Dealing with Risk and Uncertainty: Uber

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Dealing with Risk and Uncertainty: Uber
COVID-19 greatly affected business and the survival of companies globally. A significant percentage of companies all over the world were forced to close down temporarily or permanently because of COVID-19. One major change that affected businesses was the restriction of movement and lockdowns that were introduced as measures to help prevent the spread of COVID-19. In China, for example, Dai et al. (2) report that 18% of SMEs were forced to close shop permanently. In the U.S., the numbers were not any different, as the country also saw an increase in the spread of the coronavirus. As measures were being adopted, business was being affected. Fairlie (4) reports that active business owners in the U.S. reduced by 3.3 million. The shocking bit was that this reduction happened in only two months. This change made life difficult for millions in the country, as they lost their incomes.
1. Recent Actions
Throughout the struggles to contain COVID-19, Uber found itself struggling to remain afloat since the number of clients reduced. COVID-19 introduced a lot of risks and uncertainties for Uber as the company tried to survive throughout the pandemic. However, as the world continues the vaccination campaign and normalcy is resuming, Uber is slowly finding its footing. In the last six months, Uber has introduced a few rules or measures as it seeks to drive business back up to the levels it was before COVID-19 struck. One change that has taken place at Uber is the increase in transparency. As it was reported by Horowitz (n.d), Uber decided to start showing the drivers the full fare paid by the riders. He continues to write that the company started doing this because it was revealed earlier that it normally shows drivers lower fares than the ones customers pay. Albu and Flyverbom (11) note that organizations need to avoid invoking a form of transparency that is subject to compromises. Therefore, Uber’s decision was welcomed, especially during this period of uncertainty. Another action by Uber, especially in the last six months, has been to hike its prices. Sainato (n.d) reports that Uber fares have increased even though the payment for drivers has not increased as well. During the pandemic, Uber suffered greatly, with its customer-trip volumes dropping by 80% (Lashinsky, n.d). As the world has been slowly opening up, the ride-sharing company decided to increase its prices as a way to increase its income. With Morshed et al. (155) reporting that the ride-hailing services industry is expected to grow “at a rate of 55.6%,” it makes sense to increase its rate and take advantage of this change.
2. Risk Management
While these actions have helped Uber find its footing and possibly position itself for the future, COVID-19 exposed its lack of a risk management plan. The losses experienced in 2020 will be reciprocated in the future if Uber does not develop mechanisms to deal with the risk of uncertain events. The company can help manage the risk of succumbing to uncertainties and the losses attached to the same by improving its relationship with the drivers. Bursztynsky (n.d) reported that a significant number of Uber drivers have not reported back and are not planning to report back. In a bid to bring its drivers back, Uber introduced a stimulus package worth $250 million (Bellan), but drivers do not seem interested. The relationship between Uber and its drivers has been wanting, and there is a need to re-build this relationship if Uber is to survive a period as dark and uncertain as the COVID-19 period. Uber can choose to introduce packages like an insurance for the drivers or other benefits that will entice them to stay with the company. Introducing a stimulus after many drivers lost their cars and found themselves without basic amenities during the pandemic is not a lasting solution.
3. Adverse Selection Problem
Uber has also not been straightforward with its drivers, and this introduces an adverse selection problem for the company. As already indicated, the company just recently started to reveal its prices to drivers in California. Dermawan et al. (29) note that this is sabotage and greatly impacts drivers whose bargaining power is lowered. Such a move is quite disadvantageous to the drivers who are the main agents of profitability for Uber. Even though the drivers are not regarded as workers but partners (Dermawan et al., 29), they deserve to know the truth about the fares. As has been revealed earlier, Uber used the strategy of showing drivers lower fares so that they would be satisfied with the amount they received. However, such an approach happens in bad faith, and when it is out in public, Uber will likely experience more losses. Therefore, this approach needs to be applied everywhere, and the company should renegotiate with its drivers and possibly consider increasing their earnings. That way, Uber will have a happy partner that will be willing to work together with the company to grow its profit margins.
4. Moral Hazard Problem
A moral hazard problem is displayed when Uber drivers want to make more money. Because of the effects of COVID19, the number of individuals using Uber services has reduced significantly. This has led to detouring to make more money. For metered airport trips, Uber drivers are more likely to detour (Liu, Brynjolfsson and Dowlatabadi 2). This occurs during high s...