Strategic Use of Technology
The following case study was written in 2004 and references to technology and regulations are of that time. All trading names have been changed.
ABSTRACT
A case study approach illustrates how a newcomer to the industry, through its innovative use of emerging technologies, was able to break down traditionally high barriers to entry and create a competitive advantage, redefining the competitive nature of the industry in the process.
The analysis here finds that a competitive advantage has been created, however, it is unsustainable as the resources used are readily available and easily imitated by the competition. Further, it is now easier to join the industry and with the possibility of additional newcomers, the industry may experience more intense rivalry.
The research concludes that competitive advantage from emerging technology can be created when certain conditions exist.
Innovation — the firm has the foresight to see how the technology could be used.
Opportunity — the technology is able to exploit a condition in the industry that makes a competitive advantage possible.
Timing — to exploit a relatively short window of opportunity between the technology becoming economically viable and mainstream.
CASE STUDY
This case study examines how a new entrant to a mature, competitive and regulated marketplace, sought to create a sustainable competitive advantage and gain sufficient market share within London’s black cab radio taxi industry.
For the case study firm, Delta Cabs, the question is whether they can with greater standardisation, improved availability and reducing technology costs, use a non-proprietary technology solution to provide a competitive advantage.
Background
A taxi, or hackney carriage, is a vehicle with fewer than 9 passenger seats which is licensed to ‘ply for hire’(i.e.it may stand at ranks or be hailed in the street by members of the public).This distinguishes taxis from Private Hire Vehicles (PHVs), which must be booked in advance through an operator and may not ply for hire (taxis may also be pre-booked). The term ‘private hire’ refers to ‘minicabs’ and ‘executive vehicles’, which offer additional services. Radio taxi circuits are operators of a door-to-door transportation service that uses London’s black cabs. Since 1850, the industry has been regulated by the PCO (Public Carriage Office), which is now part of ‘Transport for London’.
Regulation requires black cabs to be licensed to ply for business on the streets of London; however, the law does allow drivers without The Knowledge of London to take pre-bookings. In the 1950s and 1960s, the advent of telephones in business and the home allowed the mini-cab business to become established. This is an example of how an original law was designed to protect an industry and its customers from rogue operators, but subsequent technological changes have been used to alter its application and have forced the industry to reconsider its ways.
A black cab driver can choose to be a member of a radio taxi circuit, so they can take both street and pre-booking. Black cabs drivers only work for a radio circuit when required and are able to ‘graze on street work’ at other times, reducing overheads involved with radio circuit membership and supplementing income. Typically, radio taxi circuit drivers take around 80% of their business from the street and 20% from the radio. For radio taxi circuit work to be attractive, the operator needs to pay the driver slightly more than the metered fare, and this will encourage the driver to take the account ride in preference to street work.
Relevant technology introduction to the taxi and cab industry
Late 1890's: In cab meter
Post WW2: Two-way radios, Private radio circuits
1980's: Computerised booking and despatch, Electronic distribution of fare bookings and card payments
1990's: GPS, Smarter in cab terminals
2000's: Off the shelf technology products for bespoke applications
Delta Cabs: the new market entrant
Launched in April 2003, Delta Cabs is the youngest member of London’s radio taxi circuit and aimed to make innovative use of emerging technology. A job-taker will log on to the reservations screen and receive job (travel) requests via the telephone. After completing the trip details screen, the job-taker saves the request, at which point it is automatically sent to both the billing and automated dispatch systems. The billing system deals with account aspects, whilst the dispatch system issues the job to a driver.
Delta’s taxis are polled every 60 seconds for their current hire status and location. Using GPS technology, the location of the cab can be relayed back to the control centre. Jobs are automatically assigned by the dispatch system based on the nearest available taxi. The driver is alerted to the job and can choose to accept or reject, before the destination is displayed. If a job is rejected, the system will try the next nearest available taxi. When the job is accepted, full details are automatically forwarded to the driver’s terminal. The efficiency of the system means that only one person is required to oversee this function. The dispatch monitoring terminal can track the position of any circuit taxi and view it by overlaying the GPS coordinates on a map. The control system is based on a standard reservation and dispatch system. The advantages of this solution are first, the ability to connect not only to a private radio network, but also public networks and second, to buy off-the-shelf PDAs as their in-vehicle terminals. Delta uses a public mobile data network in preference to the traditional private mobile radio networks. The public network allows the data transmission (not voice) to and from mobile devices. Drivers use a handheld computing device to log in to the dispatch system and register their availability for work. Installation of the terminal usually takes less than an hour, and software upgrades can be undertaken easily. The ability to buy off-the-shelf terminals reduced costs by as much as £1000 per cab.
The GPS communicates to the dispatch system, tracking the location of the taxi. The drivers are always in contact with the circuit because the mobile device can be carried by the drivers when away from their taxi.
As the network technology is based on industry standards and is provided by all UK mobile telephone operators, there is the option to switch providers if service levels fall, or for a more competitive price. Using a public network involves considerably lower set-up costs and reduced running costs. A public network will always be cheaper than private mobile radio.
Delta has three main competitor types. These competitors offer either a basic ‘no frills’ door-to-door service or one with value added features. These features are designed to augment the service and can include account facilities, rapid response, call centre contact and travel information. As a new entrant to London’s radio taxi circuit industry, Delta needed to overcome the barriers presented for entry and create a competitive advantage, enabling it to sustain its operations. Competitive advantage is largely based around rent generation, by producing a product or service at a lower cost, or at a higher quality, resulting in a higher charge.
Delta Cabs and other radio taxi circuits add value to the basic black cab service. As black cab fares are controlled, the circuits can only change the cost of delivery by modifying their service costs. With technology, Delta has been able to reduce the operating, outbound logistics and service costs, as follows:
Operations — not paying for a full network infrastructure
Outbound — logistics, lower terminal costs, lower network costs
Service — less expensive over-the-air updates, lower cost features, price-competitive off-the-shelf solutions
Staffing — fewer expensive dispatching staff
As a result of lower costs and by charging the same customer fee, additional margins are available to Delta Cabs to sharing with drivers by reducing the driver subscriptions below industry norms, as a means of increasing its fleet size.
Competitive Advantage?
Through the innovative use of emerging and improved technology, competitive advantage has been obtained by the company, allowing it to enter the industry, operate at a lower cost, and be more responsive to customer and supplier demands. Delta Cabs has deployed emerging technology and in doing so created a competitive advantage based around lower set-up costs, lower operational costs and enhanced functionality.
Delta has also been able to significantly lower entry barriers and in doing so has redefined the competitive landscape of the London radio taxi circuit industry. The reduced start-up costs make it easier and more attractive for new entrants, which in turn could lead to more intense rivalry. As drivers see the benefits from the new technology they could apply pressure to existing operators for similar features. As the main source of competitive advantage, the technology is not proprietary and it cannot be protected by Delta Cabs because it is easily imitated, any competitive advantage accruing from this resource is bound to be temporary and the current competitive advantage gained by the company is unsustainable in the long term. New entrants that imitate Delta Cabs will remove the competitive advantage created by the technology and it will then become a necessity.
Competitive advantage for Delta has been created from:
Innovation — Delta Cabs had the foresight to see how emerging technologies could be used in its business. While the solution may not be unique, it is innovative for the industry within which Delta operates
Opportunity — Delta was able to use the technology to exploit a condition in the industry that made competitive advantage possible. The conditions were a high barrier to entry and high operating costs of a private mobile radio network
Timing — there is a relatively short window of opportunity between an emerging technology becoming economically viable to deploy and becoming mainstream. As a new technology emerges onto the market, the price is typically high. During its lifecycle the price falls, sometimes dramatically
While these factors have resulted in a competitive advantage being gained, they have not resulted in sustainability. However, by using these factors, it is possible to develop a model that will assist firms in realizing competitive advantage from emerging technology. This model can be represented as shown below, where each of the tests can be made using appropriate models and theories.
Conclusions
The case study analysis has shown that emerging technologies have the potential to create a competitive advantage, but only when certain factors have been met. These are first, that emerging technology needs to be used in an innovative way, i.e. a firm needs to see a new way to deploy technology within its industry. Second, an existing industry condition needs to be exploited, e.g. an inefficiency or industry-imposed barrier. Third, technology deployment needs to be introduced at a time when the price and availability make it a better choice. Finally, the technology and/or deployment need to be protected from imitation to create a sustainable competitive advantage.
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