In September 2017, our late friend and colleague, Dr. Stuart Wigham, published a blog post on UBER. He wrote about how an immature operating model and speedy growth caused significant issues for UBER, and how this would impact its long-term business success. This blog reviews what has happened to UBER since then.
Since its foundation in 2009, UBER has built on the original idea of shared consumption and a focus on ride–sharing services. In addition to ride-sharing, UBER leveraged its platform to include UBER Eats, Freight, E-bikes and e-scooters, and has developed an idea for Air Taxis. In Q2 2019, 18 million trips each day were organized through UBER. UBER now offers its products in 785+ metro areas worldwide. Their newest product, UBER Works, launched in fall 2019. Currently only available in the Chicago area, UBER Work’s purpose is to connect on-demand workers to other companies. All these products make UBER, without any doubt, the key player in shared consumption and in shaping the gig economy.
However, this rapid growth has presented UBER with many challenges along the way, particularly when their expansion takes them into new markets that act and behave differently to their known US market. In an HBR article from June 2017, Benjamin Edelman, associate professor at Harvard Business School, argues that UBER must be shut-down by regulators “due to its cultural dysfunction – a business model predicated on lawbreaking.”
In August 2017, founder Travis Kalanick stepped back as CEO, admitting he didn’t have the right leadership skills to lead UBER after its rapid growth. Kalanick’s successor as CEO is Dara Khosrowshahi, the former CEO of Expedia. Khosrowshahi found an organization under massive attacks around the globe from policymakers, unions, and taxis services. Chris Zook, a partner in Bain & Company’s Boston office, wrote in August 2017 in HBR that UBER’s new CEO must win on two fronts simultaneously. He called the two fronts “the inner game: rid the company of barriers to growth” and the “outer game: prove the profitability economics of UBERs repeatable model.”
From day one in August 2017, Khosrowshahi started the necessary restructuring of UBER. On May 10, 2019, the company went public. But, following the initial public offering Uber’s shares dropped 11%, resulting in the most significant first-day dollar loss in IPO history in the US. Although UBER continues to report accelerated revenue growth, 30% year-over-year in Q3 2019, Uber reported a net loss of $1.2 billion in Q3 2019. While this is significantly less than the $5.2 billion loss Uber experienced in Q2 2019, it’s still an increase from $986 million in Q3 2018. This led to a mass layoff of 835 UBER employees from Marketing, Engineering and other functions.
Aside from financial troubles, UBER’s expansion plans, especially in Europe, face legal battles due to local labor laws and stricter policies on taxi services. At the same time, UBER is being accused of various misconducts including abusing data to mislead officials. In the UK, Transport for London (TfL), who set policies and regulations for taxis and private hire in London, refused to renew UBERs license as UBER did not comply with TfL requirements. In Frankfurt, Berlin, and other cities in Germany police found UBER drivers were not complying with local conditions, further feeding anti-UBER arguments.
The main problem with UBER is trust. Based on UBER’s previous struggles, there is not full trust from investors, governments, and consumers.
In a 2012 TED talk, Rachel Bostman, a world-renowned expert on trust and technology and co-author of “Who Can You Trust?” spoke about trust being the new capital for shared consumption. Bostman explains how platforms like Airbnb and TaskRabbit built a good reputation, with trust as the currency that makes their platforms successful. Airbnb, for example, consequently removes participants from its platform if misbehavior or abuse is reported and proven.
Frances X. Frei, professor at Harvard Business School and hired by UBER in 2017 to fix its broken culture, believes that trust builds on three elements: Authenticity, Rigid Logic, and Empathy. Lacking one of those will result in a lack of trust from your customer. Rigid logic requires knowledge and excellent communication. Every human is equipped and capable of empathy, but the wrong use of technology may impede our emphatic capability. In a TED talk recorded in 2018, Frei explains how she worked with UBER to improve both empathy and rigid logic by improving work practices i.e. the removal of technology in meetings and the influx of knowledge on strategy and leadership.
But creating an authentic organization requires more. It needs the congruence of an organization‘s purpose, values and actions. With all the external challenges and how it is perceived to act, authenticity remains an elusive goal for UBER.
Authenticity & Governance
An authentic organization is not only seen to operate both ethically and legally, it is also seen to work and act in a way that is consistent with its espoused values. Patagonia, an Outdoor clothing company, is an excellent example of an authentic organization that aligned its strategy with its operating model. Its founder, Yvon Chouinard, realized in the early 1970s the impact his product had on the environment and consequently developed sustainable outdoor products. Today Patagonia is a trusted, worldwide brand for sustainable products and fair business practices, i. e. supporting local initiatives for a green planet.
Further to an aligned operating model, the governance processes must ensure that the organization’s operating model and resultant actions remain appropriately aligned to its core values. An aligned operating model enables the successful execution of business strategy throughout all parts of the organization, allowing global organizations such as UBER to leverage a common platform while adapting to local legal, regulatory, and policy differences.
Aligning Business Strategy and Operating Models
The alignment of the business strategy with the operational model requires both aligned leadership and the engagement of the whole organization. A workforce that is engaged in the alignment of the business strategy and is part of the design process feels accountable for its execution. People believe in what they help create.
This process must start with a review of the organization’s current operating model and ask how fit it is for its purpose, particularly in an organization like UBER where the purpose is to leverage a common platform across multiple geographies. The review will lead to the foundations for the future operating model being laid down through a clear future business direction and a set of design criteria, parameters, and constraints which are supported by a compelling case for change. Working through this process will provide UBER with a clearer view of how it needs to pivot to be seen as an authentic organization both internally and externally.
Organization design, as successfully practiced by OTM over 35 years in more than 450 redesigns globally, is the deliberate process of configuring the informal and formal. This includes the value stream, structure, technologies, management systems, rewards, people process, and social systems to create a business organization capable of achieving its business strategy and being authentic in the eyes of its customers wherever it operates.
- Shared consumption economy platforms need an excellent reputation to be attractive and successful. To globally leverage a common platform an organization must consider local differences in law, regulation, policy, and culture within its operating model. Without this, a company is at risk of being perceived or partaking in misconduct that results in reputational damage which severely impacts business results.
- Trust is the currency required to build a reputation. The key elements of trust are Empathy, Logic & Authenticity. Failing on anyone results in a lack of trust.
- Authenticity is the congruence of an organization‘s purpose, values, and strategies with its actions. It can be achieved by aligning an organization’s business strategy with its operational model. Alignment is reached through a holistic organization design process and, where necessary, the design and implementation of rigorous governance processes.
Thomas Doering is a Consultant at ON THE MARK. OTM’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 35 years and is a leading organization design firm.