Reference no: EM132301108

1. In what ways does Uber's business model both enhance and detract from the creation of shared value? How is the creation of value for a taxi service shaped over time? 

2. What factors may create operational risk for Uber? How should these risks be mitigated? 

3. Identify the factors which could be potentially damaging to Uber's corporate reputation or brand. Using appropriate concepts, recommend how Uber can prevent these issues from developing into a crisis for the organisation. 

Technological challenges in the taxi industry

Uber is a technology company that offers a free programme, or app, available on a mobile device for those wishing to request a ride. At its core, Uber seeks to match passengers to drivers. The platform is able to track a user's GPS coordinates, even if the user does not know where they are, and within minutes an Uber driver will arrive. The user is able to track how long until the ride will pick them up and receives a text message confirming when the Uber driver is arriving. The driver is able to hit a button on their own app that says 'Arriving now' which sends the text message. No cash is exchanged when using Uber since signing up for an account requires providing credit card information. After the ride, Uber charges the user electronically and immediately emails them a receipt. There is a rating system so that passengers can rate their driver and vice versa (Dong et al, 2014).

According to Uber, the company 'pushes the limits of the transportation industry to create a simple, more efficient, and more enjoyable car service experience. For drivers, Uber is a revenue stream, allowing professional drivers to make more money by turning downtime into profits.' (Uber, 2016). Unlike the taxi industry, Uber does not employ or license its drivers, but rather views them as independent contractors. The unique experience provided by Uber has enabled rapid growth and international expansion centred on three main focal points: a commitment to on-demand service, an efficient supply of luxurious rides, and the easy accessibility of its smartphone application.

Uber's growth over the past five years is an example of a major success in what is known as the 'sharing economy'. The sharing economy is an economic system where assets or services are shared between private individuals either free or for a fee, typically by means of the internet. However, the success of this new business model is attracting criticism from government and civic leaders concerned that this new 'collaborative economy' is simply a means of sidestepping regulations, taxes and other legal obligations.

In London, Uber's growing popularity meant that their drivers completed some £115m of business within London (Quinn, 2016). However, Uber London (the taxi app's UK holding company) recorded only a sales take of £23m and a profit before tax of £1.83m. The sales figure reflects only Uber's share of fares for trips booked on its app. In addition, Uber London retain 20% of any fare to the driver. Despite this Uber London paid just the small sum of £411,000 in UK tax last year.

Concerns have also been raised over driver working conditions, particularly regarding claims that some drivers are doing excessive and unsafe hours.

Some Uber drivers are working up to 21 hours a day to make ends meet as the company increases its cut of fares and fights a ruling giving them employment rights. Drivers in London interviewed by The Sunday Times told of regularly working hours that Uber itself describes as 'unsafe'. The newspaper has seen official Uber documentation proving one of the men worked a 91-hour week. The disclosures come as new figures show a dramatic rise in casualties involving taxis and private hire vehicles in London.

In interviews with 12 Uber drivers waiting at Heathrow, three admitted working 16 hours or more a day. Tom Bagaza, from High Wycombe, said: 'On average every day [I work] 14 hours, and 16 is top whack. I had a colleague last week who said he had worked 19 hours. I know people who even sleep in the car, and they go crazy ... I can start at six o'clock in the morning and finish the following day at maybe two o'clock, three o'clock,' - a 20 or 21-hour day.

A second driver said he had been driving since 5 am for more than 16 hours, though his first four hours were as a newspaper delivery driver, not for Uber. A third Uber driver. Khaled from Manchester, said 'We need to speak the truth. I work 70-80 hours a week and weekends it's 14-16 hours a day. It's very, very stressful but I don't have a choice. I feel like I'm a slave; we work like slaves for this company.' The legal limit for a bus or lorry driver is 56 hours a week.

Another Uber driver, Kristian Vassilesko, said the longest day he had done was 16 hours. 'I begin to feel tired,' he said. 'We have no limits. If the tariff could be a bit higher, it would be better.' Three other drivers could not be interviewed because they were asleep in their cars. One had installed curtains in the vehicle.

Figures published in 2016 by the London transport regulator, Transport for London (TfL), show there has been a 26% rise in casualties among taxi and minicab passengers during the previous year. The number of passengers killed or seriously injured rose from 13 to 20, a 54% rise.

However, Uber UK said it had no plans to limit driver hours. In London, for new drivers, it has increased the cut it takes on fares from 20% to 25%, forcing them to drive for longer to earn the same money.

The company suffered a blow last week when an employment tribunal ruled that Uber drivers were not self-employed, and were entitled to holiday pay, pensions and other workers' rights. It is appealing.

Steve Garelick, of the professional drivers' branch of the GMB union, said: 'Through the app, Uber knows precisely how long everyone has been available. It and other operators could stop this overnight if they wanted to. They've made the effort to limit hours in New York, so what's wrong with London?' Tom Elvidge, general manager of Uber London, said that three-quarters of Uber drivers in the capital were logged in to the app for less than 40 hours a week. 'We regularly advise drivers to take rest breaks' he said. 'We take this issue very seriously and are always looking into ways to improve the overall safety of the app.'

However, a research study shows that more than half of Uber's London drivers make money through other jobs, and that Uber is not the biggest source of pay for one in five of its London drivers. For 51% of drivers, their work with Uber was not their only income source. Of these, 21% said that they saw the money they earned through the app as a mere 'supplement' (Jones, 2016). Uber London actively resists attempts by TfL or other government agencies to bring in any regulation of its services, or to bring its service into line with the historic business practices of London's historic black cabs.

Uber London has expanded its offering by launching a food delivery service, extending the company's reach in the UK beyond its car booking app. UberEATS sells food from 150 restaurants that do not typically deliver in central London via a network of bicycle and moped couriers, challenging other takeaway apps such as Just Eat and Deliveroo. But Uber has entered a crowded market for food delivery, and is planning to win customers by offering guaranteed delivery within 30 minutes and not charging delivery fees during an introductory period. The rating systems within the Uber car app, which the company uses to weed out bad drivers, is replicated for both couriers and restaurants. Uber says it has signed up thousands of delivery couriers who are paid a per-mile and per-delivery rate equivalent to £10 an hour. By comparison, Deliveroo pays its couriers in London £7 an hour and £1 per delivery. These 'gig economy' apps have been criticised for failing to provide traditional employee rights such as paid holidays, and Deliveroo has been accused of putting cyclists at risk by failing to ensure safety standards and refusing to accept liability (Titcomb, 2016).

Uber London also offers a car-sharing service called UberPool. This service pairs users with other users that are heading in the same direction and splits the cost between them.

London's taxis are responding to the technological challenges presented by Uber, and TfL announced last year that all black cabs in London would be required to take credit cards and contactless payments from October 2016.

Groups representing taxi drivers said the decision by TfL would benefit both drivers and customers. The move by TfL's board followed a consultation in which it received support from 86% of respondents.

'Every black cab taking cards is fantastic news for London. In future, when you hail a cab you can be sure that you can pay the way you like - card, contactless or cash. That is without doubt better for our customers and for drivers who will benefit from extra work,' said Steve McNamara, general secretary of the Licensed Taxi Drivers Association.

The move towards mandatory card payments in black cabs is part of wider changes by London's 22,500 cabbies in rising to the challenge from Uber. For example, some black-cab operators are fighting back with smartphone apps of their own, such as Hailo and Gett. Gett offers discounts on metered fares for journeys of six miles or more and those made in off-peak hours. Hailo allows Londoners to get a taxi through their smartphone.

Remo Gerber, chief executive of Gett UK, said: 'This is another strong sign of how the London black cab trade is embracing the future; not only have cabbies embraced apps, but everyone is behind making card payments universally accepted and by that making all journeys easier for Londoners.'

The firm's application for a new licence in London was rejected in September 2017 on the basis that the company is not a 'fit and proper' private car hire operator. Uber is appealing this decision.

(Source: Adapted by Matt Hinton with extracts from Gilligan