Forces Shaping the Telecom, Media, and Technology (TMT) Industry
By Andreas Koch, Director of Telecom, Media & Technology Practice, DSI
DSI recently developed scenarios for clients in the converging Telecom, Media, and Technology (TMT) market. Touching highly divergent corners of this fascinating industry, we explored several possible futures for global IT services, wireless and broadcast infrastructure, and mobile media (including entertainment and infotainment). In the following pages, we share our experiences with several clients and offer up a few observations about the nature of TMT trends and uncertainties, and the ways in which TMT stakeholders perceive those trends and uncertainties. We also discuss the value of scenario planning for TMT decision makers, and the importance of envisioning the periphery to gain insights into an increasingly complex and uncertain future.
Scenario Planning: A Refresher for TMT
Scenario planning differs from other analytical and planning tools in significant ways. Contingency planning examines one key uncertainty (for example, a change in technology) at a time. Scenario planning, in contrast, examines the combined influence of various uncertainties (not only those centered on technological change, but also larger cultural, economic, environmental, political and social forces that create uncertainty). Similarly, while sensitivity analysis examines the impact of changing one variable a tiny bit, and keeping all others constant, scenario planning changes multiple variables at a time without trying to keep others constant. This allows scenario planners to capture new futures that might develop after major shocks or significant deviations occur in the larger environment. Thus, scenario planning focuses upon the extremes to gain insights into a variety of possible futures. It also produces insights at two levels at once, not only revealing the environmental dynamics in which companies operate, but also shedding light upon the ways in which industry stakeholders frame the challenges they face. The dynamics (what we call forces and drivers) and frames (or perceptions) we uncover while working on scenarios reflect the collective imagination of industry experts. They also reveal the nature of historical trends and some of the key uncertainties planners will need to confront in the days ahead.
IT Services
Prompted by concerns about the long-term viability of the maintenance and support business, our first case focuses upon a major maintenance and support services industry association seeking ways to help its members to anticipate as well as to align their strategies to emerging opportunities and challenges in IT services. Historically, product maintenance and support has yielded very high margins (from 50-70%). Now under pressure from increasingly savvy customers who doubt the value of maintenance contracts, association members need to rethink their plans.
Extensive interviews with industry experts revealed more than 100 technological, market-oriented, economic, environmental, and political forces at work in the IT services sector, with several of them disrupting the legacy maintenance and support model. Industry experts agreed, for example, that hosted services will gradually displace the traditional product and maintenance model. Moreover, many concurred that open-source software and third-party providers of multi-vendor support will continue to cannibalize mainstream products and vendor maintenance revenues, and that providers of broad IT solutions could even jeopardize the maintenance model further by relegating product vendors to wholesale status.
Despite concerns, however, many trends have also created opportunities. With underserved segments catching up and mobile services becoming ubiquitous, consumers increasingly demand more advanced IT solutions. In addition, customized IT access and wireless machine-to-machine transactions both require new sets of managed services, including maintenance and support. Interviewees also pointed to other important trends, including the following:
Although interviewees struggled to identify relevant uncertainties, most agreed that significant uncertainties would influence directional trends, and that the complex interaction of multi-directional trends would generate significant uncertainties further up the chain. With the assistance of additional research, we asked our industry experts to frame key uncertainties in the form of questions. The following table contains the result:
Importantly, this list of eight uncertainties fails to include any external shocks (such as a “new” 9/11, another major war, or large-scale cyber-terrorism). In fact, interviewees rarely identified such shocks, and when queried about them, only reluctantly considered their relevance. Regardless, we can group the key uncertainties identified into three categories: the substantial ones influencing a select set of directional trends (such as those considered in U3, U6, and U8); higher-level uncertainties driven by large clusters of ground-level forces (identified in U1, U2, and U5); and those flowing from the decisions of key players (as in U7). When asked to select uncertainties to generate scenarios, TMT experts invariably chose those higher-level ones representing broad clusters of underlying forces. From these, we created the following “meta-uncertainty” scenario matrix:
Key Uncertainties About the Future of IT Services
U1 Will new business models displace the current vendor-centric maintenance and support model?
U2 Will consumer and business IT services markets converge?
U3 Will IT as a hosted service become the dominant model?
U4 Will software architectures rely on “free” open source components?
U5 Will major providers of broad IT solutions disintermediate product vendors?
U6 Will ubiquitous access to data and applications with seamless roaming across networks become dominant?
U7 Will major online brands enter the business market?
U8 Will globalization continue unimpeded?
Figure 1 – Future Scenarios for IT Services
With displacement and consumer-business convergence highlighted, we then created four future scenarios under which workshop participants could create business models, not only to survive in each future, but also to thrive in it.
Radio Transmission Towers
Our second example, involving radio transmission towers, resembles the IT services case. The client, a major electric utility, had recently acquired the owner and operator of wireless and broadcast radio transmission towers. The client now hopes to leverage the company’s network expertise into an area currently outside the firm’s legacy core business but with significant potential growth. Searching for robust strategic growth options against multiple futures, the client wanted to focus on the commercial and technological forces at play in both the wireless tower business as well as in mobile and terrestrial broadcast networks.
Following the logic of the first case, Industry experts identified a large list of forces, including:
Again, the quest to identify key uncertainties culminated in the selection of two higher level forces (the meta-uncertainties): one related to the potential spread of new business models; the other focused upon the end users’ increasing appetite for access to personalized data and applications software.
Figure 2 – Future Scenarios for the Radio Transmission Industry Services
Each scenario challenges this client to think about who will drive change and what customers will experience (including the possibility of a backlash against mobile data communication’s intrusions into their personal space).
Mobile Media
In the final case, DSI worked with a mobile media solutions provider. Executives hope to reposition the company for the next wave of mobile entertainment. Currently earning most revenues in the declining markets of messaging and ringtones, the firm needs to identify growth opportunities in higher bandwidth mobile media applications. DSI developed a set of mobile media scenarios to help company planners to focus on the customer experience with mobile data service adoption.
Figure 3 – Future Scenarios for Mobile MediaCanvas
Again, executives had identified a large number of forces, which they eventually sorted into a small set of key uncertainties. Higher-level clusters informed the decision to select the two key (or meta) uncertainties that drove each scenario. One meta-uncertainty centered on the industry’s structure/value chain while another concentrated on the general willingness of end users to increase consumption of services.
Observations
A cursory examination of forces and the axes on which we built four distinct scenarios for each client suggests some general hypotheses about scenario-based planning for the TMT industry. First, considerable overlap in the forces identified by all three clients confirms that a convergence exists across the boundaries of telecommunications, digital media, and information technology. Secondly, companies competing in this complex and rapidly changing market will experience a large number of intersecting forces. Finally, these multi-directional forces and trends will also effect further change. In such a rapidly changing environment, errors in decision making can compound exponentially, as firms betting on beta versus VHS videos soon learned. An estimate with an error of 25% did not result in a 25% loss. It soon escalated into bankruptcy. Thus, major changes and uncertainties in the TMT space can quickly create “butterfly effects” throughout the industry. And moderate inaccuracies in forecasting can add up to fatal errors and billion-dollar losses. Several major European mobile operators learned this difficult lesson through 3G spectrum expenditures.
These observations help to explain why so many TMT experts and stakeholders seem to focus not on external shocks (such as terrorism, weather and environmental factors, and oil prices, for example), but rather on the interaction of multiple TMT-specific forces. While they acknowledge that high impact, external shocks can and do occur (such as the collapse of the dot.coms), and that such events could delay or bend the internal dynamics of their businesses, most continue to view these shocks as nothing more than random interruptions. In short, they rarely scan the periphery, preferring instead to believe that an internally-driven process shapes their particular firms and the industry as a whole.
Regardless current assumptions, TMT providers inhabit spaces affected by both internal as well as external dynamics. We also believe that the key uncertainties driving alternative futures in TMT reside in the conduits through which multiple forces in the industry transmit their power to individual players. Thus, three types of uncertainties (framed in the form of questions) figure prominently in TMT scenario planning:
Always, disruptions flow from both entrepreneurial insights as well as from larger environmental factors, changing whims of consumers, and the larger societies that house business entities.
Lessons
If representative, these cases can help us to derive a few useful lessons concerning the nature of the TMT industry. We can also draw some conclusions about the limits of the industry’s collective imagination. For example:
Figure 4 – Cluster of Forces Affecting The Future of the Vendor Centric Maintenance Contract Model
While we appreciate the prevailing industry view, it can also lead to costly mistakes. Companies might fail to prepare for the possibility of high impact external shocks. Not all of them detrimental (as the Y2K example revealed), the companies that prepare for magnitude change can benefit handsomely. Thus, while internal dynamics may dominate under “normal” circumstances, firms must also prepare for exogenous shocks. Neither individuals and societies nor institutions and industries can afford to ignore these realities. As we apply our scenario tools to the fascinating and challenging TMT area, we need to alert our clients to the seemingly weak signals that may indicate the likelihood of “unusual” events with long-lasting consequences. Developing peripheral vision—to scan beyond one’s immediate horizon—poses challenges for those industry players long internally focused; however, future success depends upon acquiring this skill as much as any other.
