Given the complex eco-social challenges humanity faces, deep transformations in policy and politics are needed to support necessary transitions. A key aspect is reshaping how governments interact with territorial actors when addressing complex challenges —an outward change that also requires inward transformation within governments. While action research (AR) offers frameworks for organisational change (e.g., Coghlan and Brannick 2001; Greenwood and Levin 2007), the Action Research for Territorial Development (ARTD) approach focuses on transforming inter-organisational relationships within a territory. However, all these contributions often overlook the need to integrate both inward and outward transformations. This paper draws on the case of Bilbao Next Lab— a policy laboratory to foster urban competitiveness through ARTD—to contribute to the AR literature and propose a new framework for simultaneously addressing government and territorial transformation. The analysis is focused on a year-long process involving seven reflection–action cycles within two dialogue spaces with policymakers from Bilbao Ekintza, the economic development agency of Bilbao City Council. These spaces involved both technical staff and senior policymakers. The findings highlight the importance of addressing both territorial and organisational complexity in action research processes aimed at fostering inward and outward transformations. More open, horizontal, and participatory forms of interaction within governments can promote the joint participation of members of higher and lower positions in collaborative governance spaces, thereby strengthening territorial praxis by bridging reflection and decision-making with action. Furthermore, when these different profiles engage in territorial spaces, the effectiveness of collaborative governance tends to increase.
