By PhD Nando Malmelin and Matti Pihlajamaa
In volatile environments marked by geopolitical shocks, sustainability pressures, and rapid advances in AI, incremental improvement alone can no longer secure long-term competitiveness. A capacity for transformative renewal is also crucial, but organizations typically face four main barriers that must be overcome.
Strategic renewal has gained increasing prominence on managerial agendas, especially in the wake of COVID-19, Russia’s attack on Ukraine, and ongoing geopolitical and economic instability. At the same time, rapid advances in artificial intelligence and other digital technologies, together with the accelerating green transition and sustainability demands, have profoundly altered the conditions under which companies operate. These developments have highlighted the growing importance of organizational renewal capabilities in complex and unpredictable environments.
Incremental renewal through the fine-tuning of existing processes and products has long been an integral part of organizational life. Many firms are highly skilled at refining what they already do. However, in environments characterized by rapid technological change and shifting competitive dynamics, incremental renewal alone is often insufficient. Competitors frequently redefine industry boundaries and disrupt markets with new business models, making reliance on established success factors increasingly risky.
Radical renewal offers a solution in situations where current strategies no longer meet the demands of the business environment.
While many organizations excel at incremental renewal and reactive change, they often fail to engage in more transformative renewal. Our experience working with growth-oriented companies illustrates this challenge clearly. For example, we have found that they are very effective at solving problems and responding to daily challenges. They are keen to look for ways to refine their existing products, services, and processes, but often fail to invest in significant renewal initiatives. However, in a rapidly changing world, incremental renewal alone is no longer adequate.
How, then, can businesses remain competitive and prepare for future uncertainties when fundamental organizational changes are needed? We argue that radical renewal offers a solution in situations where current strategies no longer meet the demands of the business environment. By adopting this approach, companies can remain competitive and innovative and effectively respond to disruptive opportunities.
We argue that companies need to shift from incremental improvement to radical renewal. Next, we introduce the concept and approach of radical renewal and explain why and when it is needed in organizations. Based on our empirical research, we also identify the most critical barriers to radical renewal and elaborate on how to foster it in companies, highlighting the potential benefits that await those who embrace this approach. By focusing on these barriers, we aim to provide insights that are relevant both for scholars of strategic renewal and for leaders responsible for guiding organizations through transformative change.
A radical perspective on strategic renewal
In strategic management research, strategic renewal is regarded as an essential process through which organizations rejuvenate their strategies to meet the demands of an evolving environment. Strategic renewal can be defined as modifying or replacing organizational elements or principles to strengthen future performance potential. The primary aim of strategic renewal is to overcome organizational path dependencies by reshaping strategic intentions and capabilities, laying the groundwork for sustainable growth and transformation.
Strategic renewal involves initiatives and processes through which companies modify their strategies, structures, and organizational capabilities to remain relevant and competitive. In these processes, the distinction between incremental and radical renewal is critical. Incremental renewal is considered beneficial for the organization’s operative excellence and business performance, but it typically falls short of building the foundation for future competitiveness. Innovation and new growth require proactive strategic renewal, going beyond operational adjustments and the development of future business opportunities. To drive innovation and build resilience for the future, companies must make a strategic decision to also invest in radical renewal.
We define radical renewal as a transformation in which an organization’s previous ways of thinking and operating are replaced by new ones. Radical renewal lays the foundation for a firm’s future success when previous organizational practices and principles no longer work or are no longer fit for purpose in an environment of constant change and disruption. In such situations, continuing to rely on past success factors may actively hinder renewal rather than support it.
By and large, however, organizations are not designed or managed to promote radical renewal. Incremental renewal is a practical approach in traditional industries and stable environments where firms are under limited pressure to change. When companies seek to build their future based on well-established success factors, their focus is on ensuring short-term business performance and leveraging their extant products and capabilities, rather than on radical new openings. The situation changes when the pace of change in an industry or market accelerates. Firms can no longer expect to succeed and grow using business and management models of the past. On the contrary, those models become obstacles and hindrances to future success that must be urgently identified.
In coping with radically uncertain environments, management must develop a comprehensive understanding of the organizational barriers to radical renewal. While categorizing the drivers for renewal is also crucial for increasing understanding of strategic renewal, the perspective of the organizational barriers has so far received far less scholarly attention. Therefore, we focus next on identifying and understanding these barriers. We categorize these barriers to organizational renewal into two temporal perspectives: first, the burden of the organization’s past, reflected in conventional mindsets and the need for new competencies; and second, present obstacles, such as profit pressures and strategic rigidity.
Our insights are based on a research project examining the renewal capability of industrial and technology companies. The empirical material consists of in-depth interviews with 15 top-level business executives representing large corporations, as well as six interactive workshops involving 200 managers from diverse industries.
Barrier 1: Conventional mindsets hinder renewal
Companies have distinct ways of thinking, acting, and managing that are deeply embedded in their organizations’ structures and cultures. Over time, organizations develop certain mindsets, practices, and routines that guide employees to doing things in certain ways. One of the key barriers to renewal is that organizations continue to hold on to these previous ways of thinking and operating, even when they no longer support the business or its operations. This type of path dependency hinders activities that would lead to radical renewal.
This applies particularly to large and successful companies where managers often persist with approaches that have proved beneficial in the past. As one of our interviewed executives said: “Clearly, the biggest challenge is that everyone from the salesperson to the planning engineer tends to prefer doing the types of things that have been done many times before because they are always a bit safer.”
However, while this mindset may support short-term business performance, it can pose significant risks to radical renewal and future success. The challenge is that many long-standing organizational principles have inevitably become outdated and less relevant to current circumstances. Consequently, past ways of thinking no longer drive renewal or create opportunities for change, but, on the contrary, hinder and slow down renewal.
Thus, the capacity to see things from new perspectives and to question the old is a catalyst for renewal. In doing so, companies need to take an open-minded approach to identifying which cultural characteristics and organizational structures need to be replaced for radical renewal to be possible. However, renewing organizational mindsets and ways of working requires careful thought and great perseverance. While companies can initiate projects aimed at delivering rapid change and development, organizational cultures and the principles shared in work communities will hinder change and steer development towards slow and incremental renewal.
Barrier 2: Need for new competencies
In addition to growth-oriented mindsets and practices, the organization’s renewal capability depends on the skills and competencies of the individuals working for the organization. Upskilling is therefore seen as an essential driver of renewal in a constantly changing environment. In the words of one executive: “The lack of competence is an inhibiting factor to renewal.”
Companies need to refine and strengthen the skills that can be useful in the future. One of the barriers to renewal is slowness in the acquisition of new competencies. Organizations must identify what competencies are no longer required and what competencies need to be developed in the future. In addition, new competencies need to be linked to the organization’s existing capabilities; organizations must find new ways to combine new and old competencies. For example, it may be necessary to do more than simply bring new technology-related skills into an organization. To properly harness a new competence, it needs to be combined with other skills and capabilities in the organization.
Companies need to take an open-minded approach to identifying which cultural characteristics and organizational structures need to be replaced
As far as competencies are concerned, one of the main obstacles to renewal is the lack of know-how in companies on how to lead people towards radical renewal. One of the managers interviewed considers effective leadership to be one of the most critical drivers of change: “We need to improve our leadership skills in order to be successful in transformation. Good leadership directly correlates with the success of the company.” Incompetent leadership is accordingly identified as one of the most significant obstacles to change. In the words of another interviewed executive: “Weak leadership is the biggest barrier to change.”
However, many of the executives expressed concerns that their organizations are not dedicating sufficient effort to effectively managing renewal. While work communities generate plenty of ideas for renewal and innovation, the challenge lies in successfully channeling employees’ capacity for renewal into ambitious development initiatives. Thus, one of the main obstacles to renewal is the lack of know-how in companies on how to lead people towards radical renewal.
Barrier 3: Perspectives limited by profit pressures
One of the main barriers to radical renewal is the pressure to deliver strong short-term financial performance. While enhanced financial performance is often the ultimate goal, the uncertainty and delays inherent in radical renewal frequently conflict with immediate profit expectations. Companies tend to focus on strategic management around business performance and profitability and on achieving defined objectives, as management’s primary responsibility is to ensure the company’s ability to operate and meet its obligations. In practice, a company can only continue to operate if it achieves its financial objectives.
Business performance targets tend to lead companies to focus on the profitability of their current business. “For a listed company, the focus is very much on the day-to-day performance of the business and its quarterly results,” one executive said, and continued: “We’ve tried to develop all sorts of things in new business areas and segments, but often, when you prioritize things, the current business and what you’re doing this quarter takes precedence.”
In particular, the drive to meet short-term performance targets limits radical renewal and innovation. In focusing on their existing business, companies often do not find it strategically attractive to take risks and invest in innovations. Instead, all their attention is on ensuring short-term profitability and return on investment. One of the managers interviewed summed up the problem: “I think we sometimes think too short term. We focus on this year’s results, and to get things done, we drop development projects whose targets lie somewhere in the future.” The problem with this approach is that it does not support radical renewal or the development of future capabilities, innovations, or new businesses. In this context, financial investments in risky innovation projects and uncertain transformative experiments are often limited.
The targets and indicators used in evaluating the performance of companies often fail to capture progress toward future-oriented developments. Businesses focus primarily on delivering measurable results in the short term – at the expense of future performance. As one executive pointed out, decision-making is usually driven by concrete evaluation criteria: “Who is judged based on results that are expected five or ten years down the line? This really doesn’t happen very often.”
Barrier 4: Strategic rigidity prevents adaptability
The starting point for a company’s capability for renewal is its strategic willingness to renew. Since renewal requires strategic decisions and investments, the willingness of management to change and innovate is critical. However, initiatives for radical renewal are inherently risky and financially uncertain. Many of the executives we interviewed thought that companies often needed more courage and risk-taking capacity to launch ambitious development projects. Such strategic conservatism slows renewal.
If renewal efforts use traditional project management methods and rely solely on standard business performance criteria, they will rarely produce anything radically creative or innovative. Organizations need strategic leadership, which in turn requires a transition toward more agile and flexible ways of working.
Radical renewal requires flexibility, adaptability, and the ability to respond to change. Rigid models of strategic annual planning, for example, will effectively hinder renewal: “There should be a shift to a more dynamic way of doing things, so that the organization is not a prisoner of the annual plan but tries to move toward continuous improvement and continuous planning,” as one of the managers interviewed said.
Conclusion
In environments characterized by rapid technological change, shifting competitive dynamics, and increasing uncertainty, the ability to engage in radical renewal has become a critical organizational capability. While incremental renewal remains essential for maintaining operational performance, it is often insufficient for ensuring long-term competitiveness.
This article highlights that failures in radical renewal are rarely due to a lack of ideas or awareness. Instead, they stem from organizational barriers rooted in entrenched mindsets, insufficient competencies, short-term profit pressures, and rigid strategic practices. By identifying and understanding these barriers, organizations can better assess why their renewal initiatives stall and what needs to change.
Developing the capacity for radical renewal requires not only strategic intent but also deliberate attention to the organizational conditions that enable transformative change. For leaders, this means questioning existing assumptions, investing in renewal-related competencies, and creating structures that allow organizations to balance present performance with future development.
