The changing environment

March 30, 2012 in EDGE by

Professor Vijay Govindarajan said it so well in a Harvard Business School interview (available here). According to him, creating an innovation mindset into an organization requires two things. The first one, and the one I will focus on in this post, is about understanding the changes taking place in the external environment. Understanding those changes, is a pre-requisite, a necessity, something that needs to take place before one can even start to think about new product and service concepts.

In analyzing the external environment, some use the simple PEST-model (or the slightly broader version, the PESTC; Political, Economic, Social, Technological, Competition, and Legal). Usually, major changes in one of these can cause enough headaches within a firm. What makes the media industry so interesting is that currently there are major changes taking place in every single one of these. Big changes, Big opportunities. Let us have a closer look at them.

Social. People’s ways to social interaction are changing drastically. The need for it is by no means novel, but the tools for it, are. We have Facebook, Twitter, Skype, E-mail, chat, and thousands and yet thousands of forums offering a platform for people with similar interest in finding each other. New digital tools for social interaction are by no means an age-related issue. The speed that the elderly are catching up in using various digital tools for social interaction, are tremendous. From 2008 to 2010, the share of Americans aged 65+ that used social networking sites, grew from 7% to 26%! The same development for those aged 50-64, was from 11% to 47%. That is more than a fourfold increase during a period of only two years. Sure, the younger generation seems to be the lead users, but the elderly are catching up fast. At the same time, the share of elderly in our population is growing. According to Statistics Finland, this year there are around 945 000 people aged 65+ in Finland. By the end of the decade, that is in eight years time, this number is about to increase to nearly 1.2 million; an increase of 250 000. By that time, the share of people aged 65+ is actually larger than of those aged 17 or less (21% vs. 20%). At the same time, the household sizes are constantly getting smaller, and hence the number of households increases. From year 2000 to 2010, the number of households grew from 2.295 million to 2.537 million, i.e. almost 250 000 more households during a 10-year interval. Many decisions related to media are made commonly within the household. Thus, a 250.000 increase means 250.000 new sales opportunities.

Technological. Smartphones and tablets. Tablets are not only changing the way we consume media, but also what media we consume and how. This is something worth bearing in mind, tablets are not about surfing the web, they are about consuming content. Tablets are by no means simply a touch screen version of the PC or laptop, they are changing how media is being consumed. Paper was the lean back media, computers made us lean forward, tablets are making us lean back again (see a good presentation by the Economist here). During the following three years, the number of tablets is expected to threefold to 326 million globally. At the same time, the number of smartphones is expected to double, reaching 1.1 billion.

Economic. The major concern here is perhaps that consumers are used to getting digital content for free. At the same time, consumers still value quality content and are ready to pay for it. The interesting question is therefore, where is the line in terms of content quality that makes us want to spend our money on it, instead of spending it on something else.

Competition. The more the consumption becomes digital, the more companies there are competing for customers time and money. At the point of actually making a purchase, the customer is faced with much more options than before; most of which were simply unavailable to the consumer in printed format (or perhaps available, but for a significantly higher price). In addition, within some market segments, the market entry barriers for new businesses are low. This means that new, more innovative, and more customer-oriented players can find their way to the market quicker and easier than before.

Political and Legal. As content is digitalized, so are the customers’ movements in the digital world. This opens up new possibilities in terms of delivering value to the customer, and in offering personalized, more relevant content. The flip side of the coin concerns issues about data security and ethics; is there a limit in how much data a company is actually allowed to collect? At the same time, the combat against free file sharing is getting fiercer. New business models are created in convincing those that are used to downloading content illegally free, to actually start paying for it (e.g. Spotify). The political and legislative issues in the digital world can create barriers, but at the same time open up new opportunities.

These are only some of the changes taking place currently in the media industries. Understanding these changes is only one side of the story, the other side is, how can the firm adapt and take advantage of these?

Within the EDGE Research Group we are this year part of the Next Media program, a project called Personal Media Day. Within this research project, we deepen our knowledge in one of these major changes shaping the media industry, those in consumer behavior. What does a personal media day look like? Is there such a thing as a typical media day? How we actually do it, will be the subject for our next post, so stay tuned.

Niklas Kiviluoto