EXECUTIVE SUMMARY

OnStar was launched 10 years ago and is still going strong, with four million registered users. Its evolution provides a great example of how to combine personalized service and customer experience to surround a physical product--in this case, the customer’s car.

At its launch in 1996, OnStar was only available for select models of General Motors cars. Within a few years, the service was offered not only on many GM cars and trucks but on competing brands as well. The current OnStar strategy is to build the service into all GM cars, and to emphasize its safety and diagnostic benefits to customers.

Now, in 2006, there are two different OnStar service options: Safe & Sound--accident reporting, remote diagnostics, etc.--and Directions & Connections, the latter option adding features such as driving directions and other convenience features to the safety features available in the former package.

OnStar is now an independent subsidiary of GM and is still under the leadership of Chet Huber. OnStar continues its commitment to providing excellence in personalized service and customer experience, updating and enhancing the in-car safety features it introduced in 1996.

GM PIONEERED IN PROVIDING PERSONALIZED SAFETY AND CONVENIENCE THROUGH MOBILE TECHNOLOGY

Back in the early 1990s, General Motors’ customer research revealed that customers had a set of common concerns: they feared for their lives and for the security and safety of their families on the road. They didn’t just want safer cars; they wanted safer roads. They wanted to be safe from carjackers. They worried about having an accident on a deserted road: how long would it take for someone to notice and come to their rescue? These customer concerns converged with a set of new mobile technologies that GM executives found promising. What if GM could offer its customers peace of mind--the knowledge that no matter where they were in their car, someone would be there with them, able to summon assistance or give directions? Thus the concept of GM’s OnStar service was born.

GM’s OnStar Was Launched in 1996

The original OnStar service was launched in February 1996 at the Chicago Auto Show. It was delivered in the fall of that year, available on the newly-released 1997 Cadillac DeVille, Seville, and Eldorado models. The optional service included a built-in cell phone, global positioning system (GPS) satellite technology, and an electronic linkage to a round-the-clock customer support center that located your car as soon as you called for assistance (or when your air bag deployed in a car accident or your car’s theft alarm went off).

Critical Success Factors in the OnStar Story
(Please download the PDF to see the table.)

Even back then, in the early days of commercially-available GPS and before mobile phones were ubiquitous, or even common, the OnStar advisor--a customer service rep on the other end of the cell phone--knew who and where you were, quickly determined what you needed, and summoned help or gave detailed directions. If you had been in an accident, the OnStar advisor summoned the closest emergency help. If your car was stolen, OnStar located the vehicle and notified police of its location until it was recovered. If you were locked out of your car, the advisor opened it remotely. If you were out of gas, the advisor arranged for gas to be delivered to your car. And if you just needed directions to the nearest cash machine or fast-food restaurant, the advisor has all that information at her fingertips.

Understanding that its target customers--high-end automobile owners--were busy people who valued convenience in addition to necessary safety services and directions, OnStar also provided concierge-like services, such as tickets to a “sold-out” sports event, a table at a restaurant you’d normally have to book months in advance, or tracking down that hard-to-find gift for your wife--all while you were driving to work.

A decade later, OnStar is still going strong, offering drivers enhanced personalized safety and convenience services, which leverage the latest in wireless voice and data technologies.

THE EVOLUTION OF ONSTAR

GM’s OnStar service is about as personalized as service can get. Let’s see how GM got into the business of offering in-car service to customers.

TECHNOLOGY CONVERGENCE PROVIDED THE OPPORTUNITY. Beginning in the early 1990s, several times a year, the technology strategists from Hughes and Electronic Data Systems (EDS), would make presentations to GM’s management about emerging technologies that might affect GM’s future.

Harry Pearce, vice chairman of GM, who had organizational responsibility for Hughes and EDS at GM, began to notice a set of new technologies that looked really interesting for a company in the transportation business. These technologies were GPS; voice recognition technology; a nationwide, ubiquitous cellular infrastructure; and sophisticated, digitally controlled, in-vehicle electrical systems. As these technologies matured, Pearce, along with the engineers at GM North American Operations (NAO), and colleagues at Hughes and EDS became more and more excited about the possibilities this convergence of technologies implied.

There was obviously a whole new class of services that would be enabled by knowing exactly where a vehicle is, being able to communicate with the driver via cell phone, and being able to control many of the car’s electrical functions remotely (for example, unlock the car’s doors).

IDEA: PROVIDE PERSONALIZED IN-CAR SERVICE. By early 1995, GM management gave the go-ahead to launch a new service business--a business designed to provide service to people while they’re in their cars. They wanted a seasoned GM executive to lead the effort, yet someone who would be able to think out of the proverbial box. They tapped Chester A. “Chet” Huber, a 23-year veteran of GM’s locomotive business to head up the operation. Since the new business needed to pull together resources from GM’s car and truck divisions, Hughes, and EDS (which is now an independent company). “I was the right man for the job, because I hadn’t worked for any of them. I was a neutral third party,” Huber explained.

LAUNCHED A SERVICES DIVISION. In June 1995, Chet Huber became general manager of the OnStar division, and he now serves as president of the wholly-owned GM subsidiary. He was given an open mandate to develop a business chartered to “deliver great service to people while they’re on the road.” Huber saw his challenge as that of growing a new business revenue stream for GM--creating a business that’s related to GM’s core business but very different in its business model and value proposition.

Huber’s biggest challenge was to design an entrepreneurial, fast-moving business that could thrive within GM’s $100 billion bureaucracy. He did this in part by bringing many people in from outside of GM and by relying on a number of outside consultants. “We had to have a deep understanding of our dealer channel,” Huber explained, as well as an intimate knowledge of in-car electrical and mechanical systems.

SHIFT IN BUSINESS MODEL. Instead of selling a physical good once, collecting the money at the time of sale, and hoping to sell to the same customer again in a few years, the OnStar business is a subscription business. Originally, the customer bought the option, had it installed in her car, and then paid a service fee each month. “Our job is to create relationships for life with our customers,” said Huber, who was later promoted to president of OnStar when it became a wholly-owned subsidiary in 2000.

Currently, OnStar is factory-installed into selected automobile brands and models; the service is typically free for a period of time (usually the first year) and customers choose whether to continue the subscription service after the initial period.

Developing and Launching the Initial Service

In the fall of 1995, GM decided that OnStar would be a separate division of GM’s North American Operations. The new division would deliver its first product and service to the market in 12 months--fall 1996 for the 1997 Cadillac line. Cadillac owners are GM’s most upscale market; still, Huber’s team knew it needed to price the OnStar option reasonably for this target segment at about $1,000. But, most important, the Cadillac’s electrical architecture was the “most hospitable one”--the one that would be easiest to integrate the option into...