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Creating a New Business Model for OnStar at General Motors

The Problem
OnStar is GM's two-way vehicle communication system that provides a variety of services enhancing safety, security, entertainment, and productivity. In 1997, GM faced fundamental strategic decisions with respect to OnStar and the market for telematics (the provision of communications services to cars).

GM had to decide whether to view OnStar as a car feature or as a service, and choose between an evolutionary and a revolutionary strategy. Complicating the decision-making process was the almost complete uncertainty GM faced regarding technological approaches, major competitors, and what competitive and complementary technologies would emerge. The challenge required operations research expertise in developing decision support systems, creating mathematical models of uncertainty, and strategic planning.

The O.R. Solution
The GM/OnStar O.R. team developed a multi-method modeling approach to evaluate strategic alternatives. They used dynamic modeling to address some of the critical decisions GM faced in 1997, such as the company's choice between incremental and aggressive marketing strategies for OnStar. They also used an integrated simulation model for analyzing the new telematics industry, consisting of six sectors: customer acquisition, customer choice, alliances, customer service, financial dynamics, and dealer behavior.

The Value
In 2001, OnStar had amassed 2 million subscribers – an 80% market share of the emerging telematics market – and had been 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 of dollars in incremental earnings. Even more important than its financial benefits for GM, OnStar has saved lives that otherwise would have been lost in vehicle accidents.

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