Three Horizons
In one of our recent Advisory Board meetings, we were discussing the different lines of business in Netcore – email, automation, SMS. To this, we also had the geographies (geos) – India and SE Asia where we had a presence for a long time, US where we have been building the team and growing the business over the past year, and other global markets where we need to expand. One of our advisors suggested we look at McKinsey’s “three horizons” framework.
It immediately brought back memories. I remembered reading about it many years ago. I loved how the three horizons and the steps to getting there made such a beautiful graphic to outline the future. At that time, Netcore was a much simpler business and I found little use for that model. After the timely advice from our advisor, it was time to revisit the three horizons model. As I read, I realised that there is very good applicability when putting together strategy for any growing business.
Here is an overview from McKinsey:
As companies mature, they often face declining growth as innovation gives way to inertia. In order to achieve consistent levels of growth throughout their corporate lifetimes, companies must attend to existing businesses while still considering areas they can grow in the future. The three horizons framework—featured in The Alchemy of Growth,1 —provides a structure for companies to assess potential opportunities for growth without neglecting performance in the present.
Horizon one represents those core businesses most readily identified with the company name and those that provide the greatest profits and cash flow. Here the focus is on improving performance to maximize the remaining value. Horizon two encompasses emerging opportunities, including rising entrepreneurial ventures likely to generate substantial profits in the future but that could require considerable investment. Horizon three contains ideas for profitable growth down the road—for instance, small ventures such as research projects, pilot programs, or minority stakes in new businesses.
The following graphic captures the essence:
Horizon 1 is the business that generates today’s profits. Horizon 2 is the business that will take over from Horizon 1 in the near future, while Horizon 3 are the options that one is betting on for the future. The key point to note is that each of the businesses needs to be managed concurrently and differently.
So, at the next strategy meeting, ask your team to segment your business lines on these three horizons. Then think of how you can put in place different metrics for measuring each business. It is an exercise which should be repeated every year or so. Even within a business line, it is possible to apply the same framework – for example, the three horizons could be different geos. In a nutshell, the three horizons framework helps the leaders manage both today and tomorrow.
