Critical issues in business management Uber disruptive innovation

Uber disruptive innovation market pull technology push radical sustaining

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Introduction

In simple terms innovation can be a new idea, device or method and by extension new product or service (Trott 2008). It can be a better solution meeting unidentified needs and expectations (Prahalad and Ramaswamy 2003). Innovation can be through new products, processes, services, technologies or business model. Significant innovative products, services and solutions have come up in the recent period essentially as a result of harnessing and leveraging technology.

Uber with an original slogan of “Everyone’s Private Driver” started as a ridesharing technology driven company. It developed a mobile platform to match passengers to drivers through user-friendly, convenient and reliable methods. Traditionally finding and using taxi service was a routine, hailing a ride based on chance, with alternatives of either owning a car or using public transportation. There were usually poor experience from customers (not able to hail a taxi) and a new way of private hire through easy to use application, payment and overall experience led to the success of Uber (Suslo 2016).



The following sections evaluate the nature of Uber innovation based on several considerations such as focus, levels, types followed by the various drivers, enablers and hindrances to Uber innovation. Finally based on this analysis, the definition of innovation is applied to identify whether Uber classifies as a disruptive innovation.

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Table of Contents

Introduction. 3

Nature of innovation – Uber 3

Focus of innovation. 3

Levels of innovation. 4

Type of Innovation. 4

Doblin framework. 5

Open vs Closed. 6

Speed of Diffusion. 6

Drivers of Uber innovation. 6

Enablers and hindrances to Uber’s innovation. 7

Uber – Disruptive innovation?. 8

Conclusions. 9

References. 10

Introduction

In simple terms innovation can be a new idea, device or method and by extension new product or service (Trott 2008). It can be a better solution meeting unidentified needs and expectations (Prahalad and Ramaswamy 2003). Innovation can be through new products, processes, services, technologies or business model. Significant innovative products, services and solutions have come up in the recent period essentially as a result of harnessing and leveraging technology.

 

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Uber with an original slogan of “Everyone’s Private Driver” started as a ridesharing technology driven company. It developed a mobile platform to match passengers to drivers through user-friendly, convenient and reliable methods. Traditionally finding and using taxi service was a routine, hailing a ride based on chance, with alternatives of either owning a car or using public transportation. There were usually poor experience from customers (not able to hail a taxi) and a new way of private hire through easy to use application, payment and overall experience led to the success of Uber (Suslo 2016).



The following sections evaluate the nature of Uber innovation based on several considerations such as focus, levels, types followed by the various drivers, enablers and hindrances to Uber innovation. Finally based on this analysis, the definition of innovation is applied to identify whether Uber classifies as a disruptive innovation.

Nature of innovation – Uber

Nature of innovation can be defined through several concepts, but mainly the focus, levels and the type are some of the often used formulations (Drucker 2014).

Focus of innovation

Based on the idea of the focus, innovation can be differentiated either as a technology push or market driven (Brem and Voigt 2009). Technology push is through research and development in new technology; driving new products which are then introduced. Innovation based on market pull is usually to fill the need/requirement of a product or a service or to find a solution to a problem and hence market-oriented (Brem and Voigt 2009).

Uber can be considered as innovation based on market pull, as it is a clear example of shared economy concept (market driven) which is also technology driven movement. Hence while technology has pushed the underlying concept of “shared economy”, Uber utilised the technology, to find a solution to the unreliability and lack of access to private car hire in most major cities and hence the need or requirement of a service as an alternative to the existing marketplace (Isaac 2014). Uber seeks to match passengers to drivers through its technology driven platform, which is easy to use, reliable and a solution to the pitfalls of the existing market dynamics (Kent and Dowling 2016).

Levels of innovation

Innovation is also associated with the levels and based on the extent of newness the level can be anywhere between incremental to radical; based on the impact, the differentiation can be sustaining to discontinuous (Garcia and Calantone 2002). Based on extent of newness, innovation can be new in a context or in the overall marketplace of ideas, which is incremental or it can be a radical/novel idea (Verganti 2013).

Based on the extent of newness, Uber can be considered as a radical innovation as it has shifted the lifestyle and restructured the marketplace. Uber changed the method of gaining private transportation (Petropoulos 2016). Further it introduced the shared economy based on experience over ownership and with UberX, led to the consumer driven peer-to-peer rental market for the taxi services (Isaac 2014). Uber has been a completely new idea in the overall marketplace, shifting the lifestyle of consumers and taxi service providers.





Based on the impact, sustaining innovations improve the performance of established products/services were as discontinuous undermine the established products/service (Verganti 2013). Uber has not undermined the way people move (transported) from one point to another as it uses the established product/service (taxi car and taxi driver). Uber has adopted a sustaining innovation strategy, as it has targeted the existing customer base of taxi services, but the success is due to superiority in accessibility, convenience and reliability (Suslo 2016). Further Uber is expanding its network and functionality and hence enabling customers. Uber has not undermined the established practice of hailing a taxi, but it operates parallel to the traditional taxi services and also in tandem (as it has to use taxi drivers and taxi cars).

Type of Innovation

Product and technology innovation was the value growth driver for organisations and innovations can be either in the area of product, service, process or strategy. Uber innovation can be considered under a service, process and strategy.

  • It improves the service of transportation through on demand, user-friendly technology.
  • It improves on the process adopted by customers in hailing a ride (taxi).
  • It has a strategy based on the concept of shared economy.

Doblin framework

According to Deloitte (2016) the innovations can be a combination of 10 types as given in figure (1), which can be used as a framework for discovery as well as a diagnostic tool, enabling analysis of competitive environment, revealing gaps and potential opportunities.

 

Figure 1 – Doblin framework

Source – Deloitte (2016)

Configuration Offering Experience
Profit Model Network Structure Process Product Performance Product System Service Channel Brand Customer Engagement
Profit-sharing Shared economy (connect a desire to earn money on the side to consumers). Leveraging social media to gain public support Technology, not ownership of physical assets, price control, rapid scalability



 
Online, data driven algorithm Peer-to-peer, on-demand, online platform, low-cost, simple, efficient, enjoyable No cash (credit card), rating system short wait times, GPS based Online, easy to use technology driven platform on customer’s mobile On-demand, everyone’s private driver

Table 1 – Doblin framework applied to Uber

Source – developed by author

Open vs Closed

Uber is based on open innovation principles as it has used internal and external ideas, worked with smart people both inside and outside and has limited control over intellectual property of its services as competitors have emerged as copycats.

Speed of Diffusion

Diffusion is the process by which an innovation is communicated over time among the participants in a social system (Taylor 2013). It is difficult to evaluate the speed of diffusion of Uber innovation as it is concentrated on geographies (largest cities); however these geographies are famed for innovators and early adopters. Further the diffusion of innovation depends on smart phone and credit card usage and hence to spread the innovation and hence increase diffusion, external factors are important. Within the geographies it operates, Uber is at a stage of early majority or have captured about 30% of the market.

Drivers of Uber innovation

 

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  1. Value migration

According Prahalad and Ramaswamy (2013) value migration is the shifting of value creating forces. Value migrates from outmoded business models to business designs that are able to satisfy customer priorities. Customers found Uber to provide more value through their business model. Technology driven business model matches passengers to drivers; offer value through simple, efficient and enjoyable service experience. Convenience value increased through surge pricing to incentivise more drivers (supply).

  1. Community and social expectations and pressures (giving back to the community, doing good etc.)

UberX low-cost hybrid cars provide environmentally friendly transportation service, at the same time lowering the cost of services and hence meeting differential expectations and pressures.

  1. Demographic, social, and market changes.

Social and market change of shared economy concept with preference for experience over ownership is taken forward by Uber through its data driven technology platform. Market change in terms of upwardly mobile customers with smart phones and credit cards are also drivers.

  1. Rising customer expectations regarding service quality.

Consumer expectations of “ubiquity” (on-demand) taxi services along with clean and stylish vehicles at any moment and location. UberX is based on unmet demand for cheaper transportation service.

  1. Greater availability of potentially useful new technologies coupled with the need to keep up or exceed the competition in applying these new technologies.

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New technology (online service companies utilising the data driven algorithms) contributing to exceed the concept of shared economy or applying technology to consumer’s desire to earn money on the side through shared profit Model.

  1. The changing economy.

Developed from the concept of shared economy or the desire to earn money on the side through shared profit models.

Enablers and hindrances to Uber’s innovation

Individual

Travis Cordell Kalanick is certainly a major enabler in Uber’s innovation. The extent and range of individual networks especially venture capitalists, the technology industry pioneers and executives and general public support through social media has contributed to Uber innovation.

Organisation

Uber innovation was the result of environmental scanning, identification of customer needs and based on the ideas of the founder Travis Cordell Kalanick who is also an innovation activist. Environmental scanning by the founders indicated a gap in positioning in the market where people accessed taxis by “chance” and there was a need for on-demand (any time anywhere) services. There was a deconstruction of the traditional business model in the short haul transportation (in city transport) and utilisation of the incremental scope of sharing economy. The relevant products and services (taxi, limousine) were heavily regulated industry and there was no significant change in the sector for long as the profit model remained stagnant. The concept of sharing economy removed the existing biases related to profit model (sharing profits). Further the incremental innovation at Uber led to surge pricing strategies to increase the convenience to the customer, as it led to increasing supply of drivers. Most essentially the sharing economy led to opportunities for partnering with individual car owners who could earn money, with the assets (cars) they owned for their own use and working at their convenience. The success of this partnership, enabled through online technology platform has enabled innovations at Uber.

Environment

Uber’s continued innovation (UberX) was the result of competition from copycats and with regard to options provided to the customers there seems to be incongruity between offering convenience or affordability. This seems to be a stumbling block in Uber’s innovation and hence a hindrance. Apart from this the opportunities for Uber and hence continuing innovation and ultimately its success depends on sorting out the regulatory issues the company faces in different cities. Inter-organisational association from technology industry pioneers and executives is definitely an enabler of Uber innovation. Further Uber is utilising and leveraging social media and hence engaging the customers to gain acceptance from regulators and traditional competitors.

Uber – Disruptive innovation?

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A disruptive innovation according to Christensen (2013) creates a new market and value network. Furthermore as per Guttentag (2015) it has to disrupt an existing market and value network displacing the established firms, products and alliances. Several innovations are commonly classified as disruptive; however majority of them does not follow the characteristics of disruptive innovation.

Uber’s innovation is definitely a radical; however it is difficult to categorise it as a disruptive force in the industry. Uber is coexisting with the traditional players in the industry – individual taxis, limousine companies still operate, although their bargaining power has reduced. Uber innovation is based on market pull, and it utilised technology to find a solution to a common problem or more traditionally the way of doing things (hailing a taxi by chance). The radical basis of Uber innovation is due to its extent of newness; however the idea is an extension of the shared economy and one of the early leaders and pioneering companies of the shared economy is AirBnB, which matches room seekers to homeowners (Guttentag 2015). Uber adopted the concept and introduced it in the local transportation sector and hence it is not a completely new concept.

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Uber has not undermined the way people move (transported) from one point to another. It uses the established product/service (car and driver). Uber’s is a sustaining innovation strategy, as it has targeted the existing customer base of taxi services, but the success is due to superiority in accessibility, convenience and reliability. Further Uber is expanding its network and functionality and hence enabling customers. Uber has not undermined the established practice of hailing a ride, but it operates parallel to the traditional taxi services and also in tandem (as it has to use drivers and cars).

Hence Uber cannot be classified as a disruptive innovation as it has not created a new market, although it has definitely disrupted it. Uber caters to the existing market for customers using local transportation services (taxi). Perhaps Uber has increased the market of customers who rent taxis rather than own a car as an extension of the sharing economy; however the new market could be negligible. On the other hand it has created a value network and has disrupted the existing value network and slightly displacing the market players, products and alliances. However it has not completely displaced taxis and limousine services.

Conclusions

Uber innovation is based on market pull and technology push, radical and sustaining. Several elements of Doblin group framework are applicable to Uber innovation. The speed of diffusion of innovation depends on credit card and smart phone usage and the number of competitors or copycats does lead to challenges for Uber. The main drivers of Uber are value migration, customer expectations, social and market changes and the availability of new technology. However the main driver is the changing economy of sharing/renting rather than owning or the sharing economy. The enablers of Uber innovation are the networks (social media and technology innovators), individual innovation, organisational capabilities and environmental factors such as customer engagement. The hindrances to Uber innovation comes from the highly regulated sector, increasing level of competition and the future reduction in the speed of diffusion as it has exhausted the markets with high credit card and smart phone usage. Uber definitely have the characteristics of being a disruptive innovation; however it has merely challenged the existing way of doing things. It is not a pioneer as the concept was initially and successfully utilised by AirBnB. However it has improved the value proposition and has altered the market conditions.

 



 

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References

Brem, A. and Voigt, K.I., (2009) Integration of market pull and technology push in the corporate front end and innovation management—Insights from the German software industry. Technovation29(5), pp.351-367.

Christensen, C., (2013) The innovator’s dilemma: when new technologies cause great firms to fail. Harvard Business Review Press.

Deloitte Development LLC (2016) Doblin, [online] available at https://www.doblin.com/ten-types, accessed on 7 November 2016

Drucker, P., (2014) Innovation and entrepreneurship. Routledge.

Garcia, R. and Calantone, R., (2002) A critical look at technological innovation typology and innovativeness terminology: a literature review. Journal of product innovation management19(2), pp.110-132.

Guttentag, D., (2015) Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current issues in Tourism18(12), pp.1192-1217.

Isaac, E., (2014) Disruptive Innovation: Risk-Shifting and Precarity in the Age of Uber. Berkeley Roundtable on the International Economy BRIE Working Paper7.

Kent, J.L. and Dowling, R., (2016) The Future of Paratransit and DRT: Introducing Cars on Demand. In Paratransit: Shaping the Flexible Transport Future (pp. 391-412). Emerald Group Publishing Limited.

Petropoulos, G., (2016) Uber and the economic impact of sharing economy platforms, [online] available at http://bruegel.org/2016/02/uber-and-the-economic-impact-of-sharing-economy-platforms/, accessed on 23 October 2016

Prahalad, C.K. and Ramaswamy, V., (2003) The new frontier of experience innovation. MIT Sloan management review44(4), pp.12-18.

Prahalad, C.K. and Ramaswamy, V., (2013) The future of competition: Co-creating unique value with customers. Harvard Business Press.

Suslo, E., (2016) 6 Key Success Factors Behind Uber Growth, [online] available at https://taxistartup.com/blog/6-key-success-factors-behind-uber-growth/, accessed on 23 October 2016



Taylor, E.L., (2013) The Diffusion of Innovation. Research World2013(42), pp.55-55.

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Trott, P., (2008) Innovation management and new product development. Pearson education.

Verganti, R., (2013) Design driven innovation: changing the rules of competition by radically innovating what things mean. Harvard Business Press.