Using Three Horizons to Guide Innovation Forward
You can only see one horizon at a time from wherever you are. The three horizon framework is a metaphor because you need to see a different horizon to guide innovation forward.
However, if you are at a more traditional enterprise, this may prove not easy to deliver on. Planning in three horizons is useful in practice as you are executing on more forward-looking initiatives.
Three horizons framework
- Horizon 1 — Today’s business model, products, and services
- Horizon 2 — Adjacent markets, new categories of products & services
- Horizon 3 — New business models, entirely new areas of products & services
The benefit of this approach is it will help ensure projects aren’t shut down due to the intention of the decision making. You will lose innovations early if they are evaluated based on similarity to (or fit with) the existing business or operating model. It is key that decision-making, precisely the degree of comfort with a difference, is established up front. This is crucial to setting your initiatives up for success.
Horizon 1
The focus is on the current business portfolio. Focus on continuous improvement, for example, by being customer-driven. Responding to feature requests or competitor actions and responding to their moves in-kind. The type of decision framework here is fit with today’s business.
Time-frame: Today (Short-term)
Scope: Core business
Strategic focus: Defend, extend and increase the profitability of existing businesses.
Metrics: Return-on-investment (ROI) and net-present-value (NPV)
People: Maintainers
Capabilities: Fully assembled
Horizon 2
The focus is on creating or expanding business portfolios. Developing new customers and segments and applying the company’s capabilities to an adjacent industry. The type of decision framework here is seeking new opportunities, different from today’s business portfolio.
Time-frame: Later (Mid-term)
Scope: Growth business
Strategic focus: Resources initiatives for new business and building capabilities. Growth investment.
Metrics: Real option value
People: Builders, intrapreneurs
Capabilities: To be acquired or developed
Horizon 3
The focus is on exploration for potential new opportunities, focusing on developing new business portfolios. Remaining differentiated and having a long term impact by putting together talented teams with vision and learning capabilities. These initiatives will be enabled/constrained by what the team can and cannot do. The type of decision framework is to open new portfolios of opportunities beyond the current business portfolio. The focus is revolutionary and disruptive ideas.
Time-frame: Future (Long-term)
Scope: Future business
Strategic focus: Uncovering options for future opportunities. Strategic investment.
Metrics: Real option value
People: Champions, explorers
Capabilities: To be discovered
So what?
There is little to no incentive to move into other horizons in a company where there are significant customer interaction and operational needs in Horizon 1. The decision making in a business like this will often shut down or act against significantly new ideas. Hitting sales targets, cost targets, and market share targets are Horizon 1 key results. To enable Horizon 2/3 in an existing business, two things usually happen.
You need different incentives for the talent you move over and usually different talent altogether than you need for your Horizon 1 business. You do this by creating some separation between H1 and H2/3. There has been a great deal of discussion about disruption in financial services, and what is emerging due to the practicalities of change in the banking industry is this idea of a “Beta Bank.” This is one example of creating separation around horizon 2 or 3 initiatives.
Take a moment to think about your business. If you are already in a startup environment or managing an extensive portfolio of businesses with a diverse pipeline of “H3-like” ideas under development, this isn’t required. If you are at a large corporation, you should start planning along the three horizons right away.