This is the prepared text of the speech and may not reflect the verbatim presentation
January 17, 2001
In 1996, I entered an industry that hadn't seen a significant business model change in the last 80 years. At the same time, it was an industry being rocked by the out-and-out revolution called Electronic Commerce.
E-business, as it's also known, has been changing the automotive industry in dramatic, often traumatic, ways. It has shifted customer expectations in ways we haven't seen since the quality movement two decades ago presenting us with new requirements for responsiveness, quality, service and price.
Today I would like to spend a little time talking about the digital revolution and its impact on us. I believe that it's time to point the finger at what's fantasy and what's fact about Internet-enabled commerce in the automotive industry. I'll describe what's been happening in this area and go out on a limb to make some predictions about the future. Finally, I'll share some thoughts on ways you can equip your companies to prosper in the years ahead. Afterwards, I will be happy to take your questions.
But let me put you on notice at the outset. Although the Digital Revolution promises fantastic opportunity for companies that successfully capitalize on it, you're not going to like everything I tell you. Because there is both good news and bad.
It's like the two buddies who were the biggest baseball fans you could find. They agreed that whoever died first would come back and tell the other if there was baseball in heaven. Sure enough, one of them passed away and the next night he visited his friend and said, "Well, I have some good news and some bad news. The good news is that, yes, there's baseball in heaven. The bad news is you're pitching tomorrow."
Change at the Speed of Light
It's not just change that's keeping many of us awake at night. It's also the speed with which change is taking place. This whole thing started when Netscape went public. And that didn't happen "Once upon a time." It was just 1995!
The World Wide Web was introduced to most of us as a simple, common language that let us communicate right into the homes of our ultimate customers.
On the heels of this came the dotcom phenomenon. Business plans were based on number of hits to a Web site and venture capital poured in. Day trading and IPO's became a national pastime. Billionaires seemed to be born every day.
As if by magic, the Internet became a household word. The CEO of Amazon.com became Time magazine's "Man of the Year." And I overheard my neighbor's first-grade son telling his pals that "Washington, D. C." stood for "Washington, Dot Com."
Then, about a year ago, things started to unravel with the same lightning speed that they began.
The venture capitalists stopped chasing would-be Internet businesses. The huge market caps of the dotcoms deflated and many simply went under. In fact, a recent report estimates that more than 200 Internet companies folded in 2000, killing as many as 15,000 jobs and burning billions in investment capital.
GM's E-Business Journey
But during all this chaos, "real" businesses with "real" customers were taking a different approach. Despite everything written about companies like GM being big and lumbering, we were pretty nimble in reinventing ourselves to capitalize on Internet technologies.
In 1996, EDS was spun off, and we embarked on reengineering our old automotive processes around the Internet. We consolidated or eliminated nearly 2,500 information systems. We recruited more than 200 specialists in e-business and integrated their talents with our executive community to form an e-business workforce. We overhauled our IT infrastructure to provide all the bandwidth, speed and power we needed. And we invested $1.6 billion in real e-business applications.
These initiatives enabled us to substantively transform General Motors not into a dotcom, but a "dotcorp," a digital company that blends the best of both bricks and clicks.
Seven Deadly Sins of Automotive E-Business
Along the way, we learned some lessons and came to recognize the myths that have grown up at the edges of the Digital Revolution. We mere mortals have always created myths to shield ourselves against the things we don't understand.
But paying serious attention to myths will only get us into trouble. They're as silly as "The Seven Dwarfs." And for purposes of this talk, I call them, "The Seven Deadly Sins of Automotive E-Business."
Myth 1: Web hits are good as gold
The dotcoms -- and traditional companies trying to look like dotcoms -- have been playing a public relations game. They've equated success with the number of "hits," or visits, or transactions on their Web site.
What's fact is that the only thing that's as good as gold is "profit." The fundamentals of e-business are the same ones that have spelled success or failure throughout history:
- Are you selling?
- Are you growing?
- Are you making money?
How have successful companies achieved these fundamentals? By being customer-centric. For real business people, the customer has always been the genie in the bottle. The customer is what makes our wishes come true. This hasn't changed in the world of e-business.
What has changed, however, is that the Internet has let the genie out. The Internet empowers customers by making them knowledgeable and impatient. When consumers discovered that they could order a computer made to their specifications and have it shipped to them the next day, it was only a matter of time until they wanted to use that computer to buy a made-to-order car.
The automotive industry has been accustomed to making decisions in the name of customers. But the Internet lets customers speak for themselves.
Our industry was unique for almost a century in knowing the names and addresses of our customers. But we did precious little to leverage that information toward individualized customer intimacy.
Even today, despite the access that the Internet has given to the customer shopping for an auto, we keep making excuses why the customer can't get that auto built to spec and shipped in a matter of days. Guess what? The Internet makes it clear that there are no more excuses for not giving consumers what they want.
What's fact is that there is a new fundamental of e-business … that the customer chooses. The consumer has evolved from Web-site tire kicker to passive purchaser to educated e-shopper to empowered e-business mover and shaker.
The automotive industry doesn't have control anymore. Today, it's the consumer who defines value and calls the shots. They do it one at a time, millions of them at a time.
Myth 2: Start-ups own the playing field
This deadly sin rises from the fact that the automotive industry does not understand Information Technology. What's fact is that the Digital Revolution will be fought and won by real businesses like yours and ours.
The startups from outside our industry are as much in the dark about our industry as the automotive industry has been about IT. They are learning the hard way about the complexities of automotive distribution, our dealer networks and franchise laws. Some of the startups that looked so ominous to us have already joined the ranks of the "Broke.coms."
For example, Priceline took the field with inherent flaws in their business model. Customer loyalty, for example, is a non-starter for disintermediaries who cannot offer the full service and lifetime value of a "real business with real customers."
To compete effectively in the digital economy, traditional companies need to apply their marketing clout and brand identity their operational scale and speed and their capital. The Internet is as much a capital revolution as a technological one.
In GM's case, we compete with the pure dotcom startups across a wide front. We leveraged our scale and capital resources to transform GMAC into an electronic exchange that offers online auto financing, residential mortgage applications, and home locator capabilities.
With GM SupplyPower, we leveraged our size by creating a single portal to communicate business and operational processes across the supply chain. The potential benefits of consolidating communications across the world's largest supply chain are enormous.
We compete with OnStar. With 2,500 new subscribers a day, OnStar is well on the way to transforming the vehicle into a communication system as well as a transportation system.
What all this means is that the auto industry is not a single industry, but many, with dotcoms being built within our corporations and outside remnants of dotcoms being aligned with corporations.
General Motors, for example, is in the automotive industry, the financial services industry, the telecommunications industry, the manufacturing industry, and on and on.
In our business, size matters. But what matters most is connected and integrated size. The startups are just now learning this.
Myth 3: E-commerce point solutions create digital businesses
Single point e-commerce applications don't create a new generation digital company. In fact, you may be replicating the age of islands of automation in our industry of the 1980's. The blueprint for a digital economy company must describe how e-commerce applications will work with each other. It can't be done one at a time with integration being an afterthought.
The internet offers tremendous opportunity to create new improved relationships with customers at home and office, in the vehicle, with suppliers, dealers, and our workforces. GM has created internet exchanges with each of these segments, but with a blueprint for their integration to effectively change the total way we view business with e-technology.
Myth 4: You can go it alone
Wrong again. E-business is about connecting to customers for competitive advantage. It has to be externally focused. I'll give you an example from GM's experience with our consumer Web site, BuyPower.
It has a "family" of affinity alliances and portal companies. BuyPower is integrated with dealer inventories and allows consumers to configure the vehicle they want and find it at a local dealer.
We have alliances with general portals like AOL, Kelley Blue Book, Edmunds.com and NetZero, and also with affinity portals like College Club, ClubMom, and Ican, the Internet community for people with disabilities. GM does not have to replicate these customer relationships, we leverage them.
What's fact is that you cannot realize your full potential by going it alone. E-business calls for new core competencies in technology and customer relationships that are broader than any one company.
Myth 5: Retain proven business processes
Overlaying the Web onto traditional business processes won't work … even the proven processes that have served you well in the past. It's like paving over cow paths. The Internet changes everything and every business process has to be reexamined. This requires an overhaul in key automotive processes, starting with content management and extending throughout the enterprise.
What's fact is that the auto industry wouldn't be undergoing the traumatic change of the Digital Revolution without the impetus of end customers, who are forcing the order-to-delivery solutions, reduced product development cycles, and open access to information that the industry has until now kept close to its vest.
Myth 6: The Web is just another channel
The Internet is different from any other channel that's ever been.
E-business is all about people and processes, and how they change to take advantage of the new technologies of computers and communications.
What this means to your company in the Digital Revolution is that every employee has a marketing role. Savings will come from not just purchasing, but from every organizational function and every business process.
Myth 7: It's a passing fad
People have been watching the shakeout among the dotcoms, and some are generalizing that e-business is just a passing fad. It's not. E-business is real and permanent, and it will change our business model to its foundation.
The automotive industry has traditionally given up on process initiatives that are difficult. This has been the case with automotive e-business efforts, especially supply chain integration.
What's fact, however, is that e-business will ultimately reshape industry value networks and processes, because empowered customers will create challenges for our empowered employees to solve.
Predictions -- The Next Two Years
It is easy to make predictions about future technology, and easy to look like a fool in hindsight:
- In 1943, IBM's Thomas J. Watson said that "there is a world market for perhaps five computers."
- Ken Olsen, the founder of Digital Equipment Corporation said in 1977, "there is no reason anyone would want a computer in their home."
- In 1981, Bill Gates said "640,000 bytes of memory ought to be enough for anybody."
- Bob Metcalfe, Ethernet inventor and 3COM Corporation founder predicted in 1995 that "the Internet will catastrophically collapse in 1996."
But I'm willing to go out on a limb and put myself on record with some predictions of my own about how the Digital Revolution is going to affect our industry.
Prediction one -- significant numbers of dotcom employees will come into the auto industry during the next two years, fueling the e-business engine required for our industry transformation.
The requirement before us is to jump-start the transformation by bringing real Information Technology expertise into the automotive industry just as we had to do at GM in 1996.
In 1992, Bill Clinton kept his campaign workers focused on one big idea, which he summed up in the statement, "It's the economy, stupid." There is a parallel for our industry as we try to assess the impact of technology, "It's the talent, stupid."
Secondly, during the next two years, we will make major breakthroughs in build-to-order so we can answer the individual configuration requirements of the consumer. Build-to-order is currently a small portion of the market, and implementation is not right around the corner. It will be a multi-year implementation, a hybrid implementation -- build to market first and build to order over the longer term.
We have the technology to significantly reduce the $230 billion in excess inventory that supply chain inefficiencies cost this industry. And it will happen, because consumers will see to it that we make it happen.
Third, I mentioned earlier that OnStar is well on the way to making the vehicle another node on the Information Highway. It's only the first step toward full-scale telematics that will make possible an era of mobile commerce within the next two years.
We envision the vehicle becoming part of a limitless communication network with wireless telecommunications linking the vehicle to consumers whether they're at home, at work, or traveling in between. The machine that changed the world will change the world of communication, too.
The auto industry invented the concept of the Internet B2B exchange. And the next prediction -- Covisint will be a successful business venture within the next two years. The alternative would be a setback to standardization for a "Go Fast" electronic automotive industry required for our survival.
But many of the exchanges created to mimic Covisint will fail or be consolidated. Hundreds of small or poorly executed exchanges will die.
A strong leadership team, robust infrastructure delivery, great service, industry knowledge and customer commitment are all required for success in an Internet exchange business.
Covisint will survive because it was created in response to the customer and the supplier, and offers the standardization and simplicity they require.
OEMs and suppliers will still have to build internal functionality to take advantage of and complement Covisint capability.
No exchange company will build all the functionality for our supply chain, but Covisint will let it happen across our industry.
Misinformed manufacturers, suppliers and Wall Street analysts who do not understand the complexity of e-business technology and systems have defined Covisint as an entity that solves all automotive industry e-issues.
We know better. Covisint will offer interconnection and some functionality, but other significant functionality must be provided by OEMs and suppliers to leverage Covisint.
Finally, if information is the underpinning of the digital economy, we'll see dealers and OEMs form a win-win global, "Digital Generation" value model.
The sales channel debate has been miscast as a question of disintermediation of dealerships. The real issue is how to re-intermediate together as companies and retail channels into the new markets that are forming.
This is not a battle of the old versus the new. Rather, it's about which new way which partners serve the customer and create value for those involved. My prediction is that the motivation to delight customers in products and service will change both the dealerships and the manufacturers.
In the next two years, the win-win will be found by those dealers and those manufacturers who are willing to craft a new model of adding value mutually by better serving the customer. A formula for the success of those involved will be found, and others will follow or diminish.
So, having said all this, the question comes down to, "What's in it for you?"
Let me answer it this way. Any company that successfully adopts an Internet-based, e-business model will win the Digital Revolution. I'd like to suggest three ways you can achieve that success.
First, build a "digital company." Too many companies in our industry have not gone outside the comfort zones of their traditional business model. Unless they do, they cannot compete with true digital business models.
I found an interesting way to analyze a company's progress in building a digital business model in the book "How Digital is Your Business" by Slywotzky and Morrison.
Think of a four-quadrant matrix chart where the y-axis is the corporation's degree of digitization and x-axis is the quality of business design. Low digitization coupled with weak business design would be in the southwest quadrant. Most businesses languish here. They have a business design that is flawed or that is vulnerable to outside forces.
In the northwest quadrant are companies with high digitization and bad business design. This is the home of most dotcoms.
The southeast quadrant contains business with low digitization but great business design, like GE or Swatch. These companies have been successful because they've captured large, growing markets and reinvented themselves to keep pace with changes in customer priorities, technology, social and economic conditions and competitive forces.
I count GM among the companies on the border between the northwest and northeast quadrants. We have leadership-level digitization but have much work to do in applying it to new business design.
Profit margins and growth rates can be significantly higher for companies that integrate a smart business model with exploitation of digital options.
Companies that have done this during the past three years have shown remarkable results. For example:
- Dell's pre-tax profit margins outperformed competitors by 11%
- Cisco grew revenue 30% faster than its competitors
- Charles Schwab increased its revenue 15% faster
Which will be the first major, complex, manufacturing company to do this? I believe GM has a chance.
The second initiative is to make your digital company customer-centric. A consumer-centric organization will not be frightened by the diversity and complexity the new e-business consumer represents. Instead, a customer-centric digital company will thrive.
The people relationships across the spectrum of business activities are the key. They have to be relationships with real-time information management and two-way trust.
The final thought I'd like to leave you with has to do with execution. Measure your digital company against bottom line metrics. The time for experimentation with Information Technology is over. No more public relations posturing to show you are keeping up with the "dotcom Joneses."
E-business must demonstrate ROI just as any other aspect of your business. The only metric is the bottom line benefit. These are the metrics that will tell you how well you are executing. These are the measures of your success.
Response to Change
Something that Charles Darwin said more than 100 years ago applies today to companies in our industry. He wrote: "It's not the strongest of the species that survives, or the most intelligent -- but the one most responsive to change." So accept the reality of e-business. It won't disappear. But those who don't embrace it might.
It's up to you. Will you surf the tidal wave of change in our industry or be swamped by it? Are you the rock that shatters the stillness of the pond or are you the ripple?
We're in an industry that is changing so quickly and so irrevocably that we sometimes forget what we're all about. To my mind, when it's all said and done, we're still talking about market forces that have remained unchanged from ancient times. After all, it was the marketplace that first brought people together to talk and to trade. It was the marketplace that united them into a community. And it will be no different tomorrow.
Except that the marketplace will swell to the unbounded dimensions of the Internet. The community of trade will be freed from the barriers of time zones and geography. Businesses will continue to traffic with other businesses, and companies will trade with consumers. But, as always, it will be people, dealing with people.
There is risk, yes. But, if you are savvy in turning change to your advantage, you can gain a position of leadership in the digital economy.
You might even find yourself prospering to a degree that exceeds your own expectations.