In the ever-changing business landscape, companies are faced with numerous challenges and opportunities, especially when it comes to growth. As a business owner, it’s essential to strike a balance between sustaining your current operations while positioning yourself to capitalise on future trends. This is where McKinsey’s Three Horizons of Growth comes into play, a strategic model that guides businesses on how to manage innovation across three key areas to achieve long-term success.
Many business owners are familiar with the struggle of balancing present needs with future ambitions. Too much focus on the present risks leaving you unprepared for future challenges, while an exclusive focus on the future can leave your current business vulnerable. McKinsey's Three Horizons of Growth offers a clear path forward by helping organisations diversify their efforts between the present, the near future, and the long-term future.
What are the Three Horizons?
The Three Horizons model was developed by McKinsey & Company to help organisations manage their innovation efforts in a structured way. The framework encourages companies to allocate resources and time to three different areas of growth simultaneously. Let’s take a closer look at each horizon.
Horizon 1: Protecting and Expanding the Core Business
Horizon 1 refers to your business’s core products or services - the bread and butter of your organisation. This is the present-day operation that generates the majority of your revenue and profit. For most businesses, this means focusing on the activities, products and services that have proven to be successful over time.
However, it’s important not to become too comfortable with Horizon 1. While it’s crucial to protect your core business, companies must also look for ways to improve and expand it. This may involve refining processes, enhancing customer experiences, or offering new variations of existing products. The key is to defend your current market position while continuing to develop your brand and the services or products you offer.
One of the dangers of focusing exclusively on Horizon 1 is that it can leave your business vulnerable to disruption. Competitors, changes in technology, or shifts in consumer behaviour could quickly make your current core business obsolete. Therefore, maintaining Horizon 1 should always be accompanied by forward-thinking strategies that allow you to adapt and grow.
Horizon 2: Developing Emerging Business Opportunities
Horizon 2 focuses on developing new and emerging business opportunities that may still be in the early stages of development. These ventures might not yet be fully profitable, but they have the potential to become the core of your business in the near future. Typically, businesses in Horizon 2 are seen as extensions of your current offerings or natural evolutions of your existing services.
An important aspect of Horizon 2 is the willingness to invest in these emerging areas. This could mean allocating more budget towards research and development, experimenting with new technologies, or even investing in entirely new business models. At this stage, innovation is key, but so is a calculated risk. While some ideas may not immediately succeed, nurturing Horizon 2 helps prepare your business for inevitable changes in the marketplace.
It’s also worth noting that Horizon 2 initiatives often require a longer runway for profitability. These ventures may involve considerable investment, whether through capital, resources, or time. Therefore, patience and perseverance are required, particularly when it comes to winning over investors or stakeholders.
Horizon 3: Exploring Future Innovations
Horizon 3 is where your company begins to explore long-term innovations that may seem far removed from your current business model. These ideas are often disruptive in nature and can involve cutting-edge technologies, new partnerships or experimental business models. Think of Horizon 3 as planting the seeds for the distant future, where the innovations might not be immediately tangible but have the potential to revolutionise your industry.
One example of Horizon 3 innovation could be the incorporation of artificial intelligence (AI) into your business processes. While AI may not have an immediate impact on your bottom line, its potential to streamline operations, increase efficiency, or even create new product offerings makes it a worthy investment. Horizon 3 allows you to keep an eye on future trends without neglecting the present.
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Why McKinsey’s Model Works
McKinsey’s Three Horizons model is particularly powerful because it allows businesses to focus on both immediate profitability and long-term innovation. The model provides a structured approach to balance the day-to-day demands of running a business with the need to look ahead and prepare for future challenges.
For business owners, this model ensures that your attention is split between defending your current market position (Horizon 1) growing through emerging opportunities (Horizon 2) and future-proofing your business with long-term innovation (Horizon 3). The danger of focusing exclusively on one horizon is that it could lead to missed opportunities or worse, a business that stagnates.
Applying the Model to Your Business
To start applying the Three Horizons model to your business, begin by evaluating your current operations. Are you solely focused on your core products and services? Are there opportunities for emerging ventures that you haven’t fully explored? Finally, are you dedicating any resources to future innovations that could disrupt your industry?
Once you’ve identified where your business stands within the three horizons, start taking incremental steps to develop strategies across all three areas. This may involve investing in new technologies, fostering a culture of innovation, or simply setting aside time to brainstorm ideas for future growth.
Need help to implement models in your business?
McKinsey’s Three Horizons of Growth is a powerful tool that can help business owners navigate the complexities of managing growth in a rapidly changing environment. By dividing your focus between the present, near future, and distant future, you can ensure that your business remains competitive, adaptable, and poised for long-term success.
At RightWay, we work with business owners to implement models like McKinsey’s Three Horizons, helping them balance current profitability with future innovation. If you're ready to start planning for the future while protecting your core business, get in touch with us today. Together, we can help your business grow and thrive across all three horizons.
Disclaimer: The information provided in this article is intended for general informational purposes only and may not apply to the specific details of your business. For personalised and tailored advice, we recommend reaching out to our professional team. While we strive to provide accurate and up-to-date content on our website, RightWay assumes no responsibility for any business loss or damage that may arise from relying on the information provided.
