Download Capstone Project Uber

Running head: CAPSTONE PROJECT
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Capstone Project: Uber Case Analysis
Student’s Name
Institutional Affiliation
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Table of Content
Abstract ......................................................................................................................................................... 4
Background ................................................................................................................................................... 5
Uber’s Mission .......................................................................................................................................... 7
Uber’s Vision ............................................................................................................................................ 7
Objectives ................................................................................................................................................. 8
External Analysis .......................................................................................................................................... 8
Industry Analysis ...................................................................................................................................... 9
STEEP Analysis ...................................................................................................................................... 10
Socio-cultural, technological, and economic factors. ......................................................................... 11
Environmental and political-legal forces. ........................................................................................... 12
Porter’s Five Forces Analysis ................................................................................................................. 13
The threat of new entrants. .................................................................................................................. 14
Competition in the industry................................................................................................................. 15
The threat of substitute products. ........................................................................................................ 15
Bargaining power of supplier. ............................................................................................................. 15
Bargaining power of customers. ......................................................................................................... 16
Internal Analysis ......................................................................................................................................... 16
VRIO Analysis ........................................................................................................................................ 16
Value. .................................................................................................................................................. 17
Rare. .................................................................................................................................................... 17
Imitability. ........................................................................................................................................... 18
Organization. ....................................................................................................................................... 18
SWOT Analysis ...................................................................................................................................... 19
Strengths. ............................................................................................................................................ 19
Weaknesses. ........................................................................................................................................ 20
Opportunities....................................................................................................................................... 20
Threats................................................................................................................................................. 20
Uber’s Strategies ......................................................................................................................................... 21
Uber’s Corporate Strategy ...................................................................................................................... 21
Uber’s Business Level Strategy .............................................................................................................. 21
Functional Level Strategy ....................................................................................................................... 22
Recommending Strategies .......................................................................................................................... 23
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Implementation ........................................................................................................................................... 24
Conclusion .................................................................................................................................................. 26
References ................................................................................................................................................... 27
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Abstract
Uber has experienced explosive growth since its inception, disrupting the traditional taxi
industry. The company introduced the concept of ride-sharing, creating a new industry worth at
least $61 billion, with projections showing that the sector will continue to grow. As a first mover,
Uber enjoys a huge market share in the sectors. The firm embraced low-cost and differentiation
strategies to create a competitive advantage by providing fast, affordable, and efficient services.
However, both external and internal analysis of Uber’s ride-sharing sector reveals that the firm
needs to adapt to survive. Particularly, the sector has intense competition and faces various
political-legal restrictions. Internally, Uber lacks a sustainable competitive advantage and has a
poor organizational culture. As a result, the firm has seen a drop in its market share as other
competitors take advantage of the industry’s low barrier of entry and Uber’s negative publicity.
To develop a sustainable source of competitive advantage, Uber has to apply corporate
governance and diversification strategies that create values for all stakeholders.
Keywords: Uber, competitive advantage, corporate strategy, business strategy, functional
strategy
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Background
Uber is one of the few companies that have seen tremendous growth in just a few years of
operation. The firm offers a global-ride sharing app that links drivers to customers. As for 2021,
Uber had the biggest market share in its main market in the United States (U.S.) at 69%, with its
closest competitor Lyft taking 31%. The same trend is observed in most countries where Uber is
operating (Salas, 2021). While Uber’s current market share is slightly lower than a decade
earlier, it still ascertains its market dominance despite increasing competition in the ride-sharing
market. As for the firm’s finances, it has seen massive losses as it pursued an expansion strategy,
but there are hopes things will improve for the better. For instance, its recent financial statements
revealed that the firm’s annual losses for 2020 were $6.7 billion, which is slightly lower than the
$8.5 billion it lost in 2019. As for revenue generated, the company experienced a drop as it
brought $11.1 billion against $13 billion in 2019, probably because of the impact of the Covid19 pandemic that restricted traveling (Hawkins, 2021). Nevertheless, Uber’s loss-making trend is
not isolated as its major competitors, such as Lyft, are also unprofitable, but it has optimism
going into the future.
Uber’s journey to be what it is today started more than a decade ago as it celebrated ten
years of its funding in 2019. Travis Kalanick and Garrett Camp came up with Uber, formally
UberCab, in 2009 in San Francisco, California (Hoffman & Gold, 2018). The two lived in San
Francesco and had challenges getting a taxi ride and decided to share costs in a situation where
they were heading in the same direction. This experience gave birth to Uber. The two founders
started working on a smartphone application based on Global Positioning System (GPS) to link
customers looking for rides with nearby drivers. Under this arrangement, a customer could pick a
location, and the Uber app will notify them of nearby drivers and the cost for the services, which
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would be deducted automatically from the credit card once the customer accepts the ride. Uber
first launched its services in New York in 2010 for beta tests that proved successful before its
official operation on July 5, 2010, in San Francisco (Hoffman & Gold, 2018). This launch was
Uber’s first step towards its rapid rise not only in the U.S. but also globally, but the journey has
not been smooth.
While the company started with ride-sharing as its main business, it has diversified over
the years to include multiple options. Its main service at inception was UberX, which provided
low-cost riding services. However, it expanded to offer other services that include UberXL,
UberBlack, and UberPool. As for UberXL, it offers similar services to UberX, but the main
difference is that it is slightly expensive and includes vehicles with large customer capacity.
UberBlack offers premium services at premium prices. Other vital products include UberTaxi
charging standard taxi fare, UberSelect an alternative for UberBlack, but the vehicle does not
have to be black, UberRush targeting same-day delivery market, and Uber for Business that
companies can use for their transportation needs (Hoffman & Gold, 2018). This diversification
has helped Uber navigate the competitive ride-sharing market with innovative new products that
meet customers’ different and evolving needs.
An important observation about Uber is its fluctuating valuation and funding over the
years. The company secured a $1.25 million financing deal from First Round Capital
immediately after it launched in 2010 (Hoffman & Gold, 2018). Soon after, it got $11 million
from Benchmark Capital and an additional $37 million from Goldman Sachs in 2011. In 2014,
Uber received one of its biggest capital injections of $1.2 billion from the Chinese search engine
Baidu. The firm’s valuation grew to $51 billion and received $3.5 billion a year later from Saudi
Arabia’s sovereign wealth fund (Jackson, 2021). Estimates suggest that Uber had collected $8.21
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billion as of 2015 from 53 investors, including Google, Fidelity, and Baidu giving it an estimated
valuation of $64.6 billion (Hoffman & Gold, 2018).
However, things took a turn from 2017 as the company was embroiled in multiple
controversies. Uber had pursued an extensive expansion plan, which exposed it to political and
legal issues, as with the case in Portland, in the U.S., France, and Germany. Recent California
court ruling that compelled Uber to consider its drivers as employees instead of independent
contractors further increased its operating expense. The firm is also facing an onslaught from
other competitors as it is easy to imitate Uber’s business model. These controversies and
challenges led to Uber’s (Initial public offering) IPO. The company was valued at about $69
billion, which is almost half the $120 billion valuations by analysts before the IPO (Jackson,
2021). To realize its full potential, Uber has to develop a new strategy that addresses its key
challenges.
Uber’s Mission
Strategy formulation plays an important role in any organization’s success. This process
starts with the mission statement, which is the reason or the purpose of business existence
(Wheelen, Hunger, Hoffman, & Bamford, 2018). In Uber’s case, its mission statement is to
“connects the physical and digital world to make movement happen at the push of a button for
everyone, everywhere” (Uber, n.d.). The firm wants to provide convenient and reliable
transformation for everyone.
Uber’s Vision
As for the firm’s vision, it does not provide a clear statement of where it aspires to be in
the future. However, it is not necessary to consider mission and vision statements as different as
some researchers encourage firms to bundle the two into one (Hoffman & Gold, 2018).
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Therefore, Uber’s vision statement is “to help people go anywhere and get anything” (Uber,
n.d.). The company is looking to revolutionize the transportation sector.
Objectives
Uber’s main objective is to make the company profitable. It has managed to increase its
reach and capture various markets, and it is time that the firm’s shareholders enjoy its success.
Hoffman and Gold (2018) outlined Uber’s financial objectives, which include:

Maintaining and continually growing the company’s revenue in all its markets

Expanding the number of markets that it is profitable

Increasing growth that will lead to a successful IPO

Providing sufficient funding for expansion into additional markets and development of
new products
While Uber has attained some of its short-term objectives, such as getting an IPO, it still needs to
do more. Particularly, the firm has to attain profitability sooner. There is also the question of
sustainability as the company eyes to become fully electrical by 2040 with all its rides taking
place in zero-emission vehicles (Uber, n.d.). The other long-term objective is to embrace selfdriving technology, remove barriers in health access, and deliver food quickly and affordably.
External Analysis
To develop appropriate strategies, strategic managers should understand the environment
they are operating in as various factors might influence their organization’s success. The first
step in undertaking external environment analysis is identifying the industry that a firm is
operating to observe major trends (Hill et al., 2017). The ride-sharing industry in which Uber
belongs has emerged to be a major sector disrupting the taxi industry. The sector’s use of
technology offers various competitive advantages over traditional taxies, including efficient
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driver-passenger matching, potential operation in large and diverse markets, and flexible pricing
(Cramer & Krueger, 2016). These advantages have led to an increased surge in the ride-sharing
industry in only its few years of existence.
Industry Analysis
Various data compilations reveal the high growth in the sector, and experts believe this
trend will continue. For instance, recent estimates suggest that the global worth of the industry is
$61 billion, which is significant given that this industry did not exist more than one decade ago
(Stasha, 2021). While the biggest market is still in the U.S., other regions include Europe, Asia,
and Africa, have embraced ride-sharing. The industry is expected to grow to about $220 billion
in 2025, more than a 20% increase compounded annually in less than six years (Stasha, 2021).
Some of the development that will push its adoption are smartphone prefoliation, increasing fuel
price, and urbanization (Arevalo, 2021). In the U.S., the share of people using ride-sharing has
increased dramatically, from 15% in 2015 to 36% in 2018 (Stasha, 2021). In the same period, the
U.S. had 46 million downloads of ride-sharing apps, with global projections indicating that 540
million people will use these apps. This growth is expected given that the sector is in its growth
stage characterized by rapid growth, as shown in figure 1 below.
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Figure 1: Stages in the industry life Cycle (Hill et al., 2017, p. 61)
Another important aspect of industry analysis is to know major players in the sector. In
the U.S., Uber and Lyft occupy 99% of the market share. Uber has the biggest share because of
its first-mover advantage. However, Lyft has been gaining ground in recent years, eating Uber’s
share, which has dropped from 74% in 2017 to 69% in 2020, while Lyft’s improved from 10% to
30% in the same period. Worldwide, Uber has 3.3 million drivers, while Lyft has 1.4 million
(Stasha, 2021). Outside the U.S., China is the next big market, with Didi controlling more than
91% share. Interestingly, the sector is moving towards self-driving cars with various companies,
including Uber, Lyft, Google, and Tesla, making plans or currently running tests on their
adoptions (Arevalo, 2019). These revelations confirm that the sector will continue to evolve as it
grows.
STEEP Analysis
The STEEP analysis is an approach to examining a firm’s environmental environment
that can affect its ability to gain and sustain a competitive advantage. The acronym STEEP, also
known as PESTEL, stands for socio-cultural, technological, economic, environmental, and
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political-legal forces (Hoffman & Gold, 2018). Analysis of these factors can help firms identify
key drivers for change.
Socio-cultural, technological, and economic factors.
One of the main factors that Uber has to consider in its strategy is socio-cultural factors.
This factor deals with expected cultural and social norms that the company must adhere to in its
operating areas. On the positive side, many markets have embraced ride-sharing platforms
opening new opportunities for the firm. These developments are based on the low cost of using
the platform, ease of use, and convenience. As a result, Uber has gained free promotion from
customers via word of mouth and peer-to-peer social media adverts (Hoffman & Gold, 2018).
With this publicity, Uber is expected to enjoy a positive socio-cultural environment.
As for technological factors, the focus is on how innovations can influence existing
businesses. The biggest technology that has propelled ride-sharing is mobile applications. Things
are expected to improve for the better, with estimates indicating increased adoption of
smartphones globally. In Uber’s case, its app allows users to access rides with only two clicks
(Hoffman & Gold, 2018). Unfortunately, it has become easy for other businesses to imitate and
develop similar apps. Another technological advancement that the ride-sharing industry should
watch out for is driverless cars. Recent developments whereby courts are ruling that ride-sharing
drivers are employees are threatening the sector’s low margins. Furthermore, other researchers
have warned that driverless cars will disrupt the ride-sharing industry, and those that will survive
are those that will adapt (Hoffman & Gold, 2018). As a result, many firms invest in research and
development (R&D) on autonomous vehicles as they anticipate the next wave in the ride-sharing
sector (Arevalo, 2019). Therefore, technological factors will continue to influence the sector,
given its high dependence on technology.
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Relating to economic factors, firms in the ride-sharing sector must consider how various
economic factors, including inflation, unemployment rate, interest, and taxation, will affect their
operations. One of the biggest concerns that the sector has to address is the low economic
performance in most markets following the Covid-19 pandemic. Various companies, including
Uber, saw a decline in rides and revenue because of the pandemic. Poor performing economics
means that many people might fail to afford to use personal cars. Another economic challenge is
the question of taxes, which the ride-sharing sector should anticipate as it gains increased
scrutiny relating to its regulations (Hoffman & Gold, 2018). Since ride-sharing apps offer
cheaper services, this development might make them even more attractive. Already, some
analysts are predicting that an increase in fossil fuel prices will make ride-sharing more attractive
(Arevalo, 2019). While economic factors are expected to exert more pressure on ride-sharing
companies, the overall sector might benefit from tough economic situations that will push
customers to cheaper services.
Environmental and political-legal forces.
Environmental factors address issues of pollution and sustainability. One area in the ridesharing sector that receives praise is that it allows people to share cars instead of using personal
vehicles, reducing pollution levels. However, a major concern includes reports indicating that
ride-sharing is drawing people away from non-automobile modes of transportation. Moreover,
there are suggestions that carpooling has increased vehicles mileage, out of which significant
proportions are empty, resulting in increased greenhouse missions (Hu et al., 2020). With the
increased backlash against greenhouse emissions, the sector should anticipate criticism and
regulation to curb their pollutions.
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The biggest issue that Uber and other players in the ride-sharing sector must face is
political and legal factors. Hoffman and Gold (2018) observed that Uber’s global expansion
exposed it to political uncertainties. In some regions, the company has been denied an operating
license for failing to meet legal requirements. Additionally, the world has seen increased calls for
the ride-sharing sector to be subjected to similar regulations as the taxi industry to address the
issue of unfair competition. Already these changes are in motion as courts start recognizing Uber
drivers and employees, and it is inevitable for the ride-sharing industry to be subjected to strict
regulations. Therefore, the sector must prepare for this scenario.
Porter’s Five Forces Analysis
Porter’s five force analysis focuses on the competition that a firm might face in a
particular sector. This framework covers five areas: threats of new entrants, competition in the
industry, threats of substitute products, supplier power, and buyer power (Wheelen et al., 2018).
If a firm experiences a high force in one of the factors, it might see reduced profit, but a lower
force might allow it to earn greater profit. Figure 2 below summarizes Porter’s Five Force
framework.
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Figure 2: Porter’s competitive forces (Wheelen et al., 2018, p. 140)
The threat of new entrants.
The threat of new entrants examines how easy it is for new companies to enter into the
industry. One of the biggest challenges that Uber must address is this concern. Hoffman and
Gold’s (2018) analysis revealed that the ride-sharing sector has a low barrier entry. Some
barriers that hinder new entrants include economies of scale, product differentiation, capital
requirements, switching cost, access to distribution channels, cost disadvantages, and
government policies (Wheelen et al., 2018). In Uber’s case, it is easy for other firms to imitate its
app and venture into the same business. It was only recently that Uber was the main ride-sharing
company, but today they are scattered in almost all countries.
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Competition in the industry.
Competition among existing players can affect the profitability of a firm. As a first move,
Uber had the biggest market share in the ride-sharing industry. However, it has been losing
ground in recent times. For instance, the firm had lost a proportion of its U.S. market from 74%
in 2017 to 69% in 2020 as its main competitor Lyft gained almost 20% to reach 30% in the same
period. According to Porter, factors that influence competition in the industry include the number
of competitors, rate of industry growth, product or service characteristics, capacity rival’s
diversity, exit barriers, and amount of fixed cost (Wheelen et al., 2018). In its current state, the
ride-sharing industry has most of the above characteristics.
The threat of substitute products.
Another area of concern is threats from substitute products. Such products or services are
what appear to be different but can satisfy the same purpose. Uber is not only in competition
with ride-sharing firms but also traditional taxis. The advantage of city taxis is that they have
been available so long that some customers might still prefer them. However, the main advantage
that Uber hold over traditional taxis is cost, speed, and efficiency. These advantages mean that
existing products might not pose major threats to the ride-sharing market unless they transform.
Bargaining power of supplier.
Suppliers can cut a firm’s profit if they have greater control of pricing. According to
Wheelen et al. (2018), supplier groups are powerful when few companies dominate the supplier
sector, have unique products or services, substitutes are limited, suppliers can deal directly with
customers, and the purchasing industry is an unimportant supplier. In Uber’s case, competition is
high, meaning it must find ways to attract drivers. Fortunately, there are many drivers in the
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sector, some of whom can work on multiple platforms. Thus, suppliers do not hold significant
power.
Bargaining power of customers.
Customers’ power can also result in lower prices affecting a firm’s profit. For this
situation to occur, customers must purchase in large quantities, they can produce the product or
service themselves, and there are many suppliers, among others (Wheelen et al., 2018). In Uber’s
case, the biggest concern is that customers have a wide range of alternatives to choose from in
the ride-sharing market. Therefore, its customers have greater power forcing the firm to lower its
prices.
Internal Analysis
In addition, to a company’s external resources, its internal environment plays a crucial
role in its success or failure. Internal resources focus on a firm’s core capabilities and resources.
Core capabilities are unique strengths deeply embedded in a firm that can contribute to its
competitive advantage, while resources are assets that a company possesses that it can use to
formulate and implement strategies (Rothaermel, 2018). In simpler terms, core capabilities are
what a firm does well, while resources are what it has (Johnson, Whittington, Scholes, Angwin,
& Regnér, 2017). Firms can use multiple tools to undertake internal analysis, but the main one
includes VRIO analysis, The value chain and value system, and SWOT analysis.
VRIO Analysis
A firm can use the VRIO framework to examine the extent to which it has resources and
capabilities to develop a competitive advantage. Thus, the framework helps the company analyze
how its resources and capabilities are valuable, rare, imitable, and supported by the organization
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(Johnson et al., 2017). If the firm meets all the four analysis criteria, then its resources and
capabilities will be a source of competitive advantage.
Value.
Valuable resources allow a firm to exploit the external environment to generate a
competitive advantage. Particularly, valuable resources will help the firm generate more revenue
if it manages to improve the perceived value of its products, such as offering attractive features
or superior designs (Rothaermel, 2018). In Uber’s case, it enjoys various resources that include
financial resources. As noted in the case study, Uber continues to attract investors and capital
funding despite not having made a profit yet (Hoffman & Gold, 2016). These investors are
convinced that ride-sharing is the future of transportation, and with its vast resources, Uber can
engage in R&D or meagers and acquisitions growing the firm’s popularity. Other valuable
resources include innovation that has helped the firm maintain high customer loyalty and
services quality.
Rare.
A rare resource is one that only a few firms can possess the same. While a resource can
be valuable, it will not generate a long-term competitive advantage if it is not rare and, at best
with only create competitive parity at best (Rothaermel, 2018). Unfortunately, Uber’s resources
are not rare in the long term. For instance, other firms can also generate similar finances from
venture capitalists. On the positive side, Uber’s competitors will have to undertake considerable
effort to match Uber’s financial position given its first-mover advantage (Hoffman & Gold,
2016). At the moment, the firm is a leader in ride-sharing innovation, making it a leader in
developing transformative ideas in ride-sharing.
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Imitability.
Imitability examines how easy it is to copy a firm’s capabilities and acquire its resources.
If the resources are costly to imitate then, the firm might generate a long-term competitive
advantage. The factors influencing whether a core competency can be imitated easily include
transparency, transferability, and replicability (Wheelen et al., 2018). In Uber’s case, this is an
area that it needs to address. Particularly, the firm financial resources only provide a temporary
competitive advantage. As for innovation, Hoffman and Gold (2016) revealed that the firm only
had limited patents to its innovations, making it easy for its competitors to imitate the same. This
disadvantage means that Uber cannot use its internal resources and core capabilities to generate a
sustainable competitive advantage.
Organization.
Lastly, the organization deals with how a firm is organized to capture value. To fully
exploit its resources and capabilities, Uber must have an effective organizational structure and
management system. Other factors that influence an organization’s ability to create value include
its policies, procedures, culture, and norms (Wheelen et al., 2018). An area that has cost Uber in
recent times is negative publicity. Critics have claimed that Uber’s meaningless and vague values
have led to toxic culture (Weissman). Furthermore, recent scandals have demonstrated poor
leadership in the organization. Unless Uber addresses these concerns, it can only enjoy a
temporary competitive advantage. Table 1 below summarizes the VRIO analysis.
Table 1: Uber’s VRIO Analysis
Resources
Valuable?
Rare?
Costly to
Supported
Competitive
imitate?
by
implication
organization
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Yes
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Somewhat
No
Yes
financial
Competitive
parity
position
Innovation
Yes
No
No
Yes
Competitive
parity
Customer
Yes
Yes
No
Yes
Loyalty
Temporary
competitive
advantage
SWOT Analysis
After undertaking both internal and external analysis is vital to evaluate a firm’s
strengths, weaknesses, opportunities, and threats with respect to its external and internal
environment. SWOT analysis can help provide a general summary discussed under resources and
capabilities and opportunities and threats reviewed earlier (Johnson et al., 2017). The main goal
of SWOT analysis is to identify the strengths and weaknesses that a firm should deal with and
the changes happening in the external environment.
Strengths.
The case analysis reveals that Uber has multiple strengths that can help it generate
competitive advantages. One of its biggest strengths is that the firm enjoys the largest markets
share. Uber derived this advantage from being a first mover in the ride-sharing industry
(Hoffman and Gold, 2018). Another strength noted from the VRIO analysis is its strong financial
position which has allowed it to invest in innovation and market expansion.
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Weaknesses.
As for weaknesses, Uber’s main concern is poor organizational culture. The firm has
received negative publicity because of poor business practices and a lack of appropriate
corporate culture. Furthermore, the company has been making substantial losses which can
discourage investors. Uber’s failure to address these weaknesses can affect the firm brand image
resulting in reduced customer loyalty. These concerns might have an adverse impact on the
firm’s competitive advantages.
Opportunities.
Nevertheless, there are many opportunities that Uber can pursue to improve its
competitiveness. A potential business area that Uber should venture into is driverless cars. As
Hoffman and Gold (2018) argued, the future of ride-sharing is on autonomous vehicles if the
sector is to maintain low operational costs. Other opportunities include expanding into new
markets, diversifying its products and services, and expanding via mergers and acquisitions.
Threats.
The firm is also facing multiple threats on its mark position. The main concern is intense
competition in the ride-sharing industry. Thus, Uber has to identify ways to stay competitive
given the low barrier of entry in the sector, high bargaining power of buyers, and intensive
competition in the industry and from alternative products. Other major concerns are legal and
political factors as the company faces increasing regulatory scrutiny from governments and
regulators.
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Uber’s Strategies
Uber’s Corporate Strategy
A firm’s corporate strategy can influence its success or failure. In Uber’s case, the firm
has pursued a horizontal integration strategy. Under vertical integration, it entails expanding
within a single industry (Hill, Jones & Schilling, 2017). the firm has been acquiring various
industries in the transportation and delivery sector. For instance, the firm has recently acquired
major players in food and drinks delivery companies that include Cornershop, Postmates, and
Drizly (Miller, 2021). This shift confirms Uber’s pursuit of horizontal integration corporate
strategy. The main advantage of pursuing a single industry in a firm’s overall direction towards
growth is that it allows it to focus on its resources in competing in one area (Hill et al., 2017).
The second advantage is that this strategy allows the firm to focus on what it knows and does
best. While Uber emerged as a ride-sharing company, its expansion goals are geared towards the
transportation and delivery sector.
Uber’s Business Level Strategy
A firm’s business-level strategies are the approaches it employs to generate a competitive
advantage for its product or services in a specific industry. Uber applies a low-cost leadership
business strategy, which entails targeting price-conscious customers. This strategy is appropriate
in an industry with high competition due to low entry barriers, which seems to be the case with
the ride-sharing sector. Hoffman and Gold’s (2018) Uber case study confirms this conclusion as
the researchers revealed that the company’s strategic direction is to remain cheap, fast, and
efficient. Particularly, being cheap gave Uber a source of competitive advantage in its
competition with traditional taxies. Uber derived this advantage because it did not own its cars,
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and it considered its employees as independent contractors and not employees lowering
operating costs.
However, the concern with competing on cost alone is that other competitors can catch
up. Uber experienced this as other players such as Lyft, and even traditional taxies have
developed applications that support carpooling strategy to make their services cheaper.
Furthermore, recent court rulings that classified uber drivers as employees meant that the
company had to pay various benefits that would cut its margins. These developments necessitate
Uber to have another business strategy to survive. Fortunately, since its inception, Uber has had a
differentiation strategy based on being fast and efficient. A differential strategy is when a firm
provides products and services that distinguish it from rivals (Hoffman & Gold, 2018). In this
case, Uber concentrated on reliability as one of its differentiation approaches. Additionally, Uber
applies a differentiation strategy based on customers segmentation. As a result, it has developed
different products such as UberX, UberXL, UberTaxi, UberBlack, UberSelect, Uber for
Business, and UberRush (Hoffman & Gold, 2018). This strategy allows the company to cover a
wide market area by addressing the needs of diverse customer segments.
Functional Level Strategy
To achieve its business-level strategies, Uber must align them with functional strategies
and organizational arrangements. In this case, one of Uber’s business-level strategies is to
provide cheap services. However, the biggest concern with this approach is that the company
might embrace cost-cutting measures, some of which end up hurting its driver revenues. Uber
introduced surge pricing, a feature that allowed its drivers to earn better rates depending on
supply and demand factors which unfortunately comprises a small proposition of its business
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(Hoffman & Gold, 2018). Therefore, Uber’s biggest advantage is that carpooling lowers the cost
of rides based on the principle of economies of scale, making it attractive to customers.
Another functional strategy that firms pursuing a low-cost business-level approach can
consider is undertaking measures to improve customer retention (Hill et al., 2017). Uber has
emphasized this area through value propositions that make its services cheap, fast, and reliable.
Furthermore, the company has undertaken various marketing campaigns that include offering
bonuses for new customers and referrals (Hoffman & Gold, 2018). Despite these strategies
contributing to Uber’s success, the firm needs to reexamine itself to identify ways to generate a
competitive advantage to counter the challenges it is facing.
Recommending Strategies
Uber’s new strategy should focus on addressing its main weaknesses and mitigating
threats. One of the main weaknesses that the firm faces are the negative publicity it has been
receiving recently. The firm should look for ways to improve its brand. One way to achieve this
goal is by developing a conducive organizational culture based on clear values. Thus, Uber
should strive to develop missions and visions that are consistent with positive values. Evidence
suggests that corporate governance strategies that emphasize social responsibility and ethics can
help improve a firm’s attractiveness and profitability (Bhagat & Bolton, 2008). The firm should
show more commitment to sustainable production by considering its impact on society and the
environment.
Furthermore, the firm has been making losses in recent years, threatening its ability to
attract investors. Therefore, the firm should consider a strategy to attract more customers and
transform its business to profitability. One way it can achieve this goal is for Uber to evaluate its
diversification and expansion strategy since research shows that it can increase cost and risk
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(Shim, 2011). In this case, the firm should concrete on being profitable in the short-term but
make long-term arrangements for diversification to distribute risk and increase revenue streams.
The above strategic recombination focuses on Uber’s internal opportunities and
weaknesses, but the firm should also look outside to develop a sustainable advantage. A major
weakness that Uber should address is the high competition it is experiencing from different
fronts. The firm can use various strategies from generic to business-level strategies to achieve
this goal. Given the high competition in the ride-sharing sector, it might become challenging for
firms to compete on cost-leadership without identifying other cost reduction strategies.
Therefore, Uber should find other ways for value creation. For example, the firm can create
value for its customers by creating superior quality products and services, undertaking superior
innovation, and attaining superior customer care responsiveness (Hill et al., 2018). These
functional level strategies will help Uber stand out among its competitors.
Another area that Uber should concentrate focus on is how it reacts to the dynamic ridesharing industry. For instance, the firm is facing possible legal and political threats that might
affect its business. Recent rulings that Uber should consider its drivers as employees means the
company must identify ways to attract and retain drivers. The intense competition in the sector
means that it risks losing its driver to competitors. Furthermore, the firm might face various
litigations because of poor business conduct. To address these challenges, Uber must develop a
corporate-level strategy that considers the interest of all stakeholders, including customers,
governments, society, and employees.
Implementation
To make the necessary change, Uber has to improve its organizational structure and
culture to fit its strategic objectives. The firm should focus on corporate governance and other
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functional level strategies identified in the previous section. However, for the above changes to
be successful, they must be supported by formal and informal organizational systems (Johnson et
al., 2018). These systems will allow strategic managers to have control over the implementation
of the recommendations.
The first program that Uber should leverage is the planning system. These tactics will
help the firm plan and control resource allocation consistent with its strategic objectives. The
three corporate strategies related to planning systems that the organization might consider
include strategic planning, financial control, and strategic control style (Johnson et al., 2018). In
Uber’s situation, it should consider strategic control, given it needs to expand its market share
and embrace new opportunities. However, the effectiveness of the strategic control style depends
on strong cultural systems (Johnson et al., 2018). Therefore, for Uber to execute the
recommendations successfully, it must leverage cultural systems. According to Johnson and
colleagues (2018), the three main cultural aspects include selection, socialization, and reward. In
this case, Uber must select drivers that appropriately fit the organization in terms of skills and
values. Furthermore, the firm should seek to improve its employees’ competency via training,
induction, and mentoring programs, while its leaders should act as good role models. Uber
should also reward appropriate behavior via pay, promotion, or symbolic processes to motivate
its workers.
Lastly, Uber has to develop performance targeting systems to provide the firm with
feedback relating to implementing the recommended strategies. From the feedback, the firm can
identify areas that need improvement and those that are performing well. Performance targeting
systems focus on the outputs of the organizations as they track various key performance
indicators based on economics and effectiveness (Johnson et al., 2018). Thus, Uber should
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develop various performance targets such as revenues and market penetration to establish if its
strategy is working. To evaluate effectiveness measures, the firm can use a balanced scorecard to
examine aspects such as customer satisfaction or product quality, while the triple bottom line can
help them evaluate corporate social responsibility factors (Johnson et al., 2018). The most
important thing is for Uber to have planning systems and key performance indicators to guide the
implementation process.
Conclusion
Following extensive research, the report reveals that Uber has to address its key
challenges to realize its full potential. The report noted that the company is operating in a highly
competitive sector, implying that it has to be on its best to be successful. Various external
challenges such as political and legal restrictions and intense competition make it difficult for
Uber to thrive in the ride-sharing industry. Additionally, the firm has internal challenges that it
needs to address, which include poor culture and lack of sustainable competitive advantage.
Fortunately, the ride-sharing industry has huge potential that Uber can capitalize on with the
right strategy. All the company has to do is capitalize on its strengths and pursue opportunities
will addressing weaknesses and mitigate threats.
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