• by Diane Mermigas , October 3, 2008

Nothing focuses the mind quite like a triple header of volatility that begins and ends with change. As a result, many chief executives who are already wrestling with the challenges of digital transformation are likely to emerge empowered from the economic turmoil of recent weeks. "They may actually find it easier to engage others in the need for and the ways of change," according to Joel M. Podolny, Dean of the Yale School of Management.

Podolny should know. He has been studying and writing about corporate leadership in times of change for two decades at Yale, and as a professor at Harvard Business School and Stanford Graduate School of Business. The lessons from the Wall Street debacle, while painful, are instructive. They are an unexpected catalyst for reconciling the economic, technology and marketplace shifts that are already underway.

Simply put, there is no going back to the old ways of finance and technology.

In the media, entertainment and Internet spheres, Podolny cites Apple CEO Steve Jobs and Time Warner CEO Jeff Bewkes as among those positioned to soar in better times. Apple has $21 billion in cash, and Time Warner will have $10 billion once it completes its cable spin--and they both have strong balance sheets, which can be leveraged to seize opportunities.

Market turbulence, plummeting valuations, tight credit and pent-up demand mean that there eventually will be choice deals for a large number of well-funded players that also include Microsoft and Google. Recent billion-dollar investments by Warren Buffett in Goldman Sachs and in General Electric (corporate parent of NBC Universal) are just a preview of how some of the estimated $250 billion in private money on the sidelines will be put back to work when things settle down, snatching assets and talent, funding innovation and pursuing new markets.

Another major challenge is using this down time to revamp legacy infrastructures in favor of less costly, more flexible digital operations. Apple is an example of a company that reinvented itself for the digital age around an iPod ecosystem that responded to tech-empowered consumers. Many traditional media and entertainment companies are finding that difficult; they may have to blow up their legacy infrastructures and start all over again "if things get bad enough," Podolny said. "At the end of the day, it's about a corporate vision of what the firm is going to be and a structure that makes sense."

GE's most recent corporate makeovers have been supported by investors like Buffett and the Abu Dhabi-based Mubadala Development Co. because CEO Jeff Immelt has a clear vision backed by clear values, processes, culture and teams. All chief executives can draw lessons from what has occurred in the financial services industry. It is a reminder that there are no free lunches, and that risks should not go unchecked. Stick to what makes financial sense, and don't get caught in herd behavior.

However, there will be limits to gains that can made in financial, media and other industries until they redefine and reinvent the fundamental currency with which they do business. They need to develop new metrics, systems and competencies by which to value and trade their assets, goods and services--not only as a result of the ongoing financial crisis, but because of digital changes in the marketplace.

In media, advertising is the core currency that must be transformed.

"Traditional advertising has been about selling a concept and pricing a unit without ever establishing a strong connection between the advertising initiatives and the results. The Internet is changing that in an incredible way with deep analysis about market segments and how individuals respond to things in a particular way," Podolny said.

The chief executive of advertising-related companies must think about the broader implications of leveraging the radical shifts in the way people process and respond to information. That's a necessary must-do if companies want to survive. "If you wait for the dust to settle before you do anything, there are others who will have it done by the time you are ready," warns Podolny.

"There is no doubt that these two weeks have been exceptional, and that most executives have been pushed beyond the point of clearly thinking about the future because most have not been prepared for this." Once some combination of political and economic solutions begins to improve the market, there will be a burst of action by chief executives and investors who can see the possibilities, and a reaction from those who cannot. How each handles the crisis will shape their futures and fortunes.