VIEWPOINT:

To find the business case for telematics,

look higher up.Originally published February 19, 2010 by John Day, Automotive Electronic News – Insights for Engineers - http://johndayautomotivelectronics.com

Telematics Viewpoint by Ralf Hug, President Trajectory Group LLC

Ralf Hug has in-depth telematics marketing and management experience with automakers and telematics service providers

It’s commonly accepted wisdom in the automotive industry that telematics technology is reliable and ready to market. For evidence, consider GM OnStar, Mercedes-Benz mbrace, Toyota Safety Connect/Enform, BMW Assist, or the Ford SYNC system. Automakers only have to develop a convincing business case, and they are good to go.

But unfortunately it is not quite that easy. Based on my experience managing telematics programs for car companies and service providers, I believe that telematics is less a business case issue than an organizational design challenge.

Developing a business case for telematics demands that a car maker define a clear value proposition for consumers, dealers, and some other key stakeholders, including component and system suppliers, service providers (insurance, traffic), content developers (advertising), and local governments (vehicle-to-infrastructure, e911), as well as for its own bottom line.

The latter I think is a tough challenge in itself considering the fact that within a car company there are many “businesses,” each with its own P&L objectives. Sometimes all of the internal businesses’ objectives come into alignment, but more often there are conflicts among them. The potential value and the cost of telematics must be weighed by engineering, manufacturing, quality, sales and marketing, customer service, and finance, among other interests.

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When I worked for a luxury car maker I had to re-open the business case for telematics about every three months because someone thought the “telematics” line item could be deleted to lower the cost of the vehicle. My team and I had to deal with each objection by explaining the value that telematics creates despite having a program in place for many years.

Here are a few areas where ROI and benefits are easily measured:

The key revenue source is of course selling the Telematics Control Unit (TCU) or “box” in the car as factory standard or an option. On top of that is the revenue that comes from selling content and services built into the box or offered for subscription. Although this alone can be challenging and complex, hardware costs, wireless service, and content and services costs have come down significantly over the years. Also, additional revenue can be generated with pre-owned vehicles – a source often ignored.

The ultimate objective here of course is to use telematics as a unique selling proposition (USP) and achieve more vehicle sales or halt declining vehicles sales. Ford is a good example, claiming increased sales due to Ford SYNC. This alone should create a good business case.

However, there is more.

The ability to retrieve diagnostics data piqued the interest of managers responsible for warranty repairs and overall vehicle quality and production. This goes from the simple cost reductions within roadside assistance to the potential of updating electronic control units remotely in much the same way that Microsoft updates personal computers. Those with awareness of vehicle life cycle costs were intrigued by the prospect improving initial quality as well as customer satisfaction, two important JD Power benchmarks. But we are still not there. Ask Toyota about the value of providing faster feedback to the factory on potential quality issues.

Building better relationships with car owners through vehicle health reports and dealer integration not only increases the likelihood of maintaining customer loyalty but also improves parts and service revenues and profitability of the OEM and dealership and keeps customers loyal within the OEM dealer network.

Another potential improvement for the business case could come from third party subsidies on the hardware or service costs, i.e. from advertising, insurance, or probe data.

Aren’t those, and others I could list, sufficient reasons to implement telematics technology? The answer is “Yes, but…” The fundamental problem, as I see it, is that for most automakers, telematics has not gained sufficient mindshare at a high enough level. The people running car companies today are, for the most part, car people who think a lot more about mechanics than they do about electronics or feel more comfortable with it. Someone has to have the vision and the clout to negotiate the rather complex ecosystem and make something happen at a senior management level and be able to work across various functions within a car company. A change in organizational structure is needed to overcome these barriers for a holistic business case. Which companies will be willing to accept the challenge?

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About Ralf Hug:

Ralf Hug is President of the Trajectory Group, a strategic business development and advisory firm in Chicago with deep industry experience in automotive telematics, M2M, GPS navigation, LBS, wireless and consumer electronics. His services include: Management Advisory, Marketing Strategy and Planning, Inbound and Outbound Marketing, Business Development, Product Strategy and Launch as well as Interim Management.

Contact Ralf Hug:

Email: ralfhug (at) trajectorygroup (dot) com | Skype: ralf_hug

LinkedIn: www.linkedin.com/in/ralfhug | Twitter: www.twitter.com/ralfhug

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