Thinking about where your organization can grow in the next few years? Maybe you’ve heard of the three-horizons framework from McKinsey - and maybe you haven’t.
In any case, it’s one of the most effective ways to think about growth for almost any company. The three-horizons framework is a strategy tool with roots in organizational psychology and decision science that helps leaders understand which opportunities will have the biggest impact on their company and how to get there.
It’s a relatively simple model with big implications for how we think about growth at our companies and find new opportunities for expanding our businesses.
- This blog post covers everything you need to know about the three-horizons framework and why it matters as you plan your organization’s future growth.
- At the end of the post you can download the slide template (PowerPoint format or Google Slides). Free and fully editable.
The 3 horizons framework
everything you need to know about the model
What is the three-horizons growth framework?
The basic idea of this strategy framework is that companies have three horizons of growth—a short-term horizon, a near-term horizon, and a long-term horizon. The model was first articulated in the The Alchemy of Growth by Baghai, Coley, and White in the year 2000.
Each of these horizons represents an opportunity to expand the business, either by increasing revenue, increasing profit, or bringing in new customers.
The idea is that companies that can focus on all three horizons at once are more likely to succeed than those that focus their energy on just one.
The challenge is that it’s easy for companies to lose focus on one or two of these horizons as they get caught up in the day-to-day.
Why should you care about the 3H growth framework?
It is imporatant to have a growth strategy in place. But how do you actually get started?
The 3H growth framework can be a helpful guide to get the whole company or at least your team thinking about the different opportunities for growth. To get maximum impact from the 3H framework, leaders need to make it a priority to share this thinking with their teams.
Horizon 1: Where to focus to achieve immediate impact (1-3 years)
The first horizon of growth is focused on near-term impact and the core businesses. This is where you’ll find the lowest-hanging fruit that will generate revenue quickly and provide a boost to your company’s bottom line. For example, you might be able to increase sales with the products you currently sell or by targeting new customers in your existing markets. You can also boost growth by reducing costs and increasing efficiency. As you think about this horizon of growth, it’s important to understand where you’re starting from. Take a good look at your current metrics, whether they be revenue, profitability, or another metric, and identify the low-hanging fruit that will give you an immediate boost. Once you do, you can focus your team’s energy to tackle the low-hanging fruit and start seeing results quickly.
Horizon 2: Where to invest for near-term growth (2-5 years)
The second horizon of growth is where you can start to invest in longer-term growth initiatives. This could mean investing in new products and services, expanding into new markets, or investing in new business models. Some of these initiatives may take a bit longer to show up in your company’s metrics but will be crucial for growing in the long run.
As you start thinking about this horizon of growth, think about where your company is currently at. You may be at a point where it makes sense to start looking outside your current markets to find new customers. It may also be a good time to start focusing on a particular product line that has seen growth but is still below expectations.
Horizon 3: Where to focus for long-term growth and future opportunities (5+ years)
This is where the majority of your growth efforts should be focused. To succeed in this horizon, you’ll need to think about how your company’s products and services are used by customers, what customers’ broader needs are, and where new technologies will have the biggest impact. You’ll want to invest in initiatives that will have a long-term impact on your company, like finding new ways to connect with customers or expanding into new markets. Technologies that are likely to have a big impact in the coming years, like AI, blockchain, and robotics, can also be a good area of focus for this horizon of growth.
What is the key to success at each stage? Focus on the Now, New and Next
Horizon 1: Superior and Excellent Execution for immediate impact and profitability (NOW)
Horizon 2: Positional Advantage to ensure near-term growth (NEW)
Horizon 3: Insight & Foresight to ensure long-term growth (NEXT)
The Criticism on the Three Horizons Model
According to Steve Blank's HBR articl in 2019, the world nowadays is more dynamic, and the 3 time horizons are no longer constrained by time. In particular, horizon 3 innovations can disrupt the status quo a lot faster than originally anticipated, especially when the time horizons are no longer constrained by time.
Today, with all the technology advancement disruptive horizon 3 innovations can be delivered as fast as projects for horizon 1 in the existing product line.
The three-horizons growth framework is an effective strategy tool that helps companies think about the different opportunities for growth and where to focus to get the biggest impact.
The first horizon of growth is focused on achieving immediate impact, the second horizon is focused on near-term growth, and the third horizon is focused on long-term growth.