ethical dilemma

Uber can’t be ethical – its business model may not allow it

The firm’s business model suggests something has to give: either its imperial ambitions or its presence in markets which hold it to account.

Following Transport for London’s decision to withdraw Uber’s license to operate in London, there has been a widespread picking over of the ride-hailing app’s recent history – and speculation about its future. A fairly common conclusion is that Uber needs to become more ethical if it is to survive.

I want to suggest that this may not be possible. After the calamitous year Uber has had, it should not be difficult for the company to improve its reputation – simply by avoiding many of the unnecessary embarrassments heaped upon itself in 2017. However, merely improving its PR will not get Uber out of the hole it has now dug for itself. It is looking as though, in many territories such as London, Uber’s survival will rely on concrete measures to better care for both its drivers and customers.

Herein lies the problem. It is not that Uber is incapable of such ethical measures. But for this company specifically, the additional cost that is required to look after drivers and customers is likely to be too great. It all comes down to the economic model on which Uber is built.

There is a great tendency among commentators to focus on the capabilities of Uber’s app, when making sense of its explosive growth across the world. This is a mistake. Figuring that Uber’s app explains its growth is like putting the birthday cake’s appeal down to the candle on top. The engine of Uber’s growth to date has been the $11.5 billion it has raised from banks and investors. The company has never made a profit, and in 2016 alone lost nearly $3 billion.

These are staggering amounts, and to make sense of them we need to understand that Uber’s business model is the same as Amazon’s. Amazon became the dominant retailer on the planet by burning through huge sums of investment on the way to becoming a virtual monopoly over an ever-increasing number of sectors. Only then was Amazon able to exploit its position and generate the vast profits expected by those that funded its expansion. Effectively, what both companies surely rely on is investors subsidising the prices customers pay in the short term, in return for a long-term monopoly with higher prices.

Trump card

In reaching this point, Amazon has itself received plenty of criticism, particularly around its tax arrangements and working conditions in its Orwellian “fulfilment centres” (warehouse to you and me). But Amazon has benefited, throughout its growth, from a trump card: its use of a virtual shopfront makes its overheads significantly lower than bricks-and-mortar rivals.

Uber’s fundamental problem is that it does not have this advantage. In his comprehensive critique of Uber, transport expert Hubert Horan made a key observation about the taxi business, which separates it from retail. While shops have used economies of scale to operate first nationally, then internationally, for over a century, taxi companies have remained highly localised. The reason for this, argued Horan, is that the economies of scale are not there for the taking in this market. Some 85% of taxi company costs are drivers, cars and fuel, and this applies whether you cover one city or a dozen.

Not only does Uber not avoid these costs, its model actually introduces new ones. Most dramatically, the costs of becoming established in new markets is vast. This, particularly the artificial subsidising of passenger fees/driver wages to drive growth, is the source of the $3 billion net loss last year. Ultimately – whether in the form of debt or equity – these sums will have to be paid back, and then some.

Eventually, this additional cost will be felt. Either the driver has to bear it, and so is motivated to look to rival employers, or the customer does, with the same outcome. Uber’s hope must be that when it gets to this stage there will be no alternatives left to chose from.

Elusive goal

So can Uber afford to become ethical? Its growth to date has been so costly that even after the raft of regulations it has managed to sidestep, and measures forcing down the income of its drivers, it is losing billions every year. In a properly regulated market, in which Uber has to give its drivers appropriate employment protections, and passengers the safeguards they need, its goal of apparently aping Amazon becomes even harder.

If Uber can achieve market dominance before it runs out of funding, the inefficiencies in its model cease to matter. Society will simply have to carry the cost of higher fares and lower driver wages.

If it fails to achieve near monopoly status and has to continue to compete against local firms, in my view it has little hope of ever repaying its investors. For customers that travel to different cities frequently, Uber’s scale gives them a clear edge. For everyone else, is an app slightly shinier than its competitors’ clones enough to outweigh the higher fares that should come with Uber’s model?

Should Uber ultimately fail, it would open up the possibility of a taxi company fit for the 21st century. One that harnesses the possibilities of digital technologies not to enrich venture capital, but drivers themselves, in the form of cooperatives like the one currently developing in the absence of Uber in Austin, Texas.

Murray Goulden, Senior Research Fellow, University of Nottingham.

This article first appeared on The Conversation

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Getting the best from collaborations

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Meena Ganesh shares a similar view when she says that entrepreneurs offer an outsider’s fresh perspective on the existing gaps in healthcare. They are therefore better equipped to offer disruptive technology solutions that put the customer right at the center. Her own venture, Portea Medical, was born out of a need in the hitherto unaddressed area of patient experience – quality home care.

There are enough examples of hospitals that have gained significantly by partnering with or investing in such ventures. For example, the Children’s Medical Centre in Dallas actively invests in tech startups to offer better care to its patients. One such startup produces sensors smaller than a grain of sand, that can be embedded in pills to alert caregivers if a medication has been taken or not. Another app delivers care givers at customers’ door step for check-ups. Providence St Joseph’s Health, that has medical centres across the U.S., has invested in a range of startups that address different patient needs – from patient feedback and wearable monitoring devices to remote video interpretation and surgical blood loss monitoring. UNC Hospital in North Carolina uses a change management platform developed by a startup in order to improve patient experience at its Emergency and Dermatology departments. The platform essentially comes with a friendly and non-intrusive way to gather patient feedback.

When intrapreneurship can lead to patient centric innovation

Hospitals can also encourage a culture of intrapreneurship within the organization. According to Meena Ganesh, this would mean building a ‘listening organization’ because as she says, listening and being open to new ideas leads to innovation. Santosh Desai, MD& CEO - Future Brands Ltd, who was also part of the panel discussion, feels that most innovations are a result of looking at “large cultural shifts, outside the frame of narrow business”. So hospitals will need to encourage enterprising professionals in the organization to observe behavior trends as part of the ideation process. Also, as Dr Ram Narain, Executive Director, Kokilaben Dhirubhai Ambani Hospital, points out, they will need to tell the employees who have the potential to drive innovative initiatives, “Do not fail, but if you fail, we still back you.” Innovative companies such as Google actively follow this practice, allowing employees to pick projects they are passionate about and work on them to deliver fresh solutions.

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Another example is Penn Medicine in Philadelphia which launched an ‘innovation tournament’ across the organization as part of its efforts to improve patient care. Participants worked with professors from Wharton Business School to prepare for the ideas challenge. More than 1,750 ideas were submitted by 1,400 participants, out of which 10 were selected. The focus was on getting ideas around the front end and some of the submitted ideas included:

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As Arlen Meyers, MD, President and CEO of the Society of Physician Entrepreneurs, says in a report, although many good ideas come from the front line, physicians must also be encouraged to think innovatively about patient experience. An academic study also builds a strong case to encourage intrapreneurship among nurses. Given they comprise a large part of the front-line staff for healthcare delivery, nurses should also be given the freedom to create and design innovative systems for improving patient experience.

According to a Harvard Business Review article quoted in a university study, employees who have the potential to be intrapreneurs, show some marked characteristics. These include a sense of ownership, perseverance, emotional intelligence and the ability to look at the big picture along with the desire, and ideas, to improve it. But trust and support of the management is essential to bringing out and taking the ideas forward.

Creating an environment conducive to innovation is the first step to bringing about innovation-driven outcomes. These were just some of the insights on healthcare management gleaned from the Hospital Leadership Summit hosted by Abbott. In over 150 countries, Abbott, which is among the top 100 global innovator companies, is working with hospitals and healthcare professionals to improve the quality of health services.

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This article was produced on behalf of Abbott by the Scroll.in marketing team and not by the Scroll.in editorial staff.