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Birmingham will focus on a "fresh and modern footballing philosophy" following the departure of manager Garry Monk.
The Blues announced they had parted company with Monk on Tuesday afternoon.
The former Swansea, Leeds and Middlesbrough boss had taken over at St Andrew's during March 2018.
Last season, Monk's side retained Birmingham's Sky Bet Championship status despite a deduction of nine points for a breach of the Football League's profitability and sustainability rules, finishing 17th.
The club, coaching staff, players, all the employees at Wast Hills and every single Bluenose... thank you for Keeping Right On through all the difficulties to achieve our target 👏🏻💙 again 😉#BCFC pic.twitter.com/1VmtFZQUjd
— Garry Monk (@GarryMonk) April 22, 2019
Monk's future was, though, cast into doubt earlier this week after it emerged his relationship with chief executive Xuandong Ren had deteriorated in the wake of the transfer of forward Jota to Aston Villa, which saw Gary Gardner part of the swap deal.
Pep Clotet, who was assistant under Monk, will take over as caretaker head coach until a permanent appointment is made.
Former England and QPR boss Steve McClaren has emerged as an early frontrunner for the job, along with Lincoln boss Danny Cowley and ex-Blues manager Chris Hughton.
Club Statement: Garry Monk Full details 👉 https://t.co/zhMQDjrmb2 #BCFC pic.twitter.com/kGQb4QjBTZ — Birmingham City FC (@BCFC) June 18, 2019
A club statement read: "The board of directors believe this to be in the long term interests of the club. We thank Garry for his efforts and we wish him the best for the future.
"Pep Clotet has been appointed caretaker head coach and the remainder of the coaching and backroom staff – including Sean Rush, Darryl Flahavan, Ryan Needs and James Beattie – stay in place.
"The board of directors are hopeful that over time the team can adopt a fresh and modern footballing philosophy, whilst maintaining the club's core values.
"It is our intention to drive the club forward and challenge for promotion. As part of an overall review of club operations, we will also seek to enhance our recruitment and scouting strategy."
Birmingham's statement reflected on the "significant challenges" the club had faced balancing the books off the field, but maintained there would be improvements to the squad, with the owners "committed to continued investment – we will do so sensibly and effectively".
The club said there would be a renewed focus on youth development "even more so than before".
The statement added: "We are certain these young players – as those in our first team already – will be hungry to succeed as we begin a new chapter.
"The board of directors feel that it is vitally important for everybody at the club to be sharing the same vision and commitment to the plans and processes."
