The global economic slowdown, the bursting of the tech bubble and the terrorist attacks of September 11 have thrown companies and markets into a highly turbulent environment. How do they survive this experience – or even profit from it?

That was the issue addressed by a panel of business leaders in Mumbai on December 3 at a conference organized by the Indian chapter of the Wharton Alumni Association. The discussion was moderated by Anil Ambani, a Wharton alum and joint managing director of the $2.55 billion Reliance Industries, India’s largest private sector company, which has interests in industries such as oil, petrochemicals and telecommunications.

Speakers said that during such uncertain economic times, companies must focus on their core values, which are like beacons that can help keep them on course. “At times such as these, when change seems unmanageable, institutions have to go back to the basics. They have to ask themselves why they exist,” said Patrick Harker, dean of the Wharton School. “We yearn to tame this turbulence, but that is not possible. So business leaders have to learn to take advantage of it,” he added.

How can they do that? Rajat Gupta, managing director of consulting firm McKinsey & Co., said the trick is to internalize the process of creative destruction. The market has been ruthlessly punishing firms that do not make the grade. The average longevity of an S&P 500 firm has dropped from 65 years to 10 years, and only 74 of the original 500 have survived the past 40 years. The challenge is to weed out inefficient businesses internally before the market does the job for the company.

Gupta pointed out that companies today must learn to mimic the market. GE, one of the world’s largest companies with annual revenues of $130 billion, did this very well under the leadership of Jack Welch. A process of creative destruction within the company allowed Welch to divest 180 businesses within a few years of his taking charge in 1981. That was one of the factors that allowed GE to increase its earnings relentlessly during the past 20 years despite intervening bouts of recession, oil shocks and volatile markets, Gupta noted.

At Indian financial institution ICICI, which has assets of $18 billion, CEO K.V. Kamath has been trying to refocus the organization in the wake of major shifts in the business landscape. ICICI and its peers were set up by the government in the 1940s and 1950s to finance new industrial projects. By the mid-1990s, economic reform and mature financial markets had opened new funding options for Indian companies. Government-backed financial behemoths like ICICI saw their mainline business under threat. Since he took over as CEO in 1997, Kamath has been trying to push ICICI into newer areas, especially consumer finance.

Kamath believes that companies have to internalize the process of change. “Leading change is always a challenge, even when times are not turbulent,” said Kamath. “Organizations have to be like a living organism, forever changing. They cannot be cast in stone.”

M.S. Banga, chairman of Hindustan Lever, India’s largest consumer goods company, used a similar analogy. “An organization should be like an amoeba,” he said, describing how his company is negotiating turbulence. After decades of consistent growth, Hindustan Lever has had to come to terms with stagnating sales in recent years. Organizations need to be more sensitive in order to take turbulence in their stride, says Banga. They must be in close contact with all stakeholders, invest in people, nurture a culture of empowerment and move from hierarchical to flat structures.

Every speaker emphasized that turbulence is not just a problem; it is also an opportunity. “Turbulence is good since it separates the good from the bad,” said Aroon Poorie, head of the Living Media group of publications, one of India’s largest media groups, which owns a bouqet of influential magazines and a television news channel. He, too, stressed the need for organizations to come to terms with turbulence even when the outside world is calm. Aircraft often experience what is called clear air turbulence; they are inexplicably tossed around despite clear weather. Organizations need to create forms of clear air turbulence within themselves, said Poorie. Quoting the title of former Intel CEO Andy Grove’s book, “Only the Paranoid Survive,” Poorie added, “You will be paranoid only if there is constant turbulence.”

In a diversion from the main discussion, Deepak Parekh, chairman of HDFC, India’s largest housing mortgage company, focused on public policy during turbulent times. “Clarity of purpose is most important,” he said. Among the other qualities organizations need to foster effective public policy are the ability to accept reality, harness knowledge and generate dialogue between all stakeholders, Parekh noted.

Many speakers stressed the need for companies to anticipate and drive change rather than merely adapt to it after someone else has shaped it. “Both shaping and adapting strategies do well in normal times, but when economic uncertainty exists, companies are better off with shaping strategies,” said Gupta. “The pace of change is too fast for developing successful adapting strategies.” For example, the San Diego-based wireless telecommunications firm Qualcomm took the lead in its industry because of its shaping strategy – it developed the Code Division Multiple Access (CDMA) wireless communications standard that is widely used in wireless networks in the U.S. and other countries.

Sabeer Bhatia, the U.S.-based entrepreneur who founded Hotmail and later sold it to Microsoft for $400 million, noted that the speakers had not addressed the role of innovation and entrepreneurship during turbulent times. Can large, hierarchical corporations change their genetic code, he wondered, and evolve into creatures with amoeba-like adaptability? Or is that something that entrepreneurial organizations can do better? Joseph Schumpeter, the Austrian economist who came up with the notion of creative destruction, insisted that large organizations are incapable of innovation; only entrepreneurs can do the job. But the picture has become more complex since Schumpeter’s days. While some large companies like GE and 3M have been untiring innovators, many entrepreneurial ventures – including Bhatia’s new dotcom venture, – flamed out early last year. So that is one debate that is unlikely to end anytime soon.