Car talk: Assessing telematics; New technology businesses can create new profit streams for mature companies. But it takes careful planning. (Technology Strategies).

Are these successes replicable in other industries? They can be. We have developed a broadly applicable Framework to help companies in mature industries assess whether they can create new technology businesses. We focused on the automotive industry--an industry facing 2% to 3% annual growth--which is currently on the cusp of building significant technology-based businesses. Automakers have to decide what to do about telematics, a suite of communication technologies that enable both on- and off-board communication and include offerings in the area of infotainment, safety, driving and navigation, maintenance, and regulation.

Telematics in Brief

At first blush, telematics might seem to be a sure bet. Industry analysts believe telematics has the potential to deliver significant revenues, just shy of $40 billion in the United States by 2010, according to McKinsey estimates. Despite the luster of these potential revenues, however, there is a high degree of uncertainty concerning the market's trajectory and the most profitable service lines. Moreover, there is a great deal of uncertainty around potential competitive responses.

The fact is that many players are unclear about their position within the telematics value delivery system and their sources of competitive advantage. Indeed, the traditional automotive industry may fundamentally change as automakers try to become service providers, as traditional module suppliers expand into consumer electronics, and as consumer electronics companies vie to supply sub-modules. For companies entering this new and unpredictable market, the stakes are high. Potential entrants must recognize the uncertain demand while justifying major technology investments and maintaining consumer confidence.

The framework we use here to analyze the potential of telematics in the face of these many uncertainties can be used by a variety of companies across many mature industries. It applies generally to new business opportunities in which not only is the payoff uncertain, but both the level of up-front investment required and the type of customer demand that will eventually develop are hard to predict.

Uncertainty Principles

With telematics, as with similar ventures, the challenge is to create a framework that effectively accounts for the many types of uncertainty surrounding the creation of new businesses. The methodology presented here fuses strategy under uncertainty frameworks with the traditional strategic posturing frameworks used in static-state market analysis. This method allows companies in mature industries to think through both the significant uncertainty inherent in any new business opportunity and the implications for the core business in stable earnings mode.

When dealing with uncertainty, the first step is to assess which components of industry growth and development are predictable and which are not. Once the unpredictable factors have been identified, they can be broken down further according to whether each is more or less likely to materially affect individual participants and whether participants can influence the degree of uncertainty. The factors that are clearly significant and difficult to influence will become "critical uncertainties"; factors that are not significant are dismissed; and those that are significant but can be influenced are treated as variables.

Following this analysis, strategists can use …