Case Studies

Capturing the Lion's Share of the Telematics Market

Barabba, V., Huber, C., Cooke, F., Pudar, N., & Paich, M. (2002). A multimethod approach for creating new business models: The General Motors OnStar Project, Interfaces, 32(1), 20-34.

OnStar. A multimethod approach was developed to evaluate strategic alternatives for General Motors' OnStar communications system. OnStar is GM's two-way vehicle communication system that provides a variety of services that enhance safety, security, entertainment, and productivity.

First GM used dynamic modeling to address decisions the company faced in 1997. The dynamic modeling was used to address the choice between incremental and aggressive marketing strategies for OnStar. GM had to decide whether to view OnStar as a car feature or as a service business, and then how to market the car feature. A project team was formed to determine if an evolutionary or a revolutionary strategy should be chosen. At each step, the team interacted with the decision board that was responsible for actually making the decision and committing resources.

The OnStar case was difficult to model because no one had experience or historical data in 1997. An integrated simulation model was used for analyzing the new telematics market. This modeling process would allow integration of various methods and data sources. Concepts and techniques from several management sciences approaches were used. They predicted that no other vehicle manufacturer would launch a competitive system before 2003 and they were correct.

The simulation model was the core tool in the OnStar strategy project. Its six key sectors were (1) customer acquisition and retention, (2) customer choice, (3) alliances and competition, (4) customer service, (5) financial costs and dynamics, and (6) dealer behavior. Over time the sectors interact to generate time series for such important business variables as market share and cash flow.

GM's modeling effort had important financial, organizational, and societal results. The OnStar business in 2002 had two million subscribers, an 80 percent share of the emerging telematics market, and was valued at between $4 and $10 billion. The OnStar project set the stage for a broader GM initiative in service businesses that ultimately could yield billions in incremental earnings. Finally, and most importantly, the OnStar project has saved lives.

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