McKinsey’s Three Horizons of Growth

One of the many challenges you are likely to face in the operation of your business is balancing the need for present day performance with future innovation. Both of these things are critical to your overall success, but it can be hard to serve both of them at the same time. Paying close attention to today’s operations usually comes at the cost of innovation, and vice versa. So how do you make sure that both of these points are getting the time and attention that they deserve? Using the Three Horizons of Growth model from McKinsey is a good place to start.

McKinsey’s Three Horizons of Growth

It simply isn’t going to be good enough to be satisfied with the status quo in your business. The status quo never stays the same for long, as new competitors and new products are constantly coming into the market. Unless you have constant innovation and development to go along with your current products, you are inevitably going to fall behind at some point along the line.

With that in mind, one of your critical jobs as the leader of an organization is to successfully balance today and tomorrow. If you wish to use the Three Horizons of Growth model to do just that, read on to learn how this way of thinking can help you make wise decisions.

Horizon One – Current Products

Not surprisingly, the first Horizon in this model is what you are doing successfully today. If you have products and services which are succeeding in the marketplace, those must remain in place in order to satisfy your existing customers. Not only do you want to maintain your reputation with your customer base by offering the products they trust, but you also need to continue to benefit from this revenue stream. After all, if you aren’t making money today, you won’t need to worry about tomorrow – because your business won’t survive anyway.

One of the key concepts to keep in mind for the first Horizon is the fact that you should be optimizing your profits with products that are currently on the market. Strip away the elements of what you do currently which are costing more money than necessary and streamline everything toward becoming as profitable as possible. Since these products are not necessarily your future, you aren’t focused on maintaining them over the long run so much as you are making as much money with them as you can right now. It is the money that you make off of these Horizon one products which is going to pay for the development stage of future goods.

Horizon Two – Short-Term Future

The next Horizon deal with products which are currently being developed and are nearly ready to take to the market. It is frequently the case that these products are simply improvements or redesigns of current items. For instance, if you are adding a couple of features to a current product due to customer feedback, that new product may be found in the second Horizon. You could be developing these products in order to better serve your current market, or you could be doing so in order to access a whole new market which you have not previously served.

It should be noted that most of your sales efforts are going to be focused within this Horizon. The products you are selling within Horizon One are already established – they are what they are, so to speak. Therefore, those products don’t really need much in the way of a sales team to promote them anymore. This next generation of products is a different story, however, so this is where most of your sales and marketing efforts are going to be found. It is crucial that you keep a careful eye on Horizon Two, as the products which reside in this level are going to need to be ready to pick up the slack when the products in Horizon One tail off from a profitability standpoint.

Horizon Three – Long-Term Future

Your true innovation is going to be found in Horizon Three. These products are the future of your business, but they are too far off to count on in any meaningful way as far as driving revenue. The research and development that you do with new technologies, as well as the lofty ambitions that you have for new products and services you could develop, all reside at this stage of the model. Horizon Three might not be providing anything in the short term as far as profit, but it is the future of your company. Without investment in this level, the days of your organization will be numbered.

Think of this Horizon as the testing ground for your company. At the moment, your company has a certain set of capabilities which has allowed you to make money on your current offerings. However, to move toward a brighter future, you are going to need to expand on those capabilities. Your organization is learning while operating in this Horizon, so that it can serve new and larger markets in the future. There will be plenty of trial and error along the way, but committing to the importance of Horizon Three is the only way to keep up with the changing times.

McKinsey’s Three Horizons of Growth

It isn’t always easy to blend the requirements of these three Horizons into one organizational plan, but that is your task. The best companies are able to keep up with present demand for their products while always maintaining an eye toward the future. Going too far toward either direction of this spectrum – focusing solely on the present day or solely on the future – is going to be a losing strategy. Companies with no long-term vision are soon passed up by the competition, and companies who focus only on the future will not make enough money to bring their vision to life. Use the Three Horizons of Growth model to balance your decision making properly in order to serve the goals of today and tomorrow equally.

Our Business Strategy eBooks will give you a good understanding of the appropriate business analysis techniques and terminology to help you to contribute to the strategic decision-making process. Download these free eBooks, checklists and templates for your PC, Mac, laptop, tablet, Kindle, eBook reader or Smartphone.

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