• by Diane Mermigas , September 11, 2008

There is no transformation more important at this moment than the transformation of leadership and the ability to constructively guide people, organizations and nations through these times of unprecedented change.

The digital transformation is all about ubiquitous interactivity; connecting ideas, consumer behavior, commerce and trends. It is all about mining relevant connections. For a while, we thought it would only be about the digital interactive revolution--replacing legacy structures, developing new metrics and content and redefining relationships with consumers, advertisers, suppliers and distributors.

The impact of digital technology--and the creation of new revenues to offset declining core revenues--reaches beyond media, entertainment and telecommunications. It is reshaping all global industries, from transportation and finance to education and retail commerce. But there is also an economic transformation underway, triggered by the growth of emerging markets and the U.S. financial crisis--from a record national debt to $300 billion in commercial bailouts.

Perhaps the most unsettling factor is not knowing what anything is worth as values continue their free fall, until they are reset against new metrics, expectations and rules.

However, this perfect transformational storm represents as much challenge as opportunity. It is like the Chinese symbol for crisis, comprised of the two words "wei" meaning danger and "ji" meaning opportunity. It is a duality that leaders of change should seize upon by employing creativity, innovation, new benchmarks and new mindset.

IBM did it by completely reinventing itself from Big Blue computer to Big Brother tech consultant. Apple reinvigorated itself by innovating new products around the tech-empowered consumer. General Electric, parent company of NBC Universal, is rearranging its furniture, selling off plastics and appliances, and trading its industrial legacy for an infrastructure focus and "eco-magination."

These and other such organizational transformations are brilliant and successful because they occur from the inside out--or in political parlance, from the bottom up. They pivot on a bold, well-articulated, well-executed vision carried out by energized and empowered troops.

There are numerous theories on how to get there.

Harvard professor Clayton Christensen (author of "Seeing What's Next" and "Innovator's Solution") recommends that we embrace our inner innovator to capitalize on disruptive innovation to create new markets and performance goals.

Harvard Business School professor emeritus Abraham Zaleznik (author of "Hedgehogs and Foxes") calls for eliminating silos by "flattening" the organizational structure to increase lower-level autonomy and empower individuals.

Joel Podolny, Dean of the Yale School of Management, writes that the role of social networking to move information and ideas within organizations make all the difference.

Cisco Systems CEO John Chambers insists it is about "virtualization," integrating multiple physical resources to operate as one.

Whatever transformation guru you subscribe to, there are key fundamentals that change leadership must employ: 1. An interactive foundation to engage customers, clients, employees and partners. It is an essential vehicle for creating differentiated products and services as well as an innovation culture and process.

2. Utilize and help construct the most relevant data and principles of disruptive innovation to predict the path of global industry change.

3. Transition to new financial systems and structures, while moving away from the old through thoughtful integration--not layering.

4. Create a new organizational mindset around consumer and client behaviors, needs and expectations.

The time is now, having reached the "tipping point"--that magical moment when ideas, trends and social behavior cross the threshold to critical mass. More than ever, leadership is about listening and responding to marketplace forces. It also is being courageous and confident enough to make the dramatic changes that will improve long-term growth prospects, risking one's reputation or poor quarterly reports in the process.

Despite an uncertain economy, worldwide information technology spending is on track to reach $3.4 trillion in 2008--an 8% increase from 2007. According to Gartner, future double-digit growth rides on the innovative use of social networks, cloud computing, open software, mashups and virtualization. Global media and entertainment is set to grow 6.7% to $1.7 trillion in 2008, led by 28% growth in Internet advertising, 16% growth in Internet access and 15% in video games, according to PricewaterhouseCoopers' best-case scenario.

Among the change leaders who have created new markets is Jeff Bezos, founding CEO at Amazon. Think about Amazon's e-commerce models and pricing, use of user recommendations and premium shipping, and expansion into video and published fare. Then there is Apple CEO Steve Jobs. Think about Apple's iPod ecosystem, iTunes distribution and pricing model, and its touchscreen iPhone. There is the golden trio of Eric Schmidt, Sergey Brin and Larry Page at Google. Think about Google's algorithmic searches, user-centric metrics, auction-based advertising model, and innovation mandate. They all are writing a new playbook based on open-source development, user-generated metrics, market-determined value of goods and services and fluid relationships with consumers and vendors.

But even Silicon Valley is becoming vulnerable to the risk-aversion and short-term mentality that endangers innovation, according to Judith Estrin, JLabs CEO, Disney board member and author of "Closing the Innovation Gap." And it is more difficult to pull this off in an established company fraught by complacency and resistance to change. Legacy operations and mindsets cannot be blown up and replaced overnight. The mandate for change is clearer than the way.

What kind of leaders wade into this mess? Those determined to find ways to create opportunity from challenge. There are inspired examples in unexpected places.

BurdaStyle is a revitalized open-source offshoot of an old-line German media conglomerate, Hubert Burda Media, that has created a thriving social community and commerce around fashion design. Its co-founders Nora Abousteit and Benedikta von Karaisl have succeeded in large part because they have spontaneously innovated and created from a small Brooklyn office in response to the suggestions and interests of their virtual consumers, with the resources and non-interfering support of a corporate parent.

At the other end of the spectrum, Chancellor Joel Klein of the NYC Department of Education, and former CEO of media giant Bertelsmann, has reinvigorated education at the New York City Schools with a technology-focused Children First initiative that provides open-source sharing of ideas, solutions, information and media among principles, teachers and experts.

Such lessons have broad marketplace application. The process begins for media and entertainment companies in particular by gaining actionable perspective on the most immediate fronts: · the potential pitfalls of migrating from legacy to new structure, process and mindset · assuring ways to monetize disruptive innovation · constructing new business models, values and financing sources · redefining advertising, e-commerce and other revenue streams · rethinking bulk and personalized, free and paid content · assigning new value to assets, products and services · establishing new consumer-driven benchmarks and metrics · recruiting, building and empowering the right teams of skilled employees and partners · making creativity and innovation as high a priority as technology · considering the impact of global geopolitical forces, regulation and competition Most importantly, do not underestimate the powerful transformation that can be achieved by tapping existing individual and organizational resources. Scottish novelist and politician John Buchan said it best: "The task of leadership is not to put greatness into people; but to elicit it ... for the greatness is there already."

Editor's Note: This article doubled as Diane Mermigas' opening remarks to a meeting on Media & Entertainment Industry Strategy of the World Economic Forum, where she moderated a discussion among industry chief executives about transitional leadership issues.