An Overview of the Three Horizons Framework

Ready to elevate your company’s strategic planning to the next level? Let’s go into the McKinsey Three Horizon Framework!

We’ll review the framework’s three growth scopes and provide real-world examples of organisations that nailed it.

This article will provide you with the following information:

• What is the Three Horizons Framework?
• What Are the Three Horizons for Growth?
• What do McKinsey’s Three Horizons of Growth help you achieve?
• How Do You Apply the Three Horizons Model to Your Business?
• Hidden Trap in the Three Horizons Framework You Should Be Aware Of (And How To Avoid It)
• Three Horizons Framework Template
• What is the Three Horizons Framework?

McKinsey’s Three Horizons Framework is a strategic planning technique that assists organisations in managing their growth strategy and realising transformative potential. It employs an adaptive management strategy based on three separate growth categories—Horizon 1, Horizon 2, and Horizon 3—to give a framework for recognising and responding to changes in the company environment.

What Are the Three Horizons for Growth?

The Three Horizons Framework, often known as the Three Horizons of Growth, is composed of three horizons:

Horizon 1: Sustain and Protect the primary business.

Horizon 2: Develop developing businesses.

Horizon 3: Create a true new business.

Let’s look at each in greater detail:

Horizon 1: Maintain and protect the primary business.

The first horizon of expansion focuses on exploiting current goods and services. Consider it “business as usual.” For a retailer, this would encompass the day-to-day objectives of selling, marketing, and serving your products and consumers.

Other Horizon 1 efforts may include product improvements, new features, or the addition of new services to current goods. Consider offering a subscription model for existing products or releasing new services like customer service, technical assistance, or digital marketing.

Horizon 1 aims should be to improve margins, streamline present corporate processes, and increase short-term profitability.

Horizon 2: Develop developing businesses.

The second horizon of expansion focuses on expanding what you already have into new areas of revenue-generating activities. It’s all about testing new tactics in reaction to market developments. You should concentrate on developing new technologies for the current market or researching new markets.

Your Horizon 2 activities may incur an initial cost, but these expenditures should yield a rather consistent return.

This is predicated on their being an extension of your current company plan. Horizon 2 strategy strategies involve introducing new product lines and extending your firm regionally.

Some of these efforts will be integrated into your company as usual, while others will lay the path for the formation of whole new strategic initiatives under Horizon 3.

Horizon 3: Create a true new business.

This is the third and most distant planning horizon. It is often defined by long-term objectives and investments with unparalleled strategic or competitive repercussions. The third horizon, which can last up to 10 years or more, focuses on generating growth possibilities, exploring new markets, and making discretionary expenditures to capitalise on such prospects.

For example, your organisation might invest in new product development, AI or automation research and development, and the creation of new technologies or services. This might also include research initiatives, pilot programmes, or the formation of entirely new business divisions via mergers and acquisitions.

What can McKinsey’s Three Horizons of Growth help you achieve?

Most organisations desire development. Most organisations recognise that innovation is a crucial component of attaining growth. However, many of them see innovation as a one-time occurrence, such as a large project to be completed or a predetermined “innovation programme” to be implemented.

One of the most prominent reasons for this strategy is a perceived gap between tomorrow’s innovation and today’s commercial realities.

McKinsey’s Three Horizons of Growth aims to help you bridge this intellectual gap. It does this by creating stepping stones between running your business profitably today and growing it for the future.

This strategy framework helps you maintain a continuous balance of emphasis between today’s demands (Horizon 1), your company’s future state (Horizon 3), and the measures you need to take to get there (Horizon 2).

The Three Horizons of Growth framework is a highly adaptable strategy framework that can be applied to most organisations. The approach is especially useful for organisations that have recognised growth and innovation as barriers.

If you believe your organisation is stuck in “chugging along” and doing business as usual, McKinsey’s Three Horizons of Growth might be the ideal strategy framework for you.

How Do You Apply the Three Horizons Model to Your Business?

Okay, so you’ve determined that growth and innovation are vital to your company, and you’re prepared to try McKinsey’s Three Horizons Model to help you get there. Here’s how to apply it to your organisation:

1. Begin with a thorough grasp of your Horizon 1.

You must first determine your most valuable assets today. The primary reasons your company generates income or succeeds at what it does. If you were Starbucks, this would be your brand and maybe your distribution network.

If you were Microsoft in the 1990s, you would focus on your enterprise products and maybe your partner network.

Identify these drivers of success for your company now.

Now suppose you’ve completely lost them. Assume you’re Microsoft, and companies no longer want to buy your products…

2. Horizon 3 is what you would do if that happened.

Yes, it is not a typo. We’re going straight to Horizon 3. Let’s use Microsoft as an example. The Microsoft Xbox debuted in 2001. On the surface, it was opposed to Microsoft’s main strengths at the time, which were firmly focused on business and productivity. And that was precisely the goal.

The Xbox was not a stab in the dark—it was Microsoft’s Horizon 3. They’d discovered an area where they believed they might succeed (core competencies are still required to win). They did not, however, rely on the factors that have contributed to their current success.

But how did they move from excelling in business software and productivity to dominating the highly competitive gaming hardware industry?

3. Horizon 2 is the bridge that takes you there.

Here’s where Horizon 2 comes in. Once you’ve determined what you want to achieve for Horizon 3, go backwards from there (and forward from Horizon 1) to develop a plan of action to bridge the gaps.

For Microsoft, this meant establishing their line of computer games. It also offered a variety of “light” devices, such as keyboards and mouse.

This provided them with the necessary experiences (as well as some additional income) in both gameplay and electronics, ultimately leading to the creation of the Xbox.

Horizon Two does not have to be a revenue producer in and of itself, but it should contain enough of Horizon One’s key assets to offer you a good chance of profitability.

The wider picture, however, is that it assists you in bridging the gap between your present and intended future states (Horizon 3).

The 70/20/10 rule

To put this into effect for your strategic strategy, attempt to guarantee that around 70% of your activities are focused on Horizon 1. After all, if you want to flourish tomorrow, you must first survive and thrive now.

Then, devote around 20% of your efforts to those Horizon 2 ‘bridging’ chances. That may seem like a lot, but Horizon 2 will include failures and false beginnings, so make sure you have enough irons in the fire to get to Horizon 3.

For Horizon 3, this leaves 10% of your total effort. That ten per cent is crucial. Without it, you might quickly lose sight of your ultimate aims and get trapped in an endless loop of Horizon 2s.

Microsoft, for example, experimented with a range of simple game controllers throughout the 1990s called the Microsoft Sidewinder. Most of your Horizon 3 10% efforts will be on research and experimentation, with a few light product launches towards the end if you’re lucky.

Hidden Trap in the Three Horizons Framework You Should Be Aware Of (And How To Avoid It)

Baghai, Coley, and White developed the Three Horizons concept in the twentieth century to highlight the need to have an ambidextrous organisation. Previously, organisations allocated a relative delivery time to each horizon, such as 3-12 months for new features and 24-36 months for business model extensions.

In today’s environment, disruptive ideas occur at breakneck speed. Take a look at Airbnb, Uber, Craigslist, Tesla, and the proliferation of artificial intelligence and machine learning technologies like OpenAI and ChatGPT. Every sector is at stake.

What can you do about this?

Don’t fall into the trap of using traditional strategic planning cycles.

Instead, prioritise shorter, more agile cycles that allow you to pivot rapidly as needed. Identify opportunities, act quickly, and innovate better than your industry’s disruptors. You may collaborate with startups, hire external innovators, or quickly replicate the latest disruptive innovators.

This is analogous to a tennis match, in which players must swiftly read their opponent’s actions, predict their next move, and then modify their strategy as soon as possible to stay ahead of the competition. Speed, agility, and adaptability are critical to achieving success.

Conquer The Future With GGP

Alright, that’s a wrap! We hope you enjoyed learning about the McKinsey Three Horizons of Growth.

Utilizing the Three Horizons of Growth can lead to tremendous success, so why not give it a try?

An easy place to start is to take a look at your existing strategic plan and overlay what you’ve learned about the different horizons of that plan. Ask yourself the following questions:

• How close are you to the 70 / 20 / 10 rule?
• Do you have a clear understanding of your current reasons for success?
• Do you have a plan for if they were to be taken away from you?

If you’re not happy with your answers to those questions, then McKinsey’s Three Horizons of Growth could be just the framework for you.

And let’s not forget, GGP  is the best choice for strategic planning and strategy execution because of its powerful TEAM, friendly interactions, and capability to monitor progress and adjust the strategy.

So, go forth and conquer! With GGP by your side, you’ll be unstoppable.