UBER STRATEGIC REPORT

UBER STRATEGIC REPORT

UBER

ADMN 404v13 Assignment 2 Uber

Executive summary (200)

Uber Technologies, Inc., commonly known as Uber, is a multinational company based in America, operating in the transport industry. It is a service company and engages in the provision of services such as ride service hailing, micro-mobility system using scooters and electric bikes, food delivery, and peer-to-peer ridesharing. The company has been in operations for nearly one decade and has been making huge losses.

This strategic report is presented the Uber’s CEO and covers the company’s overview, external and internal analysis, and possible strategic options which can be taken to enhance the company’s profitability. Uber aims at keeping the world moving while making profits in the process. Its operations are guided by values such as building globally and living locally, focusing on customers, celebrating differences, doing the right thing, acting like owners, perseverance, giving more value to ideas over hierarchy as well as making big, bold bets.

Under the external analysis, five forces that affect the industry are operations are ranked as; strength of rivalry, threat of buyers, threat of substitutions, new market entrants, and the supplier bargaining power. Opportunities available at the transport industry include; availability of many lines of businesses, various means of transport, and diverse commuters (regular and irregular commuters). Threats experienced in the industry include unfavorable regulations, ever-increasing competition, Unhappy Partners, and drivers due to low-profit margins, other means of transport such as air and water and public safety concerns.

In the case of internal analysis, the company faces weaknesses such as weak systems, lack of close relationship with employees, inability to address privacy and safety concerns, unpredictable business model, and poor management. However, the company has strengths such as; well-recognized brand, high standard services, absence of service regulations, effective cost-saving strategies such as contracting cars and drivers, a cashless payment system which minimizes losses, and high levels of employee flexibility.

To address the issue of losses made the company from one year to the other, some of the strategic options that the company can consider include; decreasing prices, expanding into new markets, and targeting new users of their services. Each of the strategies has got positive and negative sides, and it is up to the CEO to make the best decision.

Introduction and company overview (200)

Uber Technologies, Inc., which is usually referred to as Uber, is an American multinational company with its headquarters in San Francisco, California, US. Uber was founded in March 2009 by Garrett Camp and Travis Kalanick. However, it started its operations in June 2010, within San Francisco, under the name UberCab. Uber operates in the transport industry and does not own any cars. It mainly relies on the established network of cars licensed cars owned by other companies and individuals, who have got interested in the deal. Services offered by Uber include; peer-to-peer ridesharing, micro-mobility system using scooters and electric bikes, food delivery, and ride service hailing. Getting the services offered by the company is easy, as customers have to use websites or mobile apps, and get assigned to cars within their proximity. In 2019, the company reported having got a total of 110 million users internationally. Currently, Uber serves a total of 63 countries globally, covering 785 metropolitan areas. It has employees totaling 22,263, where 11,488 are outside the US. Uber uses surge pricing, where prices are adjusted based on demand.

The strategic report is being addressed to the CEO of Uber Technologies Inc. Uber is facing the risk of losing its market share, despite its fast growth and expansion in the one decade it has been in operations. Based on Forbes news, Cohan (2019), argues that the company lacks a competitive advantage. Looking at the company’s annual financial reports for the last four years, it is evident that Uber is really struggling at the market. For instance, in the last four years, starting with the year 2016, losses worth $3.7 billion were made. In the following year, 2017, Uber losses worthy $40.33 (Fiergerman, 2017). the year 2018 reported a profit of $0.9 billion, which was quite low. 2019 has not been good for the company financially, as it has reported losses all through. 1st Quarter $1.01 billion loss, 2nd Quarter $5.2 billion loss, and 3rd Quarter $1.2 billion (Lad, 2019). A lot needs to be done to regain Uber’s profitability; otherwise, it will shut down. The report will analyze the external environment (industry) where the company operates, highlighting available opportunities and threats. The company’s internal environment- strengths and weaknesses will be analyzed, and finally provide three distinct strategies that the management should be implemented to save the company.

Mandate (400)

Uber’s core purpose is to keep the world moving. The mission statement states that “We ignite opportunity by setting the world in motion.” Based on the mission, even although the company aims at benefiting from its operations, it ensures that the entire world has benefited by proving the necessary environment to keep on going forward.

Uber has a vision of seeing the entire world benefit at the end, despite the challenges the individuals go through. The company offers help to its drivers, customers, food eaters, and the delivery partners, make it in life. Uber does not discriminate but welcomes people from all backgrounds, hence enabling them to realize their dreams. In the process of achieving the common good future, the company requires the people to have passion, be curios, and possess a collaborative spirit.

Core values that serve as a guide in Uber’s operations include; building globally and living locally, focusing on customers, celebrating differences (diversity among people), doing the right thing, acting like owners, perseverance, giving more value to ideas over hierarchy, and making big, bold bets. The values make sure that the company follows the right path, in the process of realizing its mission and objectives.

Uber has stakeholders who have interests within the company, and who are after satisfaction. The company has customers to serve (eaters and commuters). The customers are interested in quality, fast, and affordable services. Employees depend on the company for income. The company has a total of 22,263 employees who are interested in better compensation, job security, and provision of a conducive work environment. Partners, individuals, and organizations offering their vehicles to be used by the company are interested in the income generated from the process and seeing their cars in good condition. Shareholders, who are the owners of the company, are interested in profit and wealth maximization. They want to see their capital generate returns appropriately. The company’s management is interested in their job security, considering that they earn from the company and recognition for managing the company appropriately. Uber has the obligation of satisfying the needs and interests of the primary stakeholders.

Secondary stakeholders to Uber include; trade unions who focus on protection of employees’ rights. We also have the government, interested in seeing the company operate in accordance with the established legal frameworks, while protecting the consumers’ rights. Uber’s competitors are also other secondary stakeholders and are interested in ethical competition and the market place.

External analysis (800)

Competitive Forces section

Competitive forces presented by the Five forces model include; threat of new market entrants, substitution threats, Supplier Bargaining Power, Threat of buyers and the degree of rivalry competition.

Ranking the forces starting with the one with huge impact to the companies in the industry, we have the strength of rivalry in the market. The industry is highly competitive. Currently, competition levels are quite high, when compared to the previous years, with companies competing for customers and suppliers (car owners and suppliers). The most significant companies within the industry are Uber, Didi Chuxing, Curb, among others. the companies share the market, hence reducing the market share attributable to each participant. The industry is forced by the competition to lower prices charged, in order to remain competitive at the market. Low prices, resulting from intense competition has leads to decreased returns in the transport sector.

Second in ranking, we have the threat of buyers. The higher the buyer bargaining power, the higher the threat levels. customers form the backbone of all then industry participants Without customers, the company cannot survive. The greatest threat to the industry’s operations is that the customers are highly sensitive to price changes. The sensitivity to the prices is increased by availability of many close substitutes and a large number of competitors. Consumers don’t have to keep on arguing for the prices, but simply get transport services from any industry participant charging low prices. the high buyer purchasing power decreases the amount of income generated in the industry.

Third force in ranking is the threat of substitutions. Transport industry has got many participants who offer similar services. substitutes within the industry come from public means of transport such as buses and trains, private cars, among others. customers tend to prefer transport services that are near them. the force has similar effects as competition, as it lowers the revenue earned in the industry.

Threat of new market entrants is the third in rating. There are no much restrictions in the transport sector. Individuals and firms can easily enter the market, irrespective of whether they possess cars or not. Industry participants operate under the threat of losing market share to the new entrants. Initially, the industry participants required high initial capital in acquiring the technology used in connecting transport providers and customers. following technological advancement, such technology has become cheap and readily available. Customers are able to swap from services of existing companies to new entrants who offer cheaper charges at no cost. The technology is easily imitated by new entrants. The threat was somehow reduced by imposition of legal issues and fines by governments in countries like France, Germany, UK, Thailand, Netherlands etc., hence making it difficult for new entrants enter the market. However, the restrictions were only for a short period.

The last force in terms of impact is the supplier bargaining power. Some of the industry participants does not own cars nor drivers, but depends on those provided by other companies and individuals. The force does not have huge impact to the company, considering that it can be effectively controlled. The companies in the industry make subcontracts with the drivers, and agree the percentage share from the services offered. The number of suppliers who are willing to work with the industry participants is quite high, and the companies only select suppliers who conform to the established organizational terms and conditions. The bargaining power of the supplier has the least impact to the industry.

opportunities and threats

opportunities

transport industry is quite diverse. There are very many lines of businesses within the industry, where the market participants can venture such as; transporting people, goods, food stuffs etc. Companies operating in this sector can consider running two or more business lines, or venturing in lines that do not have high competition levels. some of the possible business lines with the industry which the participants can consider include; provision of specialty services like refrigerated services and operator tracking.

there is no single means of transport, considering that we have road, water and air. Firms operating in the public transport can decide to utilize all of them and increase their profitability levels, or focus on the means that have got less competition. Alternatives are readily available, and it is up for the industry participants to make the right decisions.

in the transport sector, we have got regular and irregular commuters. Such scenario offers industry partners an opportunity of deciding where to specialize. Focusing on the regular market can save the companies a lot of money, considering they will operate on specified schedules. No time will be wasted on waiting for customers, who drivers are not sure whether they will make transport request or not.

Threats

Partners and drivers are not happy with the low-profit margins offered by the companies in the transport industry. strikes have been held in several areas where the companies operate. The partners and the drivers are demanding for higher returns, considering that they own the cars, besides servicing and fueling them. with such threat, chances are high that the companies will have a bad publicity, hence discouraging drivers from partnering with them. the companies may lack partners to work with in future, hence adverse effect to its operations.

Apart from the road transport used by most of companies, other means of transport such as air and water have increased at an alarming rate. Most customers prefer using air transport to save time, and avoid traffic jam, hence reducing the number of customers who use the roads. Many companies operating in the transport sector use roads. Some companies operating in the industry will benefit, while others will enter up incurring losses.

Government and other authorities have come up with unfavorable regulations, which adversely interfere with the industry operations. Some transport services offering by the industry, especially those relating to online have been banned in busy cities such as Las Vegas, Boston and Paris, and other cities are threatening to take the same route, to protect traditional taxi operators. Laws now require the industry to employ drivers in full-time basis, offer them the minimum wages and other employment benefits. For instance, in California, the law has started operating this year. fines, bans and operational suspensions resulting from regulatory compliance have adversely affected the industry image. compliance to the regulatory requirements is quite costly, leading to low returns in the industry.

The ever-increasing competition in the industry is posing a great threat to the industry participants. Increase in competition indicate that the industry has to lower the prices, and invest heavily to research and development, looking for ways to remain competitive. Increased operating costs and reduced prices for the transport services will prevent drivers and partners from working in the industry. chances are high that the industry is going lose customers, and subsequently incur losses.

The transport industry is facing public safety concerns. There are many cases where drivers have been killed by their clients, staff using the captured customer data to set to the customers to robbery, among others. participating companies and regulatory authorities have been unable to come up with effective solution to such issues up to date, hence initiating doubts on the future of the industry (SHTAL et al., 2018).

Internal analysis

Currently, Uber company is facing threats in the transport sector, which may negatively affect its operations. However, the company still have got a number of strengths, which once effectively utilized, can lead to business sustainability.

Weaknesses

Uber operates on a weak system, which can easily be imitated by other companies operating in the same industry. As long the operating idea can be easily imitated, there is nothing that will prevent the firm from facing high competition levels at the market. Existing companies and new entrants will copy or imitate the same ideas, and increases the competition levels.

Uber does not have a close relationship with its drivers, who are the key employees. The relationship has raised ethical concerns, following the poor connection. A low loyalty exists between the company and the divers, and that is the key reason as to why most of them have quitted and others preferred working with Uber’s competitors. Drivers incur high costs in servicing and fueling the vehicles, but are given low profit margin, while Uber enjoys the rest of the profit. Drivers are not attributable to any benefits, special bonding, among other activities for creating loyalty.

Uber mode of operations have raised privacy and safety concerns, but the company has not been able to provide solutions despite continuous customers’ and regulatory complains. The systems used by the company capture the departure and destination locations of the customers. such information can be used by the company’s employees for selfish gains. For instance, Anthony Levandowski, who helped in spurring a multimillion-dollar lawsuit (Waymo vs. Uber) was charged last week with 33 different counts of theft, in which some related to trade secrets. Antony was a former employee in Uber. The killings, frauds and the scandals associated with Uber are slowly killing the brand.

The business model used by Uber is unpredictable. Technology has been advancing at an alarming rate. Uber company is as a result of technological advancement, but it is not going to last long, following the emergence of self-driving cars, such as the Google cars. Chances are high that in near future, Uber will not have any significant market share. The rapid growth in technology is threatening Uber’s business sustainability at the market.

The company has got poor management. Poor strategies adopted by the management have led to continuous organizational losses. Entering in to new cities has not been easy for the Uber. Most are the times when the company overvalues certain locations, hence leading to overinvestment. At the end, the company ends up incurring costs that cannot be covered by the realized revenues, hence leading to organizational losses.

Strengths

Uber is a well-recognized brand. The name “Uber” has surfaced in the public domain to an extend that customers refer other companies in the same industry as Uber. High brand recognition has eased the company’s marketing efforts, besides giving it a competitive advantage over its competitors. The only company that is close to Uber’s popularity is Lyft. Uber has been highly valued, and many individuals and organizations are more than willing to partner.

The company offers high standard services. the fact that Uber does not own vehicles or drivers does not mean it will operate with just any car. Cars, partners and drivers are effectively selected based on the established minimum requirements. To avoid working with cars that are out of date, the vehicles are contracted for a certain period, after which they have to renew contracts. Drivers are required to maintain positive relationship with the customers, failure to which the contracts are terminated immediately. The services are also low priced as opposed to traditional taxi operators, thus attracting a large customer base.

Uber does have service regulations as in the case of regular taxi. It has got unlimited feely of vehicles, who operate all day and night. Such feature indicates that the services offered by Uber are highly reliable. Customers can be transported any time, as long as they have placed request through the company’s website or mobile apps. Availability and reliability of the services increase customers’ loyalty besides attracting others, thus increasing the market share.

The company has got an effective cost saving strategy, where it neither employs drivers or owns vehicles. Drivers are hired on contractual basis, indicating that the company do not have employment commitments such as meeting minimum wages, employment benefits etc. The decision of not owning cars save the company from various costs as service and maintenance, fuel, accidents, breakdowns etc. Uber makes profits from the offering fleet of vehicles, and contracts more in the event of shortage. The operational costs are further reduced by the fact that customers have to interact with the drivers online, hence no need to have a large number of support staff.

Uber does not incur losses resulting to theft by drivers or robbers. The company operates under a cashless payment system, indicating that customers don’t have to pay any cash to the drivers, hence preventing possibility of theft. The system is ideal in promoting the company’s profitability. Traditional taxi services have been associated with high rates of theft, and poor relationship between tax owners and drivers, as a result of not submitting cash as expected. Uber does not experience such issues.

Chances of Uber missing drivers are quite low. There is high flexibility in the mode of operations, where drivers can choose to work on full time basis, part time as well as having the freedom of selecting the customers to serve. The flexibility in the works schedule motivate many drivers to work with the company.

Strategic options (1200)

Uber’s greatest problem relates to losses. Every profit-making organization aims at maximizing profit, but this has not been the case, in Uber. To address the issue in hand, the company’s management need to consider the following strategic options;

Expanding into new markets; the strategy entails identifying markets in new countries cities, and commencing the operations immediately. The strategy will be effective considering that company will not have to modify its existing features. The process will be quite easy and less costly. Uber only need to contract drivers and partners in the identified new areas of operations, to commence its operations. Expanding into new markets have the benefit of increasing the company’s market share and number of customers. the higher the number of the customers, the higher the revenue recognized by the company. besides, the company will benefit from the economies of scale, which are associated with large scale operations. The company will be able to offer transport services to customers at reduced costs, which will lead to increased profitability levels. uber has git adequate experience when it comes to entering in to new markets. The company has been in operations for almost a decade now, and had expanded its transport services to a total of 22 countries, covering over 700 cities. Chances of the company entering into new markets successfully are quite high.

Even although entering into new markets looks like a good deal, there are number of challenges or restrictions that must be addressed. Uber must invest in research, to identify the feasibility of the targeted market. Not all cities can support the Uber services. secondly, the company will have to research on the regulatory framework of the cities, to determine if they cope with the compliance costs. The company will also need new drivers and partners to work with, and who may not be readily available. Considering the procedures and complications associated with the new market entry, it may not be possible to implement the entry in less than a year (Shapira, 2017).

Another strategic option would be targeting new users of their services. Uber ought to consider expanding its line of service, instead of transporting customers and food stuffs alone. Based on the nature of its operations, the company can effectively offer tracking services. the websites and mobile apps used by the company have got high tracking capabilities, considering that they accurately identify the cars near customers, and connect them to the drivers. With such operational feature, it will be easy for the company to offer the tracking services. another possible market to consider is specialized transportation. Uber can expand in to provision of specialized services such as transporting of blood, refrigerated perishables, human organs among etc. Uber should try identifying new users of its services, or tap market niches that have not being effectively served. In the event the company identifies totally new market for its services, it will have the advantage of the first mover. Before other organizations imitate the same, the company will have already generated high revenues, hence enhancing its financial growth.

However, Uber needs strategic thinkers and effective management to come up with new users of its services. the process will have to consume a lot of organizational resources such as time and finances, which may lower the profitability in short run. Again, the strategy is most likely to work only if there is sufficient market for the company’s services, in the newly identified users. Even although it seems to be an effective approach in enhancing the company’s profitability, it is costly and presents high risks of business failure.

The last strategic option I am proposing is decreasing prices. one of the key issues facing the company’s operations is high competition levels. decreasing the prices charge for the Uber services will increase the company’s market share. The company will have a large customer base to serve, hence increasing its revenues. Low pricing will serve as a source of competitive advantage of the company at the market place, hence enabling it out its competitors. Reduced competitiveness will guarantee high returns.

However, lowering prices is not any easy move. The other companies in the industry can imitate the same, hence making no difference in the market share. Price wars will definitely emerge, and the company can be affected adversely. Again, the decreasing prices will lower the profitability levels of the company. the company can charge low prices to its services, in such a way that revenues generate in return cannot effectively cover the incurred costs, hence leading more organizational losses (Pazgal et al., 2016).

References