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How Uber killed Danny DeVito and management with him

Posted by Eric S. Pelletier

Eric S. Pelletier

The oldest of us remember Louie De Palma, Taxi’s despotic dispatcher played by Danny DeVito. Louie was the archetypical (bad) manager. He took decisions, allocated fares and managed a team of drivers, though his style, skills and morality were highly questionable. Uber, the web-based taxi company, and its technology essentially replace these three roles, whilst apparently keeping the bad reputation as illustrated by the recent issues with Lyft.

Uber, richly funded by Google and Kleiner Perkins, is a good example of what web 3.0 holds for the future. Web 2.0 was about the emergence of networks, such as Facebook or LinkedIn. Web 3.0 goes a step further by connecting devices together, with human intelligence mostly gone. With Uber, the asset allocation process (matching a client to a cab) is organized through a dialogue between your cell phone’s GPS and a Uber car’s GPS. Uber has replaced a standard command-and-control organization by something that looks very much like a market place, matching two commodities, the client and a car, at the same physical location, with very limited overhead. There is still a driver in the taxi, but one can see a future where the system will be based on Google’s driverless automobiles, thus making them truly self-moving. This is a radical change for a very established profession. The first documented taxi operated in London in 1025. Hackney coaches started being licensed as of 1661.

Companies are not good with change. Technology has often disappointed, though it made us happy in new, unexpected ways. The corporate computerization of the pre-Internet age, the Web 0.0 if you will, didn’t deliver the expected results. As Robert Solow said in 1987, “You can see the computer age everywhere but in the statistics.” The “productivity paradox”, as defined by Eric Brynjolfsson, has many reasons.

I think that at the heart of the productivity paradox is the question of how new technologies were weaved into existing processes. Corporate closets are filled with hundreds of millions worth of SAP implementation skeletons. Firms didn’t get the full benefits of productivity because they didn’t adapt their management structures accordingly. The gap between newer business models and older operating models was never fully resolved.

It takes us time to truly understand the implications of new technological paradigms. Iron-cast columns were initially still decorated like traditional columns and used as regular stone pillars before architects felt comfortable enough to play with the possibilities of skyscrapers.

Business has always been a game around critical mass. Centralize costs to get economies of scale then manage these costs down the experience curve. Web 3.0 and companies like Uber are likely to radically alter that landscape. A significant part of these centralized costs are the support non-frontline jobs, the esteemed bureaucracy. Saying bureaucracy will disappear, feels like crying wolf. As Donald Rumsfeld wisely remarked in Rumsfeld’s rules, none ever defined themselves as a “bureaucrat”.

A nation of Napa Valley capitalists and burger-flippers where the middle-class has disappeared.

Web 3.0 will force companies to radically alter their business and operating models. Organizations will have to be designed differently. Uber has at least a triple impact:

It makes a fool of many regulations, thus leading some European regulators to react strongly to it.

It suggests new business models, characterized by allocating assets much nearer to the customers and supported by massively de-layered operating models.

It requires new skills. It used to take 3 years (?) for London cabbies to learn the XXX streets of London. It was even suggested they grew a different brain (They certainly had a different accent guv’nor). SatNavs removed that necessity. On the other hand being civil to clients will be more critical in the future, as feedback loops a la TripAdvisor will become standard. If you don’t have a five-star rating you won’t be given any fares.

So how does one prepare to the challenge of Web 3.0? I suggest doing the following mental experiment: Uberize your company and analyze the implications.

  1. Imagine an Uberized business model for your company. That is of course the tricky bit of the experiment. For instance, if you are a retail bank, imagine customers carrying the bank accounts on their mobile phones – their full money, not just the interface to their money deposited at the bank. What is left of the bank? Are banks still required to distribute financial products? What kind of resources and assets do you need to still count that person as your customer? The clothing business will change. Patrons will carry their 3-D measurements in 3D and will expect tailor-made outfits.
  2. Identify the new skills that will be required to make this business model successful. The depth of the skill set will increase manifold, skills that universities are late in producing. This means an ever tighter labour market for certain skills. This is why Strategic Workforce Planning should now become an absolute priority for your HR department.
  3. Zero-base your operating model. See how many decisions will become automated. Anticipate how resource allocation will evolve with a simple guiding principle: You want to bring the relevant assets as close to your customer as possible. This will likely create much flatter organizations with an intense focus on collaboration.
  4. The $64,000 question: What is the migration path to get to your new business and operating models? What are the implications on the way you currently run your operations? Can you evolve your current organization or do you need to separately incubate the organization of the future?

When we see how difficult it has been for companies to come to grasp with the matrix and its managerial implications, we can only wonder how they will deal with web 3.0 and how many will successfully manage the transition.


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