And Reynolds has a sizable installed base of potential customers for its new products. Now the company is moving into handling Internet sites for dealers through its acquisitions of Web services companies Automark and Third Coast Media. “We buy the expertise and make some improvements, and then we scale it out over our customer base,” says Medford.
Today, Reynolds sees itself as an “information services company” whose mission is to “enable car companies and automotive retailers to work together to build the lifetime value of their customers.” The company will grow by helping its customers grow. It’s a compelling vision, one that the consultants would surely applaud.
But significant growth from that vision hasn’t materialized yet, thanks in part to the economy. The company’s sales in fiscal 2003 barely topped $1 billion, only a 16 percent increase over 1999 revenues of $868 million. And in January’s Q1 2004 earnings call, Medford lowered expectations of 6 to 10 percent revenue growth for the year to 2 to 4 percent. But the CFO added, “We’re setting the table for stronger top-line growth in fiscal 2005 with our investments in new solutions and continued solid earnings and cash flow.” Stay tuned.
A Star Is Born
Another, frequently neglected source of growth that companies can profit from is intangible assets. “Most of the focus has been on measuring intangibles,” says Slywotzky. “A good adjacency move leverages them.” In particular, Slywotzky tells companies to look in four areas: customer relationships; strategic real estate, such as market position or value-chain position; networks, such as an installed base; and information.
At GM, the world’s largest automaker, a successful adjacency move started with a focus on hard assets, but ultimately it was the company’s intangible assets that made for its success.
In 1995, Chet Huber, then president of GM Mobile Communications Services, and a team of GM employees were given the task of brainstorming ways to leverage GM’s technology properties. The company wanted to put its two big tech divisions, Hughes Electronics (satellite communications) and EDS (computer services), to work for the vehicle side of the business. Huber’s team began by focusing on the customer—the driver. “We had an erector set of sorts,” he recalls, referring to the technologies and capabilities of Hughes and EDS. “We took the pieces apart and looked at ways they could address the needs of the customer.” The team identified safety, security, and convenience as needs that were not being completely met, and it set out to provide a service to address them.
The result was OnStar, an in-vehicle global positioning system combined with a wireless telephone. The user pays a monthly subscription fee that gives him or her access to a network of trained operators who can give directions, handle emergencies, or even make a reservation at a restaurant.
GM made OnStar part of a popular factory-installed option package, thus providing an instant, and sizable, base of customers. “GM created a market that didn’t exist before,” says Huber, now president of the OnStar unit. And the parent’s network of relationships has led to other opportunities for the fledgling unit. “Our attachment to GM enabled us to get attention from partners that we wouldn’t have had access to as a pure start-up,” says Huber. For example, when OnStar wanted to look at ways the system might be able to provide entertainment features, it used GM’s relationship as a big advertiser with Disney’s ABC network and tapped into its expertise.