DECISION TRAPS IN BUSINESS - UBER - ANALYSIS PART OF THE PAPER

Team Assignment #1

Decision Trap in Business: Case Study of Uber

Michaela Adams

Institution affiliation

Decision Trap in Business: Case Study of Uber

Introduction

The analysis of decision trap in the case study of uber is based on a news article by Lee (2017) which elaborated on the different scenarios of success and failure for Uber in short & long run. The objective of this paper is to understand the decision trap Uber is facing for quite some time, and the losses are constant over the time. The research methodology in this paper is based on secondary sources and desk research is performed to analyze in detail. The need for designing a decision tree is not there because most of the data of Uber is not open to the public and they have no obligations to do so. The timeline of events, like the profitability and loss phases of the company is listed in the discussion. The two decision traps studied in this context are the sunk-cost trap and the status-quo trap. The company ‘Uber’ is peer-to-peer ridesharing, food delivery, taxi-cab, and transportation network company with its headquarter based in San Francisco, California. The USA based company relied on technology and ushered an era of cleaner, comfortable and cheaper rides for the common public. The paper follows the structure where the analysis and conclusion follow the introduction.

Analysis

The decision biases and traps associated with the history of Uber are status-quo and sunk-cost traps. For example, Uber lost approximately 2.8 billion dollars in 2016 alone. The real question is the dilemma where Uber kept on expanding while relying on the possibility that the company will become profitable over long-run, despite the losses it is incurring in short-run. The company shareholders and other stakeholders are worried about the scenario and it is one of the big scenario where Uber did not manage to give away the cost it already incurred. No doubt, the company is investing heavily on growth and R&D. The possibility of profitability is there, but the decision trap of sunk-cost is often viewed. Since 2009, the company is constantly facing losses and the losses are on increase each year. The company’s initial years are often compared to Amazon, which faced losses in the initial phases to achieve long-term success. Amazon waited for the future internet based and low-cost warehouse-based model which decreased the cost of making business for Amazon. Uber CEO Travis Kalanick raised 11 billion dollars from the venture capital investors to pay off the bills and is of the view that the cash in hand is still seven billion dollars. The CEO is also of the view that the 2.3 billion dollars cred line can also be tapped upon further growth intentions over the next couple of years.

Despite the heavy reliance on expansion in developing countries like India and investing in the development of self-driving cars, the company is creating a picture where different stakeholders are of the view that the fare a customer pays on a ride is still lower. On the contrary, the cost of allowing a low-priced rate is bearing the loss. The situation of Uber is a perfect example of sunk-cost trap because the company still believes that the company can grow in the long-run. Maybe it can increase over the long run, but that is something that no one can tell for sure right now. In the present moment, analysts are of the view that the company is justifying its past by making current choices. To avoid this trap, the company should get the view from the people who were not in the original decision making and remind oneself that making mistakes is a common thing. Lastly, the company needs to encourage failing if that is the price of innovation.

Similarly, the status-quo trap also exists within the company because the functioning of Uber is still in the same way and less affected by the direction the competitors are taking away the market share from Uber. Despite Uber being the pioneer, different international and local competitors are giving Uber the tough time due to its complying with the status quo. Top tier leadership of Uber should ask themselves about the achievement of real term goals and objectives with current status quo and whether the current state of status-quo is the first choice of the company at first place. Additionally, a serious approach to an understanding alternative is necessary to bring Uber back on profitability.

Conclusion

Uber has the ability and competence to compete for its rivals in the market and retain the share it once had. The sacrifice of short-term profitability for the sake of long-term sustainability is a sound strategy, but to understand the possibility of sunk-cost trap situation is vital for the success of its long-term objectives. To be competitive in the market, all Uber needs is to challenge its status-quo psychology and come up with new approaches to becomes successful and sustainable. The ability of Uber to replicate the example of Amazon should be averted if there are some prejudices associated with culture and psychology of Uber leadership. The long-term goals can be met by remaining profitable in the present so that the gamble of a ‘golden age’ is not a suicidal attempt of the company. It is not late for the company to bring up alternative solutions, but the real phenomenon is the realization of top-tier management. Lastly, Uber ability to innovate at first place through the use of technology can be replicated in the near future. The way Uber transformed the taxi transportation system shows the potential of the company to remain market leaders in the future.

References

Buchanan, L., & O Connell, A. (2006). A brief history of decision making. Harvard business review, 84(1), 32.

Hammond, J. S., Keeney, R. L., & Raiffa, H. (1999). The hidden traps in decision making. Clinical laboratory management review: official publication of the Clinical Laboratory Management Association/CLMA, 13, 39-47.

Lee, T. (2017). Uber lost $2.8 billion in 2016. Will it ever become profitable?. Retrieved from https://www.vox.com/new-money/2017/1/9/14194202/uber-lost-22-billion-9-months