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. Evaluate the PESTEL environment Surrounding Uber . Are Uber's practices ethical or unethical? . Evaluate Kalanick's leadership style using relevant leadership theories . How does Uber need to change its choices for the future?Pa 13: 5 93180006 encountered a strong backlash from employees during the year's first all-hands meeting in January 201 T. Employees were primarily critical of the president's immigration policies. In fact, President Trump's immigration stance was almost universally unpopular with workers and executives in the tech industry, many of whom were immigrants themselves or believed strongly in globalization.\" When New York City taxi drivers supported protests against President Trump's selective immigration ban by striking at John F. Kennedy International Airport in January 201?, Uber responded by saying that it was not going to institute surge pricing. This was perceived by the New York City taxi drivers as intimidation meant to break their strike, although it was unclear if that was actually the intent of Uber's press release."'2 Kalanick announced his departure from the council after only a week, but Uber employees had to convince him that he needed to distance himself from President Trump's policies. Employees circulated a 25-page letter in the workplace that listed the reasons employees wanted Kalanick to resign from the council. Meanwhile, more than 200,000 customers had deleted their Uber apps and accounts since Kalanick had announced he wouldjoin the president's council.\" There was considerable concern about how easy it was for them to delete the Uber app and replace it with Ly's.\" UBER'S USE OF BEHAVIOURAL SCIENCE Uber used a variety of psychological techniques to influence where, when, and how long its drivers worked. These approaches used graphics and video game techniques and included noncash rewards that enticed drivers into working longer hours. The company intended to minimize its labour costs as much as possible, and it oen needed drivers to work in areas and at hours that were not as protable for them as other times and places. At times, the company's own efciency worked against it because faster pickup times overall meant more idle time for individual drivers, and this led drivers to log off from service. To prevent this, and because many individuals felt comfortable with earnings goals, Uber alerted drivers to how close they were to achieving earnings targets, which prompted some drivers to remain available.\" While Uber was concemed with shortages of drivers in areas where demand existed or was forecasted, drivers were concerned with eaming a sufcient wage. Uber tried to inuence drivers to achieve dollar targets rather than working mainly when times were busy. One method Uber used to get drivers where it wanted them to be was by sending a continuous barrage of e-mails, texts, and pop-up boxes through the app to get the drivers' attention. Sometimes these messages were accompanied by small maps with icons that indicated where they should go. Some local managers also realized that in areas with a high percentage of male drivers, a female persona on the app produced better results in keeping drivers logged on for service.\"5 Uber also imitated an algorithm used by Netflix to keep its viewers watching. Uber automatically provided drivers with information on the next available fare opportunity, in effect, imitating Netix's technique that created binge-watching and was aimed at keeping viewers logged on. Uber's version used a technique called forward dispatch, which was an algorithm that sent drivers new fares before they had delivered their current customers to their destinations. This made Uber very efficient at choosing the closest driver, but it also resulted in drivers working longer hours. Uber revealed that the number one complaint drivers had that led to them sign off was idle time. Unfortunately for the drivers, Uber's app did not allow them to see the next passenger's destination before accepting the ride. Although drivers could pause the automatic forward dispatch feature, it re-established itself as soon as the driver accepted another ride or logged on again.\" In addition to the persistence of forward dispatch, drivers reported that Uber routinely resisted their efforts to log off. Uber usually responded with texts about earnings goals or encouraged the drivers to take another fare. Page 8 93106006 OUTLOOK FOR UBER What options did Uber have for their next plan of action? While Kalanick had helped to build Uber into an international transportation powerhouse that operated in more than 70 countries and had a value of approximately $70 billion, his often out-of-control style had also delivered the company to the brink of destruction.Tl Uber's LLS. market share declined in the rst six months of 2017 as consumers and drivers alike reacted to the variety of negative issues that clouded the company's future. By January 2017, approximately half a million subscribers had deleted the Uber app from their phones in a widespread campaign known as #DeleteUber.\" Rival on-demand provider Ly gained 7 per cent of the Chicago market during the same time period.13 Uber had earned its reputation, which was negative enough that having been employed at Uber was, for some employees, a black mark on their resumes. An anti-Uber website titled Why Everyone Hates Uber listed and described Uber's controversial practices. Uber had needed to change its practices for some time. Top leadership at Uber perpetuated a hostile workplace that was rampant with sexism: the company was accused of using stolen intellectual property. and it utilized behavioural science knowledge that manipulated rather than engaged its drivers.\" Many high-level executives besides Kalanick had le Uber by the middle of 2017. These included Jeff Jones, the company president who left after a six-month tenure, several high-level executives who left after the sexual harassment investigation. the vice-president of product and growth, and the top security researcher.\" After Kalanick's departure, top leaders at Uber quickly stressed the need for better top executives and an improved organizational culture,\" while commentators speculated about the advantages of hiring a female CEO to help turn around the corporation's culture.\" Uber had committed to self-driving cars, but it had not developed a solution to the current challenges with its drivers, which were signicant because the cost of changing to an employee-based work system was prohibitive.\" Finally, some analysts cautioned that Uber's nances needed better controls that would generate cash and stimulate outside investment.\"r There was no doubt that Uberneeded to move quickly and decisively. Uber was especially vulnerable while it changed direction and leadership. Some analysts noted that it was a perfect time for competitors to steal Uber's best remaining talent, who had proven skills, and it could be a dangerous time if company morale plummeted and consumer condence in Uber faded.\" @Ivey | Publishing 931 80006 UBER: KALANICK'S TUMULTUOUS ERA'E Rotten Eames wrote this case solely to provide material for class discussion. The author does not intend to illustrate either eil'ectiue or ineffective handling of a managerial situation. The author may have disguised cenain names and other rdentiijring information to protect condentiality. This purication may not be transmitted, photocopied, digitizedr or olhenvise reproduced in any icon or by any means without the permission of the copyright holder. Reproduction of this material is not covered under eudtorization by any reproduction rights organization. To order copies or request permission to reproduce rnatonais, contact lvoy Publishing, hrey Business School, Western University, London, Ontario, Canada, N66 BN1; ft) 519.661.3208; {e} casesQiuoyca; wwjveycasescom. Coangnt 2013 N8! Business School Foundation Version: 2018a0309 A new business model emerged in the 2010s that relied on technology that connected companies directly with customers and allowed them to conduct business without a formal workforce. This new form of commerce had been called the sharing economy, the gig economy, the platform, peer sharing, and even the tin-demand economy.2 Within this context, Uber Technologies, Inc. (Uber) transformed itself into an international transportation powerhouse that dominated its sector of the sharing economy in just seven years. Uber had gross booking revenues of US$54 billion} in 2016 and net revenue in the fourth quarter of that year of $1 .'? billion.4 It operated in 70 countries,S had an approximate valuation of $70 billion in 2111?," and maintained a polished web presence that was designed to reect regional cultural norms.T However, Uber's rise to prominence was controversial almost from the company's inception. The corporation had an increasingly contentious relationship with its drivers and was the subject of numerous lawsuits, which included a much-publicized sexual harassment lawsuit that eventually contributed to the departure of cofounder and chief executive ofcer (CEO) Travis Kalanick. What had been the substance of Kalanick's tumultuous era, and how had his leadership as CEO affected Uber's organizational culture? How did Uber's manipulation of its drivers through the use of knowledge derived from behavioural science affect the company's operations? And nally, after Kalanick had been fired, what were the options for Uber's next plan of action? KALANICK: THE PERENNIAL ENTREPRENEUR Kalanick was a product of the southern California suburbs. He attended high school in Northridge, just outside of Los Angeles. Kalanick's father was an engineer, and his mother pursued a career as a retail advertiser with the Los Angeies Daily News. When he was young, Kalanick was known for being condent, persuasive, and a particularly good salesmana quality he demonstrated as he sold knives door to door for Cutco. Some described the young Kalanick as a perpetual hustler who always had his game face on.\" Those who had known Kalanick when he was young agreed in interviews and other commentary that he was a smart, intense. hyper-rational, and driven entrepreneur. At the same time, many viewed him as both an egotist and an opportunist who had no compunctions about stepping on people's toes in order to succeed" Page 2 9B1BCOIB Kalanick started his rst business, an SAT-preparatory service called New Way Academy, when he was 18. His own impressive SAT scores helped him get accepted at the University of California, LosAngelas (UCLA), where he majored in computer engineering. This was where he met Michael Todd, Vince Busam, and Dan Rodrigues, who were working on a peer-to-peer search engine enterprise called Scour, which was supported by angel funding from their friends and relatives. Kalanick was hired at Scour in 1993, and he dropped out of college to work for the start-up. Although Kalanick was actually Scour's second employee, he often later described himself as one of the company's founders, sometimes to the dismay of the actual founders.\" Kalanick took no salary for a year, but instead lived on unemployment insurance while he devoted considerable energy and talent to the file-sharing enterprise. Working out of Rodrigues's apartment bedroom, Kalanick handled business development and marketing for Scour and became known for the guerrilla marketing campaigns he undertook to push the product name.\" Scour was ultimately sued for $250 billion by a group of entertainment companies that claimed Scour had allowed consumers to obtain copyrighted content without paying for it. The company led for chapter 11 bankruptcy in 2000.'2 After the demise of Scour, Kalanick had a new venture underway almost immediately. He and Todd launched Red Swoosh, atechnology company that focused on delivering web content and worked by having users share bandwidth. In effect, Red Swoosh was a networking software company. Kalanick called it his revenge company; he intended to make the customers of the companies that had sued Scour his customers. By mid-2001, the company had seven employees but was completely out of cash and struggled to meet its payroll obligations. Even worse, the nancial effects of the attacks of September I I, 2001, meant that start- up fundingespecially for companies in the software industrywas disappearing.\" As Red Swoosh struggled, the company cut corners and neglected its nancial responsibilities, including the responsibility to withhold income taxes from employees' paycheques. The company soon owed the U.S. Internal Revenue Service (IRS) $110,000 for unpaid income taxra criminal offence. The founders were able to pay the debt before the end of 2001. They avoided prosecution. but the company was almost nished nancially. Employees had gone through long periods without any pay at all, and disputes arose over stock options that were promised but not realized. According to insiders, both Kalanick and Todd had hidden business decisions from each other, and each had accused the other in the IRS debacle. Their amicable business relationship was permanently destroyed, and Todd le Red Swoosh. H After Todd's departure, Kalanick managed Red Swoosh through a series of ups and downs until 200?, when he sold the company to Akamai for $23 million. Many former employees of Red Swoosh later made negative comments about their impressions of Kalanick. noting his constant reinterpretation of events, his pomposity, and his winner-take-all attitude. Meanwhile, Kalanick had been working for three years without a salary and had lived in his parents' basement for a time after Todd's departure from Red Swoosh. He had relocated the company headquarters to Thailand as a cost-saving measure and had made numerous changes to the team in order to make Red Swoosh a success.[5 The sale of Red Swoosh made Kalanick a millionaire. He spent the rst year after the sale travelling the world and investing in various projects. During his travels, he met Garrett Camp, from whom he rst heard the idea for Uber. The company began as UberCab under Camp and co-founders Oscar Salazar and Conrad Whelan. Kalanick was brought on board in 2003 as an advisor, and he quickly gave himself the title of chief incubator. UberCab was ofcially launched in 2010 with Camp as CEO, but Camp, in an amicable arrangement, deferred to Kalanick at the end of the year. Kalanick became CEO, while Camp assumed the role of general manager. "5 Pa e 6 93180006 Uber often showed drivers a graphic of a dollar sign with a needle that did not quite reach the goal. Uber was merely mimicking a technique that game developers had used for years: Uber had created a ludic loopa psychological feeling of pro gress toward a goal that was always just out of grasp. Uber also used game-related metrics to inuence drivers; these included graphics measuring passenger ratings and time logged on.48 Uber had recently developed a feature for its app that stored drivers\" preferences and gave them more control over their schedules by letting them set the times and places they needed to be. This would be good for the drivers, and it also allowed Uber to forecast labour needs. However, there was no evidence that this change was implemented or disseminated to the drivers. As a matter of practice, Uber also gathered data on drivers' driving habits, such as braking and acceleration speeds, and collected customer comments. Certainly, Uber's engineers could have discovered ways to use this data to improve driver and customer safety.\" It could be argued that Uber's use of behavioural science was abusive to its drivers because the company maintained a low wage ceiling and inuenced its drivers with gaming techniques that could be considered unethical. According to one perspective, Uber manipulated its full-time drivers in ways that caused them to remain in a low-wagejob and enticed others to continue to operate personal businesses that would not allow them to make ends meet. One commentator indicated that Uber's drivers were paid with badges that did not cost Uber anything.\" By March 2017, the leadership at Uber knew they were in the midst of a serious cultural crisis, and the realization was undoubtedly powerful. Top leaders called a press conference and announced they had been rethinking their relationship with their drivers, who had complained about their indifferent treatment and shrinking pay for years? SELF-DRIVING CARS Uber's attitude of principled confrontation was never more apparent than in the corporation's quest to transition to self-driving cars. Uber had begun operations testing of self-driving cars in three states: California, Arizona, and Pennsylvania.52 In California, 20 companies were certified to begin testing of self- driving cars on state roads. Uber was not on the list, and the head of Uber's autonomous vehicle program, Anthony Levandowski, publicly declared that the regulations limiting self-driving cars without state permits did not apply to Uber.53 Uber used self-driving cars beginning in Califomia in August 2016, although the company neglected to inform the traffic division of the San Francisco Police Department. During the rst day of the pilot run in San Francisco, two of Uber's self-driving cars were observed running red lights. Although Uber could have received permits for its self-driving cars if it had submitted to the regulatory process, instead, it had taken a deant stance based on the form of technology it used. The corporation contended the technology made their cars different from other self-driving cars. Even after the mayor of San Francisco made a personal phone call to Uber to warn the company to stop using the self-driving cars, Uber officials responded in blog posts that called the requirement for a pemiit debatable.54 The California Department of Motor Vehicles responded through the state's attomey general with threats of immediate legal action.55 Uber's woes were exacerbated even more in early 201?, when Alphabet, Inc., the parent company of Waymo, asked for an injunction against Uber's use of self-driving cars and alleged that Levandowski had stolen the technology from Waymo when he was an employee there?" Uber later suspended all operations with self-driving cars when one of its vehicles crashed in a highly publicized incident in Arizona, although it appeared that the Uber car might not have been at fault.\" Pa e 4 95180006 The corporation's well-known aggressive philosophy and disregard for regulations was reected in the observable artifact that hung proudly on a wall at Uber's headquarters: the rst cease-and-desist order issued to the company. The company's reputation epitomized that of the Silicon Valley tech industry in general. For example. executives had an overall disdain for regulation, a penchant for flouting laws. an active anti-union stance, and a boy's-club atmosphere that devalued female employees and was often rampant with sexual harassment. Uber also used technology, such as Greyball and other cyber products that helped it evade government ofcials who were investigating Uber's operations.\" Uber used surge pricingthat is. raising rates at various times and locations when the corporation felt it could dominate the marketplaceto increase prots. Uber even instituted surge pricing during hurricanes and blizzards. Surge pricing infuriated users1 who perceived it as price gouging.\" CONTRDVERSIAL PRACTICEs In early ZOI 5, Kalanick had a meeting with Tim Cook. the CEO of Apple. Inc. (Apple). Although Kalanick showed up wearing his trademark hot pink socks and red tennis shoes. his bravado was short lived. Cook had summoned Kalanick because Uber technicians had unsuccessfully tried to alter the company's ride- sharing app so that its activities would be hidden from Apple's technicians. Kalanick had used the app to identify and tag iPhone userseven those who had deleted the Uber app from their iPhones. Kalanick agreed to desist after Cook threatened to remove Uber's app from Apple's app store. which would likely have decimated Uber's customer base.\" in mid-ZUIS. a privacy rights group. the Electronic Privacy Information Center (EPIC). led a lengthy complaint with the Federal Trade Commission against Uber. The complaint alleged that Uber's information gathering practices were dangerous to consumers. EPIC claimed that Uber collected data about passengers atter their rides were concluded by monitoring GPS data even after users had turned off their GPS location nders. This allowed Uber to access users' contact lists for marketing purposes. This ability to track locations and identify and collect data about users was an internal program at Uber known as \"God View," and the program worked without the users' knowledge. EPIC further claimed that Uber had already abused users' trust when it tracked the location of journalists who had reported on the app and then shared personal information about the journalists within the workplace.\" Uber similarly used a secret program called VTDS. an acronym for "violation of terms of service," which identied potential abusers of the service as well as law enforcement ofcials who sought to ticket or otherwise compromise Uber's drivers.\"1 VTOS included a tool called Greyball. which was rst noticed in operation in Portland. Oregon. in 2014. when the company used it to evade local ofcials who were trying to catch Uber drivers who operated illegally in the city. Greyball used an algorithm to identify where and when customers opened the Uber app; for example. it identied those who opened the app in proximity to a government agency or building. Alter Greyball identied potential law enforcement agents, the app tagged the users, denied them rides, or cancelled rides already accepted. It then sent them a fake app populated with ghost drivers to protect the actual locations of real Uber drivers.\" In May 201?. the US. Justice Department initiated a criminal investigation into Uber's use of Greyball, but neither the Justice Department nor Uber released any public comment about the situation.\" Uber had publicly announced in early 2017 that it would no longer use the Greyball tool.\" ECONOMIC ADVISORY COUNCIL The year 2017 began pearly for Kalanick and continued that way until his eventual departure from the company in June. Kalanick joined President Trump's economic advisory council in December 2016 and Pa 9 7 93180006 Despite setbacks, Uber committed to a future business model that used self-driving cars. This was an example of automation at work: the replacement of the most expensive part of the business equation, the human, with a machine.\" One of Uber's other strategic initiatives involved urban air transport using vehicles capable of vertical takeoff and landingthat is, ying cars. Uber had already formed relationships with a variety of partners in the venture. Its primary goal was to transform urban transportation by creating an on-demand network of high-speed ight in cities, facilitated by technology that was similar to the Uber driving app. The ying car initiative was announced in April 201?, and the notion immediately raised numerous questions. These related to issues such as noise problems in cities, testing, regulation, implementation of the technology, certication, and control systems.\" ALLEGANONS OF SEXUAL HARASSMENT In February 201 'i', a blog post by a former Uber engineer who had left the company the previous December exposed the company's entrenched atmosphere of sexism and sexual harassment. An investigation followed almost immediately, 20 employees were fired, and the executive group was restnacturedfi':l The former employee, Susan Fowler, who said she had been ignored by Uber's human resources department when she had tried to le a sexual harassment claim against her direct supervisor, posted her lengthy public accusation after finding new employment. Fowler worked at Uber from November 2015 through December 2016?1 While she had gone so far as to supply screenshots of the executive's offensive solicitations to the human resource department, Fowler was told by upper management that they were uncomfortable punishing her supervisor because he had high performance reviews and that it was probably just an honest mistake on his part. Within hours of the publication of the blog post, Kalanick delivered a public statement by e-mail to say that this was the rst time he had heard of the allegations and to explain that he had instructed the head of the human resource department to open an urgent investigation into Fowler's claims.'EIZ Fowler's post about the sexist corporate culture at Uber reinforced the widespread public notion that the tech industry was rampant with sexual harassment and sexism. Her allegations followed much-publicized incidents in 2015. when Ellen Pao had filed similar charges in a lawsuit against upper management at Kleiner Perkins Caufield E: Byers,"3 and later in 201?, when six female employees at Binary Capital accused a cofounder of that company of sexual harassment."4 The atmosphere of sexual harassment at Uber began at the top with Kalanick, who once bragged in a Gentleman '5 Quarterly interview that his association with Uber had boosted his desirability with women and jokingly referred to his company as \"boob-er?\" In early June 201?, after the law firm Perkins Coie LLP had nished their internal investigation into the allegations of widespread sexual harassment, Uber fired 20 employees for inappropriate behaviour.\" This was quickly followed by the firing of Eric Alexander, the company's president of business in the Asia Pacic region. Alexander had acquired the medical records of a woman in India who had allegedly been raped by her Uber driver. Alexander then shared those records with Kalanick and another vice-president.\" This resulted in a lawsuit by the woman, who alleged that Uber wanted the records to destroy her credibility.\" Kalanick announced in early June 201'? that he would take an indefinite leave of absence, and he handed over management of day-to-day operations to a group of executives. Within a week, however, five of Uber's largest investors, including Benchmark, Menlo Ventures, and Fidelity Investments,\" demanded Kalanick's resignation and forced him out of the company.m Page 3 93180006 Kalanick had earned a reputation for being a hard worker, but he also spent much of his time embroiled in various controversies of his own creation. Kalanick made enemies quickly. His foes included regulators in jurisdictions where the company was located. business and personal rivals, the taxi industry, and even customers who criticized the company. Kalanick expressed himself vigorously in speeches, e-mails, company blogs, and videos.lT In early 201?, a video distributed by Bloomberg showed Kalanick losing his temper in an argument with one of his drivers about falling pay rates.\" Kalanick was verbally combative with the driver and used profanityand was forced to quickly offer a public apology only hours after the video began airing. Kalanick did not deliver his apology to the driver in person, but instead delivered an e- mail apology to all employees and referred to a different conversation with the driver. The apology was subsequently posted to the company's public blog. '9 At least one contemporary analyst noted that Kalanick's approach was to win at all costs. This was a source of strength but was also the executive's biggest weakness.\" Certainly, Kalanick embodied the stereotype of a technology industry mover and shaker: he was young, brash, energetic. known for his intensity and pompous style, and was credited with being reckless although effective by many who had known him over the years.\" However, the video of Kalanick's argument with the Uber driver publicized the dark side of Uber's top manager and shed light on another undesirable personality trait: immaturity. Employees who mimicked Kalanick's full-tilt work- and lifestyle were known within the company as "Uberettos\"a comparison that was not meant to be attering.\" UBER'S CULTURE Like that of all founders or early leaders of organizations, Kalanick's personality and style made a lasting imprint on Uber. The company's organizational culture was inuenced significantly by Kalanick's demonstrated values and ethics.\" Some of these values and ethics were illustrated in a list of [4 core values Kalanick presented to employees before a company retreat in Las Vegas in 20M. Among the phrases in the list were \"toe-stepping." \"always be hustlin'," "super pumped." and \"principled confrontation."24 Kalanick demonstrated similar thinking early in the company's history: a profanity-lled 20l3 letter he sent to employees was found during an investigation into sexual harassment at the company just before his departure in June 20\". The document set \"rules" for an upcoming company party in Miami; these included a monetary penalty for vomiting and a prohibition against throwing kegs from the tops of buildings. and the document outlined explicit rules for sex between coworkersf!5 Unethical behaviour was often the rule at Uber, and the corporation's highly publicized activities certainly inuenced public perception of the company. Uber's dispute with its drivers, for instance, was the source of numerous articles in the public press as well as the subject of blog posts from Uber itself and the topic of social media postings from current and former drivers. Uber's internal measurement of driver satisfaction showed driver turnover averaged approximately 25 per cent every three months.16 The sexual harassment allegations levelled in 2013' by former employee Susan Fowler were certainly well-publicized.\" Uber used questionable tactics against rival ride-sharing company Lyft in San Francisco. Uber employees booked rides with Lyft drivers and then cancelled,\" and Uber used \"brand ambassadors," who booked rides with Ly and then tried to persuade the Lyft drivers to work for Uber.\" Uber also purchased analytical data about Lyft's customers and used the information to evaluate Lyft's nancial health.\" Additionally, Uber gathered an intimidating legal team and hired a private investigator to interview friends and colleagues of its legal adversaries.\" It made extensive use of political operatives who argued the company's merits with officials at all levels of government, including the federal administration under President Obama.\