Strategy Lecture 2 PDF

Lecture 2 – Case Study on Uber – Value & Strategic Positioning Prof. Dr. Eva Niesten Use Edusign QR code to register attendance LECTURE 2 – Case Study on Uber Practicing with a quiz Value cr...

Lecture 2 – Case Study on Uber – Value & Strategic Positioning Prof. Dr. Eva Niesten Use Edusign QR code to register attendance LECTURE 2 – Case Study on Uber Practicing with a quiz Value creation and capture Strategic positioning 1. Recap Lecture 1 Uber strategy by CEO Dara 2. Case Study: Uber Video Khosrowshahi 3. Uber’s Value Creation Capital raised, net revenues, & Capture patents, acquisitions 4. Uber’s Strategic Positioning Use ROS and AT Cost or differentiation strategy? 5. Uber’s Profits & Future Growth? 2.1 Recap Lecture 1 Theory ► Explore theory and strategic tools (“tell me”) CM (increase awareness of managerially relevant problems and Lecture halls analyze solutions through readings, videos, in-class discussions, and exercises) Cases CM ► Explore empirical contexts (“show me”) Lecture halls (show application of strategic tools with four detailed case studies) ► Consultancy project (“involve me”) TD (apply the strategic frameworks and tools to analyze the strategy of Team-project Project tutorials a chosen firm) 3 2.1 Recap Lecture 1 What you were asked to prepare: Watch the following video tutorials available on K2: (a) Data collection; (b) Strategic positioning analysis in Excel Read the case study and supplementary materials on Uber on K2 We will discuss Uber’s strategy based on the interview with Uber’s CEO Get ready to provide your answers to the case study questions on K2. 2.1 Practicing with a Quiz Question 1. Strategic fit refers to: a. The need for a firm’s strategy to be consistent with its vision, mission, and culture b. The consistency of a firm’s strategy with its external and internal environments c. The need for a firm’s strategy to be unique d. The need for a firm’s strategy to fit the needs of all its stakeholders, not just shareholders Practicing with a Quiz Question 2. The total value created by a firm is equal to: a. The total revenue the firm receives for the products it sells b. The total revenue the firm receives less the cost of bought-in materials and components c. The sum of producer surplus and consumer surplus the firm creates d. None of the above Practicing with a Quiz Question 3. Consumer surplus is equal to: a. The amount consumers pay for a product b. The difference between the amount consumers would be willing to pay for a product and what they actually pay c. The difference between the sales value of a firm’s output and the direct costs of producing it d. The amount consumers pay for a product adjusted for the social costs and benefits of the product Practicing with a Quiz Question 4. The primary distinction between corporate strategy and business strategy is: a. Corporate strategy is the responsibility of the CEO, business strategy is formulated by the heads of business units b. Corporate strategy is concerned with where the firm competes; business strategy with how it competes in particular markets c. Corporate strategy is concerned with establishing competitive advantage; business strategy with strategy implementation in individual businesses d. Corporate strategy is concerned with the long-term performance of the firm; business strategy with resource deployment. Recap Lecture 1: Value creation & capture The ultimate goal of strategy is value creation and capture, where value is: “Net rent earning capacity of an asset or resource, tangible or intangible” or “the monetary worth of a product or asset” The purpose of business is: 1. To create value for customers (and society) 2. To appropriate or capture some of that customer value in the form of profit. Recap Lecture 1: Value creation & capture Producer’s rent = Price of the product minus costs = profit The ultimate goal of a firm and its strategy is profit maximization. Recap Lecture 1: Value creation & capture Value creation = value captured by firms + consumer surplus Consumer surplus: Consumers pay less for the goods and services they buy than the value they derive from these purchases. Recap Lecture 1: Profitability ratios  Recap Lecture 1: Two sources of competitive advantage: Porter’s generic strategies to achieve competitive advantage: Recap Lecture 1: Using performance data to determine the type of strategy: Operating effectiveness, commercial margin, nature of the firm competitive system Net Income (or Operating Income) Return On Sales (ROS) = Efficiency at using its assets Net Income to generate earnings (%) Sales Return On Assets (ROA) = Sales (or Total Revenues) Net Income (%) Asset Turnover (AT) = Total Assets Sales (coef) Total Assets Total Assets Global effectiveness, capital intensity Recap Lecture 1: Using performance data to determine the type of strategy: Return on Sales (Net Income/Sales) Differentiation ROS1 strategy Mixed strategy “Stuck in the Volume strategy: middle” cost-leadership ROS2 AT1 AT2 Asset Turnover (Sales/Total Assets)  1. Case Study Discussion A. What is Uber’s strategy? 16 1.2 Interview with Uber’s CEO 1.2 Interview with Uber’s CEO To become the Amazon of transportation (not an app but a platform) Global provider of multi-modal Mobility as a Service (MaaS) Uber’s platform to incorporate multiple modes and product line extensions $8.5 trillion addressable global market (10% of the world’s GDP) Big goal for Uber to replace car ownership 18 1.3 Uber’s Value Creation & Capture Uber Taxi Buber Btaxi Puber Ptaxi Cuber Ctaxi $ $ Buber > Btaxi ? → Consumer surplus Puber > Ptaxi ? → Value capture / Cuber < Ctaxi ? producer surplus Source: toddwschneider.com  1.3 Uber’s Value Creation & Capture Capital raised (million USD – histogram scaled using log values) Capital raised in: 8600 7700 Seed funds 3150 Series A-E financing Private Equity IPO 364.2 200 107.3 57.9 29.9 4.2 1.6 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Ubercab Uber Technologies, Inc. new CEO IPO Garrett Camp, Travis Kalanick, Dara Khosrowshahi Ryan Graves (ex Expedia Group)  1.3 Uber’s Value Creation & Capture Net Revenues (billion USD) Cumulative number of patents applied for and/or acquired worldwide 37.3 3138 3053 2697 31.9 1784 Patented technologies: ► Guided routes 1037 ► Geosearch ► Rideshare 17.5 476 ► Autonomous vehicles 13 11.3 11.1 172 6.5 7.5 79 48 0.5 1.5 11 18 0.1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Ubercab Uber Technologies, Inc.’s new CEO IPO Garrett Camp, Travis Kalanick, Dara Khosrowshahi Ryan Graves (ex Expedia Group) 21  2009 Legend 2010 Ubercab Ryan Graves 2011 Garrett Camp, Travis Kalanick, ► Target name (technology) 2012 2013 Uber Technologies, Inc. 2014 ► DeCarta (Geospatial) 2015 ► Otto (Robotics) ► Geometric Intelligence (Machine Learning) 2016 1.3 Uber’s Value Creation & Capture ► Complex Polygon (Analytics) ► Swipe Labs (Enterprise Software) 2017 new CEO (ex Expedia Group) Dara Khosrowshahi ► JUMP Bikes (e-Bikes) 2018 ► Careem (Ride Sharing) ► Mighty AI (Artificial Intelligence) IPO 2019 ► Cornershop (Grocery Delivery) ► Postmates (Delivery) ► Routematch Software (Information Technology) 2020 ► Autocab (SaaS) ► Drizly (Alcohol e-Commerce)  1.3 Uber’s Value Creation & Capture - DESIRED Benefits: B Market power (monopoly rents) Superior service Shorter wait times for passengers >> B-P Strong network effects Low fares First-mover advantage P Economies of scale and entry Superior resources (ricardian rents): barriers Sophisticated AI algorithms >> P-C Monopoly control Patented technologies and intangible assets C (Tangible) asset-light business model € The The Firm-Strategy Environment-Strategy Interface Interface 23 https://www.forbes.com/sites/lensherman/2019/05/06/uber-should-be-judged-on-its-own-merits-not-amazons/?sh=3213fe8d1fc3  1. Case Study Discussion B. What is Uber’s strategic positioning? 24  1.4 Uber’s Strategic Positioning UBER? B’2 Rival B1 P’2 B’’2 P1 P’’2 C’2 C1 C’’2 € € € DIFFERENTIATION? COST-BASED LEADERSHIP? 25  1.4 Uber’s Strategic Positioning Return on Sales (Net Income/Sales) Differentiation ROS1 strategy Mixed strategy “Stuck in the middle” Cost-leadership ROS2 AT1 AT2 Asset Turnover (Sales/Total Assets) 26  AT ROS 1.4 Uber’s Strategic Positioning 2023 2022 2021 2023 2022 2021 Uber 0.96 0.99 0.45 0.06 -0.30 -0.06 Lyft 0.96 0.90 0.67 -0.08 -0.39 -0.33 DiDi 1.34 1.07 1.14 0.00 -0.17 -0.28 Asset Turnover (AT) = Sales Total Assets Return On Sales (ROS) = Net Income Sales 27  1.4 Uber’s Strategic Positioning Ride-hailing Strategic Positioning Ride-hailing Strategic Positioning (2022) (2023) 1.10 1.10 0.10 Ola DiDi LyftUber -0.90 0.10 Grab Uber Lyft DiDi Grab -1.90 ROS -0.90 -1.90 -2.90 ROS -3.90 Gojek -2.90 -3.90 -4.90 -4.90 -5.90 0.00 0.20 0.40 0.60 0.80 1.00 1.20 -5.90 0.00 0.50 1.00 1.50 AT AT Ride-hailing Strategic Positioning Ride-hailing Strategic Positioning (2020) (2021) 1.10 1.10 0.10 DiDi 0.10 Uber Uber Lyft DiDi -0.90 Lyft Ola -0.90 Ola -1.90 ROS -1.90 ROS -2.90 -2.90 -3.90 -3.90 -4.90 Gojek -4.90 Gojek -5.90 Grab Grab -5.90 0.00 0.50 1.00 1.50 0.00 0.20 0.40 0.60 0.80 1.00 1.20 28 AT AT  1. Case Study Discussion C. Is Uber’s business strategy effective? 29  37.3 1.5 Uber’s Profits & Future Growth 31.9 Net Revenues (billion USD) Cumulative number of patents applied for and/or acquired worldwide Net Profit/Loss (billion USD) 17.5 13 11.3 11.1 6.5 7.5 0.5 1.5 0.1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 -2.0 -1 +2.3 -3.0 -3.0 -4.1 -6.7 -8.6 -9.4 Ubercab Uber Technologies, Inc.’s new CEO IPO Garrett Camp, Travis Kalanick, Dara Khosrowshahi Ryan Graves (ex Expedia Group)  1.5 Uber’s Profits & Future Growth “[…] Many observers over the years boldly claimed that we would never make any money…But we knew they were wrong”. Dara Khosrowshahi, Uber CEO In August 2023, Uber posted its first-ever operating profit. The results were driven by a growth in the number of rides in the U.S. and Canada, surpassing pre-pandemic levels for the first time, and stable demand for delivery despite restaurant re-openings. https://www.wsj.com/articles/uber-q2-earnings-report-2023-453c335a 31 1.5 Uber’s Profits & Future Growth Source: Google Finance 32  1. Case Study Discussion D. Will Uber Continue to Grow? 33  1.5 Uber’s Value - ACTUAL Benefits: B Superior service? ► Undifferentiated service (despite diversified Shorter wait times for >> B-P Market power (monopoly rents) acquisition portfolio) passengers? Weak network Low fares? effects? ► Ride-hailing as a commodity service making Superior resources P Limited economies customers flip between apps to find cheapest or (ricardian rents): of scale and low fastest alternative Sophisticated AI algorithms >> P-C entry barriers? Patented technologies and Fierce competition? ► Weak network effects due to absence of customer intangible assets (Didi in China (exit), lock-in mechanisms (low switching costs) (Tangible) asset-light C Grab in SEA (exit), business model Lyft in the US and ► Low barriers to entry (also due to relatively Canada, Cabify and abundant access to capital) 99 in Brazil) ► Competition against public transportation that is € inherently cheaper and heavily subsidized ► Uber does not own its distribution assets (vehicles or drivers) Intense competition to attract riders and need for sizable incentives/bonus payments to recruit and retain drivers https://www.forbes.com/sites/lensherman/2019/05/06/uber-should-be-judged-on-its-own-merits-not-amazons/?sh=3213fe8d1fc3 https://www.forbes.com/sites/lensherman/2019/06/02/can-uber-ever-be-profitable/?sh=29e324665785  1.5 Uber’s Profits & Future Growth Amazon (second-highest valued publicly ► Uber faces important growth constraints traded company in the world) has not been Business model is relatively easy to imitate making significant profits for almost 20 years (threats from competitors with fleets) BUT… Scalability constraints in major metro areas (limits on road space and driver supply) Amazon’s focus was on cash flow (not Increasing oil price accounting profit maximization) Resources to invest aggressively in capital Regulatory threats due to Uber’s negative expenditures and R&D to fuel growth externalities (congestion, emissions) Municipalities unwilling to subordinate their Built barriers to entry by investing in physical public transport to Uber’s MaaS platform assets (superior order-to-fulfilment cost- effectiveness, cloud services scale economies) City transit agencies have statutory restrictions Prime program for customer loyalty against paying a booking fee on transit fares What actions could Uber undertake to create and capture value in the long run? https://www.economist.com/business/2019/04/27/can-uber-ever-make-money?utm_medium=cpc.adword.pd&utm_source=google&ppccampaignI… 35 https://www.forbes.com/sites/lensherman/2019/06/02/can-uber-ever-be-profitable/?sh=29e324665785  What’s Next? Get ready for the next session □ The next session is a lecture on Industry Analysis □ Read the book chapters on the CONNECT platform Office hours for Q&As Eva: by appointment Course coordinator (Bruno CIRILLO and Ambra MAZZELLI: by appointment)