Analysis of Uber's operations model
The taxi industry was already well established before the entry of Uber into the market. Traditional taxis however relied on outdated methods of picking up passengers. Customers had to walk up to the street and search for an unoccupied taxi whenever the need to travel arose (Guo et al, 2019). Attaining the driver’s attention often involved sticking out an arm or whistling when the taxi drove close enough for the taxi driver to hear. Although most taxi drivers were alert and could easily identify customers trying to hail down a taxi, the process was rather tedious and ill-equipped to cater to customers located in remote locations where taxis did not frequent.
The challenge in hailing a cab before Uber was not only experienced by customers but the taxi drivers themselves. Drivers had to drive around even when not carrying any passengers to locate customers in different parts of the region they operated in. rather than just parking, taxi drivers had to find out methods to increase the probability of being hailed down by a customer (Guo et al, 2019). The drivers would however use up fuel roaming instead of driving passengers to their destination and this greatly affected the cost of doing business.
The idea for starting Uber was as a result of Garret Camp’s visit to Paris in 2008 after an experience with Travis Kalanick who had difficulty hailing a cab and decided to create an app that would enable customers to order for a car whenever the need arose. Uber identified a gap in the taxi industry that made it difficult for taxi drivers to connect with their customers (Guo et al, 2019). To exploit the opportunity identified, Uber designed an app that could be installed in smartphones, tablets, and other forms of technology. Through the app, Uber was able to gain a competitive edge and gain a significant share in the taxi industry.
2.
Uber’s approach towards surge pricing in the context of changes in supply and demand is responsible for the varying amount set for trips during different times of the day. When the demand is regular or normal, the price charged for trips remains the same for all customers alike. When the demand is high however, the price tends to be higher than normal especially during times when the number of people trying to get a ride exceeds the number of drivers available to offer the service.
Surge pricing helps Uber to ensure that there are enough drivers on the road to ensure constant supply when the demand is there. Since Uber gives its drivers the freedom to operate whenever they see fit, surge pricing acts as an incentive to drivers encouraging them to work when the demand is high (Castillo, 2019). The company has developed a method to inform drivers when surge pricing starts as well as locations with the highest demand. Drivers operating during such periods get to charge higher prices for the rides and in so doing, earn more than they would have during periods when the demand is normal. It also encourages off duty drivers to get back on the roads as demand for rides is usually high during peak hours.
The benefits from surge pricing are achieved when the company sets up higher charges for rides than usual to attract customers who want to travel during peak hours. The company however notifies the customers on the availability of a cheaper ride but also informs the customer that they may have to wait longer than usual to get a cheaper ride (Castillo, 2019). The approach is ideal in that it gives the customer the freedom to choose between waiting for a cheaper ride or paying more to get a ride immediately. By doing so, the company ensures that drivers are available to cater to customers that are comfortable paying extra as well as those that opt to wait for a cheaper ride.
3.
Uber also uses surge pricing to influence the cost charged for a ride. During periods when demand is high, the company offers different prices to customers depending on the availability of drivers. Once an area is identified and peak demand sets in, the company notifies its drivers that surge pricing is in effect and that fares from such destinations are likely to bring in more profit (Castillo, 2019). This encourages drivers to move to such locations to benefit from the different prices. Through surge pricing, Uber can ensure there is constant supply to meet the demand created, and also have more control over the prices set.
While the company does a lot to ensure that it can meet the demand created, it often does this by altering prices. During periods of surge pricing, customers are required to pay extra to get an Uber in a short period (Castillo, 2019). There is however the option to pay the normal rates but this often requires the customer to wait until a driver is available, which is likely to take longer as most drivers prefer to carry customers willing to pay the extra cost during peak hours.
Other than speed in delivery of service, Uber also uses different types of cars to customers as a way to control prices. During periods of surge pricing, customers are encouraged to request different rides from Uber that offer more services but are likely to cost more (Castillo, 2019). Customers who are willing to pay extra get the opportunity to drive in luxurious cars that are available within a moment notice and this makes it easier for the company to serve customers who are willing to wait and also those who are okay with paying extra.
4.
Uber’s business model is greatly influenced by the economies of scale and the economies of scope that exist in the market the company operates in. The company’s business model employs the use of modern forms of technology such as smartphones and tablets to connect its drivers with customers (Dyer, 2019). Since the company operates in different countries and serves customers in different locations, the use of smartphones has made it rather easy for the company to connect its drivers with customers. This is made possible through an app that is made available to all its drivers as well as potential customers (Dyer, 2019). The apps however offer more than just a platform to hail a cab as they also allow the customer to give feedback, complaints, or any comments that can help improve the quality of service.
The business model also pushes the company to constantly involve and adapt to changes in the markets it operates in. the reliance on different forms of technology to connect customers with drivers means that Uber has to constantly innovate and find better and faster ways to reach its customers (Dyer, 2019). Since Uber has to account for the needs of its different types of customers in different parts of the world, innovation is approached carefully to ensure that any improvements made apply to the customers the change is meant to reach.
Uber also engages in activities such as encouraging customers to rate their drivers after the ride is complete. The platform helps to ensure that drivers offer the best quality of service and that customers get value for their money (Dyer, 2019). The company also provides items such as drinking water, free Wi-Fi, and phone chargers to customers while in transit. Smartphone technology is also used to track drivers which guarantees the safety of both the driver and the customer.
5.
The game theory refers to the processes involved in modeling strategic interactions between different parties engaged in a situation governed by a set of rules that determine the possible outcomes. Take the case for Uber, the organization is one of the For-Hire Transportation Network Companies that rely on advancements in mobile technology to interact with the drivers and customers (Anderson, 2010). The customers contact the drivers through the mobile application that is owned and managed by Uber and the drivers rely on GPS to find the customers' pick up point as well as their destination. The reliance on smartphones by the company utilizes game theory as they give the organization control and influence over the drivers which can be used to manipulate or encourage drivers to work for longer periods or longer distances.
The reliance on smartphones makes it difficult for drivers to reach customers directly as the service is only requested through the mobile application. As such, drivers are forced to rely on the customers that request their services through Uber, thereby ensuring constant demand for uber (Anderson, 2010). Also, the company has set fixed prices for specific destinations which are only altered during periods when the company engages in surge pricing. Customers intending to earn more are therefore pushed to work longer durations and take on customers whose destinations are far away in an attempt to make more from the fare charged for the ride (Anderson, 2010). Although the company ensures that there is enough demand to create employees for all its drivers, the approach used ensures that the company retains control over the transactions between the customer and the driver.
6.
Uber’s potential for international expansion is greatly influenced by the nature of the market it seeks to venture into and how it responds to the policies implemented to regulate trade in the regions it seeks to venture into. Success in international markets is therefore determined by the company’s ability to alter its corporate culture and adopt new policies that are in line with those in the region it seeks to operate in (Isaac, 2020). a good example is the business model employed by Uber in its operations. The company’s success is greatly influenced by its classification of drivers as contractors rather than employees (Isaac, 2020). Since employees are entitled to various benefits such as medical and insurance cover, classifying drivers as contractors help to avoid costs related to such benefits as the same is not extended to contractors.
While such an approach was successful in the United States, a similar approach failed in China and this is greatly due to the different policies in use in the two countries. The lack of experience and different policies in China made it difficult for the company to excel despite taking over the taxi industry in the United States (Isaac, 2020). Successful market entry into international markets will, therefore, require the company to research the policies and nature of operations of the region it seeks to serve to come up with strategies that are tailor-made for specific markets rather than relying on the same approach used in successful regions like the United States.
7.
The Principal-agent problem refers to any conflict in priority that may occur between an individual or a group and the organization or person authorized to act on their behalf. The problem occurs when the agent tends to engage in activities that are likely to harm the interests of the person being represented (Blanding, 2015). In the case of Uber, the organization acts as the principal whose interests need protection while the drivers bear the responsibility of protecting these interests.
Uber operates by employing drivers to carry customers from one destination to another at a price. The service is made possible through an Uber app that is installed on the driver’s smartphone and can be downloaded by customers who wish to use Uber services (Blanding, 2015). However, since customers only meet with the drivers and not Uber, the drivers act as the point of contact between the organization and its customers. They are therefore in a position to affect the business either positively or negatively, depending on their interactions with customers.
To influence positive interactions, the company has designed a rewards program that reduces the service fee to only 3 percent after the driver makes 15 successful trips (Blanding, 2015). The reduced service charge ensures that drivers earn more from every trip they make and thus creates good relationships between the company and its drivers. Drivers who earn more are likely to have a positive attitude towards the company and are more likely to engage in activities that protect the company’s interests.
8.
Uber relies on advancements in technology to create a digital and algorithmic system to create flexible employment terms with its employees (Schneider, 2017). The technology also makes it possible for the company to rely on advanced forms of surveillance to collect information regarding the services offered as well as where to innovate.
On one hand, Uber can directly manage its drivers through the logarithms, semiautomated performance evaluations, passengers, and other rating systems made possible by the technology used. The approach is however a form of remote worker management as the company rarely comes into contact with its drivers who act as its employees.
Although the technology reduces the need for interaction between the company and its drivers, asymmetric issues regarding information arise mainly because data used to determine performance is influenced by opinions from customers and data collected regarding rides offered (Schneider, 2017). The company lacks access to sufficient information regarding how drivers go about ensuring that supply meets demand and this could negatively impact the efficiency and communication between Uber and its employees.
References
Anderson, E. (2010). Social media marketing: Game theory and the emergence of collaboration. Heidelberg: Springer.
Blanding M, (2015), "Who is boss in the sharing conomy?" Harvard Business School, retrieevd from, https://hbswk.hbs.edu/item/who-is-boss-in-the-sharing-economy
Castillo C, (2019) "Who benefits from surge pricing?" Stanford, retrieved from, https://web.stanford.edu/~jccast/JMP_Castillo.pdf
Dyer, J. (2019). Strategic management: Concepts and cases. Wiley
Guo, Y., Xin, F. & Li, X. (2020). The market impacts of sharing economy entrants: evidence from USA and China. Electron Commer Res 20, 629–649 . https://doi.org/10.1007/s10660-018-09328-1
ISAAC, M. I. K. E. (2020). SUPER PUMPED: The battle for uber. W W NORTON.
Schneider, H. (2017). Creative destruction and the sharing economy: Uber as disruptive innovation. Edward Elgar Publishing
