External environment and internal resources and capabilities form the company’s business potential. The external environment includes elements of the general environment, forces of competition, and the internal environment consist of the company’s resources, capabilities, and core competencies. A careful analysis of the business’ strategic elements allows making the necessary adjustments. This paper aims to apply strategic analysis to determine Uber’s business’s threats, opportunities, strengths, and weaknesses by analyzing its internal and external environment.
There are two segments of the general environment ranking highest in influencing Uber: the sociocultural and technological.
Uber is famously known for being a taxi service that started as an app helping drivers find travel companions. It was a bold, decisive, and innovative move based on the universal human propensity to interact and seek practical solutions. This decision was in many respects dictated by the unique sociocultural environment of the United States, where most adults own cars. Appealing to the sociocultural norms and traditions of the United States, a nation whose citizens are known for obeying the law and following the rules, led to the wild popularity of Uber. The service also quickly became popular in the European Union, where similar sociocultural norms prevail.
However, when the company extrapolated the business model into a global environment, it faced many problems. The most important issue was safety – both drivers’ and riders’ due to crime rates in countries with actively developing economies. In many countries, state and government bodies issued ultimatums that limited the ability of a company to hire drivers without a driver’s license. Uber has also faced a wave of protests from taxi drivers’ unions over low prices.
The use of technology determined the company’s success even more than the correct choice of sociocultural values that underlie any commodity exchange. The convenience and comfort of use of various gadgets such as smartphones, tablets, and smartwatches became the keys to Uber’s success. Nevertheless, the company should pay more attention to data protection after the scandal when hackers stole the data of more than 50 million users and drivers (Ball par. 1). This scandal revealed another unpleasant truth about the company: collecting data on users’ movements without their consent. While not all countries have relevant laws, this approach is an ethical violation of human rights, and the EU is already implementing strict bans on this activity.
Five Forces of Competition
The most significant forces of competition for Uber among the traditionally analyzed five forces are the bargaining power of buyers and the intensity of rivalry among competitors.
Bargaining Power of Byers
The bargaining power of buyers presents a powerful force of competition in the external environment. With the opportunities of Internet 2.0 and the ability to compare prices for similar services, the bargaining power of buyers has an increasing weight in all sectors of the economy. Given the similarity of services from different providers, no costs for switching to other service providers, and the company’s limited ability to diversify its product, this power is gaining influence (Hitt et al. 60).
Fortunately, Uber is a leader in diversification: today, the company offers food delivery services, taxis for corporate use, and freight transportation (“Uber’s Technology Offerings” par. 2). Less common services include boat-based transportation across the Bosporus in Turkey, helicopter transportation in Brazil, and car rental in Bali, Indonesia. Uber also strives to communicate its employee ethics and respect for the environment to improve its image with customers.
Rivalry among Competitors
Rivalry among competitors is another critical competitive force that can pose a threat to a company’s business. The situation in the industry can be characterized by high strategic stakes, excessive capacity, low switching costs, increased rivalry in the slow-growth markets, and numerous competitors (Hitt et al. 60). Uber is making efforts to diversify its services and reduce competition in the industry. However, the demand for food delivery and freight transportation is much lower than the demand for passenger transportation. Therefore, the use of innovation can be beneficial to create a competitive advantage.
Remarkably, Uber can influence the external environment and make it more favorable. There are many ways to improve a company’s image in the eyes of customers. First, the company must start an awareness campaign on ensuring the safety of customers and drivers. The campaign can use EWOM, Internet 2.0, targeted advertisements, and outdoor advertising. Diversification of services has potential, but it is not enough to make a sufficient impact. Sustainable advantages should have four criteria: the product or service being valuable, rare, costly to imitate, and nonsubstitutable (Hitt et al. 80).
The travel companion service is the only unique service provided by the company, but this service is losing popularity. Providing travel companion services is an essential feature of the company’s innovative and democratic image and its contribution to the democratization of societies worldwide. Therefore, Uber should spend significant resources partnering with the governments where it does business to ensure that the service can succeed. For example, Uber could work more closely with the police to ensure safety.
Greatest External Threat
The most critical threat is the threat to the company’s image. It exacerbates the problems associated with two mentioned competitive forces at once – the buyers’ bargaining powers and rivalry among competitors. After a bright start, Uber began to lose ground in the global market, losing out to local companies that provide safe services under the states’ laws. Uber has taken a strong position among other competitors, becoming a world-famous brand. However, if the trend of opposition from competitors continues, Uber can lose ground and the opportunity for expansion.
The company benefited other road taxi companies by bringing innovation to the industry, increasing the demand for services, and achieving an optimal cost-price-quality ratio to satisfy customers and drivers. Therefore, other companies can now take advantage of this and displace Uber from highly saturated markets. The company must use a negotiation and rebranding strategy to strengthen its position. It must convey to the consumer that Uber is the initiator of innovation and is ready to correct the mistakes made earlier. The company must restrict data collection without user consent, revise its security policy, and consider a strategy for entering new markets.
Expansion of the market in China is the most incredible opportunity, considering the projected growth of the middle class in the Asian-Pacific region. Uber should consider the sociocultural values of hospitality and belonging and the economic strategies of the planned economy. The service should not repeat previous mistakes, avoiding scandals, and addressing fake news. Uber needs to present itself as a reliable and trustworthy company that uses only legal practices and guarantees the safety of passengers. The company should build on its strengths, such as innovation, democracy, and high diversification of services. It should focus on emerging and developing economies, where competition is less intense than in the more saturated markets of the US, France, Germany, or Japan.
Strengths and Weaknesses
Uber has several undeniable benefits that have been successfully expressed by using the company’s resources, capabilities, and core competencies. Uber effectively used its resources to create capabilities that meet the requirements of its business. The most striking capability is the provision of quality passenger transportation services by professional drivers at affordable prices. It rests on developed core competencies in functional areas of distribution, human resources, management information systems, and marketing (Hitt et al. 88). The most significant weakness is the tendency to violate the states’ laws where the service operates and the inability to establish partnerships with government bodies.
Strategy or Tactic
Uber should have a clear strategy to maximize its strengths and address weaknesses. The plan to strengthen positions can focus on maintaining an ethical attitude towards employees and a smart approach to data analysis, traffic calculation, pricing, and customer acquisition. If Uber wants to expand in markets where official power has multiple levers of control, the company will have to forge partnerships. Otherwise, Uber could lose these markets to more traditional service providers.
Resources, Capabilities, and Core Competencies
The tangible resources of Uber include financial, organizational, physical, and technological resources. Then, the company’s intangible resources are human resources, innovation resources, and reputational resources (Hitt et al. 86). Financial resources feature the company’s capacity to borrow and generate funds and are sustainable. Organizational resources are formal reporting structures, and physical resources are distribution facilities and product inventory (Hitt et al. 86). Human resources feature knowledge, trust, skills, and abilities for collaboration; innovation resources are ideas, capacity to innovate, scientific research, and its application.
Finally, reputational resources feature the brand name and power, product quality and reliability perceptions, and a positive reputation with customers and suppliers. Human resources, especially abilities for collaboration, and reputational resources, namely perceptions of product quality, form the capability of competitive advantage in the new markets. Innovation is the core competence of Uber, which is widely applied to reinforce the power of the brand.
Ball, Tom. 2017. “Uber Data Breach Scandal: A Shocked Tech Industry Reacts to the Cover-Up”. Tech Monitor. Web.
Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. Strategic Management: Concepts and Cases: Competitiveness and Globalization. Cengage Learning, 2016.
“Uber’s Technology Offerings.” 2021. Uber. Web.