Creative Destruction and Sharing Economy

Discuss about the Creative Destruction and Sharing Economy.

Uber Technologies Inc. is engaged with transportation networking in over 570 cities. At present the company has able to establish a strong position in the global market (Uber.com, 2017). However, it is facing enormous amount of legal issues and service competitive issues. Being in the service industry, the organization has invented mobile app for flawless booking through internet. The most attractive feature of Uber has been “upfront pricing”, which the local taxi services fail to provide. The organization has started its business by focusing on mainstream consumer segment with huge discounts but at present it is facing challenges due to market saturation especially in the domestic country, Australia.

The aim of this report is to provide innovation suggestions in favor of Uber for future sustainability. With the help of innovation and entrepreneurship theories, business enhancement and practices of Uber will be discussed.

• To discuss the innovation and entrepreneurship theories relevant for business enhancement
• To present and utilize specific contextual factor and its impact on chosen organization
• To analyze the domestic and international contextual factor that affects the chosen organization
• To suggest ways of innovation in favor of chosen organization

Specific contextual factors affecting the concerned organization will be discussed and based on that innovation opportunities will be presented. Issues facing the organization will be identified and based on that recommendations will be provided for enhanced outcome.

Overview of Innovation and Entrepreneurship

According to Franke et al., (2013), innovation is considered as the best strategic opportunity for global organizations in order to gain sustainability. On the other hand, Sahut and Peris-Ortiz, (2014) added that entrepreneurship is becoming the key factor for economic growth associated with resource utilization and disruptive motivations. Revolution, renewal and resilience are three pillars of innovation, based on which competitive edge is created by an organization. The continuous strive of disruptive innovation is creating most unique ways for customer satisfaction, which is specifically true for entrepreneurship. According to Christensen and Raynor, (2013), sustainable innovation is the way by which an organization is able to establish new products or services for its target consumers, which are mainly new to the market. On the other hand, King and Baatartogtokh, (2015) pointed out that disruptive innovation is does not bring new products in the established market. Here organizations build better usable products for less demanding customers with very less price. Later demand is created and spread in the market leading to more sales and organizational sustainability. Finally, regarding the models of innovation, it can be said that open innovation is the mixture of organizational internal strategic ideas combined with competing firm’s strategies.

While considering the above concepts of innovation, it can be said that Uber needs to follow the renewal pillar of innovation along with open innovation strategy with disruptive service innovation. This is because Uber needs to create new demand in the market through less service price, which will eventually act in future market development.

According to Durkin, (2016), shared economy in Australia is almost saturated and it has very blunt future. The drivers are paid very less and therefore they are not interested in working further. This has considerably impacted on the operation of Uber. On the other hand, Lewis, (2016) pointed out that Uber is facing extreme competitive challenges from new competitors.

Therefore, from the above, it can be said that Uber needs to innovate. Not specifically on the service improvement but needs to diversify its services. It needs to create new demand on the market by introducing certain services those were not present earlier. In this way niche market segment has to be addressed and demand has to be created. Such a type of innovation will lead to Uber sustainability in future.

Norms for Innovation

Dawson and Andriopoulos, (2014) pointed out that there are six key norms of innovation.

• A focus on Idea Generation
• Supporting a Continuous Learning Culture
• Risk taking
• Tolerance of Mistakes
• Supporting Change
• Conflict Handling

On the other hand, Dyer et al., (2009) pointed out that there are five innovation capabilities that an organization needs to follow:

From the above two concepts, it is clear that Uber has the opportunity to innovate through observing, idea generation, risk taking and conflict handling. Therefore, from the discussion it is clear that innovation and entrepreneurship contextual factor is extremely important for Uber to become sustainable.

Environment Analysis

Factors	Explanation
Politics and Legislation	ü  Regulations from Australian Taxation Office impacting Uber drivers’ payment scale ü  Impact of Passenger Transportation Act from New South Wales forced the drivers to pay local government services tax
Economics	ü  Strong economy and competitive currency has led to more investment in the last two years ü  10th rank in ease of doing business has a positive impact on Uber ü  Low consumption tax leading to more cash generation for Uber investors
Technology	ü  Internet facility has fostered more bookings ü  Real time tracking has created better communication and reliability
Society	ü  Rise in corporate sectors, financial sectors, real estate has created the demand of more travellers ü  Ride sharing has created more demand as consumers are able to limit their expenses
Risks	ü  Huge competition in Australian market from GoCatch ü  Market is already saturated and cash generation is only from one source

Internal Environment Analysis

Factors	Explanation
Strength	ü  Traditional cab limits does not affect Uber operation ü  Convenient mode of customer-to-client communication through app ü  Less global competition ü  Flexibility of cashless payment ü  Driver flexibility and safe earning opportunity ü  Low price of service compared to traditional Taxi
Weakness	ü  Unethical surge price rising question of fair trade ü  No real communication between drivers and company ü  Business idea is easily imitated ü  Government policies explicitly impact on business model
Opportunity	ü  Global new market with new business opportunity ü  Joint alliance with electric cars and driverless cars ü  Demand from developing countries due to unemployment ü  Valuation increment attracting investors
Threat	ü  Latest legal regulations hamper Uber operation in several cities ü  Negative publicity from rising co-conflicts ü  Company’s revenue may get diluted due to fast market saturation

                                                                                Table 2: Internal Environment of Uber

(Source: Moon, 2015)

External Environment

Factors	Explanation
Politics and Legislation	ü  Change in government policies in developing countries ü  Competitive rivalry giving rise to political intervention ü  Ride sharing regulations impact on global market
Economics	ü  Developing economics in India and China is greatest opportunity ü  Low driver wage resulting in resource conservation ü  Attraction from corporate sectors create demand for luxury transport
Society	ü  Increase in mobile internet users giving rise to more clients ü  Sharing ride has become the most convenient way for customers ü  Low threat from crime, robbery and theft creating demand
Technology	ü  Autonomous cars will aid in enhancing business model in future ü  Driverless cars will lessen the use of drivers ü  Use of mobile app through limited internet bandwidth creating flawless booking

                                                                                     Table 3: External Environment of Uber

(Source: Laurell & Sandstrom, 2016)

Therefore, the only option that Uber now has is to innovate services that might create demand. Following are types of innovation opportunities that Uber can place.

Employing new Pricing Model

Uber has introduced itself as ride-sharing company and therefore it has the ability to fluctuate its pricing strategies. One such strategy is surge price. Innovation in pricing model must incorporate more returns from short trips. Short trips are supposed to provide multiple bookings within short time, resulting in more revenue from each trip (Stiglic et al., 2015). For this pricing model new service has to be incorporated specifically for short distance trips with lowest price for each kilometer. This will eventually raise the number of trips for drivers, earning them more incentives. Also, with Priceline style system, bid-quote pricing system can be introduced based on which consumers will be given the opportunity to bid price and once the order time expires, they will be allowed to have the trip according to their bid. In this way maximum bid will give more revenue at the time of high demand period. In this way, Uber will be able to stay ahead of competitive rivalry.

Differentiation will be completely based on new service placement. Introducing new vehicles such as Uber Bikes and Uber Tricycle will gain attention from new consumers. Such services does not have any demand, however consumers does not have any idea of these services. Therefore, based on disruptive innovation Uber can acquire market and extend its saturation period and develop competitive edge as well (Schneider, 2017). Moreover, at present Uber is facing risks from single channel revenue source, which will be supplemented by new vehicles.

Uber does not have a clear communication system through which stakeholders can communicate. The innovation here lies in establishing some physical outlets where drivers and communicate their grudges, issues and feedback. On the other hand, consumers will also be able to get the real taste of existence creating a sense of reliability (Watanabe et al., 2017). This will act as an innovation in communication system, which will strengthen relation with both drivers and consumers. In this way business model will be strengthened, however the legal complications will continue to impact smooth flow of business.

Conclusion

While concluding it can be said that even though Uber has been able to establish great market within just a couple of years, still it is facing issues from government, legislature, competing firms and human resource. Uber has been found to face competitive issues from GoCatch in Australia and most of the drivers are inclined towards the later firm. Considering the global scenario, it has been found that Uber is facing tremendous competitive issues. The organization is only surviving due to expansion in new countries but for each market services through one particular channel is getting saturated within few years. Therefore, the main contextual factor for Uber sustainability has been innovation and entrepreneurship. Being on the service industry, Uber has been not able to create disruptive innovation and has only targeted mainstream consumers. Therefore, open innovation through disruptive ideas is extremely important for the organization to survive.

Recommendation

The organization is collecting revenue from Cabs only and therefore, in future it needs to reorganize the revenue collection model. Uber needs to engage more drivers and short trips so that booking is multiplied. This will keep on engaging more consumers and service will be penetrated more in the cities.  The lowest fare has to be introduced for such short trips so that competition can be kept ahead of local Taxies.

Uber needs to introduce more customized mode of personalization. This can incorporate introduction of two-wheelers and three-wheelers. These transport mediums will be completely new in the market and will create new demand for mostly corporate officials. New services will add up the revenue stream and minimize risk of dependency. A separate pricing strategy has to be created for such vehicles.

The era of Electric Vehicle (EV) has already started to grow. Uber needs to mitigate the driver wage challenges through partnership with electric vehicle provider so that cost of human resource handling is reduced. Uber needs to operate in joint alliance with top car manufacturers who will provide EVs. Selective routes will be created, pricing system will be changed and booking system will be improvised resulting to change in business model.

References

Chesbrough, H.W. (2003). The era of open innovation. MIT Sloan Management Review,  44(3), 35-41.

Christensen, C., & Raynor, M. (2013). The innovator's solution: Creating and sustaining successful growth. Harvard Business Review Press.

Dawson, P. & Andriopoulos, C. (2014). Managing Change and Innovation, Sage Publishing, London, U.K.

Durkin, P. (2016). GoCatch take on Uber in Australia. The Sydney Morning Herald. Retrieved 8 May 2017, from http://www.smh.com.au/business/consumer-affairs/gocar-to-take-on-uber-taxi-industry-in-australia-20160222-gn017i.html

Dyer, J.H., Gregersen, H.B. & Christensen, C.M. (2009). The Innovator’s DNA. Harvard Business Review, December, 60-67.

Franke, N., Harhoff, D., Henkel, J., & Häussler, C. (2013). Innovation und Entrepreneurship. Springer/Gabler.

King, A. A., & Baatartogtokh, B. (2015). How useful is the theory of disruptive innovation?. MIT Sloan Management Review, 57(1), 77.

Laurell, C., & Sandström, C. (2016). Analysing Uber In Social Media—Disruptive Technology Or Institutional Disruption?. International Journal of Innovation Management, 20(05), 1640013.

Lewis, P. (2016). Why the sharing economy could have a hard landing in Australia – Smart Company. Smartcompany.com.au. Retrieved 8 May 2017, from http://www.smartcompany.com.au/finance/economy/why-the-sharing-economy-could-have-a-hard-landing-in-australia/

Li, H. R. (2016). Taxi Positioning in the New Age of Internet and Industrial Development Research. Procedia Engineering, 137, 811-816.

Moon, Y., 2015. Uber: Changing the way the world moves. Harvard Business School, Case, (9-316), p.101.

Sahut, J. M., & Peris-Ortiz, M. (2014). Small business, innovation, and entrepreneurship. Small Business Economics, 42(4), 663-668.

Schneider, H. (2017). Creative Destruction and the Sharing Economy: Uber as Disruptive Innovation. Edward Elgar Publishing.

Stiglic, M., Agatz, N., Savelsbergh, M., &Gradisar, M. (2015). The benefits of meeting points in ride-sharing systems. Transportation Research Part B: Methodological, 82, 36-53.

Uber.com. (2017). Corporate Travel Management | Uber for Business. Uber.com. Retrieved 8 May 2017, from https://www.uber.com/business/

Watanabe, C., Naveed, K., Neittaanmäki, P., & Fox, B. (2017). Consolidated challenge to social demand for resilient platforms-lessons from Uber's global expansion. Technology in Society, 48, 33-53.