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What are the potential sources for operational failure at Uber? What should Uber do to limit operational failure?

Words: 2439
Pages: 9
Subject: Business

Part A: Case study – Uber and London taxis

Part A of this TMA will be marked out of 75 marks. Your answer to this question should be no more than 1500 words.

In your work on Block 3 you encountered Uber and London’s black cab industry, most notably in Session 13, Activity 13.6 . Listen again to the audio in that activity. It investigates threats to the traditional taxi business and asks whether black cabs can respond to competition enabled by new technologies or whether they’ll go the way of the red telephone box.

When you have listened to the audio return here and read the case study below, and then answer the following questions:

Using stakeholder analysis, analyse the power and level of interest of the relevant stakeholders involved in running and regulating the London taxi business. Uber are often accused of ignoring employee rights and employee welfare. How might Uber management address their employees’ concerns? (25 marks)

What are the potential sources for operational failure at Uber? What should Uber do to limit operational failure? (25 marks)

One of the ‘fundamental goals’ of relationship marketing is said to be ‘maximizing the lifetime value of a customer’. How would you describe Uber’s relationship with its customers? (25 marks)
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. These ‘gig economy’ apps have been criticized for failing to provide traditional employee rights such as paid holidays and in-work insurance.

The size of the UK taxi and private hire market is estimated at £9.4 billion. The industry is mature, with high levels of revenue volatility, technological changes, and high competition with low barriers to entry (Skok & Baker, 2019). 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, 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, Peter, said: ‘Recently, Uber cut rates per mile by 25%. Now I’m having to work longer and longer hours in order to pay my rent. I want people to know how powerless you feel when your income comes from a faceless app and when you open it up one morning, things are just different and you’re earning less money and there’s no boss you can talk to, you weren’t told about it, you just see your income is lower today and you just have to deal with it’. A third Uber driver, Khaled, said ‘We need to speak the truth. I work 70-80 hours a week and weekends it’s 14-16 hours a day. There are plenty of days where, minus petrol, I make less than minimum wage. 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. I wish I knew what I know now earlier,’ he said. ‘I was blindsided. If I knew about the expenses, just how expensive it is to do this gig, then I wouldn’t have gone into it in the first place’. The legal limit for a bus or lorry driver is 56 hours a week.

Another Uber driver, Razak, said: ‘Once Uber got control of the market, they changed in the worst ways. When I started I made 80% of the fees from my fares with 20% going to Uber. Now they are charging anything they want, sometimes taking as much as 60%. All drivers are asking for is fair pay, and that’s what Uber won’t give to us. They are not willing to be transparent. They are willing to change the logo, they are willing to advertise, to spend millions on lobbying, but they are not willing to pay the drivers fairly. Uber treats drivers as just something they have to deal with until technology for autonomous cars gets to the point where they can eliminate drivers all together. They don’t listen to us’. 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 in 2017 when an employment tribunal ruled that Uber drivers were not self-employed, and were entitled to holiday pay, pensions and other workers’ rights. In 2018 it appealed against this ruling but lost. The Appeal Court judges found there was a “high degree of fiction” in the wording of the standard agreement between Uber and its drivers. The judgement went on to state that “For Uber to be stating to its statutory regulator that it is operating a private hire vehicle service in London and is a fit and proper person to do so, while at the same time arguing in this litigation that it is merely an affiliate of a Dutch-registered company which licenses tens of thousands of proprietors of small businesses to use its software, contributes to the air of contrivance and artificiality which pervade’s Uber’s case.” (Butler, 2018). Uber is appealing this latest judgement.

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.’

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. The European Parliament has approved new minimum rights for workers in ‘gig economy’ jobs, including Uber drivers. Under the European Union (EU) regulations, casualised employees across Europe will have a right to compensation from their bosses for last-minute cancellation of work, mandatory training will have to be provided free of charge, and ‘exclusivity clauses’ that ban workers from taking other jobs will also be banned. The UK could end up following EU rules at this point if the Brexit transition period is extended, meaning the rights could apply to workers in the UK. However, if the UK leaves the EU earlier, employees will not benefit from the rules and will probably be exposed to harsher employment conditions (Stone, 2019).

In 2017, Uber was rocked by a former employee’s devastating assessment of her time working at the company. She detailed several instances of sexual harassment and a culture that did not welcome women. In response, Uber launched an investigation involving more than 100 ‘listening sessions’ across the company. The report concluded that ‘The focus of the company had been on the business and not the employees’ and that the atmosphere at the company had created a ‘cult of the individual’ (Lee, 2017).

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. At an appeal, a court decided Uber should be awarded a 15-month probationary licence to operate in London after the ride-hailing service promised improvements.

From March 2020, the global pandemic crisis has brought very many challenges. Uber has not been immune from the global shock. For a company founded on breaking down traditional ways of thinking, what is now being disrupted is their business model, because hardly anyone is moving during extended periods of lockdown. The severe downturn badly hit Uber drivers. Uber also began to make customer support and recruiting teams redundant, in an effort to cut costs.

Uber has been accused of exploiting its gig-economy model during the crisis. By avoiding treating its drivers as employees, many have been denied the coronavirus sick-leave benefits or any support from the UK’s furlough scheme. By April, drivers for the company had died after being infected by Covid-19. With no alternative income, many continued to work because they desperately needed the money. As a key part of London’s transportation infrastructure drivers were “in a position where they were meeting people throughout the day who could be infected” (Chowdhury & Rudgard, 2020).

In an effort to keep part of its business operational Uber launched its Uber Medics programme. It also provided discounted journeys for key workers, and created a food delivery service for customers who were self-isolating and could not get a delivery from conventional food retailers due to the very high levels of demand. The company announced it planned to provide millions of face masks to drivers and food delivery workers who were still active. In order to work, drivers would have to wear face masks and disposable gloves while driving. Hand sanitisers and more stringent cleaning requirements were also introduced. This is, in part, recognition from Uber that its future ultimately depends on the health and well-being of its almost 50,000 drivers in London. Whether this leads to better long-term treatment of these gig economy workers, only time will tell.