When Refounding Becomes Dangerous Nostalgia Masquerading as Strategy

Jon Iwata's research on corporate refounding, highlighted in Nate Bennett's recent Forbes analysis, arrives at a moment when business leaders desperately want to believe that recovery lies in rediscovery. The framework is intellectually satisfying, the examples compelling, and the diagnosis—that companies have forgotten who they are—feels intuitively correct. This is precisely what makes it dangerous.

The seduction of refounding lies in its elegant simplicity. Instead of the messy, politically fraught work of transformation, leaders can position themselves as archaeologists unearthing buried treasure. Instead of admitting strategic failure, they can claim the organization merely lost its way. Instead of making difficult choices about what to abandon, they can speak inspiringly about returning to foundational principles. But organizations, unlike archaeological sites, exist in living, contested, constantly shifting environments. And what looks like wisdom about the past can easily become blindness about the present.

The Dangerous Appeal of Historical Determinism

Iwata's framework rests on a foundational assumption that deserves interrogation: that organizations possess an essential, discoverable identity that, once recovered, provides strategic direction. This reflects what organizational theorists call "historical determinism"—the belief that understanding origins reveals destiny. Research by Stanford's James March and colleagues on organizational memory suggests this assumption is far more problematic than it appears.

Organizations aren't monuments with fixed meanings waiting to be decoded. They're ongoing negotiations among stakeholders with competing interests, shaped by technologies that didn't exist at founding, serving customers whose needs have evolved, and operating in regulatory and competitive environments that bear little resemblance to their origins. Boeing's "true" identity isn't hiding beneath accumulated sediment; it's genuinely contested. Engineers who believe technical rigor is foundational and executives who prioritize financial returns aren't arguing about archaeological facts. They're engaged in a political struggle about what Boeing should become.

Consider the cautionary tale of J.Crew, which spent much of the 2010s attempting to "refound" itself around preppy American classics after years of fashion-forward experimentation. CEO Mickey Drexler, who had successfully led the company's initial rise, championed this return to roots. The result? Bankruptcy in 2020. The problem wasn't that J.Crew forgot who it was. The problem was that the customer base had evolved, fast fashion had disrupted the competitive landscape, and "timeless preppy basics" no longer resonated with a generation seeking either ultra-cheap disposable fashion or ethically produced sustainable goods. J.Crew's refounding wasn't rediscovery; it was retreat into irrelevance dressed up as strategic clarity.

When Drift Is Actually Adaptation

The concept of "institutional drift" introduced in Iwata's research deserves similar scrutiny. The framework treats drift as inherently problematic—an erosion of distinctive character through accumulated decisions that pull organizations away from foundational identity. But drift and adaptation are phenomenologically identical. They differ only in hindsight judgment about whether change was beneficial.

• Netflix's evolution from DVD-by-mail to streaming to content production represents massive drift from its founding identity. Reed Hastings didn't refound Netflix around mail-order entertainment; he repeatedly abandoned core competencies to chase emerging opportunities.
• Amazon's expansion from online bookstore to "everything store" to cloud computing provider to entertainment producer represents drift of staggering proportions. Jeff Bezos didn't excavate Amazon's founding principles; he articulated new principles (customer obsession, long-term thinking) capacious enough to justify almost any expansion.

Research by Stanford's Robert Burgelman on Intel's evolution from memory chips to microprocessors demonstrates how organizations often survive precisely by allowing strategic drift to occur at operational levels before leaders retrospectively rationalize it. When Andy Grove famously asked "What would happen if we got kicked out and the board brought in a new CEO?" and concluded "Why shouldn't you and I walk out the door, come back, and do it ourselves?", he wasn't refounding Intel around its semiconductor heritage. He was executing a brutal strategic pivot that abandoned Intel's original product category entirely.

The refounding framework risks teaching leaders to pathologize exactly the kind of adaptation that organizational survival requires. When Starbucks automated espresso machines and prioritized mobile pickup, was this drift from the "third place" vision or adaptation to customers who increasingly valued convenience over community? When Boeing prioritized financial metrics alongside engineering excellence, was this erosion of character or necessary response to competitive and investor pressures? The answer isn't archaeological; it's strategic judgment about environmental demands.

The Survivorship Bias Problem

Bennett acknowledges but doesn't fully grapple with the survivorship bias embedded in refounding narratives. We celebrate Steve Jobs's return to Apple because the iMac succeeded. We don't equally study Howard Schultz's multiple "back to basics" initiatives at Starbucks—some of which worked and some of which failed spectacularly. When Schultz closed all US stores for racial bias training in 2018, positioning it as return to Starbucks's community-focused values, the initiative generated positive press but questionable operational impact. When he championed the Reserve Roastery concept as return to coffee craftsmanship, it produced beautiful flagship stores that contributed minimally to financial recovery.

Gap Inc. provides an even more instructive example. The company has attempted multiple refoundings over the past two decades, each claiming to return to the brand's denim heritage and American classics positioning. CEO after CEO has announced initiatives to "get back to what made Gap great." All have failed. The consistent failure isn't because leaders misidentified Gap's founding identity. It's because that identity—affordable, accessible American style—no longer holds distinctive value in a market fragmented between ultra-fast fashion (Zara, H&M, Shein) and premium basics (Everlane, Reformation).

Academic research by Sydney Finkelstein and colleagues on strategic failure suggests that many corporate collapses occur not because companies forgot who they were, but because they remembered too well. Kodak understood its identity perfectly—capturing and sharing memories through chemical photography. That clarity didn't save it; arguably, it accelerated decline by creating psychological barriers to digital transformation. Nokia knew its identity—connecting people through telecommunications devices. That knowledge didn't prevent iPhone from decimating its market position.

The pattern suggests an uncomfortable truth: Sometimes forgetting who you were is precisely what survival requires.

The Political Economy of Refounding

Iwata's framework treats refounding as primarily interpretive work—understanding what was essential versus contingent in organizational history. But this dramatically understates the political dimensions. Refounding isn't just archaeological; it's intensely political because different stakeholders have material interests in different historical interpretations.

When Boeing leaders debate whether technical rigor or financial discipline represents the company's "true" identity, they're not engaged in historical scholarship. Engineers advocate technical rigor because it validates their status and resourcing. Financial executives advocate shareholder value creation because it validates their authority. The winning interpretation isn't the most historically accurate; it's the one advanced by the most powerful coalition.

This political economy creates perverse incentives around refounding narratives. New CEOs have strong motivation to claim they're "returning the company to its roots" rather than "executing a standard turnaround" because the former sounds more profound and absolves them of responsibility for previous directions. Boards find refounding narratives appealing because they suggest recovery doesn't require admitting previous strategic errors—the company just drifted from principles everyone still endorses.

Consider Nike's Elliott Hill declaring "We lost our obsession with sport." This narrative is strategically useful because it implies Nike's struggles resulted from abandoning universally valued principles rather than making poor product decisions, misreading athleisure trends, or facing intensified competition from Lululemon and On Running. It's emotionally satisfying for Nike employees who can feel they're returning to cherished values rather than admitting strategic failure. But it risks teaching the organization the wrong lessons and preparing poorly for an environment where "obsession with sport" may be insufficient differentiation.

Research by organizational scholars including Royston Greenwood and Roy Suddaby on institutional entrepreneurship demonstrates that successful organizational change requires not historical recovery but narrative construction that makes new directions feel consistent with valued traditions. The effective leader isn't an archaeologist discovering objective truth about organizational identity. The effective leader is a storyteller who constructs a usable past that legitimates necessary futures.

What Refounding Gets Right

These criticisms noted, Iwata's research identifies genuine insights that warrant serious attention. The concept of distinctive character erosion through accumulated rational decisions captures a real phenomenon. Organizations do lose coherence when each decision makes local sense but collectively they undermine strategic clarity. Mars Inc.'s development of the Mars Compass—translating foundational principles into operational systems and compensation structures—represents genuine wisdom about embedding values into organizational machinery rather than relying on inspirational rhetoric.

The critique of leadership development priorities is particularly astute. Business schools do train leaders almost exclusively in forward-looking skills: strategy formulation, change management, innovation methods, disruption response. The interpretive skills required to understand what an organization is before deciding what it should become receive minimal attention. This creates leaders superbly equipped to drive change but poorly equipped to judge which changes serve authentic adaptation versus which represent drift into incoherence.

The research also correctly identifies that transformation fatigue has created hunger for alternatives to the relentless change narrative that has dominated management discourse for three decades. Leaders and employees alike are exhausted by perpetual transformation. The promise of refounding—that perhaps we don't need to become something entirely new but rather remember something essential we forgot—offers psychological relief.

A Framework for Discernment

The challenge facing leaders isn't choosing between transformation and refounding. It's developing discernment about when each approach serves organizational needs. Several questions can guide this judgment:

• Diagnosing the core problem: Has the core problem been diagnosed correctly? When organizations struggle, leaders face intense pressure to act decisively. Refounding offers a compelling diagnosis that may or may not fit the situation.
• Environmental validity: Does the founding identity retain environmental validity? The customer need an organization was created to address may have genuinely disappeared or evolved beyond recognition.
• Distinctive capabilities versus historical contingency: Which organizational elements reflect distinctive capability versus historical contingency?
• Institutional memory: Does the organization possess the institutional memory required for refounding?
• Opportunity costs: What are the opportunity costs? Time and attention devoted to archaeological work understanding historical identity is time not spent on forward-looking strategic analysis.

Beyond the Binary: Organizational Ambidexterity

The deeper problem with the refounding framework may be that it accepts the same binary logic it aims to transcend. Traditional transformation says "become something new." Refounding says "remember something old." Both approaches treat organizations as having singular identities that should be either replaced or recovered.

Research on organizational ambidexterity by scholars including Michael Tushman and Charles O'Reilly suggests a more nuanced approach. Successful organizations simultaneously exploit existing capabilities and explore new opportunities. They maintain core identity elements while adapting boundary elements. They honor heritage while embracing change.

IBM's transformation under Lou Gerstner provides a more complex model than simple refounding. Gerstner didn't primarily excavate IBM's founding principles about computing machinery. He articulated new principles about integrated solutions and services while maintaining cultural elements around technical excellence and customer relationships. He preserved what organizational theorists call "core ideology" while changing most operational practices. The result wasn't refounding or transformation but ambidextrous evolution.

Consider also LEGO's recovery in the early 2000s under Jorgen Vig Knudstorp. The company had drifted dramatically from its construction toy roots into theme parks, video games, and lifestyle products. Knudstorp's recovery indeed involved refocusing on the core brick system. But success required more than recovering founding identity. It required reimagining that identity for a digital age through video games, movies, and digital-physical integration. LEGO's recovery wasn't refounding or transformation; it was what organizational scholars call "heritage innovation"—honoring core elements while radically updating their expression.

Practical Guidance for Leaders

Leaders confronting organizational struggles need frameworks more nuanced than the transformation-versus-refounding binary. Several practices can help:

• Critical historical analysis: Conduct genuinely critical historical analysis rather than nostalgic archaeology. Engage historians, anthropologists, and organizational ethnographers who can help leaders understand the contested, constructed nature of organizational identity rather than treating it as objective artifact to be discovered.
• Distinguish principles from practices: Enduring principles (e.g., Nike's "serving athletes") may remain valid while historical practices for expressing them (e.g., focus on running and basketball) need evolution.
• Identity debates as strategic debates: Make identity debates explicit and political rather than treating them as archaeological.
• External validation of identity claims: Test identity claims against external stakeholder perceptions.
• Success metrics: Develop clear success metrics before commencing refounding.

The Refounding Trap

The greatest risk of the refounding framework is that it offers leaders a psychologically satisfying but strategically insufficient response to the hardest challenge in business: accepting that environments have fundamentally changed and that survival requires becoming something genuinely different. This acceptance is excruciating because it requires mourning what the organization was and uncertainty about what it will become.

Refounding offers an attractive alternative: recovery rather than mourning, rediscovery rather than uncertainty. These are powerful emotional appeals. They're also potentially fatal delusions when environmental change has made historical identity genuinely obsolete.

The framework is most dangerous precisely because it's most appealing—when organizations have experienced the greatest drift and leaders most desperately want to believe that recovery lies in return to roots. In such moments, refounding offers psychological comfort while potentially foreclosing the brutal strategic honesty that survival requires.

Consider whether Sears, Toys R Us, or Radio Shack could have saved themselves through refounding. Each company had powerful founding identities: Sears as America's general store, Toys R Us as the toy specialist destination, Radio Shack as the electronics expert. Each attempted various returns to these identities. All failed because the retail environment had genuinely transformed in ways that made these identities obsolete. No amount of archaeological work recovering founding principles would have addressed the structural reality of online retail disruption.

The question leaders must answer honestly: Are we in a refounding situation where recovery lies in rediscovering buried identity, or are we in a transformation situation where survival requires becoming something genuinely different? The refounding framework doesn't help leaders make this discernment; it assumes the answer is always refounding. That assumption may accelerate decline by directing attention backward when survival requires looking forward.

Conclusion: Toward Organizational Wisdom

Iwata's refounding framework offers genuine insights about institutional drift, the importance of distinctive character, and the limitations of transformation-obsessed leadership development. These contributions deserve serious engagement. But the framework also carries significant risks that leaders and boards must understand before embracing it as strategic direction.

The pathway forward lies not in choosing between transformation and refounding but in developing what might be called organizational wisdom—the discernment to know when to honor heritage and when to abandon it, when to remember and when to forget, when continuity serves adaptation and when it prevents it.

This wisdom cannot be reduced to frameworks or methodologies. It requires deep contextual knowledge about specific organizations and their environments, political skill to navigate contested interpretations of identity, intellectual humility about the limits of historical analysis, and courage to make difficult judgments without certainty.

The leaders who will successfully guide organizations through turbulence won't be those who have mastered either transformation or refounding. They'll be those who have developed the wisdom to know which organizational elements should endure and which must evolve. That wisdom comes not from archaeological digs through corporate history but from the hard work of strategic thinking, environmental analysis, stakeholder engagement, and brutal honesty about competitive realities.

Before embarking on refounding, leaders should ask themselves: Am I recovering distinctive organizational identity that retains strategic value, or am I constructing a comforting narrative that helps me avoid difficult truths about necessary change? The answer to that question may determine not just whether refounding succeeds, but whether the organization survives at all.

If you found this exploration on strategic leadership insightful, consider delving further into the concept of corporate refounding by reading Nate Bennett's analysis on Forbes.