Wednesday, April 12, 2017

The Challenge of Coherence in Innovation Companies: the case of Uber

In the article “The Coherence Premium” by P. Leinwand and C. Mainardi, authors proposed that companies that better align their core capabilities to market opportunities and set up their growing strategies from those inner skills are more profitable than the ones that pay too much attention to “external positioning”, tempted to expand to adjacent markets.

Even though this sound logical, it could be extremely hard to implement for young companies that are still trying to consolidate their skills and technology companies that are focused on disruptive innovation which can be often confused with a constant change of direction.

That is the case of Uber, a startup that had an explosive growth from its launch in San Francisco in 2011 and that was initially created as a luxury ride car service in its early days of 2009. Rapidly, the company found a more suitable business model that was aimed to orchestrate the needs of unsatisfied users, drivers and GPS data, to offer a unique service that is both personable and comfortable. Users could rate the drivers, have an estimate of the ride fare, split the cost with friends, and know exactly how far the car was. On the other side, the company could secure its sales through credit card automated payments, have a wide visibility of their customers (location, behavior) and set a standard for their ride service (cars must be in excellent condition both at the exterior and interior).

Driverless Cars
After a promising start and some downturns in the recent years mostly due to a fierce competition with companies like Lyft and Cabify, Uber is desperately trying to differentiate and is now working on introducing driverless cars to the market, which could completely change the user experience and thus the service the company provides. Could this innovation damage the structure of the business? Would the users value this new service? Is Uber underestimating the importance of the “personal” aspect in its service delivery? How will users rate the ride in this new situation? And more importantly, is Uber leveraging its core capabilities or creating new ones?

From my perspective, service provider companies experience enormous pressure to differentiate from competitors and Uber strategy is based in providing the highest value by an intensive use of technology and R&D -as in the case of self-driving cars. However, such large investment for a company with 5 or 6 years of operations could be a high risk endeavour in the long term. In the aim of scaling up, technology startups might take little time consolidating their core competencies, delivering a product that is too easy to copy and therefore being forced to upgrade their knowledge with the eyes of the world looking at them. Uber now has a tremendous pressure to successfully implement a technology that could have taken much longer in developing or in solving the regulatory framework needed to execute it; the company is probably trying to rush it before other competitors do it.

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