Innovation Strategy: The Three Horizons of Growth (McKinsey)

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Disruptive Innovation > Best Practices > Innovation Strategy: The Three Horizons of Growth (McKinsey)

Innovation Strategy: The Three Horizons of Growth (McKinsey)
Charles Alter, Consultant, United States, Member
One of ways of thinking about innovation strategy is to use the 3 Horizons of Growth developed by Steve Coley at McKinsey.
The framework provides a useful mold to formulate an organization’s product and service portfolio strategy. It's a diagnostic tool that allows for evaluating the health of a product/service strategy pipeline and for setting up the alignment of short, medium, and long term (innovation) plans of an organization. The model describes 3 innovation horizons in the following manner:
The Three Horizons of Growth model...- Horizon #1: The Core Business that is most associated with the company in its current state. This typically is an established business that requires most of the attention of the company’s employees and generates the bulk of the sales volume, cash flow and profit. The focus in Horizon #1 is on “Defending and Extending” the core business and on superior execution.
- Horizon #2: Includes all Emerging Opportunities that could be a variety of new business opportunities that the company has developed, licensed or generated from partnerships and strategic alliances. The focus in Horizon #2 is on leveraging “Positional Advantage” and forcing these opportunities to further prove themselves and gain steam, possibly to become part of the core business in the future.
- Horizon #3: Represents Innovative New Ideas for profitable growth in the future. Focus here is on clustering ideas into themes, sorting out the good and great ideas and feeding them so they can emerge from the Horizon #3 incubator to become Emerging Opportunities.
Source: The Alchemy of Growth, Mehrdad Baghai, Stephen Coley, and David White.
 

 
Three Horizons Concept
Jeff Miles, Business Consultant, Australia, Member
Great thought prompter. I will use this at my next client meeting as an ice breaker and see what they come up with.
Thanks Charles.
 

 
New Ventures have only Horizon 3
Edith Ohri
Why starting with a core business when in new ventures many times the business is in the future, i.e. horizon 3 without passing the first 2 suggested stages.
This model has been existing a long time in all school books.
 

 
3 Horizons of Growth
Jorge Urrea, Consultant, Mexico, Member
I agree with Edith Ohri and, as usually, the article only presents the "what" to do and not the "how" to do.
 

 
Three Horizons: Why?
Vincenzo Rogione, Management Consultant, Italy, Member
Though I appreciate Charles' comment, in my opinion the framework appears conceptually obvious and does not provides much practical conclusions.
 

 
Extensions for the 3 Horizons of Growth
Anna hanooman, ICT Consultant, Trinidad and Tobago, Member
I agree with Ohri. In my humble opinion, the three horizons listed are not necessarily engines of innovation or growth since it seems to be based on the fundamental management of a business unit rather that new or next steps to growth and innovation.
While the three horizons have merit, it seems to me more like applications for determining whether a business is poised to diversify.
In this case, the model should be extended to reflect a phased structure; i.e. horizon four (phase two)- new ideas and analysis, horizon five- new product testing and assessment, horizon six- new market launch.
Phase three- measurement and analysis (however structured) and then the cycle begins again back to phase one (horizons 1-3) where the company re assesses its growth and then decides where it wants to be.
Though I agree that there are hundreds of business models in existence and while no one model may be a perfect fit, ultimately, what works for a business may very well be a hybrid of past strategic models.
 

 
Three Horizons of Growth is in Practice for Ages
M Y Zainudeen, Management Consultant, Sri Lanka, Member
Edith is correct, not only this model is in the school books, it has been practiced in the real world for centuries. There are many business entities which are engaged even in 4,5 horizons in my country though it is a tiny island.
Let us look at this in a different angle and make some improvement in order to make it as new model.
 

 
Three Horizons of Growth Relevant for Established Businesses
Charles Alter, Consultant, United States, Member
@Edith Ohri: admittedly, the three horizons are meant for existing, established businesses with a reasonably strong core business.
The dilemma is that core businesses are always evolving and too many companies don't see changes until they're too late. The three horizons model shows companies how to think about profitable growth in a systematic manner - and the types of skills needed in each horizon. Ultimately, a company needs to move new products from the idea stage into the core to generate revenue and refresh their business model.
 

 
How to Implement the 3 Horizons within 1 Company
simon haafs, Student (MBA), Netherlands, Member
I underscribe the model. The challenge is to integrate the the three horizons within one company, essential for succes. It needs though different cultures, structures and even HR policy for the different horizons. That's where the challenge comes in.
 

 
3 Horizons : Sources for Ideas for Innovation
Gary Stead, Director, United Kingdom, Member
It seems the real innovation is in horizon 3. The open question is "Where to hunt for the ideas to put into the mixer". Procurement leaders will tell you 80% of innovation comes from suppliers. I know a CEO who expects it come from his team. Others solicit innovation from customers - and still others keep a wary eye on competitors. Where else would you look?
 

 
Combine the Three Horizons of Growth with the 5 C's of Marketing Strategy
Rajan Johri, India, Member
You can augment the 3 horizons with the 5 C's of Marketing Strategy to be grounded into application (1. Customer Needs, 2. Company Skills, 3. Competition, 4. Collaborators and 5. Contect.
 

 
Balancing Product's Innovations and Future Products
MdL Mario TERRALAVORO, Interim Manager, Italy, Member
The 3 Horizons combine looking at future products developments and new trends of the market and new consumer's trend with improve the current products.
You can create a new friendly product extending your product line, invent something really new. But avoid to copy a successful product to be only a follower with small margins.
 

 
Three Horizons of Growth Understandable and Useful Across Sectors / Industries
KATHRYN STEINER, MBA, Entrepreneur, United States, Member
@Charles Alter: hello Charles, you have explained these critical elements so that I can apply them to my experience working in the past for Globalmed, here in Scottsdale, a company which has evolved strategically and with respect to product offerings dramatically in the past 4 years. The elements as you have presented add to the business concepts I acquired during my MBA, and could be useful across all sectors and industries.
 

 
3 Preparation Stages for Horizons of Growth
Feraidoon Bakhtiari, CxO / Board, Iran, Member
I like the idea and I share the concepts with participants in my workshops. But prior to that you need to scan the environment in order to identify red and green spots on your strategic policy orientation screen. This means that one needs to follow three distinctive stages of:
1. Identify what exactly is expected
2. To be prepared for what exactly is defined
3. And finally implement what has been clearly identified and resources are prepared for
These steps will help to be able to analyze the situation and gain as much information as required to know more about strengths / weaknesses / threats / and opportunities.
 

 
Status Quo to Boost Future Plans
Saeed Khodaee, Director, Iran, Member
@Edith Ohri: undoubtedly, without maintaining the status quo, it might be jeopardizing to jump to step three. Any strategy must fulfill the requirements of a standard competition and base its future plans on the pillars of current situation.
 

 
The Three Horizons and Competitiveness
SAMUEL NDUATI MBUGUA, Management Consultant, Kenya, Member
Whereas the main objective of the three horizons is the development of an innovation strategy, its emphasis is on the development of the competitive strategy. This is because instead of exploring on new ideas of new products or services at the first instance, it concentrates on the existing core business. For the model to achieve innovation, the first stage may be the planning of the exploitation of new ideas but not on the contraction of the core business.
 

 
3 Horizons of Growth is Still Valuable as a Foundation
marc romano, Strategy Consultant, United States, Member
This basic framework is very sound. It provides a solid platform for expansion and application depending on the market environment, industry dynamics and industry susceptibility to change.
I would suggest that any of us should use it as a foundational model from which we can each create an expanded hybrid model that fits our individual worlds. The fact that the model has been around for some time does not automatically antiquate it.
 

 
Three Horizons of Growth
Leodegardo M. Pruna, Professor, Philippines, Member
The first horizon to my mind is where an enterprise should maintain both a comparative and competitive advantage. The second horizon is where an enterprise should have developed a competitive edge resulting from an innovative and creative culture. The third is where an enterprise continues to maintain a forward and opportunistic view of where it could move to the complete satisfaction of its stakeholders.
 

 
Three Horizons of Growth are Practical
Sorni Tindanzo Namateng, Student (University), Ghana, Member
Thank you Charles, today is my first time at 12manage and its obvious I've been missing a lot. This three horizons of growth model sounds rather practical to me and I think, as potential entrepreneur, it will be one of the strategies I will be implementing in the near future. Thanks!
 

 
Where to Hunt for Innovation Ideas?
Tadeusz Sudol, Strategy Consultant, Poland, Member
@Gary Stead: The answer is: everywhere, but the process of innovation development has to be structured. See: Roberto Verganti, Design Driven Innovation and other publications. I used his concepts in practice - developing strategies and new brands for my customers.
 

 
The Right Distribution of Resources over the 3 Horizons
Raghu Bala, Manager, United States, Member
Businesses struggle with distributing resources to make strides on all three horizons. Resources that are capable of contributing to horizon #3 are almost always stuck in defending core businesses (i.e. Horizon # 1). Do you have any suggestions?
 

 
Exploring Uncertainity with the 3 Horizons of Growth
Osama Kamal, Management Consultant, Egypt, Member
It's like these 3 horizons. I will use the model in my own career. In Egypt businesses nowadays have high uncertainity and this may last for a while. As a consultant, I need to explore more business ideas besides thoughts. I realy appreciate the tools and words written by Charles, every businessman/woman will have to work on these curves one day.
 

 
Innovation Strategy: the Three Horizons of Growth (McKinsey)
SAMARENDRA KUMAR MOHANTY, India, Member
@Edith Ohri: steps 1-2 are required to generate resources and provide backup in case of failure of step 3 which is more risky.
 

 
Three Horizon Concept for Challenging the Status Quo
Brijesh Dave, Manager, India, Member
Good concept to generate thoughts to challange the status quo, will talk about this my next meeting. Thanks Charles.
 

 
Look out of the Window and see 3 Horizons
Falk Heinrichsohn, Business Consultant, Portugal, Member
The three horizon approach may help with the problem of innovation of companies if management is involved too much in maintenance engineering. If they would "look out of the window" as Peter Drucker once mentioned, to see what is out there in the next 15 to 20 years they would emotionally involve their employees with a strategic vision to become a part of this future.
Most companies unfortunately think they can develop the business and long-termed sustainability by KPIs... To please shareholders! Engaged employees do not need this tool! As a consultant I do see this pattern unfortunately too often...
 

 
Time is Important Point
Dr zahra gheidar, Consultant, Iran, Member
Certainly, these frameworks are usual steps for establishing a company but, we should consider that innovation and entrepreneurship will not create anything unless by creativity. For a creative company the vital question is: "how much time will we spend on each horizon"?
 

 
Three Horizons of Growth all about Innovation and Marketing
Charles Alter, Consultant, United States, Member
Thank you to everyone who has replied and shared their thoughts on this subject. One parting thought from Peter Drucker, who said there are only 2 critical functions in any business: innovation and marketing, all the other functions are costs. The three horizons may help explain why innovation and marketing are so important.
 

 
Don't Focus too much on Horizon 1
Aladdien Mohamed, Manager, Saudi Arabia, Member
Actually I have a comment on stage 1. Organizations should not consider its current form as their main business nor keep defending its existence all the time. We need to question periodically its relevancy and confirm its effectiveness compared to target clients’ needs and wants.
For example, if Samsung didn't keep enhancing their list of products due to market segmentation changes and technology predicted changes as well, they might have not reached today’s expansion with a rich list of products that could be considered revolutionary on their historical records.
 

 
Senior Managers Should Focus on Horizons 2 and 3
Jaap de Jonge, Editor, Netherlands
That's right, the 3 horizons of growth are especially useful for top managers to remind them of the 3 levels of thinking about the future of their firm, and to spend most of their time on H2 and H3.
 

 
Where are the Resources..
Cristina Isenrath, Director, Argentina, Member
@Gary Stead: more looking inside ourselves... To find resources we need to have time to think, to care about ourselves...
 

 
Protect your Bread and Butter First
GAMANSON, Management Consultant, Sri Lanka, Member
Any business has to ensure first it survives in the short and middle terms and it is the core business that generates revenue for survival. Hence as the model suggests horizon one is the core business and those who forget about horizon one and steps into h2 and h3 repent later for not protecting h1 in pursuit of h2 and h3. This is my point of view being an accountant.
 

 
Consistent Context Using Horizons
Martin Kerr, Project Manager, Australia, Member
In our organisation the 3 horizons are standard dialogue. Whilst most people within our organisation see them as timelines rather than capabilities, it works for us.
 

 
All 3 Horizons are Important, but...
Jaap de Jonge, Editor, Netherlands
@Gamanson: all 3 are (equally) important for any business, but but senior / top managers of large organizations should not spend too much time on the current business (unless there is a special need to do so - such as a crisis). Most of H1 can be delegated. Of course this does not mean they should forget about the current core business altogether, they remain responsible for all 3 horizons.
 

 
The 3 Horizons of Growth Help to Decide on Innovation Resources
Sandy Findlay, Business Consultant, United Kingdom, Member
Excellent model for drawing attention on where resources should be focused. I sometimes struggle with getting clients to focus on these different horizons but this will definitely help in explaining to them the place and value of each horizon, as well as where and how to best invest resources in each area.
Thanks very much for this insight, excellent work!
 

 
3 Horizons of Growth... Only for Large Companies?
Francesco Cuoco, CEO, Italy, Member
Seems a correct approach for medium- large companies.
What about SMEs? Can the same approach give valuable results?
 

 
3 Horizons of Growth Reminds and Helps us Prepares for Change
Julius Belleza, CEO, United States, Member
I agree with Gamanson and Aladdien Mohamed. For business survival, especially in current global economy, H1 and H2 are priorities.
The definition of innovation does not mean we have to invent something new. We just need to be creative to improve on something and start from there to create a new and better product or service.
However, if we want to catapult business growth and competitive advantage over competitors, we should allocate some of our resources to do H3 no matter what. Then we can inject new products into H1 to earn more profits.
As everybody has commented, this business strategy model is not new, but still an excellent reminder for those who tend to forget that the world evolves quickjly and we should be ready to deal with it.
 

 
Three Horizons of Growth at SMEs
Charles Alter, Consultant, United States, Member
@Francesco Cuoco: For SMEs (small - medium size enterprises) the model works, but needs to be scaled to the situation in such company to analyse the core business and existing efforts at growth and innovation.
The major obstacle for SMEs is resources: people, time and cash. With a proper understanding of the current state, a practical plan can still be developed to grow via the three horizons.
 

 
Consider the Reasons for Growth in 3 Horizons
FUNSHO, Accountant, Nigeria, Member
Business growth cannot be limited to these 3 horizons. We need to critically consider the widening future in line with the business objective. As soon as the business achieves its start-off objective, that objective expands. When it achieves the expanded objective, there is a further expansion. This continues progressively so long as there is pursuit of continuity.
In essence, growth functions to achieve the expanded business objectives.
 

 
3 Horizons Model - A Good Start for the Strategic Planning Process...
Olawale Christopher Olamiju, Financial Consultant, Nigeria, Member
No doubt, this 3 horizons model is not cast in stone and it does not necessarily mean that all businesses must follow in that linear progression.
I agree with some opinions on this forum that it best suits an already established business. However, I think horizon 2 seems to be a good ground for a strategic take off; allowing the mometum to build up for further strategic analysis.
 

 
Time to Spend on Each Innovation Horizon
Leodegardo M. Pruna, Professor, Philippines, Member
@Zahra Gheidar: there is no fixed rule on how much time to spend in each horizon. What is necessary is for the enterprise to move to the next after is has ascertained that it is ready to deal with the tasks it will face. The last horizon is where "sustainable development" through a creative and innovative culture is institutionalized.
 

 
Transversal Innovation
ENRIQUE CARLOS POZO, Project Manager, Spain, Member
I think the three horizons must be parallels, not serial. The graphic gives an idea of each stage beginning when the horizon before is finished.
The innovation must be transversal for all horizons of the organization, and a habit for all people of the business. In the same form that quality system was transformed into a strategic system, innovation must also be strategic.
Editor: Agreed in reality there are no 3 horizons and so they must be viewed and developed in parallel, but the whole point of this model is that you more or less break up the future in 3 periods. This has its advantages as described above.
About the graph I think it is OK: the innovation 'waves' clearly overlap each other.
 

 
Differentiating Critical Functions and Costs
KATHRYN STEINER, MBA, Entrepreneur, United States, Member
@Charles Alter: innovation is probably also known as research and development (R&D). This component of a business is essential, I agree. However, which projects to pursue is also essential. Marketing efforts are also essential, and efforts also should be strategic and selected so as not to become costly and ineffective.
 

 
Quite Useful Model for our Organisation
Htin Kyaw Myint, Manager, Myanmar, Member
In fact, it is quite a good model for our organization, which is currently declining slowly and could use a systematic view at these 3 horizons.
 

 
Model for Industries That Have Complex Logistics
KATHRYN STEINER, MBA, Entrepreneur, United States, Member
This model would be interesting to translates into businesses such as the food service industry, where logistics can be complex, and with fluctuations that are difficult to measure to a degree. Considering all the comments.
 

 
Length of Horizons is Vital
Dr zahra gheidar, Consultant, Iran, Member
Certainly measuring a precise, definite time and degree in each horizon is unreasonable, but it is so vital for companies that they understand the approximate length of each horizon!
 

 
3 Horizons Model is about Strategy Stages
John Moses, Manager, Nigeria, Member
Looking at the three horizons, it is all about different strategies deployed by organisations at different stages from inception to maturity:
- Horizon one is where the firm deploys its core competencies to its core business. This is the primary purpose of its existence.
- Horizon two is all about positioning strategy to explore the environmental dynamics.
- Horizon three is the overall corporate strategy that involves thinking out of the box, that is, strategic thinking throughout the enterprise.
 

 
The 3 Horizons for Growth
Francesco Cuoco, CEO, Italy, Member
I think that the model is quite generic. The real issue from my side is to understand: is the 3 Horizons Model fully applicable in a context of economic downsizing.
Moving from first wave to the second one and to the third one requires additional long term investments.
 

 
Stabilizing Current Business can be hard in case of Disruptive Innovations
Charles Alter, Consultant, United States, Member
@Francesco Cuoco: I think that's exactly the point of the three horizons model. Companies must first stabilize their current business (horizon one), so the challenges of economic downsizing are very real.
But after progress has been made, it's time to explore new avenues to growth. The stumbling block is that some companies never feel they are truly stable and thus never grow.
Unfortunately, these companies are likely to fail if they don't take a few risks to explore the future. A big challenge indeed.
 

 
This is only a Theoretical Framework
jasmin, Student (University), Lebanon, Member
This framework helps you how to think but not how to do it! I still believe SWOT analysis is more useful.
 

 
Combine 3 Horizons of Growth with SWOT Analysis
Francesco Cuoco, CEO, Italy, Member
@Jasmin: I guess the two methodologies complement each other.
Use the 3 horizons as baseline, identify actions to be performed using SWOT.
 

 
3 Horizons of Growth
Ionelia Iftimie, Director, Romania, Member
I think this proposal would be an interesting start for developing innovation by developing creativity at each stage of growth!
Also, I think it would be interesting if during the process of identifying the innovative activities for each horizon we keep in mind the BCG matrix. I will think more on this... Thank you! :).
 

     
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