; Jacobides & Tae 2015).

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Also, value migration can be caused by innovation (Kyoseva et al. 2014). The migration of value to the mobile application drove Uber innovation, but the innovation of Uber might have produced a new migration.

Technology is most often associated with innovation (Pantano 2014; Parrilli & Elola 2011), sometimes to the point of almost obscuring other drivers (Kyoseva et al. 2014). As for the efficiency, it is crucial for business success (Petro & Gardiner 2015), especially at a time of economic downturn, which the world has been experiencing since 2008 (a year before Uber creation) (Terjesen, João Guedes & Patel 2016). Also, resource efficiency is of importance for environmental friendliness (Bossle et al. 2016; Cai & Zhou 2014). Therefore, technological and efficiency drivers must have affected Uber innovation.

Factors that Enabled or Hindered Uber Innovation

Uber highlights its commitment to stakeholder empowerment (Uber annual report 2014), which implies that employee trust must have been one of the individual-level enablers of the innovation (Booth 2016). The project-level openness to new ideas (predominantly the idea of the sharing economy) and the “wisdom of the crowd” was a key Uber innovation project enabler (Booth 2016; Sen 2016), and it is still used to enhance the service incrementally (MacMillan 2016).

However, the process of deconstructing the dominant model of business in the area of car service was a hindering organizational and environmental factor for Uber, and it still attracts criticism. For example, Vincent (2016) insists that because of the lawsuits and regulations, Uber business cannot be profitable. Given the recent losses that the business has suffered, VerHage (2016) points out that investment in Uber is not a reasonable decision at the moment.

Even nowadays, Uber needs to demonstrate perfect performance to avoid being criticized for its unconventional business model. Moreover, the cases of violence that are reported in the Uber case study can also be related to the lack of understanding: as highlighted by the Economist, Uber is blamed for the loss of value by the conventional taxi service, which is not always a correct assumption (Data Team 2015).

Regulations have always been a significant environmental hindering factor (Triguero, Moreno-Mondéjar & Davia 2013). An example is the termination of Uber’s Italian service called Pop, which, according to a Milan judge, used to create unfair competition. The lack of understanding of the innovation is visible in this case that took place in 2015 (Kirchgaessner 2015). The official reason for the discontinuation was the lack of licensing in Uber.

The level of competition in the business is immense; it includes conventional taxis, similar car services, public transport, bicycle lending services, and others (Data Team 2015; Christensen, Raynor & McDonald 2015). The level of competition was and remains one of the most significant obstacles to Uber innovation.

The Extent of Disruptiveness in Uber Innovation

What Uber has started can be termed as the “digital disruption” in the business (Vincent 2016, para. 2). The Economist reports that by 2015, medallions of New York City had lost over “$4 billion of value,” partially due to their substitution by Uber (Data Team 2015, para. 2). However, disrupting the business does not appear to be sufficient to be named a disruptive innovation. Christensen, Raynor, and McDonald (2015) point out that the innovation of Uber cannot be described as disruptive in the classic format that was established by Christensen (1997) because it did not start at the low end or in a new market and because it began to be chosen by mainstream customers very quickly.

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The authors explain why the distinction is important: a disruptive innovation strategy is very different from that of a sustaining one (like Uber), and it is more likely to be successful. Disruptive innovation is good for the entrant and, since it results in increased competition, for the customer, but it is harmful to the incumbent. The determination of a disruptive entrant is in the best interest of incumbents who want to respond to the increased competition and avoid being eliminated. The belief that Uber’s innovation is disruptive, could mislead incumbents and new entrants who want to disrupt a business. The authors explain the success of Uber by insisting that the taxi business is not very innovation-prone.

The focus on this distinction between Uber and disruptive innovation is widespread among modern analysts. For example, Naughton (2015), Sen (2016), and Vincent (2016) discuss the same idea and highlight the fact that traditionally speaking, the innovation of Uber is not disruptive. A typical disruptive innovation is cryptocurrencies, which, as pointed out by Naughton (2015) is a completely new concept that is now beginning to challenge national banks. Naughton (2015) emphasizes the fact that it does not annul the disruption caused by Uber in the traditional taxi business, but since disruptive innovation is a specific term, within the context of innovation theory, Uber remains an incremental innovator.

Conclusion

In this paper, the Doblin framework was used for the analysis of the nature of Uber innovation, and it complemented the 4Ps framework. It seems that the employment of several frameworks allows producing a more comprehensive overview.

It can be concluded that Uber is an uncommon example of a successful sustaining innovation performed by a newcomer. The competition is tough, especially in emerging markets, and the obstacles to the company’s development are many and persistent. Lately, Uber has been losing money (VerHage 2016) because of unsuccessful investments, especially in China (Newcomer 2016). It appears that Uber needs to pay more attention to obstacles and hindering factors and find effective ways to overcome them.

Uber endangers the incumbents of the industry (Data Team 2015), but its service is superior, and it has increased the competition for innovation in an area that is not prone to innovation (Christensen, Raynor & McDonald 2015). Thus, the impact of Uber is mostly positive.

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