• by Diane Mermigas , December 1, 2009

Declining DVD sales and advertising unit prices are nothing compared to the Tsunami about to hit media, telecommunications and technology companies, which think they are sailing into gradually improving economic times.

Why? They are clinging to performance metrics which are no longer relevant to the new digital norm, says John Hagel, co-chairman of Deloitte's Center for the Edge which explores emerging business opportunities.

New metrics, infrastructure and processes are part of the changed mind-set companies must adopt if they want to succeed in creating new digital value. But that doesn't appear to be happening according to the center's recently released  Shift Index, industry-specific data that reflects the difference between potential and realized improved performance.

The media, telecommunications and technology industries -- like most of corporate America -- have experienced a dramatic decline in return on assets (ROA) over the past 40 years despite major improvements in productivity. The performance paradox requires firms to re-evaluate how they "create and retain value," Hagel said.

ROA as a meaningful measure of corporate performance has become iffy, as business shifts from an industrial to a knowledge economy. As competitive forces in the sector have nearly doubled, media company returns on assets have plummeted to a negative -4.4% from a high 7% increase four decades ago.  

Telecommunications and technology sectors each have experienced a 40% drop in ROA, while U.S. corporations overall have suffered a 75% decline in ROA since 1965, according to the Shift Index.

Hagel and his Center for the Edge team contend the decline in corporate performance is driven by the "big shift" to digital, which has intensified competitive pressure, made legacy infrastructure and processes obsolete, and created the need for a new set of metrics that more accurately and appropriately measure gains.

It might as well be called the "big jolt," since media, technology and telecommunications companies known for their innovation have been slow to respond to the change with new business models.

New digital technology is being adopted five times faster than previous infrastructures, such as the railroads and telephone networks. But most of our institutions and metrics have failed to adjust to and reflect the change. For instance, return on assets is a widely accepted but inappropriate metric for the new digital age. Companies should be focused on and measuring their success on how well they identify, leverage and meet the needs and interests of interactive consumers.

Businesses must learn to create more economic value by participating in the new "knowledge flow enabled and amplified by the new digital infrastructure," Hagel said. Companies must harness "the growing bargaining power of customers and creative talent," rather than adhere to outdated rules and expectations.

"Most media companies say they are audience-focused, but they are really product-focused. They need to pay more attention to what is relevant to individual consumers," Hagel said. "This is a wake-up call. You have to focus on real growth; not growth manufactured from cost cuts and other one-time moves," he said. "Digital is central to everything now, and it will be a source of economic value in profound ways."

Here are some of the ways media, telecommunications and technology companies can better position themselves for a new digital year:

*Try reverse mentoring. Integrate ideas of younger employees who represent the new generation consumer. They have a different set of values and practices using digital technology.

*Engage with consumers on their turf. Build consumer relationships on social networks, on your company's own online communities (using blogs and wikis) and on Web sites, as well as through popular product applications.

*Adopt new metrics such as Return on Attention. Targeting is imperative to give consumers what they want and need. They will spend more time with, pay more attention to, and spend more money on what is relevant. Those are the new metrics. Return on assets and other historical financial measurements are rapidly deteriorating.

*Unbundle to create and focus on more enterprising business. This will allow companies to intensely focus on becoming a trusted source of information, and content tailored to individual consumers.

*Develop online forums to engage consumers. Consumers are not just customers; they are strategic partners. Digitally re-master your company's strategies, structures and metrics around everything consumers want and do.

*Understand where you fit in the new scheme of things. Over the next five years, media, telecommunications and technology companies will regroup into three primary categories: Companies that provide infrastructure management of distribution and storage (Cisco);  trusted "advisors" and personalized aggregators (Amazon, Netflix and Google); and content creators (Time Warner and Huffington Post). All companies will capitalize on consumer online profiles, virtual connections and networks to do their bidding.