Uber Strategic Management Analysis

Uber

Laura Wiechmann

Bemidji State University: Strategic Management

Dean Frost

February 28, 2019

Uber has become a household name and holds the title for the most highly-valued U.S. based startup. Uber has been taking over the transportation industry and world since its’ launch in 2010 with its’ global marketing strategy. Travis Kalanick and Garrett Camp founded Uber in 2009 with the goal of easier access and affordability within the transportation industry.  Uber Technologies Inc. is considered to be a technology company headquartered in San Francisco, California. Uber is a smart-phone app that allows on-demand transportation at the click of a button by connecting riders with independently contracted drivers. Like Airbnb does not own its own properties, Uber does not own a fleet of vehicles.  Uber changed the transportation landscape while creating a new market within the industry by offering a technology-based transportation product that is both cost-effective and flexible (Brooks, 2015).

Uber is part of the gig economy, the booming trend of hiring independent contractors and short-term workers who supply their own tools or products for customers as opposed to hiring employees and supplying them with tools, products and/or a place to work (Frazer, 2019). Uber leverages the crowdsourced workforce to ensure that supply always meets demand.

        Uber is classified as part of the transportation industry, although some may argue that Uber should be considered as a technology based company. Essentially, Uber’s only products are its’ mobile app and their website; however, Uber’s services entail vehicle for hire drivers which makes them a part of the transportation industry. The transportation industry, specifically Uber, can be analyzed using different methods.

A strategic management tool like the SWOT analysis can be used to analyze the transportation industry, which will help list the organization’s strengths and weaknesses, opportunities and threats. This tool helps an organization pinpoint main issues in order to overcome challenges.

Another strategic analyzation method  is the Porter’s Five Forces Analysis which will help analyze the competitive territory  of Uber’s industry. The five dimensions of Porter’s Five Forces are threats that the industry faces due to the entrance of a new company, threat of a substitute (competition), the bargaining power of Uber’s consumers (buyers), the bargaining power of drivers (suppliers) and overall competition within the industry itself. Using this method helps an organization find feasible solutions that are both pragmatic and actionable.

        Uber’s reputation has recently been questioned due to unfavorable behaviors like sexual harassment and discrimination. The problem with Uber has never been related to their business model, rather their business culture. However, with a new CEO in charge, Uber has seemed to start bouncing back. They brought in $50 billion  on gross bookings (percentage collected from the drivers) and according to Uber’s self-reported financials, they ended up with a full-year revenue of  $11.3 billion with a loss of $1.8 billion.  Although Uber was able to grow revenue and narrow losses from the previous year, the company’s rate  of growth has slowed down.

 Uber needs to consider how aggressive they want to play in the Autonomous Vehicle space. Vehicle networks and fleets are best positioned to commercialize AVs because they can leverage the benefits of higher utilization through vehicle sharing.  That being said, Uber will benefit from the AV space regardless because they are well positioned to attract partners who develop AV systems. Uber’s key strength is that is successfully operates a global fleet of shared vehicles; the question is, do they have the infrastructure to create vehicles?

Uber’s company culture is also something that should be considered when discussing strategic issues. With complaints of dirty cars, drivers canceling rides, and drivers under the influence to name a few, Uber needs to get a handle on the quality control aspect that goes along with their services. They need to establish cordial relationships with their drivers.

Uber’s initial success grew at a very fast rate due to the minimal amount of money spent on marketing, they relied on word of mouth which worked out very well in their favor thanks to the superconnected world we live in.  Their success also comes from their strategy of mixing cost leadership and technology based differentiation. Uber takes a small percentage from bookings and uses the networking effect to help increase their number of drivers. Cost leadership has given Uber sustainable competitive advantage. Technology based differentiation is also a source of competitive advantage for Uber because technology is the main enabler of its services and plays a central role in its’ business model (Pratap, 2018). Uber’s market penetration and development allowed them to grow their market share and expand their market presence.