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How does a fossil fuel company become the world’s largest developer of offshore wind? How does a software company written off for missing the mobile revolution become one of the world’s most valuable companies in the age of AI? Ørsted and Microsoft have faced a puzzle familiar to many leaders: When technological, regulatory, and societal shifts redraw the basis of competition, reinvention is no longer optional, but the path forward is far from obvious.
Reinvention has been a key concern in business strategy. Stories of startups disrupting markets are compelling and often romanticized. But established companies do not have the benefit of a clean slate. Existing frameworks illuminate different parts of the problem: Disruptive innovation explains why incumbents get trapped, value shows how companies create new markets, and work on renewal and reinvention highlights the organizational barriers that make change so difficult.1
Leaders are faced with a dilemma in strategizing their way forward. Some companies double down on their known strengths: They keep innovating around the core and extend existing products, technologies, or business models into adjacent spaces. Kodak’s unwavering attachment to film demonstrates the risks of sticking to the legacy formula. Starting from a clean slate with a pivot to an entirely new business may seem the better option. But in doing so, a company risks discarding capabilities, relationships, and resources that could offer comparable advantage in new markets while also alienating internal and external stakeholders.
Consider Ørsted. In 2009, the oil and gas company, then known as DONG Energy, was also Denmark’s largest utility and biggest CO₂ emitter, with 85% of its power coming from fossil fuels. But its business was under pressure from multiple directions, including exposure to volatile swings in fossil fuel prices, and public opposition to building new coal-fired power plants.2 At the same time, the global energy transition created new opportunities. To DONG’s leadership, it was clear that the existing business would not be viable long term, environmentally or financially, and that renewables were the path forward.
The question was no longer whether to transform but how. DONG’s leadership looked inward. The company’s portfolio included the world’s first offshore wind farm. More importantly, decades of extracting petroleum in the North Sea had enabled it to build something harder to replicate: deep capabilities in large-scale infrastructure engineering, complex project development, and the logistics of operating in harsh marine environments. This became the foundation for renamed Ørsted’s 85/15 Black-to-Green strategy for inverting its portfolio mix to 85% renewables and 15% fossil fuels, scaling its offshore wind business, and achieving a 30-year target in only a decade.
Ørsted’s remarkable transformation exemplifies a recurring pattern that we observed in our research on corporate reinvention stories. Microsoft’s trajectory tells a similar one. After failing to respond to the mobile shift and then making an ill-fated $7.2 billion acquisition of Nokia’s devices and services business, Microsoft emerged from what many have called a lost decade to become a leader in enterprise cloud computing. Like Ørsted’s, this reinvention was anchored around something deep, durable, and transferable: Microsoft had the trust of enterprise CTOs, and its products were in almost every Fortune 500 company. Its enterprise business competencies, combined with its nascent cloud computing business, became the foundation for a growth story that resulted in a tenfold increase in the company’s valuation under CEO Satya Nadella.
This is the pattern we have observed among successful corporate reinventions. Companies that navigate structural disruption do not typically build from scratch, nor do they simply protect the core. They uncover a deep, embedded capability that already exists inside the organization, often built for one context but carrying latent value that can be directed toward a fundamentally new strategic purpose. These capabilities, which we call kernels of reinvention, are powerful anchors around which new businesses can be built.
Finding a Kernel of Reinvention
Evolutionary biology has a name for the process Ørsted, Microsoft, and similar companies have undergone: neofunctionalization, where a gene that evolved for one function acquires a novel function. In evolution, new functions do not always arise from entirely new structures. Organisms facing shifts in their environment can benefit from repurposing existing genetic material for new advantage under environmental pressure. For example, millions of years ago, as the Southern Ocean cooled, Antarctic zoarcid fish evolved an antifreeze protein gene through the neofunctionalization of another gene, allowing the fish to survive in waters where other creatures would have frozen.3
Sometimes the kernel of reinvention is technical or scientific: Fujifilm’s future did not lie in film itself but in the chemistry, materials science, and precision capabilities involved. BYD’s kernel was a deep competence in battery electrochemistry and power electronics that became central to electric vehicles and broader energy applications. Kernels can also be commercial and relational, such as Microsoft’s enterprise business capabilities and trusted relationships with enterprise customers.
Four characteristics distinguish a genuine kernel from wishful thinking about legacy assets:
Deep. The kernel is not what the company sells, builds, or is known for but something that sits beneath it — underlying capabilities or resources that make today’s business possible. It can be genuinely hard to see because companies need to look beyond their strategic position, through their products and architectures. In photography, the kernel was not film but the chemistry and precision-coating science beneath it. For example, the same science that kept film stable and protected from ultraviolet light could also be used to keep skin moisturized and protected from UV damage. Fujifilm harnessed it to move into new markets, such as cosmetics.
Generative. Kernels enable a company to pursue new value and competitive positions. In e-commerce, Walmart’s capabilities in grocery retailing, including perishables logistics, and a dense retail network that used its stores as last-mile fulfillment nodes, became a launchpad for online grocery sales — a segment that pure-play digital players had yet to crack at scale. Walmart integrated this kernel with new e-commerce capabilities to transform it into an omnichannel model that served as a wedge. Later, it borrowed from the Amazon playbook by layering on a third-party marketplace and advertising business.
Defensible. Kernels need to give a company something that rivals in the new market will struggle to build quickly. Microsoft’s enterprise advantage in cloud and AI rests on trust and operational dependency built over decades with Fortune 500 customers, the security integrations embedded in its procurement and compliance processes, and the developer ecosystem that compounds with every new product. New cloud entrants could match the underlying compute, but they could not come to market with a web of institutional relationships and embedded dependencies similar to what it had taken Microsoft years to build.
Coherent. Perhaps least obvious, a kernel should create a visible, unbroken narrative thread from the legacy business to the new direction. This helps make the reinvention story more credible to employees, investors, and partners because it builds from a position of advantage rather than competing from scratch in a completely new field. Fujifilm explicitly positioned its beauty product line as based on the science developed for film.4 Similarly, Ørsted faced resistance to moving away from coal among its own employees, so it framed offshore wind as building on transferable skills and capabilities.5
In some cases, the kernel may already be being expressed through a nascent side business, an overlooked capability, or an underleveraged growth platform. (See “How Companies Build on Kernels of Reinvention.”) Ørsted had fortuitously inherited a modest wind portfolio through a 2006 merger with six Danish energy companies. In 2003, BYD had acquired small Chinese automaker Qinchuan, which it ran quietly in parallel with its existing business for nearly a decade before electric vehicles became the dominant story. Microsoft similarly had a nascent but growing cloud business under Nadella that became the foundation for its growth.
The Reinvention Playbook
Recognizing kernels in retrospect is easier than identifying them in real time. Successful reinvention is not a single decision but a sequence of decisions and continuous adaptation over years. Ørsted’s transition took a decade, while BYD’s took two decades — from the time it acquired an automotive business to becoming the world’s largest electric vehicle maker. The playbook below maps five steps toward kernel-based reinventions.
Step 1: Diagnose the disruption. Start outside the company. What technological, regulatory, social, or economic shifts are changing the rules of the game? Which parts of the current business are being weakened, commoditized, or rendered less legitimate? If the basis of advantage is moving, leaders need to confront that early. DONG’s leadership saw that fossil fuel volatility, public opposition to coal, and a strengthening renewables agenda were not isolated signals but a moment when converging trends made action both necessary and credible. Taken together, they suggested a structural change in the energy market’s direction.
It is important to guard against misdiagnosing structural shifts as cyclical headwinds. Such misdiagnoses can lead companies to build on kernels that are too close to the legacy product or business model. Consider whether the change is threatening current performance or the company’s underlying relevance.
Step 2: Excavate and validate latent kernels iteratively. Leaders must be prepared to dig, looking beyond the core products or technologies it currently sells to uncover deep, latent capabilities and assess their value in new markets. These are deeply embedded capabilities, such as subsurface engineering in the oil and gas industry, which could readily transfer to wind energy initiatives. They could already be being expressed through peripheral businesses that are relatively small in scale and not considered core, such as DSM’s penicillin capabilities or Ørsted’s modest wind-power business.
Leaders should be wary of identifying false kernels at the level of current core products — for example, film versus chemicals and materials. Frameworks such as VRIO (value, rarity, inimitability, and organization), which invite leaders to consider whether a capability or resource provides sustainable competitive advantage based on if it is valuable, rare, difficult to imitate or substitute, and how well the business organized to exploit it, can help. But the key is to look beyond today’s products and assess value in new contexts through a deep, generative, defensible, and coherent lens. Kernel identification is not a single act of insight. It is an iterative loop of excavation, validation, market testing, and refinement.
Step 3: Lock in the advantage in a new growth engine. A kernel is a strong foundation for growth, but it is not a business on its own. Once leaders have identified a credible kernel, a new growth engine and competitive moat need to be built around it. That may require new partnerships, business models, capabilities, and talent. Ørsted built an offshore wind business around its core capabilities, including developing innovative new project development and financing models, supply chain partnerships, and an operating model designed for scale.
This step often requires a dramatic shift in competitive logic. For example, one of the biggest shifts in Microsoft’s reinvention was to embrace open-source software and ecosystem collaboration with competitors. That made its cloud offering more relevant and credible but was a dramatic break from its more closed, Windows-centric posture of the past. Given that a significant portion of cloud workloads were running open-source software like Linux, Microsoft needed to ensure that the Azure cloud computing offering would be competitive and to regain trust and relevance among developers.
Step 4: Manage the transition. In biology, neofunctionalization often begins with duplication: One gene copy continues the old function while the other is free to adapt under new environmental pressures. Companies need to follow a similar logic: Kernels must be given space to develop and adapt in a new context where they will encounter new competitive pressures and metrics, but they must also maintain ties to the existing business to take advantage of corporate assets. For example, Ørsted created a new wind power business unit but invited the engineers from the fossil fuel business to join the new endeavor.
Reinvention also does not mean abandoning the old business overnight. While startups have the advantage of clean slates, established companies have the benefit of channeling legacy cash flows to fund the pivot. Leaders must manage the overlap: sequencing exits and investments and preparing investors and employees for short-term dips in service of long-term growth. Reinvention fails when the new business is suffocated by the old, but it also fails when leaders cut away the old before the new is strong enough to stand on its own.
Step 5: Craft a narrative of continuity. While leaders may spot the need for change, other stakeholders, including investors, employees, customers, and partners, need to be brought along on the journey. A compelling reinvention story must signal a radical departure from the nonviable past while also maintaining continuity. The story must also be made tangible through visible proof, such as a new product, business unit, market entry, or operating commitment. This is where kernel-based reinvention shines, since there is a genuine connection to something deep that made the company great. Validation from outside also matters: Customers, partners, and analysts telling the new story makes the reinvention real in ways that internal communication alone cannot.
If the story sounds like “everything we were is now obsolete,” stakeholders may resist or disengage. On the other hand, if it sounds too similar to business as usual, the shift may not seem convincing enough. The best narratives make clear what must change and how the company is building from an existing advantage to gain a strong competitive position in the new arena. Done well, this gives stakeholders an opportunity to credibly reframe where the company is heading, on a path grounded on past strengths. Ørsted’s transition worked in part because it was framed as necessary for the company to stay financially and environmentally relevant yet still built on internal strengths honed over decades.6 This also gave employees a path toward transferrable skills in an exciting new sector that aligned with the aspiration of creating a cleaner, more sustainable future.
Finally, it is important to remember that reinvention is not a one-shot, linear path but rather an iterative journey of learning, discovery, and scaling what works.
It is tempting to view reinvention as a choice between defending the core and starting anew. But the strongest reinventions rarely fit either extreme. They begin by separating the legacy business from the deeper capabilities that made it possible. The former may need to shrink, be sold, or disappear. The latter may become the kernels of the next growth story.
Companies that thrive in the face of disruption will not be those that preserve the past intact nor those that discard it wholesale. They will be those that can identify their kernels of reinvention and give them new strategic functions in a changed world. For leaders, the hardest decision is not simply whether to reinvent. It is what to carry forward.