Uber Case Study PDF

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Part 1—Uber: A Startup’s Origins and Early Days This is the first part of a five-part cumulative case, and focuses on the origin and early days of Uber Technologies Inc., known worldwide as Uber. This part utilizes chapters 1, 3, and 4 from the textbook. This real-world application of management knowledge and skills is designed to help you develop critical thinking ability and realize the practical power of sound managerial skills for solving problems in your job and career. Read the cumulative case and respond to the questions that follow. Case: Criticizing customers. Short-changing workers. Sassing regulators. Deceiving authorities. Emphasizing rule breaking and ruthlessness in a “win at all costs” workplace culture. Is this what it takes to go from startup to a $70 billion business in only seven years? Or are these characterizations false, the criticisms of jealous rivals? Let’s take an extended look at the exciting journey of the low-cost ride-hailing service known as Uber, or Uber Technologies Inc., one of the leading transportation services of the world. Getting Started Attending a conference in Paris in 2008, tech entrepreneurs Garrett Camp and Travis Kalanick were complaining about the difficulty of finding a cab on a snowy night. From that exchange came the idea of creating new technology that would summon a car on demand with the touch of a button. At least that’s the company’s official origin myth, points out writer Brad Stone in The Upstarts. Actually, Camp, who came up with the idea, had been discussing the notion of a smartphone-based town car (luxury car or black car) sharing service with his friend Kalanick for some time. Camp was the cofounder of the discovery and recommendation search engine StumbleUpon, which allows members to share their favorite websites with other people. Kalanick (pronounced “cal-a-nick”) launched his first business at 18, it was a SAT-prep tutoring service. Scour, a file sharing and service business, was his second business adventure, but failed despite great effort and persistence by Kalanick. His next venture was a streaming-video startup, Red Swoosh. It sold for $23 million in 2007. In March 2009, Camp—along with former fellow graduate students from Calgary, Oscar Salazar and Conrad Whelan, with Kalanick serving as a “mega adviser”—took the lead in experimenting with the new town car idea. One was a prototype of a mobile app for the iPhone, which had first been released by Apple in June 2007 and which has been credited with revolutionizing not only the smartphone industry but also creating the modern collaborative economy, what is often called the “sharing economy.” Founded in March 2009 as UberCab, the company first tested the mobile-app concept in New York, then officially launched in San Francisco in 2011 as a service

allowing users to push a button or send a text on their iPhone to request a black luxury car (limo), for only 1.5 times the price of a conventional taxi. Unlike taxicab companies at the time, however, the distinguishing feature of UberCab was that it was what came to be called a transportation network company—one in which riders could request service via mobile app or website and track the location of the driver (through GPS on their phone) and know exactly when the car would arrive. Despite having few cars and with few people knowing about it, the startup became a big hit. In 2011, at the insistence of city and state regulators, the company changed its name from UberCab (because it didn’t meet the licensing requirements of a town car or taxicab firm) to Uber, meaning “super” (from the German word über, for “above”). It also underwent an identity change—from a company offering luxury rides to being a technology company that matched drivers and riders of all sorts. Six years later it was still headquartered in San Francisco, had over 11,000 full-time (nondriver) employees and about 1.1 million active drivers globally, was operating in more than 81 countries and 528 cities, and was said to be worth about $70 billion— an astonishing figure for a company that owns few visible assets. It is miles ahead of second-place competitor Lyft, valued at $7 billion and now in 300 U.S. cities. Business Insider magazine has called Uber the most valuable tech company in the world. But it is also still losing prodigious sums of money—about $2 billion a year. In 2010, Kalanick and Camp agreed they liked the idea of using Uber but neither wanted to run it. Kalanick therefore sent out a tweet seeking managerial help (“Looking 4 entrepreneurial product mgr/biz-dev killer 4 a location-based service”). Chicago-based General Electric employee Ryan Graves, 27, answered the call, and later became Uber’s first CEO. A few months later, Graves stepped down as CEO in favor of Kalanick. Today Kalanick, Camp, and Graves remain as top general managers, but there are other important players as well. Austin Geidt, who was the fourth hire at Uber, is head of global expansion; she has taken the company from one city to hundreds more. Chief technology officer Thuan Pham makes sure the Uber app stays up and running. Chief security officer Joe Sullivan ensures that the data Uber collects stays secure. Jeff Holden is product officer. Emil Michael is senior vice president of business development. There are also some individuals with unusual titles: VP of supply growth. Global head of people. Head of UberEverything. In its early years, Uber concentrated on raising investment capital, initially closing $1.25 million in seed funding from the Philadelphia-based investment fund First Round Capital. In 2011 it received $11 million in funding from Benchmark, a San Francisco venture capital firm, and later $32 million from Menlo Ventures, Amazon’s Jeff Bezos, and Goldman Sachs. During this period, Uber faced a steep learning curve. “Challenges ranged from dealing with local city regulations and hiring reliable drivers,” says journalist Samantha Kelly, “to developing a loyal rider base and scaling [increasing the work activity] at an astronomical rate.” During its breakneck rise, Uber’s managers have had to meet—and are still having to meet—a great many other challenges, as we will describe in later pages.

Work Environment and Ethical Responsibilities In a dialogue captured on a 2007 video, according to Bloomberg Businessweek, a woman remarks to Kalanick that she’s heard Uber is having a hard year. “I make sure every year is a hard year,” he retorts. “That’s kind of how I roll. I make sure every year is a hard year. If it’s easy, I’m not pushing hard enough.” Is this how a manager is supposed to interact with a company’s stakeholders, whether internal (employees, stockholders, and company directors) or external (customers, competitors, allies, lenders, and governments among them)? What are the ethical and social responsibilities of a manager? Consider the following allegations, which we develop in more detail in later pages:  Treatment of employees: Workers are sometimes pitted against worker, some critics say, and the infractions of top performers are often ignored. “There was a game-of-thrones political war raging within the ranks of upper management,” wrote blog poster Susan Fowler, after she left the company. “It seemed like every manager was fighting their peers and attempting to undermine their direct supervisor so that they could have their direct supervisor's job. No attempts were made by these managers to hide what they were doing: they boasted about it in meetings.”  Treatment of drivers: Uber has engaged in scores of lawsuits to fight accusations ranging from wage theft to fundamental questions of worker classification—as in whether a driver is entitled to employee benefits such as overtime pay and reimbursement for expenses.  Treatment of customers: Uber agreed to settle two class-action lawsuits that alleged the ride-hail company improperly marketed its safety record by charging passengers a flat fee for supposed “safe rides.”  Treatment of competitors: Uber’s take-no-prisoners approach to competitors is encapsulated in a story about the time it tried to get rival ride service Lyft ruled illegal in California.  Treatment of regulators: Uber has often sought to enter markets without getting necessary permission, leading to litigation (70 federal lawsuits in 2016) and legislative skirmishes.  Treatment of media critics and other foes: In 2014, an Uber senior vice president floated the notion of hiring a team of opposition researchers to dig up dirt on its critics in the media—especially of one female journalist who had criticized the company. (The idea was never put into effect.)  Treatment of investors: After working for years behind the scenes to try to “exert a constructive influence on company culture,” early investors Mitch and Freada Kapor in 2017 wrote an angry letter to the Uber board and fellow investors publicly censuring the company for a “toxic” pattern of bad behavior. Can Uber survive such behavior? In the past, the company—and its confrontational CEO—have tried to make changes to improve their image. In 2014, for instance, Kalanick launched a charm offensive by meeting with members of the New York media. Three years later, after the latest wave of scandals, the company was having

to try again, with four of the most prominent officials coming forth to say there was no room at Uber for “brilliant jerks.” What’s next? Globalization Very soon after its founding, Uber began moving aggressively into international business, starting in Paris in 2011 and continuing with India and Africa in 2013 and China, its biggest market, in 2014. It also used foreign countries to launch some experiments outside its ride-hailing business, as in its 2015 rollout of UberCARGO in Hong Kong, expanding its services to cover moving and delivery needs, and its tryout of UberEATS in Barcelona, Spain, to provide on-demand food-delivery services. In addition, Uber used overseas sources to raise money for international expansion, beginning in 2014 with $600 million from Chinese search powerhouse Baidu, from which it also obtained mobile-search and maps apps to integrate with its own technology. In 2016 Uber got a $200 million investment from Russian billionaire Mikhail Fridman and $3.5 billion from the Saudi Arabia Public Investment Fund. In that year it also joined forces with Toyota, with the Japanese automaker agreeing to invest in Uber and to explore how the two companies might do ridesharing collaboration. China proved to be a particularly difficult adventure, and Uber engaged in a long and exorbitantly costly battle in which it said it lost $1 billion a year against Chinese rival Didi Chuxing. In 2015, Uber’s China arm raised $1.2 billion to help in its fight against Didi, which responded by raising about $3 billion of its own. By 2016, Didi was operating in more than 400 cities throughout China and Uber was striving to reach 100. Finally, the money-draining China war came to a close, when Didi and Uber China merged in a $35 billion deal. “The merger basically means that Uber has thrown in the towel in China,” said a Business Insider article. On the other hand, said a Fortune writer, “it was also a shrewd capitulation” because it “gained Didi as an investor and removed a costly distraction.” With its boundary-pushing corporate culture and penchant for flouting local laws and regulations to gain an edge against entrenched transportation providers, Uber’s international ventures have often been stormy. In June 2015 in France, for example, violent protests erupted as taxi drivers and their supporters blocked roads, burned tires, and attacked suspected Uber drivers. In some markets its low-cost ride-hailing service was resisted by law enforcement and even banned in places such as The Netherlands and in parts of Thailand, India, and China. Germany enjoined Uber on safety grounds, and legislation in Hungary made it impossible for it to operate. The company fought back using a program called Greyball, explained later, to deceive authorities in countries like Australia, China, and South Korea. Despite the setbacks, Uber continued its expansion, and by 2017 it was operating in more than 80 countries worldwide and continuing to move into Asia, South America, and elsewhere.

Part 2—Uber: Key Components of Success This is the second part of a five-part cumulative case, and focuses on the key components of success for Uber. This part utilizes chapters 5, 6 and 7 from the textbook. This real-world application of management knowledge and skills is designed to help you develop critical thinking ability and realize the practical power of sound managerial skills for solving problems in your job and career. Read the cumulative case and respond to the questions that follow. Case: Planning, strategic management, and decision making are central activities for business success. They should support an organization’s purpose and what it wants to be become. Planning, the first of the four functions of management, enables managers to perform the other three functions—organizing, leading, and controlling. Uber’s growth and impact on the transport industry suggests that senior management has done its planning. Let’s consider planning, strategic management, and decision making at Uber. Planning: First Key Component of Uber’s Success “What kind of brand do we want to be?” That was the question Travis Kalanick asked at an early meeting in 2010, when the company consisted of four employees in a 10-foot-by-10-foot cubicle, according to Fast Company writer Max Chafkin. Should it be a high-end luxury transportation service that could include airplanes and helicopters, as one person urged? Or should it be low-cost accessible luxury, as Kalanick preferred? “If Uber is lower-priced, then more people will want it,” he argued. Good planning begins with a mission and vision statement. Uber’s original statement was “everyone’s private driver,” which shows that the company was then restricting itself simply to transporting passengers from one place to another. The motto also “conveyed luxury and exclusivity, not mass-market appeal,” as Brad Stone points out in The Upstarts. Today the company has a much bigger vision: “Transportation as reliable as running water, everywhere for everyone.” Kalanick wants Uber to be so inexpensive that it becomes the cheap and efficient alternative to both owning a vehicle and taking public transportation. Accomplishing this vision requires the company to find new ways to deliver transportation at low prices.

Uber clearly is pursuing a growth goal, and pricing is one way to get there. Pricing is partly related to the kind of service chosen by the customer. Uber X consists of personal cars driven by independent contractors; Uber Black consists of high-end sedans driven by licensed chauffers; Uber Taxi uses taxis that have an agreement with the ride-service company; Uber SUV offers vehicles seating up to six people; and Uber LUX, the most expensive option, uses high-end luxury cars under the control of Uber’s top-rated drivers. In addition, Uber does indeed offer planes and helicopters as well as boats upon customer demand, as was suggested in that 2010 meeting. Uber has successfully adapted smartphone, GPS, the credit card, and database technology as part of its business model. To maximize revenue from its various vehicle services, the company relies on a surge pricing algorithm (computerized step by step procedures). The basic problem Uber had to address was to how to predict demand for car-hire services—that is, matching town cars or cabs with the prospective riders who need them, a classic supply and demand problem. Traditional cab drivers must make a living, so they tend to concentrate at high-demand places such as airports and hotels, making them less available to riders who want to hail them on the street. Uber’s challenge was to devise a smartphone app that would predict when and where spikes in rider demand would occur and motivate drivers to show up in those places. With surge pricing, Uber establishes a price based on the number of available drivers and the number of requests made by people who want to travel. With this formula, drivers can earn two or three times their usual rates over the usual low rate when there are too many people wanting rides and too few drivers to serve them. Kalanick’s ultimate goal is to dominate transportation by using self-driving cars, where he hopes to excel against many well-financed competitors, among them Google, Intel, Apple, Tesla, General Motors, and Ford. Currently, experimental Uber driverless cars are picking up passengers in Pittsburgh and Phoenix. Kalanick hopes autonomous vehicles will not only decrease costs but also lower carbon emissions and their effect on climate change by decreasing travel time and reducing land devoted to parking places. However, the long-term goal of replacing drivers with selfdriving cars may conflict with Uber’s short-term goal of trying to serve more passengers by hiring more drivers. And, of course, the whole idea of self-guiding cars angers today’s Uber drivers as they consider what to do as actual vehicle autonomy approaches. Company Strategies: Simplicity and Convenience Simplicity and convenience are at the core of Uber’s strategies—simplicity because you as a passenger need only an Internet connection, a credit card, a smartphone, and the company’s mobile app; convenience because the app shows your exact geographical location and a driver will immediately inform you when you will be picked up. (You can follow the progress of your approaching ride on the screen of your smartphone.) To achieve its strategies, Uber has used a host of tactics, including the following:  Eliminating or reducing transaction costs. There are no charges to you for using the mobile app. There are reduced costs for drivers

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because they don’t need to comply with local taxi or limousine regulations. Increasing use of drivers’ assets, increasing their income. Private cars tend to stay parked more than driven, but of course they still incur maintenance and depreciation costs. With Uber, drivers can put their idle assets, their personal cars, into use and do full- or part-time work to generate income. Exploiting key technology. People love their smartphones and apps, and Uber exploits this enthusiasm to garner customers, expanding to cities everywhere around the world. Employing variable pricing. Because Uber is not covered by taxi regulations, which require cabbies to adhere to pre-approved prices or fare rates, it can raise or lower a ride price based on the demand for the service at a specific point in time. In addition, Uber customers are made aware of the estimated fare prior to engaging the service, which is not always possible with taxis. Allowing easy payment. Because you must provide your credit card number when signing up for an Uber account, the fare for a ride is automatically charged to your credit card and paid to the driver. No worries about having the right amount of money or being ripped off by a dishonest driver. Maintaining quality control. Uber ensures quality by checking drivers’ backgrounds for criminal history and requiring them to show proof of insurance. In addition, the company seeks feedback by allowing customers to rate drivers on a 1- to 5-star scale, and drivers are expected to maintain a prescribed level of service quality. Similarly, drivers may also rate their riders, who can be blackballed from using the service if they rack up too many low ratings. Playing hardball. “Kalanick loves a fight,” writes business journalist Thomas Lee, “which is how Uber faced down hostile regulators and a host of competitors around the world.” Indeed, controversy has followed Uber almost since the beginning, as the company has often sought to enter markets without getting necessary permission, leading to litigation (70 federal lawsuits in 2016). Such aggression and fearlessness has helped it expand its service to cities all around the world.

Uber has outlived some competitors (Seamless Wheels, Taxi Magic, Cabulous, Couchsurfing, Zimride, and most notably Sidecar) but still faces others, both in the United States and overseas. Its princ...