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The Uber app lets customers book a car from their smartphone (Photo: Apple)

(This Point of View was originally published in the October edition of the automotiveIT international Executive Report)

In cities all over the world an ugly war is being fought by “traditional” taxi companies against a new form of competition from Uber and other ride-sharing services. These newcomers offer customers the ability to use a mobile application to find and reserve vehicles in their immediate area in minutes. From Los Angeles to Sydney and Singapore, the services are shaking up the taxi business. But they are being met with heavy resistance by the taxi industry.

Such opposition is a futile attempt to put the brakes on innovation. Fortune magazine’s lists compiling the 100 biggest companies from 1900 until today yield only one company that is still in the same business: Ford. Fifteen others still exist but their activities have evolved drastically. All the rest are gone.

The ones that have disappeared were leaders in their markets and had three things in common with today’s taxi drivers:

1. They were prisoners of a system. The world may be changing too fast for the traditional taxi industry, which has launched a crusade to defend its interests and prevent reform of an outdated, often monopolistic and over-regulated system. Traditional taxi drivers are complaining about Uber’s “illegal” activities, saying their drivers don’t have official permits and can’t charge by the kilometer as they don’t have meters. This is a perfect example of industry players being prisoners of an old way of thinking and entrenched in the defence of an aging system.

2. They were stuck in denial. Long waits, rude drivers, uncomfortable vehicles, and lack of route transparency are just some of the shortcomings of traditional taxis. And that’s exactly why the new car-sharing services are prospering. Uber founder Travis Kalanick, 37, has said that the idea for his company was born in Paris when he couldn’t find a cab, an experience that seems all too typical. Until now taxi companies seem to be ignoring the simple solutions that customers want. And government policy makers in key countries such as Germany and France seem to be supporting taxi companies’ resistance to change. That’s a mistake. Legislation should protect consumers and not industries in decline. Following protests by taxi drivers in London in June, Uber registered an 850 percent increase in new users. This is proof that yesterday’s keys to success won’t be the same tomorrow.

3. They weren’t innovating. Uber isn’t successful just because its prices are lower than those of normal taxis. It is succeeding because it is responding to customers’ needs and offering a unique and innovative experience. While taxi companies are on the defensive, Uber continues to innovate. It recently announced that it will soon offer trips in helicopters. Investors took notice; they value the five-year-old company at around 17 billion dollars.

Taxi companies are coming up with strategies to continue business as usual. Some have recently introduced electronic payment solutions, but like many businesses in other sectors, such responses to new challenges are coming too slowly. Success is not guaranteed by a historic position in an industry. It is comfortable and reassuring in the short term, but dangerous in the long term. If taxi companies refuse to innovate, they will quickly fall behind.

-By Cyril Bouguet and Chloe Renault.

Cyril Bouguet is professor of strategy at the IMD business school in Lausanne. His major interest is the interface between organizational psychology, strategy and leadership. Chloe Renault is an IMD researcher, facilitator and graphic recorder working on innovation and organizational transformations