Europe’s Industrial Giants Must Renew—And Be Protected from Themselves

Summary:

• Europe’s industrial manufacturing base faces dual pressures of reinventing for an uncertain future while delivering quarterly returns.
• Corporate renewal is challenging due to systems optimized for operational efficiency rather than exploration.
• Horizon thinking involves balancing exploitation of core business with exploration into adjacent and transformative opportunities.
• Dual operating system is essential for continuous improvement and dedicated renewal, supported by a board-sanctioned renewal fund.

In the shadow of climate imperatives, digitization, and geopolitical realignments, Europe’s industrial manufacturing base stands at a crossroads. The continent’s once-unassailable champions—stalwarts in chemicals, machinery, automotive and heavy industry—now wrestle with dual pressures: reinventing for an uncertain future while delivering quarterly returns. The uneasy tension between these goals is not new, but the stakes have never been higher.

Why Renewal is So Elusive

Corporate renewal is hard not because leaders lack vision, but because the systems around them actively resist it. European manufacturers, long praised for engineering excellence and process rigour, often find themselves trapped in what Clayton Christensen once called the “innovator’s dilemma.” Their operating models and incentive structures are optimised for operational efficiency—not exploration. Horizon 1 thinking prevails, where the immediate is always more pressing than the important.

This challenge is magnified in large, listed enterprises where the average tenure of a CEO has shrunk to a mere handful of years. With boards and shareholders measuring success in 90-day increments, the appetite—and mandate—for long-horizon bets is painfully thin. As a result, breakthrough innovation suffers, not from lack of ambition, but from structural short-termism.

Horizon Thinking: A Map for Renewal

Renewing a corporation is not a one-off event. It’s an ongoing strategic process that must balance exploitation of the core business (Horizon 1) with exploration into adjacent (Horizon 2) and transformative (Horizon 3) opportunities. The first yields immediate return on investment. The latter two, however, typically require five to ten years to mature—and therein lies the problem.

Horizon 2 and 3 efforts involve new customer segments, unfamiliar business models, and often capex-heavy experimentation. Their timelines are mismatched with annual budgeting cycles and short executive tenures. Without a robust safeguard, these initiatives are often diluted, delayed, or quietly shelved.

The Dual Operating System: A Strategic Imperative

To escape this trap, Europe’s industrial giants must adopt a dual operating system. On one hand, a structure that supports continuous improvement of the core business—incremental innovations that make operations leaner, greener, and more digital. On the other, a dedicated renewal engine: a separate structure, with its own governance and budget, shielded from short-term interference.

This is where the idea of a board-sanctioned renewal fund becomes essential. By carving out a separate investment pool—outside the annual budgeting cycle and the CEO’s discretionary control—companies can ensure that long-term innovation has the space, time, and capital to succeed. Think of it as an internal venture studio or corporate venture builder, whose mission is not to support this quarter, but to build the next decade.

Such a mechanism doesn’t just protect against short-termism. It signals to the market, employees, and ecosystem partners that the company is serious about renewal. It aligns stakeholders around a portfolio view of innovation and creates psychological safety for moonshot thinkers within the enterprise.

Let Core Business Be What It Is—And Nothing More

It is not a failure of vision that business units tend to focus on short-term thinking. It is their job. These teams are charged with optimizing operations, expanding existing market share, and ensuring quarterly performance. They live in Horizon 1—and rightly so.

What’s dangerous is not their short-term focus. What’s dangerous is expecting them to deliver long-term transformation at the same time. Most business units are not built to explore new markets, kill legacy models, or disrupt their own product lines. Their culture, KPIs, and leadership development pipelines are fundamentally optimized for continuity—not change.

Renewal, therefore, must be separated. Not because core teams are incapable, but because they are focused. In fact, by liberating them from the impossible burden of transformation, companies can unlock better core performance—and more authentic, entrepreneurial renewal elsewhere.

Beware the Illusion of Innovation: CVC and Incubators Are Not Enough

Many boards, under pressure to appear “innovative,” fall into the trap of outsourcing transformation to Corporate Venture Capital (CVC) arms or venture clienting incubators. These vehicles can be valuable—for market intelligence, ecosystem visibility, and public relations. But let’s be clear: they do not build businesses.

At best, CVC results in minority ownership of startups that may or may not be strategically aligned. At worst, it is innovation theatre—activity without impact. Likewise, venture clienting incubators offer startups access to customers or co-working space but rarely generate new revenue lines or capabilities for the parent company.

If your goal is to track trends or host pitch nights, these tools suffice. If your ambition is true industrial renewal, they are insufficient.

What’s needed is a vehicle to actually build the new business yourself—whether through an internal venture studio, corporate venture builder, or co-creation partnership. The distinction matters: building creates capability. Buying creates dependency.

Why External Partners Are Often the Key to Real Innovation

True disruption rarely comes from within. And this is not a moral failing—it’s a matter of design. Most large industrial corporations are not populated with entrepreneurs; they are built for scale, safety, and process repeatability. These are strengths. But when it comes to inventing the future, they become blind spots.

History confirms this. The computer mouse, now ubiquitous, was not born within Apple. It emerged from an external innovation team at Xerox PARC. Likewise, many of the most transformative industrial technologies—from robotics to advanced materials—began outside incumbent players, and only later were integrated or acquired.

This is why working with external teams that have a track record of building new businesses is essential. Not every idea needs to be born in-house. Sometimes, the smartest path is to license, partner, acquire, or co-create with external ventures that live and breathe uncertainty.

Engaging external innovation partners offers critical advantages:

• Speed: External teams move faster, unencumbered by internal politics or legacy systems.
• Perspective: They see opportunities incumbents can’t, precisely because they don’t share their constraints.
• Entrepreneurial mindset: They know how to start from zero, iterate quickly, and pivot when needed.

By setting up corporate venture studios or innovation partnerships, industrial firms can create a bridge between internal know-how and external exploration—amplifying their capacity to renew at scale.

A Practical Guide for Corporate Boards and Industrial Leaders

Strategic renewal does not happen by accident. It requires design, discipline, and long-term backing. Below is a guide to implement renewal mechanisms that work:

1. Educate the Board on Horizon Thinking

Begin by aligning leadership on the distinction between core, adjacent, and transformational innovation. Use concrete data to show the differing yields, risk profiles, and timelines of Horizon 1, 2, and 3 initiatives.

2. Design a Dual Innovation Architecture

Split the innovation function into two clear streams:

• Core Innovation Teams focused on Horizon 1.
• Transformative Innovation Teams, ideally blending internal talent and external entrepreneurs, to focus on Horizon 2 and 3.

3. Create a Ring-Fenced Renewal Fund

Establish a board-governed investment fund dedicated to long-term innovation. This fund should:

• Be shielded from annual budget cycles.
• Operate independently of quarterly P&L pressure.
• Be managed by an internal or co-owned venture builder with authority to explore and execute.

4. Partner with Proven Builders, Not Pitch Events

Choose your external partners carefully. Look beyond incubators and accelerators. Work with experienced venture builders that have launched businesses before—ideally in adjacent or transformative industrial fields.

5. Institutionalize Strategic Patience

Build internal patience into leadership reviews and board evaluations. Create incentives for renewal outcomes 5–10 years out. Encourage cross-pollination between core and renewal teams.

Europe’s Industrial Future Depends on Renewal

The path forward for European manufacturers is not a choice between core and transformation. It is a commitment to both—managed with the discipline of separate strategies, timelines, and governance. The alternative is stagnation dressed as efficiency.

Europe once led the world into the industrial age. With the right renewal mechanisms—and the courage to separate performance from exploration—its industrial champions can lead again, into a net-zero, digitized, AI-powered future.

Ready to Build What’s Next?

At Shift Actions, we help boards and executive teams structure renewal in ways that actually work—through venture studios, corporate venture building, and strategic governance.
Let’s discuss how to build your renewal engine—from structure and talent to venture design and external collaboration.

Less innovation theatre.

More progress.

Let’s get to work.