Understanding the 3 Horizons model
What are the (3) Horizons?
The concept of “Three Horizons” is a strategic framework developed by McKinsey & Company consultants in the late 1990s and that was the object of the book The Alchemy of Growth by Baghai, Coley, and White in 2000.
It’s a way to help organizations better understand the different time frames or the timeline of their business life as well as the levels of growth and innovation.
The “Three Horizons” model helps distinguish how the short, medium and long-term work, their particular focus and the tools that are required at each of the horizons.
Horizon 1 (H1):
- This represents the defence of the core business of an organization and the optimization of existing products, services, and processes.
- Horizon 1 is about managing and maximizing current operations and profitability.
- It involves incremental improvements, efficiency gains, and the ongoing activities that sustain the business’s current revenue streams.
- It also involves diversification into existing adjacent markets.
Horizon 2 (H2):
- This horizon represents emerging opportunities and businesses that are in the process of being developed.
- It involves exploring new markets, products, or services that may become significant sources of revenue in the future.
- Horizon 2 initiatives often involve adapting or extending existing capabilities to address new customer needs or market segments.
Horizon 3 (H3):
- Horizon 3 is about creating entirely new business models and markets, often through disruptive innovation. N.B. We don’t believe that disruption happens necessarily inside of the horizons’ linearity.
- It involves exploring radical and transformative ideas that have the potential to revolutionize the industry or market.
- Horizon 3 initiatives may not provide immediate returns, but they have the potential for significant long-term impact.
- Horizon 3 is the area of predilection or anticipation for prospective planning.
The Three Horizons framework is valuable because it helps organizations balance their focus on current operations with the need to innovate for the future. It encourages businesses to allocate resources across all three horizons, ensuring a sustainable and adaptable approach to strategy.
It’s worth noting that the Three Horizons framework has been widely adopted and adapted in various forms by organizations around the world to suit their specific contexts and needs. It’s a useful tool for strategic thinking and planning.
The 2 not 3 Horizons Argument
There is an argument made by Steve Blank, an American entrepreneur, educator, author and speaker that the 3 Horizons model no longer applies because the trap of the Three Horizon model is not recognizing that today many disruptions can be rapidly implemented by repurposing existing Horizon 1 technologies into new business models — and that speed of deployment is disruptive and asymmetric by itself (source: HBR, February 01, 2019).
Why we think the 3 Horizons are relevant
Although it is very true that innovation and disruption have accelerated significantly, we believe that there will always be an horizon of emerging possibilities. Furthermore, as we can observe, most disruptions happen slowly then suddenly so we strongly believe that we must scan the “emerging” while also staying vigilant about what is happening in the Horizons 1 and 3,
What about the adjacent?
Many times, we have seen the adjacent put in the Horizon 2 along with the emerging. According to Merriam-Webster.com Dictionary, adjacent is an adjective that means (1) lying next or near : having a border or point in common (2) having a vertex or a vertex and side in common while emerging means newly formed or prominent.
Therefore adjacent possibilities already exist in your market in the form of activities that are not part of your core business and that you do not exploit but in which you could diversify while emerging possibilities are newly formed or forming.
Prospective and the 3 Horizons
Prospective activities deal with Horizon 3 and is in fact is probably the beat tool for the job as it involves looking for possible futures, making scenarios for each in order to select a preferred future.
Roles and goals for each horizon
Roles and goals are often assigned to each horizon. Horizon 1 belongs to the Manager and focuses on defending and enhancing the core business. Horizon 2 belongs to the Builder, looking for new growth opportunities or leveraging emerging opportunities. Finally, Horizon 3 belongs to the Visionary so a vision for the future of the organization is developed.
Common illustrations of the 3 Horizons
The 3 Horizons
This is the simple we like to use because it keeps organization present to the distinction between what is (c0re), what is emerging and the future (as futures).
The 3 Horizons as S-curves
This is another example of how the 3 horizons can be described as S-curves which allow to be present (and vigilant) about the growing and declining areas.
A model to tinker with
We can use the 3 horizons model to explore the short, medium and long term, the risks and opportunities for each of the 3 horizons.
To you success!
If you have questions or would like to initiate one of our solutions, do not hesitate de contact us so we can have a guiding conversation. We are here to help you.
Space intentionally left for the future.