Three Horizons Of Innovation
Use this framework to plan your company's growth over the short, medium and longer term.
In the year 2000, McKinsey consutlants, Mehrdad Baghai, Stephen Coley and David White wrote The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise. It proposed an approach for achieving sustainable growth known as the Three Horizons.
The Three Horizons framework of innovation is a simple one. It has developed out of the S curve which presupposes that an innovation has three sequences of growth:
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At the beginning there is a period of a lot of investment and little progress,
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in the middle there is rapid growth and good returns
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at the top of the S curve revenue falls and profits decline.
The Three Horizons framework assumes that there are three different stages of investment in new products within a company. Each leads to the other although it must be stressed that it is assumed that all three horizons are worked on simultaneously. The blue dots in the Three Horizons diagram (below) are intended to represent different innovation initiatives and their predicted value against a timeline.
Horizon 1: maintaining the core business. These are growth opportunities associated with the core business and could include such as improving margins, improving processes, adding new customers etc. this is the safest horizon in which to generate growth and it should attract most capital and attention.
Horizon 2: extending the existing business. These are growth opportunities that come from launching new products to existing customers or finding new customers for existing products. These are important new developments for the company because they are relatively safe and easy to implement.
Horizon 3: creating new business opportunities. These are long-term opportunities. They are growth opportunities that may lie outside the existing business. They are therefore more risky ventures and require significant amounts of time and money to get them moving.
It will be noted that there are similarities in this framework to the Ansoff framework. The idea of the McKinsey Three Horizons of growth is that at any one time a company will have some products "cooking" in each of the horizons. It is suggested that the involvement of senior leadership becomes greater in projects in Horizons 2 and 3.