Product Strategy

Three Horizons of Growth

What is Three Horizons of Growth?
Definition of Three Horizons of Growth
The Three Horizons of Growth is a framework for managing and balancing a company's short-term performance and long-term growth and innovation. It defines three horizons of business activities: Horizon 1 (core business) focuses on optimizing existing products and markets for profitability and efficiency; Horizon 2 (emerging business) focuses on developing and scaling new products and markets for future growth; and Horizon 3 (future business) focuses on exploring and incubating disruptive innovations and opportunities for long-term sustainability. The framework helps companies allocate resources and attention across the three horizons, manage risk and uncertainty, and ensure a steady pipeline of growth initiatives.

The Three Horizons of Growth is a strategic framework that allows businesses to manage their current and future growth plans effectively. It was first introduced by McKinsey & Company and has since been widely adopted across various industries. This model encourages organizations to think about their growth strategies across three horizons, each with different goals, timeframes, and resources.

The Three Horizons of Growth model is particularly relevant to the fields of product management and operations, as these areas are critical to driving and supporting business growth. This model provides a structured approach to balance the need for short-term profitability and long-term sustainability. In this article, we will delve into the details of each horizon, their implications for product management and operations, and how to apply this model in a practical context.

Overview of the Three Horizons of Growth

The Three Horizons of Growth model is a strategic tool that helps businesses plan for future growth while managing current operations. The model divides the company's growth strategies into three horizons based on their timeframes and objectives. Each horizon represents a different stage of growth, with unique challenges and opportunities.

Horizon 1 focuses on defending and extending the current business. Horizon 2 is about building emerging businesses, and Horizon 3 is about creating viable options for future growth. The model emphasizes the need for businesses to operate across all three horizons simultaneously to ensure long-term success.

Horizon 1: Defending and Extending the Current Business

Horizon 1 represents the core business activities that generate most of the company's revenue and profits. These are the products, services, and markets where the company has established its presence and competitive advantage. The primary goal in this horizon is to defend the company's market position and extend its reach by improving existing products and services.

In terms of product management, this involves enhancing product features, improving user experience, and addressing customer feedback. From an operations perspective, it requires efficient processes, cost control, and quality management to deliver products and services effectively.

Horizon 2: Building Emerging Businesses

Horizon 2 involves identifying and developing emerging opportunities that have the potential to become significant sources of revenue in the future. These could be new products, services, or markets that are still in their growth or development stages. The goal in this horizon is to nurture these opportunities to a point where they can move into Horizon 1.

Product management in Horizon 2 involves identifying market trends, understanding customer needs, and developing innovative products. Operations need to be flexible and adaptable to support the development and scaling of new products and services.

Horizon 3: Creating Viable Options for Future Growth

Horizon 3 is about exploring and experimenting with novel ideas that could potentially drive future growth. These are long-term, high-risk opportunities that require significant investment and may not yield immediate returns. The goal in this horizon is to create a portfolio of options for future growth.

Product management in Horizon 3 involves brainstorming, prototyping, and testing new ideas. Operations need to support innovation and experimentation, which may involve setting up separate teams or units to focus on these initiatives.

Applying the Three Horizons of Growth in Product Management and Operations

Applying the Three Horizons of Growth model in product management and operations involves a balanced approach to managing current products and services while investing in future growth opportunities. It requires a clear understanding of the company's strategic goals, customer needs, market trends, and internal capabilities.

Product managers need to work closely with operations managers to ensure that the company's growth strategies are effectively executed. This involves coordinating product development, production, distribution, and customer service activities across the three horizons.

Managing Horizon 1: Current Business

Managing Horizon 1 involves focusing on the company's existing products and services. This includes improving product features, addressing customer feedback, and optimizing operations to deliver products and services efficiently. Product managers need to monitor market trends and competitor activities to ensure that the company's products remain competitive.

Operations managers need to focus on process efficiency, cost control, and quality management. This involves optimizing production processes, managing supply chains, and ensuring that products are delivered on time and meet quality standards.

Managing Horizon 2: Emerging Businesses

Managing Horizon 2 involves identifying and nurturing emerging opportunities. Product managers need to understand customer needs, market trends, and technological advancements to develop innovative products and services. This involves conducting market research, developing product concepts, and testing prototypes.

Operations managers need to support the development and scaling of new products and services. This involves setting up flexible production processes, managing resources, and coordinating with suppliers and distributors.

Managing Horizon 3: Future Growth Options

Managing Horizon 3 involves exploring and experimenting with novel ideas for future growth. Product managers need to brainstorm, prototype, and test new ideas. This involves fostering a culture of innovation, encouraging creativity, and taking calculated risks.

Operations managers need to support innovation and experimentation. This may involve setting up separate teams or units to focus on these initiatives, providing resources for experimentation, and managing the risks associated with innovation.

Challenges and Solutions in Implementing the Three Horizons of Growth

Implementing the Three Horizons of Growth model presents several challenges. These include balancing short-term and long-term goals, managing resources across the three horizons, and dealing with the uncertainties associated with innovation and experimentation.

However, these challenges can be addressed through effective planning, coordination, and risk management. By understanding the unique requirements of each horizon and aligning them with the company's strategic goals, businesses can effectively manage their growth strategies across the three horizons.

Challenge: Balancing Short-Term and Long-Term Goals

One of the main challenges in implementing the Three Horizons of Growth model is balancing short-term and long-term goals. Businesses often focus on Horizon 1 activities that generate immediate returns, at the expense of Horizon 2 and 3 activities that are critical for long-term growth.

The solution is to establish a balanced portfolio of activities across the three horizons. This involves setting clear goals for each horizon, allocating resources appropriately, and regularly reviewing and adjusting the portfolio based on changing market conditions and business priorities.

Challenge: Managing Resources Across the Three Horizons

Managing resources across the three horizons is another challenge. Each horizon requires different types of resources, skills, and capabilities. For example, Horizon 1 activities require operational efficiency and cost control, while Horizon 2 and 3 activities require innovation and flexibility.

The solution is to develop a resource allocation strategy that supports the company's growth strategies across the three horizons. This involves identifying the resources needed for each horizon, developing the necessary skills and capabilities, and allocating resources based on strategic priorities.

Challenge: Dealing with Uncertainties Associated with Innovation and Experimentation

Dealing with the uncertainties associated with innovation and experimentation is a major challenge in implementing the Three Horizons of Growth model. Horizon 3 activities involve high risks and uncertainties, as they involve exploring novel ideas that may or may not succeed.

The solution is to manage these risks through effective planning, testing, and learning. This involves setting clear objectives for innovation activities, conducting experiments to test new ideas, learning from failures, and making adjustments based on feedback and learning.

Conclusion

The Three Horizons of Growth model provides a structured approach to managing growth strategies in product management and operations. By understanding and applying this model, businesses can balance their short-term and long-term goals, manage resources effectively, and deal with the uncertainties associated with innovation and experimentation.

Implementing this model requires a clear understanding of the company's strategic goals, customer needs, market trends, and internal capabilities. It also requires effective coordination between product management and operations, and a culture that supports innovation and learning.