Strategic Frameworks McKinsey 3 Horizons for Growth
McKinsey’s Three Horizons of Growth is a strategy framework that emphasizes a focus on growth and innovation. This strategy framework requires the firm to categorize goals into 3 different time horizons.
The first Horizon in this model is what the firm is currently executing successfully. If the firm has products and services which are succeeding in the marketplace, those must remain in place in order to satisfy existing customers. The firm needs to maintain their reputation with their customer base by offering the products they trust so it will continue to benefit from this revenue stream. If the firm isn’t making money in the immediate term, it won’t need to worry about tomorrow because the business won’t survive anyway.
One of the key concepts to keep in mind for the first Horizon surrounds optimizing profits with products that are currently on the market. Strip away elements currently costing more money than necessary and streamline everything toward becoming as profitable as possible. Since these products are not necessarily in the firm’s future, they shouldn’t be maintained over the long run. The money generated from these Horizon one products will pay for the development stage of future goods.
Horizon 2 deals with products which are currently being developed and are almost ready to take to market. Frequently, these products are simply improvements or redesigns of current items. For instance, adding features to a current product due to customer feedback, would place that product in Horizon 2. It should be noted that most sales efforts will be focused within Horizon 2. The products the firm is selling within Horizon One are already established. Therefore, those products don’t need much in the way of a sales team to promote them. The next generation of products is a different story, however, so this is where most of the sales and marketing efforts should be found. It’s important keep a careful eye on Horizon Two, as the products which reside in this level will need to be ready to pick up the slack when the products in Horizon One tail off from a profitability standpoint.
The firm’s true innovation is going to be found in Horizon 3. These products are the future of the business, but they are too far off to count on for meaningful revenue. The research and development done with new technologies all reside at this stage of the model. Horizon 3 might not be providing anything in the short term as far as profit, but it is the future of the company. Without investment in this level, the days of the organization will be numbered.
Think of Horizon 3 as the testing ground for the company. At the moment, the company has a certain set of capabilities which allows it to make money on current offerings. However, to move toward a brighter future, the firm needs to expand on those capabilities. The 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 3 is the only way to keep up with pace of change.