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November 29, 1999

InformationWeek Forum:
GM Will Use Technology To Know Its Customers
Communication tools let automaker extend its value chain to households and "people in motion"

he automobile industry is undergoing its second major transformation in a generation, and IT again is leading the way. This transformation involves extending the value chain into what's called household-relationship management, as companies such as General Motors Corp. try to sell a vast array of products and services, including insurance, mortgages, and information products. At this year's InformationWeek Conference, Jim Noble, GM's global head of IT strategy, offered the audience insights into the company's new business model. An edited transcript of Noble's case study follows.

The auto sector is an important barometer of the world's economies. Four of the top 10 companies in the global Fortune 500 are auto manufacturers. This industry is just 100 years old, and for the first 60 years we couldn't do anything wrong. Our business model was simple: We would design what you were going to buy next year; we would build it; you would buy it. As it aged, we would sell you parts.

Then along came the Japanese, and 25 years ago they made that business model unsustainable because they came up with a concept called "quality." The U.S. auto industry had to change its approach from one of low-cost mass production to one of quality. It took the U.S. auto industry two decades to recover from that fundamental change, and today the quality of our products can stand up against the best. In addition, we had to educate our customers that they should move up-market in our product range and buy things like minivans, trucks, and sport utility vehicles, where we could make a better margin from each purchase.

However, another major change has happened in the last few years, and this time the U.S. auto industry doesn't have 20 years to respond. This change is the era of mass consumerism. People have more information and options than ever, and that means people want us to make to order and deliver a custom vehicle within a few days.

For the U.S. auto industry, that's a real problem: Our business model is constrained by a law. In many states, auto manufacturers are legally prohibited from acting as dealers. We don't have much chance for direct contact with our customers. We know who our dealers are, and our dealers know who our customers are. But GM has never had the luxury of much direct contact with its 100 million loyal customers. We make 8 million vehicles a year, and they hang around for more than 10 years. So there are lots of loyal GM customers out there that we don't know about.

We've been trying to create a new value chain, because the old model no longer serves us well. This new value chain goes beyond customer-relationship management and into something called household-relationship management. 1998 was the year of trying to get our databases in order. We have thousands of disparate databases, and we spent the year knocking them together. Just imagine the task of integrating and cleaning records of more than 100 million customers.

1999 is the year of moving to enterprise-customer management. That's a big breakthrough in our industry, because now we've come to terms with cross selling brands. Instead of trying really hard to sell you a Buick because you've been a lifelong customer at your local Buick dealer, we're happy to help any of our dealers sell you an Oldsmobile or a Cadillac or a Chevy, by providing them with the right information on your buying and service history.

On top of that solid foundation, we're building data to support the concept of households. We needed that concept because the customers in our database may be the purchasers of our products, but they're frequently not the decision makers. When you buy a car, do you make that decision? Or is it your wife, or your kids? In order to build the right products, we need to get to know who makes the buying decision, and why.

More than 50% of U.S. households have never bought a vehicle new. We can't ignore half the U.S. market. By extending our value chain downstream, we're moving into services.

We already finance the car purchase, so why shouldn't we finance your house purchase? We already have one of the largest insurance companies in the United States, so why shouldn't we insure your house as well as your car? We already supply entertainment through Hughes DirecTV, so why shouldn't we supply entertainment to your vehicle? So instead of just targeting the 7% of your wallet that we are looking for today, we'll actually go after a higher share of your wallet.

To do this, GM will, of course, continue to strive to be the world's low-cost quality producer, because it is important to "control the high ground" if the ultimate objective is to sell value-added information services based on a core product. GM is equipping many of its vehicles with bidirectional communications and onboard sensors--the OnStar system, for example. OnStar is a global positioning system and cellular radio system, which not only calls the 911 emergency service if your air bag deploys and you don't answer our phone call, but also allows us to figure out where you are. Imagine that you're driving along, and a pleasant voice says, "Jim, you've only got 50 miles of range left in your gas tank. There's a gas station one mile ahead on the right." We can bring products and services at exactly the right time to the attention of people in motion.

Our three-year business strategy is to go after this new market segment called "people in motion." People in motion are not just in their cars; they may be around the house, in the yard, in the den watching TV, on the golf course, or in an airport lounge. That's the market segment we want to go after, so we're moving up this information-based car from household- to vehicle-information management.

The advantage that original equipment makers have is that we can make such systems integrate with the vehicle's electrical system, and that could lead to selling you metered insurance, for example--not annual insurance for a fixed fee--by figuring out how often you drive, whether your antilock breaking system activates frequently, and so on.

This gives auto manufacturers an opportunity to move from being companies that make lots of products to companies that offer lots of information services. Recently, GM announced a separate business unit called e-GM, which will use OnStar to get bidirectional communications to your vehicle. It will also use an Internet shopping site--GM BuyPower--to understand shoppers' preferences. It can also use Hughes DirecTV to get interactive TV into your family room.

So what's the technology challenge to achieve this ambition? The amount of data we are going to have to manipulate increases one-hundredfold in order for us to gain insight into people's habits and lifestyles. We need to correlate all the points of contact with us, whether it's contacting our call center, going into the dealership, going for service on a vehicle, or sending us an E-mail or letter. We're going to be gathering every point of contact and analyzing these terabytes of data with software such as genetic algorithms. These algorithms process vast quantities of data and provide our marketers and dealers with instant insights into the relationships between people in the same household.

The next logical evolution is to move to vehicle-information management. This involves the "Internet in the sky" communicating with every one of our vehicles. Every vehicle will have an IP address. They will be Java browsers on wheels, if you like, with a great voice user interface--you talk in a natural language to the vehicle, and it talks back to you.

That leads to people in motion. Our wireless personal digital assistants (with Web microbrowsers) will give you all the information you need wherever you are in motion. They will be dismountable from their docking stations in the vehicles and will soon become your portal to information such as delayed flights, traffic congestion, and share prices.

It's clear that IT has the potential to transform the auto industry. The IT profession is in danger of getting what we asked for. Expectations have never been higher--now all we have to do is deliver on these expectations.

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