Maintaining the balance between current performance and future innovation is much harder than it sounds. Often, businesses are so much preoccupied about what is going on at the present that they lose sight of the future and are quickly taken over by competitors. Equally, sometimes businesses are so keen on finding the next innovation that they lose their focus from what is going currently within their business. The Three Horizons Model of Growth has addressed exactly these issues and attempts to provide a framework which organizations can use to manage current performance while chasing after future opportunities for growth.
The Three Horizons of Growth Framework was developed by McKinsey in the book “The Alchemy of Growth” and the name it implies it is compromised by three horizons plotted along two dimensions; profit and time.
Looks into what your business is good at today. Are your products and services satisfying existing customer demands? Do you have a loyal customer base? Is the business profitable? All these sorts of questions will help you understand where the revenues and profits are coming from, and in turn evaluate where the focus should be shifted. The profit is at its lowest during this horizon, but this is the stage where all foundations must be laid out in order to feed growth in the next horizons.
Moves a step ahead and utilizes the current core business strengths to drive growth in emerging opportunities which have major potential in the future. Yet, in order for the benefits to start rollout, the business must commit to some heavy investments. In this stage, the company is trying to extend its proven business model, such as entering a new geographical area, introducing new products to the market, crafting a new marketing strategy and so on.
It is where all the pieces of the puzzle come together. This phase is all about entering new, untapped elements that have not been previously tested or explored. It goes without saying that this stage requires a heavy investment in Research & Development, new technologies and strategy devising. Here, short-term profits and revenues should be overlooked, and instead the business should shift its focus into the long-term future of the organization. The offerings developed during this horizon are the ones that will drive long-term growth and success.
How can the model be applied in today’s world?
It is important to think of the three horizons as a simultaneous occurrence. The horizons should not be viewed as sequential stages in which one needs to be completed in order to move up to the rest. The model voices out the need to concentrate on current performance as much as you concentrate on future innovations. All horizons are vital for a business to succeed and each horizon demands a different approach, management and strategic tools; effort should be allocated to all three horizons in order to remain competitive in the market.