VMS3.info FEATURE ARTICLE
Subject: July 2002 VMS3.info: General
Motors Analyzed via the Value Framework
Motors Analyzed via the Value Framework
In this decade, the automotive industry will become one of the best success stories combining e-commerce (e-business) and e-collaboration.
As one of the oldest industries in the United States still surviving as a global force, automotive has experienced rapid technology evolution, business process integration, and largely a positive outcome merging with Internet technologies. This has not been an easy road. Starting with EDI in the early 1980s to combat the efficiencies of foreign competitors, the automotive industry has always employed supply chain technologies for efficiency. The Internet drove evolution in three key areas:
In this decade, the automotive industry will become one of the best success stories combining e-commerce (e-business) and e-collaboration.
Dealerships will become portals for consumers where they evaluate the cars that they have researched and configured on their own through the company websites, and where they take possession of the new cars--purchased increasingly online--through fleet purchase alliances, and increasingly as build-to-order for "markets of one". Dealerships will participate in sales by adding value, and not markup, to the sales process. As aggregators of customers and local inventory, dealerships found co-opetition and participation through marketplaces like Autobytel.com a winning strategy to increase inventory turns and greater market share for their brand.
Automakers (led by General Motors) have experimented with marketplaces for consumers, dealers, and suppliers, ultimately achieving best practices after a decade of forays that included e-GM, a turning point initiative that helped GM evolve to a better network integrated company. GM has started to reclaim the market share it had lost in the late 1990s, and has provided dealers not only with better tools for selecting and managing inventory, but also the first step in "build-to-order", a new process for consumers and manufacturers alike.
Covisint--now a carefully deployed marketplace engineered for the "big three" US automakers--is becoming a platform for integrating design, engineering, and collaboration tools for manufacturing and not just a marketplace for supply chain. Most importantly, networked e-business tools are connecting consumers, dealers, manufacturers, and suppliers, and creating a more seamless process for all stakeholders in engineering the 21st century vehicles.
This article will explore the evolution of the automotive industry through strategy deployed, managed, and evolved, as seen through the eyes of the key stakeholders. The story is told through the "future" eyes of consumers, dealers, suppliers, and manufacturers experiencing the process of design, building, and distribution of the 21st century personal transportation vehicle. The Value Framework correctly shows the elements of process, transactions, and participants in e-commerce (e-business) and e-collaboration in the automotive industry.
The year is 2010. You, the consumer, are evaluating "personal transportation vehicles" from ten different manufacturers, five are domestic and five are foreign. Through Kelly Blue Book (KBB), you create a profile of your transportation needs, budget, and geographical location. These are submitted into a blinded data-mining tool developed by NCR in 2005 and licensed by KBB. The search engine compares and matches your needs, tastes, and profile with a compiled five-year data of 100 million vehicles sold in the US and abroad. Customer satisfaction, quality, preferences, and degree of "best fit solution purchases" provide you with palates of 25 basic templates from your ten preferred vendors, and ten others you weren't even aware of. From a palette of 100 options, "build to order" evolved into "bid to order", with manufacturers and their dealer portals working in concert to create a tight range of quotes, as well as with your closest dealer so that you can test drive your combination of engineering and optional selections.
The key in strategy evolved was integration of participants--consumer, dealer, manufacturer, and supplier--in a seamless web of information and transactions.
In 2005, most "dealerships"--now "consumer service portals" --integrated kiosks into their showrooms, and have been showing the range of options and technical solutions available across product lines. Gone were the days of settling for the second best choice in color, options that were "value bundled" but only available in tiered pricing, forcing consumers to spend considerably more for desired options, and not able to add features most important, at any price. This began the era of true "build to order". The KBB palate helped consumers understand the best match of features and options, and more importantly, manufacturers developed flexible base platforms, which could be built into the "dream car" most people wanted. More importantly, true costs, profit margins, and financing became a transparent process for consumers and dealers.
The "haggling" process died a much-deserved fate, and sales associates turned into personal shopping consultants, helping to shape a consumer's needs into the physical form of a delivered product. While only 25% of cars were actually built and ordered this way, an unintended benefit was the ability of manufacturers and engineers to "think outside the box". Continuous product evolution was driven not only by direct consumers, but also by the population of consumers participating in KBB's five-year vehicle design and performance survey. This tool gave consumers real-time feedback about potential choices they considered, cost benefit analysis, and quality and maintenance data as well. KBB's portal turned into the largest MRD-ERD (Marketing Requirements Document - Engineering Requirements Document) tool, and the Covisint marketplace used these data to quickly and efficiently align engineering, suppliers, and tools vendors with the feedback of over 50,000,000 owners.
For automobile manufacturers, brand was associated with quality, price, and the ability to quickly and flexibly adjust to consumer demands. For dealers, customer service drove sales into the factory, with the kiosk becoming the point of design, sale, and sometimes, even delivery. Fleet pricing kept dealers honest, and auto manufacturers started to look like "Dell Direct". Gone were the days of forcing inventory into a reluctant buyer's garage, and "buyer's remorse" became the mortal enemy in KBB's consumer aware portal. More importantly was the shift that occurred in the auto-industry giants themselves. For almost a decade, a vocal minority had pushed for government-mandated economy and pollution standards, driven by the combined concerns over oil dependency and global warming. Consumers in bell weather regions started to demand new engine configurations, and Detroit was accelerated into hybrid gasoline-electric vehicles not by Honda and Toyota, but by a technology empowered voice acting in concert across the auto buying public.
This redefined the historical roles of consumers in shaping products, of dealers in helping consumers choose and purchase products, of manufacturers in designing to consumer needs in a process of continuous product evolution, and of suppliers in more rapidly reacting to changing demands in the marketplace. The Kelly Blue Book portal took on a new role in an entirely new dimension of delivering both manufacturing and consumer data to consumers, and integrating real-time sales, product, and engineering data through Covisint. Perhaps the most important, consumers themselves shaped the auto industry in ways that benefited the economics and ecology of fuel and energy in transportation.
Strategy managed is where the major changes in the evolution of the automotive industry occurred through pioneering initiatives by General Motors which used eGM as a vehicle to build a common technical infrastructure. Efforts by GM, a pioneer in aligning IT and business strategy, included an early relationship with Autobytel.com, which was supplemented by a vigorous effort with GMAC BuyPower. Additionally, Daimler-Chrysler, Ford, GM, and later Peugeot were prominent in developing Covisint, the world's largest vertical market exchange, whose vision includes integration of engineering process as well as supply chain management. In 2000, GM incorporated 10,000 suppliers into the design process, and that same year it extended its online car-buying program into Europe. In strategy managed, three significant efforts are visible.
EGM was an initiative to drive e-business evolution into GM. Its purpose was to push e-business projects and processes throughout General Motors, and was successful. Many people thought that eGM's sole purpose was to leverage the rapid adoption of the Web as a commerce tool, i.e., "the Internet was the wave of the future," wrote Paul Eisenstein, publisher of 'The Car Connection' (www.thecarconnection.com), an automotive industry e-zine. "Every company thought if it got into online retailing it was going to make money." When the Internet bubble burst, many e-commerce initiatives did as well.
In strategy managed, the most significant factor was not information technology, but rather the linking of all participants in the automobile "design" chain, which includes the desires of consumers to actually find a car that they configured in a branded website.
Eisenstein further commented that other auto companies with GM were redefining their e-business strategies. Contrary comments from GM executives CEO Rick Wagoner and from CIO Ralph Szygenda were that: from the beginning, the goal of eGM was to create a separate function for a period of two to three years, driving e-business capabilities across GM. Further eGM's dismantling was a sign of success, asserting that "e-business has become an integral part of the company's fabric". The Value Framework asserts that participants in an enterprise must be integral to process, and especially networked business process. However, evolution doesn't occur overnight. Creating eGM was the best method of achieving the necessary integration path for creating a holistic enterprise. When combined with Covisint, it is obvious that a successful manufacturing marketplace requires seamless integration of marketing, sales, engineering, logistics, and customer service - in essence an "intra and extra" extended enterprise. Covisint is still very much a work in progress, with enormous rewards to reap for all its participants.
General Motors also wanted to extend efficiencies to its 7,500 dealers. GM will launch a new Web marketplace for dealers, designed to aggregate more than $1 billion in purchases made each year for gasoline, PCs, tools, office supplies, and forms. GM hopes this effort will build enough purchasing volume to save the dealers over 15% annually, and GM almost 4%. Dealer Supply Advantage, launched in June 2002, proving that marketplace initiatives can help both partners and stakeholders in global enterprises.
A key turning point in managing aggregate marketplace knowledge was the 'GM Vehicle Advisor' Web service, which recommends cars from any manufacturer to online shoppers. GM's engineers drove the million-dollar project, proving that automakers could look beyond marketing for fresh ideas. Similar to Kelly Blue Book online, carmakers needed to understand what car buyers really wanted. Rather than waiting for the MRD-ERD process to unfold, and miss quick turning market opportunities like hybrid engines and ABS on low cost cars, engineers could now have instant access to all of that information. GM's executives remark, "all of a sudden, we look like a smart company." Now engineers were connected to the information value chain as participants, driving ideas faster to market.
An extension of this concept was GMAC BuyPower, providing configuration tools and direct leads to dealers. GMAC, GM's finance arm, positioned BuyPower as a consumer website providing data for GM vehicles. As Vividence noted, users sought details on the cost and availability of options, and saved each search in a personalized folder. Virtually all carmakers use these features in branded websites, but most don't connect the dealer as a participant in the information chain. Consumers can see inventory of local GM dealers, making the "discovery" process of commerce much more efficient. In the first 18 months, BuyPower delivered an average of more than 2,000 leads to dealers per day. J.D.Power and Associates, the leading source of auto industry data, showed that dealers converted 20 percent of BuyPower leads into sales. Leads from Autobytel.com, the leading independent consumer site, only generated a 13 percent conversion. Both these observations supported the Vividence study, suggesting that consumers with a favorable "branded" site experience were 50% more likely to buy from that manufacturer. Additionally, both these figures were an order of magnitude higher than walk-in traffic to a dealer. Savvy manufacturers soon realized that the web might be the first and final stop for many motivated buyers, and by adding price and cost figures like KBB online, greatly accelerated the bargaining process, as buyers now knew the true profit margin of a car.
In early 2002, automakers experimented with Xerox's one to one direct marketing by delivering "next day" personalized brochures to consumers indicating a strong preference to buy. Results from the trial showed this added roughly $50 per converted sale, and served as a "leave behind" for websites that too often were a faceless experience.
The BuyPower "locate to order" model was extended by Retail.com / AutoCentric but presented information about cars from multiple OEMs, not just GM. Site data showed little overlap between BuyPower users and manufacturer-independent sites like Autobytel.com. Clearly, the discovery process of starting the car purchase process seemed the most lucrative for automakers to investigate. Creating a model for revenue or equity stake proved more difficult. GM considered a joint venture with AutoCentric in which GM and its dealers would each hold 50 percent equity stakes. GM cleverly used Autobytel.com's ASP engine in an OEM model to create the site. A 90-day pilot was extended past 90 days, but was later abandoned as dealers and GM felt the business model didn't work, and qualified leads were less than expected. While GM is commended for an innovative experiment, it may have failed to gain traction because branding identity was weak, an apparent success factor in other consumer sites generating leads for dealers. The process of discovery may be accelerated into transactions by the presence of brand equity, but that might not extend everywhere.
A case in point is the sales of a new GM car, Celta, in Brazil. Over two-thirds of the new cars first 100,000 units were sold in "consummated sales" online. Consumers purchased their Celtas either through the Web or by kiosks at Chevrolet dealerships, including the ability to customize their car online. The dealer served as a delivery point for preordered vehicles, and through kiosks, a kinder and gentler sales process. It would be years before American car dealerships adopted this model, showing that regional markets can yield very different results depending on consumer motivation, which was much more price sensitive in South America.
A final comment in the management of car sales is the "pre-owned" market. "Car Fax", a service that provided vehicle history including title change, repairs and damage, was a heavily promoted icon at KBB online in early 2001. As average new car prices topped $20,000, the market for quality "pre-owned" vehicles from $10,000 to $15,000 increased. In order to close a pricey "used-car", dealers and private parties once again needed tools to document the history of a vehicle, especially repairs from collision.
managed, the most significant factor was not information technology, but rather
the linking of all participants in the automobile "design" chain, which
includes the desires of consumers to actually find a car that they configured
in a branded website. Using networks to link all aspects of "vehicle creation",
especially in the minds of consumers, through vehicle and dealer locators, and
ultimately, through the evolution of dealerships into "customer service "
portals, was the key to bringing the automotive industry into the 21st century.
The start of e-business initiatives by the auto industry, and in particular General Motors, was to rescue an industry embattled by foreign competitors producing fuel efficient, high quality and inexpensive cars after the oil embargos of 1973. In order to create an efficient manufacturing presence, Chrysler, Ford, and General Motors embarked on a mission to link EDI (Electronic Data Interchange) with their supply chain, and over 20,000 suppliers. Within five years, these efforts started to produce dividends, and by the early 1980s, the automotive supply chain was almost entirely managed through EDI. This allowed JIT (Just In Time) inventory as a business process, not only reducing inventory costs, but also allowing faster adjustments to changing demands in the market place.
Following those initiatives were the Automotive Network Exchange, ANX, which was actually a stepping stone from EDI to Covisint, the new exchange deployed in 2001, which is linking the big three US automakers and Peugeot with over 30,000 auto parts suppliers. ANX was successful in bringing EDI efficiencies to the conglomerate purchasing and management process representing over 500 billion dollars in annual transactions. ANX did not integrate engineering and global visibility to manufacturing and logistics, and most importantly, was not built on an internetworked infrastructure. This was the impetus for the design and deployment of Covisint, an evolution of ANX to the deployment of Covisint.
An early initiative in the auto industry that was immediately successful was Autobytel.com and similar initiatives, which created a new business model, combining consumer-to-business reverse auction with market mediated business-to-business inventory exchange. While Intel and Cisco were bragging about millions of dollars in daily sales in early 1999, Autobytel.com was quietly building momentum, and choreographing almost 5 million dollars in new car purchases daily. Although exact numbers are not tracked with precision, between 1 and 2 percent of all new cars are purchased through these sites (eMarketer 2002). More importantly, over 90% of all new car shoppers use the web for gathering information before they visit a dealer, and over three quarters of these buyers will visit an automakers site to configure a car with options, compare pricing, and use payment calculators to estimate purchase power and buy vs. lease decisions. Over 40% of car shoppers will buy a vehicle from a site where they had a good online experience, compared to less than one quarter who will still buy if they had a bad experience. For automakers, deploying information sites alone was not enough, configuration tools, used so successfully by Cisco, proved just as valuable in the auto industry.
Kelly Blue Book (KBB), which provides car specifications, some configuration and payment calculator tools, also provides links to car review sites. KBB struggles with revenue models, and almost deployed a "pay per view" model, before rethinking the likely failure. In strategy evolved, KBB may see an opportunity to provide real time feedback to manufacturers and dealers alike in the research habits and configurations most selected by the shopping public. The Value Framework shows that KBB did not leverage the B2C component of their service into a B2B2C model, where upstream decisions about what to design, manufacture, and deliver by automakers was realized.
Early e-business initiatives, eGM in particular, were deployed with the goal of creating a digital organization. General Motors launched this initiative in 1999, and then folded the unit back into its business operations in the fall of 2001. Many saw this as a failure, but quite the opposite was true. And that is where the story of strategy managed becomes so clear.
About the Authors:
Mitchell Levy, is President and CEO of ECnow.com (http://ecnow.com), an e-commerce management consulting company helping individuals and corporations transition from the industrial age to the Internet age through strategy, marketing, and off-the-shelf and customized on-line and on-ground training. He is the author of E-Volve-or-Die.com (http://e-volve-or-die.com), author of the Value Framework (http://ecnow.com/value), Executive Producer of VMS3.info (http://VMS3.info), the Founder and Program Consultant of the premier San Jose State E-Commerce Management Certificate Program (http://ecmtraining.com/sjsu), Former Chair of comdex.biz at Comdex Fall, and Chairman of the Pay-per-Performance PR Agency Media Attention Now TM (http://ecnow.com/mediaattention), the on-line learning content production company Transition Learning (http://transitionlearning.com) and the CEO Networking organization CEOnetworking (http://ceonetworking.com). Mitchell was at Sun Microsystems for 9 years, the last 4 of which he managed the e-commerce component of Sun's $3.5 billion supply chain. Mitchell is a popular speaker, lecturing on ECM issues throughout the U.S. and around the world.
Bob Cormia, is an Internet technologist and e-business consultant. Working at SuperBusiness NET, Bob developed strategic positioning, product definition, and account management. Bob developed the e-commerce curriculum at Foothill College while working as a market analyst for G2R, specializing in IT strategy development for Fortune 5000 enterprises. Bob joined eCongo.com in Fall 1998, developing corporate strategy, product development, and launching FreeCommerce on the Internet. In March 2000, Bob joined Calkey.com as an advisor in training and education development in using UML (Unified Modeling Language). In Fall 2001, Bob joined Foothill College as a full-time instructor in the Computer Technology Information Systems division, where he will teach e-commerce, Web strategy, Internet projects, and XML.
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