Reasons Behind Uber Massive Layoffs and Unemployment

Abstract

Uber is undoubtedly one of the biggest cab service providers in the world as well as India. It is known for low prices and good service. These low prices are a result of extensive optimization applied by Uber Engineers. Whenever a cab is booked and initial and final destination is fixed, Uber finds the best path which is short and would take least time considering current traffic. This gives Uber an edge over other cab services. In recent days, Uber has done some massive layoffs in different departments. In this term paper I have tried to find the reasons of why Uber has laid off employees in such large quantities. I have tried to find the effect this had on the employees. The scope of this study is Uber India as well as Uber outside India.

Introduction

In recent years the concept of “Sharing Economy” has been seen prominently in the market. While there are multiple companies which are players in this field, Uber is definitely the biggest of them. Garrett Camp and Travis Kalanick started Uber in 2009 under the name UberCab. The name was shortened in the year 2011 to Uber. Today Uber operates in 300 cities across 6 continents. And also Uber has grossed 20 billion dollars. Interestingly, the company has lost 2.8 billion out of that 20 billion, which ultimately resulted in Uber optimizing its processes. This meant cutting of cost at all levels. Since its inception, Uber has been getting into different fields of transport - Cars, Taxi and even Helicopter. Currently Uber is the biggest Online cab service in the world. It’s major competitors include Ola and Lyft. Now considering Uber India, its biggest competitor is Ola. This year, Uber did 3 rounds of massive layoffs. These layoffs are often preceded by decrease in hiring in different departments. These decrease in departments also are in an indicator of which departments are likely to undergo massive layoffs. In August, openings at Uber sunk from 1,530 to 1,290 in a matter of just a few days. These decrease in openings was done in Design, Product Management, and Engineering categories. However the hiring in Sales, Business Development and Community Operations remained the same.

Literature review

For the purpose of this paper, I have used referred to different business news websites. Some of these included foutune.com, nytimes.com, economictimes.com, businesstoday.in, techcrunch.com etc. As this is a very recent event, there is almost no work done on it by business researchers. The closest questions which are answered by anyone are through quora. The analysis done by the media on this issue was also used inorder to draw conclusions and implications on general population and the effects this had on Uber’s competitors. Uber also has some of its subsidiaries such as Uber Eats, Jump bikes. These subsidiaries had little to no effect because of the massive lay offs hence almost no discussion is done on them in the following paper.

Methodology

The current CEO of Uber is Mr. Khosrowshahi. The company started with great expectations from the investors and people. Uber had one of the most anticipated IPOs (Initial Public Offerings) in recent years after which it began trading on Wall Street in May this year. However this does not go well for the company as Uber faced a 5.2 billion dollars quarterly loss in August. The stock price of Uber also faced a blow as the stock price has decreased by 30% since it’s first day of trading. This period of loss and weakness resulted in constant pressure on the top level of Uber management, from investors and media to do something. What Uber did was it started cutting costs at all levels, i.e. at marketing, engineering, sales, product, analytics etc. This meant Uber started massive layoffs at all these levels. In July Uber laid off around 400 employees from its Marketing Department. In September it laid off around 435 employees from it’s Engineering Department. The CEO himself asked its executives to reduce their staff and reorganize.

This was a huge blow for all the employees as overnight most of them lost their jobs. Though the investors took this in a positive way and said this will help the company to get out of rough times. These layoffs also resulted in Uber stock prices getting increased by 4 percent. Uber’s Engineering Department had the most dramatic decrease in hiring. The openings in Engineering department decreased to half of its initial value in August. Next biggest cut was made in the Product Management department and Design and Backend departments. Uber India has around 2,700 in as per 16th October, 2019. Uber India constitutes about 2 percent of Uber’s overall revenue, but the total costs of Uber India are comparatively larger. Of the 435 employees which were laid off in the Engineering and analytics department, almost 85 percent were employees of Uber US, 10 percent were Asia-Pacific and 5 percent were based in Europe etc. Thus we can see that the number of employees that were laid off in India is much less compared to that of Uber outside India.

Reason according to management

The Uber management gave some reasons relating to the massive layoffs. The CEO, Mr. Khosrowshahi, in an email to the Uber Employees tried to reason these steps as - It was needed to eliminate duplicate work. He also said that the present workers need to maintain exclusive requirements of execution. He likewise said it is essential to dispose of the administration that will in general creep as organizations develop. Another top executive officer of Uber said that many of the Uber teams are too big in size. This creates problems in assigning work to individual. Also the works of many of the teams is overlapping which is again an overload. This results in mediocre results. As far as Uber India is concerned, it has been struggling to obtain good revenue and growth.

Other Reasons

The reason stated by management are fine but the main reason for these massive layoffs is cutting costs to the company. The cutbacks are the most recent cost-driven changes to happen at Uber since it opened up to the world in May. The company started losing money soon after its Initial Public Offering. This resulted in pressure from outside to the top management. Cost cutting methods were applied by the company. Now it is known that Uber pays a large sum to their employees such as engineers, analysts, marketing etc. So Uber management started asking its smaller executives to lay off employees from their department. Now this was the main reason Uber did these massive layoffs (especially in India).

Political Reasons

Now there were other reasons which were also responsible for these layoffs. These reasons were not prominent in India but majorly outside India. In California, a bill was passed which requires cab companies like Uber and Lyft to treat contract workers as representatives or employees. Now the consequences of this bill are not going to be good for the cab companies. The bill means Uber will have to hire permanent drivers in order to run the service. This will result in extra cost because these contract workers (drivers) will now be enjoying full employee privileges. This means they will be entitled to a certain number of paid leaves, a certain number of normal leaves etc. Also this will create a sense of fixed pay in employees which might make it hard to make them work hard like they did before.

Effects on Employees

Losing a job is a very stressful experience for an employee. They feel angry, hurt, or depressed, grieve for the job they have lost. Job loss and unemployment causes a sudden change. While the pressure can appear to be overpowering, there are numerous things you can do to assume responsibility for the circumstance. One should think in a positive manner, always looking for new opportunities and making the most out of any which comes on the way. Our jobs are not just a way of earning, but they also influence the way in which we see ourselves and also others. They influence our thought process and also define our status in society. After the laid off done by Uber, it is obvious that their employees would have to go through all this phase of stress and tension. Looking at LinkedIn we can see that just after the laid off was done, many of the previous employees of Uber were found posting on their timelines, asking for job opportunities in their respective fields. Now if we consider Uber, we know that it is considered one of the best companies to work for in recent days. The process of getting selected in Uber is considerably harder than many of the top companies. This is well compensated by Uber by giving its employees nice hard problems to work on and paying them quite well for their job. Thus we see that Uber usually has one of the best guys working in it. Now as Uber laid off in large amount, there was a sudden flow of talented employees in the market looking for jobs. This opportunity was well used by other companies. Many companies were found posting for direct interviews of Uber off employees. Thus it was not long before almost all of the laid off employees were hired in some other good company. This changed primarily 3 things: The mindset of the still working Uber employees became unstable. They were not sure about their current job. So it was found that many of the still working Uber employees started looking for jobs while currently working at Uber. As soon as they got another offer, they switched to that company and left from Uber company. Other companies got many good employees without going through the standard procedure of finding new employees. This was a nice cost efficient approach taken by these companies.

The image of Uber among employees from other companies deteriorated. It also resulted in the team structure inside Uber getting messed up. The Organizational Culture of the company took a toll. Serious efforts were made by management to bring back the culture to a more productive one where everyone works to their best. Also these layoffs resulted in Uber’s opponents getting stronger. That in Ola and Lyft tried to make the most out of this situation. Now in Uber India, because the size of layoffs was not large comparatively, hence the effect was not that pronounced in India. But still it resulted a change in different company's strategies in order to overtake Uber.

Alternate decisions possible and managerial implications

The reasons which were provided by Uber management included that there were overlapping tasks, mediocrity, big teams etc. A possible solution which does not involve layoffs was to restructure the roles inside Uber in different departments. This restructuring will help in preventing overlapping work. Also they could have tried to split certain bigger teams into smaller teams. Also while restructuring, employees should be asked about their preferred team to work in. This would make it easier to design new structures in teams. The main profit in this approach is that now the employees will be much more interested in their work and it is known that if someone is interested in their work, they have the motivation and this makes them perform better. So the problem of mediocrity is solved. However before implementing this method, a set of cost analysis has to be done. This means that after implementing this method the problem of excessive cost has to be minimized as a result of optimizations occurred. So excessive analysis should have been done and relevant cost should have been taken into account before implementing this decision at scale.

Conclusion

In this paper we found out about the reason behind Uber massive layoffs. We came to know that these lay offs are generally preceded by decrease in hiring by the companies. We found out that the main reason why Uber did these layoffs was in order to optimize workflow and cut costs after its disappointing IPO. We discussed the effect it had on Uber India as well as outside India. Uber India however did not have a major time as the number of these layoffs was comparatively much lesser than Uber US and other nations. The alternate possible solution by restructuring the workflow is also taken into account.