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Strategic Options Board Paper
Cairns Taxis Limited
Table of Contents
This report provides an analysis and evaluation of the current taxi industry; identifying three (3) strategic issues that have the potential to significantly impact Cairns Taxis Limited. Increases in external competition have changed the defined key drivers of the personalised transport industry over recent years. While services provided by the industry are well recognized, the use of taxis as public transport is now considered a luxury with easily substitutable services now available. The increase of lower customer discretionary spending, fluctuating customer loyalty and high household costs has inhibited the overall demand for taxi services, with a number of customers coveting the cheaper alternative transport providers like Uber, to save some money on their transport needs (Magner, 2017, pp 4).
This report draws attention to the fact that Cairns Taxis Limited is struggling to maintain and attract drivers for the industry, due to an increase amount of drivers leaving and working for its competitor, due to perceived increase in income by drivers. The increase in drivers for its key competitor like Uber has steadily increased from 15 cars to near 100 cars, effectively a loss of 15% market share. The revenue of the taxi industry market in 2016 was $5.6 billion (Magner, 2017, pp 3). Over the next two years, although Cairns Taxis fights to retained its market share the revenue for the whole industry is forecasted to decline by 1.1% with the inclusion of ride sharing as a part of that industry (Magner, 2017, pp 29). Further investigations reveal that the value of taxi licences in the Cairns area has diminished from $650,000 to $400,000 since March 2017. This shrinkage coincides with the introduction of Ride Sharing in the Cairns Area and the changes in the legislation to the industry to allow ride sharing without the stringent regulations that are enforced on the taxi industry.
The prospects of Cairns Taxis Limited in its current position are somewhat positive. However there are major areas of weakness that will require further investigation and remedial action by management. Recommendations include:
- improving the recruitment and retention of drivers
- improving and lowering costs and increasing service standards
- improving dispatching technologies, thus increasing customer service to a more technological based demographic, whilst not forgetting its core users
This report also acknowledges the fact that any analysis has limitations. Some of the limitations include:
- The company’s ability to monitor driver behaviour and vehicle standards
- Government intervention through regulation, pricing structure and requirements.
The personalised transport industry by its very nature has recently been subjected to massive disruption and legislative changes, which have been implemented by governments responsible for regulating the industry. Over all the industry has successfully analysed these changes and adapted to the challenges and opportunities from these changes. The industry is currently working on methods to respond to these changes in such a manner that protects the industry’s overall interests, customer safety and transportation (Nicholls, 2006, pp 3).
It is far too early to signal the death of the taxi industry due to the introduction of ridesharing. One bad experience or two can cause some individuals to rethink their affection for the taxi industry. But if taxi drivers use a smarter strategy, they may be able to more effective battle back against Ridesharing (Mohammed, 2015). Cairns Taxis needs to move forward and focus on the semi deregulation of the personalised transport industry currently being experienced. Whist ridesharing organisations deserve kudos for exploiting a regulatory loophole; they are effectively still a taxi service and thus can be beaten by differentiating our service to that of our competitors.
Queensland regulation stipulates exactly the pricing model allowed in the taxi industry. In contrast, a ridesharing service has complete flexibility in their pricing model and can charge whatever they like, rising or lower its prices based on demand. As a result, this pricing model has the ability to undercut taxis during off-peak times and charges premiums prices during periods of high demand. The form of archaic regulation has made taxis sitting ducks for the industry disrupter, ridesharing.
So to compete effectively taxis need to employ a new pricing model, for both taxis and rideshare companies, the actual price of the fare is only a minor element of overall profitability. Distance travelled is far more important. For both businesses charge by the kilometre, the further travelled the more money paid by the consumer. Given this truism, maybe taxi companies should be more creative and use a pricing model that focuses on per trip profitability. Passengers input their pickup and destination into a smartphone app and receive a customized quote that takes into account the profitability derived from the distance travelled (i.e., charging more for shorter trips). Should Cairns Taxis consider this pricing model it will enjoy what economists call cream-skimming. They’ll attract profitable long trips, while competitors get stuck with low-profit, short fares.
Cairns Taxis need to emphasize its differentiation. Ridesharing has a key side effect, its drivers are inexperienced. It’s great that part time drivers are able to pick up extra cash as a side job using ridesharing, but their inexperience means they rely too much on GPS. Anyone with accumulated hard-earned local knowledge of various routes and traffic patterns will always be able to know the most effective or efficient way of travelling from one point to another. Therefore there is added value in being driven around by an experienced taxi driver (Mohammed, 2015).
During the research into the taxi industry in the Cairns area it was discovered that there were some major strategic issues that would affect Cairns Taxis in the years to come.
Since the introduction of ridesharing in the Cairns area, Cairns Taxis has noticed an alarming trend that has major effects on its operations in servicing the community. The effect ridesharing has had on the taxi industry is slowly being felt; as some governments try to undo the moves to deregulations they initially started as they lose control of the industry. There is only now being developed systematic evidence about the impact of ridesharing on the earnings and employment of orthodox taxi services (Berger, Chen and Frey, 2017, pp 2). Along with the lowering of earnings for drivers and owners, the supply of taxi drivers is also decreases substantially after the introduction of ridesharing in Cairns in 2017. Owners have reported numerous taxis sitting idle during busy periods due to drivers working for the competitor, effectively diminishing their own industry by taking work away from traditional taxi services.
With the semi deregulation of the Queensland taxi industry to remove the a lot of the requirements, this has only increased the perceived poor driving standards experienced by the general public. Poor and inconsistent English standards are also now having a negative effect on the industry as a whole. To work in the personalised transport industry now is remarkably easy, Entry is possible for any “fit” person and overall standards are falling, with increased poor local knowledge, lower vehicle standards and conventional taxi drivers themselves damaging the reputation of taxis by refusing jobs or “meter flashing” to avoid jobs (Beesley, 1979, pp 105).
Operating under the new Queensland transport framework is causing some difficulty for taxi operators and drivers. The current trend being noticed is that customers are calling both services and taking the first to arrive. In instances that involve Uber it has been experienced by some of Cairns Taxis drivers that the taxi is being chosen less and less as they do not charge the customer for cancellation, Uber charges for cancellations as part of their pricing model. The Queensland Government has stated that it is committed to ensuring Queenslanders have access to safe, reliable and affordable personalised transport services and a sustainable and competitive industry. However emerging technologies are influencing customer expectations and shifting the transport industry in to a kill or be killed mentality (Government, 2016, pp 3) .
Uber’s success and its concept of ridesharing have been driven in large part by technology and more so by the power and reach of the social network, and its implications are nothing short of dramatic (Schneider, 2015, pp 19).
Uber has often been considered the same as a traditional taxi business, as they perform the same duties as traditional taxis, except that it utilises ordinary people and their cars to service the general public (Ng, 2016, pp 2). Uber uses surge pricing to supposedly to increase supply of drivers on the road, however Cairns Taxis has noticed that surge pricing only redistributes the existing supply, rather than encouraging new drivers to come online (Chen, Mislove and Wilson, 2015, pp 11).
Uber is an on-demand transportation service, same as a traditional taxi, which utilises a mobile app to connect passengers to drivers, via their smartphones. It claims that it facilitates P2P (Person to person) transactions, via this technological means and is simply a tech company, which it believes allows them to bypass regulatory requirements abided by traditional taxi services, along with the associated costs of owning cars and having a dispatch service. Uber claims its value propositions are affordability, convenience, reliability, quality of service, and simplicity (Ng, 2016, pp 6).
The Department of Transport and Main Roads determines the maximum fares for taxis under section 74A of the Transport Operations (Passenger Transport) Act 1994 (Department of Transport and Main Roads, 2017), which means that any taxi organisation in Queensland is unable to change or effect the pricing of its fares, unlike Uber who has full autonomy in its pricing. Uber’s entrance into the taxi industry has challenged the status quo of the industry in every way on every level in a remarkably short timeframe. Governments faced with this disruption have pursued ways to gain control over Uber’s activities and maintain regulatory authority and relevance, but have failed (Schneider, 2015, pp 16).
Taxis are considered expensive for passengers, the general community has no understanding that the government controls the pricing model of the taxi industry. They set the prices, the kilometre rate and the flagfall. All trips taken in a taxi are charged at the maximum fare and there is very rarely any room for flexibility on the price shown on the meter. For the taxi industry, the Queensland Government sets the fare rate to ensure equitable public access to taxis. This applies to all customers including people who use wheelchair accessible vehicles, although in 2016 the Queensland government removed the application of maximum fares for the majority of booked hire services the maximum fare application continues to taxis to protect customers from excessive fares, however this does not apply to the pricing model of ride sharing organisations (Government 2016, pp 14).
Operational costs for taxis are ever increasing, and the meter price does not reflect these increases. The market is so sensitive to price increases, if the taxi fare was to increase just 3 cents a kilometre the public think that the driver is trying to rip them off. In 2012 the Queensland government increased the rate from $2.23 per kilometre to $2.26 per kilometre and data at Cairns Taxis also showed and 89% increase of complaint from the general public about perceived overcharging. This increase was the first increase in the taxi industry from 5 years, and there has not been one since. Operational cost for the taxi industry are higher than ridesharing, this is partially due to regulations but taxis have higher third party insurance, requirements for security cameras, requirements for external signage. The average set up cost for a taxi in the Cairns area is $12,000 before the car has even turned a wheel, and this does not include the cost of the vehicle, licencing or base fees. Now take in to account the fact that these costs are ongoing and even if the car is off the road the operator is still liable for the costs.
Advancement in technological is a compelling force in the globalized economy that tests existing taxi companies, that need to catch up with these new trends, if they are to try to accommodate the modern customer. Failing to do would leave them at risk of being left behind and even possible on the verge of extinction. Uber has become the leader of disruptive innovation in the taxi industry and is so significant that if its belligerent cost cutting strategy is sustained, the taxi industry could be totally decimated.
One key risk for the taxis industry would be for it to ignore the entry in to the market of this new competitor and all it represents. The risk to do nothing and expect the customer base to stay when there is a cheaper alternative is foolish. Ride sharing has transformed the taxi industry and the belief that the taxi industry cannot or will not change is a major risk.
Increased operational cost are also a risk to the taxi industry and operators and taxi companies need to investigate ways to reduce the ongoing and ever increasing cost to a more reasonable affordable value, thus enabling them to compete on an even playing field as ride sharing.
The next risk to consider is the ever increasing changes to the industry through government reforms to the personalised transport framework. In addressing these changes, Cairns Taxis must consider the overall impacts it will have on our infrastructure, the safety of drivers, the community and the ability for Cairns Taxi to remain financially resilient. Cairns Taxis cannot only consider the changes it is currently experiencing, but anticipate and accommodate future changes the transport framework that will be applied (Government 2017, pp 2).
Emerging technologies are making significant changes to personalised public transport models more feasible. The Queensland Government will always continue to consider and implement reforms for personalised public transport services as they play a vital role in meeting public transport needs (Government 2016, pp 23).
The ongoing development of autonomous vehicles presents significant opportunities to transform the delivery of passenger transport by enhancing customer experience, increasing network utilisation and coverage, and improving the efficiency and safety of service provision (Government 2016, pp 23).
Entry into the taxi industry for ride sharing organisation has involved very few risks. These entrants have significantly lower costs than the taxis, setup costs are small, and modern technology has made it easy for the public to get personalised public transport using a smartphone (Gabel 2016, pp 527).
The Queensland Government continues to design what it considers appropriate regulatory frameworks to ensure emerging transport solutions are strategically implemented in Queensland, often without consultation with operators in the industry (Government 2016, pp 23).
The taxi industry faces numerous threats from substitute forms of personalised public transport. These substitutes include public transport, private vehicles, car hire, shuttle buses and airport shuttles. Taxis are regarded as unable to compete on price with these substitues, due to regulations, therefore the taxi industry needs to become more innovative in its marketing and pricing models to increase its market share as the preferred travel for the general community. Taxi companies and operators have always focused on the negatives, and continually voiced these to the general public. They need to stop and work on a strategy that will endow the general public to their product. When the customer loses confidence in the taxi industry they move from taxis towards other cheaper forms of transport. The rise of Ride sharing, that enables individuals to pick up passengers using private vehicles, has placed increased pressure on the industry (Hobman, Jones and Callan, 2004, pp 21).
In writing this reflective briefing paper for the board on supposition I have the right qualities to lead Cairns Taxis as CEO for the next five (5) years, as a starting point I drew on the Professional Development Plan (PDP) written for Assessment Task 3 in Leading, Managing & Developing People course completed at Australian Institute of Management.
The PDP provided me the groundwork for this reflective paper based on my personal experience and what I learned about the needs of future executive leaders.
No leader is insusceptible to the necessity to continually learn and improve; this learning is a necessary and positive part of growth for any organisation. Managers have many tools at their disposal, from the vast array of information accessible via the internet; the transformational power of technology to challenge assumptions and boundaries; and, for the manager that recognises the human resources team is perhaps their most significant business partner, they require exorbitant amounts of resources to empower, motivate and incentivise staff (Anderson, 2011, pp 50).
I discovered early in my management career that I really liked helping people, and this is still one of my main driving forces in my current position. I like to communicate well in one-on-one situations, using what modern management theorists call ‘coaching behaviour’. I know that traditionally coaches are often called upon to work with leaders on their self-management, interpersonal effectiveness and leadership impact (Frisch et al. 2011, pg 23), but somehow I was always able to bring those traits out of the team members I worked with, even when I didn’t understand my own self-management, interpersonal effectiveness and leadership skills.
In my current role as Fleet Service Manager I try to be goodhearted, optimistic, and comfortably confident individual and believe that these traits will carry over to the role of CEO. Co-workers have described me as capable of working independently or collaboratively, with an aptitude to appreciate the big picture, and still remain attentive to details. I enjoy work and I’m good at it. To some extent, this is the core of my effectiveness. My work is my play and my play is my work.
- A confident, expressive person; assertive; Conscientious and detail-oriented
- Excels at teamwork; Respected and well regarded by other team members
- Willing to take time for others; helpful, kind
- Strong work ethic: believes in hard work—expects it of self and others
- Creative, energetic, enthusiastic, entertaining; Driven to succeed
- Believes in persuasion. Inspired about a point of view. Considers it important to be competent and right
- Competitive—a person who likes to be seen as a winner
- Likes to be seen as an independent thinker. A high-performing professional who relishes the idea of being the best—by your own ways and means
- Likes to lead. Perceived by others as having a leadership profile
- Wants to be in a position of influence, responsibility.
- Wants to have an impact
I find that I consider circumstances that offer the least amount, or at least a moderate risk and I take a firm stance in situations in which I can have a major impact. My recent MMAP profile suggests that I will become bored by routine or conventional projects if I do not have ample room for personal expression, and I have to agree. I am constantly looking at ways to improve, not just myself but the organisation I work for.
Cairns Taxis needs someone who not only works hard, but who will be selective about what they work hard on, for the advancement of the organisation. Being a leader means that other should see you as an agile mentor and coach, talented in getting things done with and through others. The joy derived from being successful is attractive and perhaps nicely contagious.
Mark Anderson (2011) says that a key paradox about leadership is that the great leaders are always centre stage, but also back-stage. Leaders are seen to be centre-stage because they hold the charisma, articulacy and guts, to lay out the organisation’s vision, including all the tough choices (Anderson, 2011, pp 49).
Credibility is the corner stone of great leadership. If people don’t believe in the messenger, they won’t believe the message. To be effective agents of change, leaders must be believed (Garbris, G.; Golembiewski, R; Ihrke, 2000, pp 93).
There are three crucial roles for a CEO when it comes to leading strategic change:
Effective strategic leaders need to have a clear and compelling vision for the future and the ability to communicate this strategy clearly too all stakeholders. If this is not made clear then the likelihood of others, for example middle managers, are likely to construct and implement their own version of the vision themselves. This can lead to nothing but confusion (Johnson et al., 2014, pp 467). “Leaders are supposed to stand up for their beliefs, so they’d better have beliefs to stand up for. Leaders must be clear about their guiding principles. They must find their own voices, and then they must clearly and authentically give voice to their values” (Kouzes, 2002, pp 2).
Aligning the organisation to deliver that strategy
A CEO need to perform this task to ensure that people within the organisation are committed to the strategy, motivated into making the necessary changes, and empowered to deliver those changes. This is way there is a need for all leaders to build and foster relationships of trust and respect throughout the organisation (Johnson et al., 2014, pp 467).
A strategic leader has the ability to deconstruct the vision and strategy and see how the pieces connect, which is as important as hearing it and imagining it (Sparrow, 2013, pp 9). CEO have the need to be seen, not only by those within the organisation, but also other stakeholders, as intimately associated with the future strategy and how to implement the strategic change. An efficient and effective CEO is therefore highly significant in the change process and needs to be a role model for future strategy (Johnson et al., 2014, pp 467).
Cairns Taxis has the vision to be the safest, best performing, most customer-focussed and sustainable taxi organisation in Queensland. The ability to provide the finest taxis with the highest quality services at reasonable prices.
The company’s mission statement is to provide the Cairns Community with clean, well-maintained, modern fleet of taxis, 24 hours a day, driven by professional, polite and efficient drivers, as well as being supported by an infrastructure, which provides a prompt and efficient booking service for all customers.
Cairns Taxis has a highly motivated team of professionals, who generally know the direction they need to go to reach their objectives. The my be an obvious truth in most organisations, but this knowledge is one too easily undermined by a lack of clarity in the direction, repeated changes in the direction or even by a failure to communicate the direction clearly and often enough. I believe that Cairns Taxis needs an effective leader to pursue the simple objective: to set the team’s direction with ruthless and relentless simplicity, and relentlessness is the key: effective leaders need to say it, say it again and say it again!
The big five traits, Neuroticism, Extraversion, Openness to Experience, Agreeableness, and
Conscientiousness are important to leadership of an organisation, these can be found in may aspect of life, however one of the most popular applications of the big five has been in the area of job performance. One could easily substitute “job performance” for “leadership” (Judge et al., 2002, pp 767).
The Strategic Plan to be implemented over the next five years would offer a roadmap to success in a new era. It would capitalize on our strengths and positions us to make a more significant impact on the critical issues of the industry. Companies are defined by their hallmarks and for Cairns Taxis this would need to be:
- An adaptive, accountable, entrepreneurial culture.
- Cutting-edge technology
- New media that creates interactive access and reach new audiences.
- A network of cooperative programs within the community.
- An ability to attract bright and passionate people to create and share new initiatives.
Ultimately it is envisioned that Cairns Taxis Limited will be an industry leader, an institution that influences the rest of the industry and engages a far greater market percentage. In short, the 21st century Taxis industry will be an institution that fulfils its vast potential to serve the community.
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