Navigating Business Success: A Deep Dive into McKinsey’s 3 Horizons of Growth Framework
There are various phases of organizational development. Some attain maturity and then decline over time, whereas others just dwindle away in the initial phase.
Few enterprises, however, are able to avoid bankruptcy and sustain growth for years. They continue to surprise their consumers with novel products and services. They achieve this by devoting resources, investment, time, and effort to the creation of novel concepts, testing and cultivating those concepts, and discarding obsolete products.
In 2000, McKinsey & Company developed the Three Horizons (3H) of Growth framework. The model is valuable for Managing Innovation, assessing the maturity and potential of Innovation initiatives, and allocating resources accordingly.
The 3 Horizons framework directs an organization’s focus toward enhancing its current portfolio and creating future revenue sources and business opportunities.
The 3H strategic framework defines three distinct Innovation horizons that must coexist for a business to achieve growth. To attain sustainable long-term growth, organizations must invest in each of these horizons and address the specific challenges that accompany them. The 3 Horizons are:
- Horizon 1 — Defend and extend core businesses
- Horizon 2 — Build emerging businesses
- Horizon 3 — Create viable options
The 3 Horizons framework makes it simpler to respond appropriately to market, technological, and regulatory disruptions. Each horizon necessitates a unique management strategy.
The 3 Horizons of Growth framework assists businesses with:
• Maintaining a consistent concentration on the present (Horizon 1), the future state of the business (Horizon 3), and the actions required to get there (Horizon 2).
• Knowledge of where to focus efforts in the short-, medium-, and long-term.
• Maintaining a diversified portfolio of initiatives across the three horizons and effectively managing risks by balancing stability and cash flow with innovation’s inherent risks.
• Keeping the emphasis on maintaining and expanding a specific brand, conceiving novel concepts, and investing in viable projects.
• Avoiding common blunders, such as focusing exclusively on new opportunities or future initiatives and ignoring existing core value propositions.
• Expanding into new geographies and modifying or introducing entirely new products and services.
• Developing or acquiring new capabilities by recruiting top talent.
Let’s delve deeply into these growth horizons.
Horizon 1. Defend and Extend Core Businesses
The first Horizon of Growth pertains to “business-as-usual” activities essential to the survival of primary (core) business. This growth horizon concentrates on short-term (1–3 years) growth by maintaining and expanding margins and profits from existing, cash-generating core business.
Leadership must analyze the organization’s strengths and vulnerabilities, effective value propositions, and those that must be retired or abandoned. Horizon 1 initiatives include product revisions, the introduction of product accessory features, new services, Digital Marketing, and enhanced customer support.
Horizon 2. Build Emerging Businesses
The second horizon necessitates diverting efforts toward extending the current portfolio by investigating new areas of revenue generation and experimenting with new innovations in response to fluctuating markets. This horizon focuses on enhancing the existing business model(s) by exploring the possibility of acquiring new skillsets and technologies and by analyzing new market segments.
This horizon is concerned with the achievement of medium-term (2–5 year) plans via the addition of new product lines or geographic expansion. Horizon 2 activities are expected to generate a reliable return on investment for the capital costs incurred.
Horizon 3. Create Viable Options
The third growth horizon relates to research, the creation of new concepts for prospective long-term growth (5–12 years), and the formation of entirely new enterprises. For instance, investing in new Product Development, M&A, Automation, or Artificial Intelligence.
Interested in learning more about the Horizons of Growth framework? You can download an editable PowerPoint presentation on McKinsey’s Three Horizons of Growth here on the Flevy documents marketplace.
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