What
A renewal approach to strategy refreshes the vitality and competitiveness of a firm when it is operating in a harsh environment. When circumstances are so difficult that the current way of doing business cannot be sustained, changing course to preserve and free up resources—and then later to redirect toward growth—is the only way to not merely survive but to eventually thrive again. Hence, the renewal approach is characterized by two distinct phases: survival and pivot to growth.
When
Harsh conditions can pose a threat to the survival of a firm. These conditions can arise from a protracted mismatch between a firm's approach to strategy and its environment or by an external or internal shock. Though a firm may not notice the distress signals immediately, protracted competitive underperformance in terms of margins or sales growth, sharp drops in free-cash flows, and reductions in available capital are all indicators that the long-term survival of the firm may be at risk.
How
A company must first notice and react to the deteriorating environment as early as possible. Then, the firm needs to economize to decisively address its immediate impediments to financial viability or even its very survival. To do so, the company must focus the business, cut costs, and preserve capital while also freeing up resources to fund the next part of the renewal journey. Finally, the firm needs to reset its strategic compass and pivot to one of the four other approaches to strategy.
Biology and Strategy: The Hermit Crab
If injured during a predator attack, for example, it may react by shedding the injured limb and retreating into its shell, where it plays dead. Like a firm preserving capital, the hermit limits its losses with this move. Then the crab invests in transformation: it will molt, shedding its exoskeleton, which often results in regeneration of the lost limb. The hermit crab thus mirrors the two-stage transformational journey of many companies employing a renewal approach to strategy.
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