While the convergence of the communications and media industries has provided unprecedented business opportunities in both industry segments, a digital ‘bubble’ – not unlike the dot.com bubble – could be developing, according to a white paper issued by professional services firm KPMG.
In the paper titled “The Digital Bubble: Balancing Operational Challenges With Growth,” KPMG addresses some of the critical market conditions media and communications companies face in a digitised world. In their quest for digital transformation, traditional media companies have acquired startups with limited financial track records, communications companies have entered uncharted business areas, and technology companies have moved into the content management business. Such rapid expansion and growth expose these new market leaders to unexpected risks, including the conditions which may result in a digital bubble.
Tudor Aw, Convergence Partner at KPMG comments: “Whether such an economic phenomenon as a ‘digital bubble’ develops will depend on a variety of factors, including whether companies throughout the industry are able to execute the operational aspects of their digital strategies.”
In a rapidly evolving marketplace, KPMG points to a number of factors similar to those present when other economic bubbles have developed including; excess capital, investments based on speculation rather than economics, demand in excess of investment opportunities and overheated prices diverging from fundamentals.
Companies considering convergent activity face considerable risks. The white paper highlights that management needs a balanced view of the organisation’s digital opportunities to ensure the focus remains on operational execution as well as strategy formulation. Achieving this balance is critical.
Tudor Aw continues: “History shows that when technology revolutions have developed in other industries, management has typically been overly focused on top-line growth and increasing market share (either organically or through acquisitions) without ensuring that the operational strengths required to support this growth are properly in place and that emerging risks are properly managed.”
According to KPMG, without a comprehensive understanding of the widely varied risks and interdependencies that emerge as a result of the digital transformation, companies could easily jeopardise their evolving business models and overall business performance. A structured approach to managing operations, and identifying and prioritising risks is therefore necessary to help organisations find the appropriate balance between growth and execution.
KPMG advises developing a framework to methodically identify, assess, manage, and monitor the operational challenges and risks associated with executing a digital strategy. Companies also need to respond strategically to these key risks with a comprehensive strategy—one that provides structure but also enables agility and efficiency. The right structure, processes and controls can help enable improved business performance—just as a racing driver steering a speeding car uses the brakes at strategic points to enable greater overall speed and control.
“Leaders in the media and communications industry face growing pressure to understand their position in an increasingly digital marketplace,” concludes Aw. “To respond rapidly to digital opportunities, organisations need a structured approach to managing digital challenges and interdependencies balanced against the need for profitable revenue growth.”