When launching a firm that pursues disruptive innovation, it's best that you authentically deliver your promised benefits to society while anticipating and assessing how and where the disrupted will attempt to fight back so that you can respond in a strategic manner.
When Uber launched its hail-a-car service, it rightly assessed that those political actors aligned to protect the turf of taxi drivers had little stake in Uber's success. Only after markets were foreclosed to them did Uber finally recognize the degree to which this political resistance could shape their prospects.
Those political, regulatory, media, and activist actors occupy a new class of business concern: the shapeholder, whose actions can shape, constrain, or expand a firm's opportunities or risks. It is important for businesses to appreciate the need to treat those societal actors that have little or no stake in their success differently from true stakeholders like their employees, suppliers and customers.
Effective shapeholder engagement can boost a company's sales, as Toyota realized when California allowed its Prius and other hybrid vehicles to use HOV lanes with a single passenger. As Uber found out, shapeholders also have the ability to limit the success of any organization, particularly those that seek to overturn entrenched industry structures.
It is instructive to consider how identifying and navigating shapeholder concerns from the start could have allowed Uber to achieve more success than it has already realized.
Shapeholders judge businesses on whether they genuinely fulfill their promises to society. Uber put shapeholders on edge when, while the company was facing allegations that its drivers sexually assaulted female passengers in New Delhi and other cities, a 2014 article in GQ magazine suggested that there was minimal screening of Uber drivers and portrayed Uber co-founder and CEO Travis Kalanick as follows:
Kalanick probably wasn't the first kid in his class to lose his virginity. But the way he talks now -- which is large -- he's surely making up for lost time. When I tease him about his skyrocketing desirability, he deflects with a wisecrack about women on demand: "Yeah, we call that Boob-er."
That line attempted to dodge a question, but it has the potential to drive shapeholders mad and undermine Uber's image with new consumers.
In this hyperconnected world it is imperative for companies to anticipate shapeholder concerns so that it can either preempt concerns from arising or address them in a timely and thoughtful manner if they begin to go viral.
Surge pricing has been one of the tools that Uber has used to revolutionize the taxi market. It defends attacks from critics by claiming that it adds supply to the marketplace at critical times. Because drivers are paid more, they are more likely to be available for you when you exit the theater on a rainy night. At that point it's better to pay the higher fare to get home without getting drenched.
Yet it was not evident that Uber had anticipated how to react to a surge in demand during a crisis. When a hostage situation spiked demand for rides in Sydney, Uber's pricing system reportedly multiplied the cost of a ride by four.
Uber eventually responded to a social media firestorm by defending how its surge pricing increased the supply of transportation. Only belatedly did it offer free rides in such situations and refunds for those who faced hiked prices. Given the contractual nature of the relationship between Uber and its drivers, these are promises it can only really fulfill if anticipated in driver agreements. Uber's reputation took a hit for not adequately anticipating these conditions, and even the most ardent capitalists were squeamish with the company's response.
In order to determine the appropriate response to opportunities and risks posed by shapeholders, it is necessary to determine both the legitimacy of the concern or chance to collaborate and the prospects that the company's preferred position could prevail. Only then can a company determine whether the best action is to advance mutual interests, avert unworkable regulations, acquiesce to demands, or assemble a winning strategy and team to challenge shapeholder concerns.
In its early days, Uber showed little sign that it had been deliberative in distinguishing between when to be combative and when to find common ground. According to the Wall Street Journal the company "followed a pugnacious expansion strategy as it rolled into 277 cities around the world, sometimes skirting local laws and daring regulators to stop the smartphone-based car service."
The fact that it chose Paris in 2011 as its first foreign city for expansion reflects either Uber's hubris or its failure to properly assess the shapeholder landscape and how best to engage them. Market conditions in Paris were clearly ripe for the product, yet that was a result of extraordinarily robust shapeholder activism.
France's then-President Nicolas Sarkozy once complained, "Paris is the only city in the world where it is hard to find a taxi." Yet his attempt to remedy this problem in 2008 was defeated by cabbies blocking streets in protest. Despite this warning, Uber attacked Paris headlong.
A company with more respect for shapeholder concerns would have chosen a softer target for its first foreign market in order to build its engagement, expertise, and credentials. Uber found out the hard way that acting like a hammer and assessing every situation to be a nail is suboptimal.
After the addition of Obama campaign operative David Plouffe to its team, Uber has finally adjusted course. They now say that "their lawyers and lobbyists are increasingly trying harder to negotiate agreements that bring the company into compliance with existing laws, even if it leads to lower profit margins at the company."
Despite these many stumbles, Uber, in December 2014, completed a transaction that valued it at $41 billion. Not bad for a company that began operations in June 2010. One is only left to wonder how much higher and more secure that valuation would have been if Uber were as good at engaging shapeholders as it is at disruptive innovation.
Hon. Mark R. Kennedy (@HonMarkKennedy) leads George Washington University's Graduate School of Political Management and is Chairman of the Economic Club of Minnesota. He previously served three terms in the U.S. House of Representatives and was Senior Vice President and Treasurer of Federated Department Stores (now Macy's).
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more