In today’s rapidly changing business environment, organizations need to be able to innovate and adapt quickly to remain competitive. To achieve long-term success, businesses need to think beyond their current operations and develop a strategic vision that encompasses a broad range of future possibilities.
The “Three Horizons of Strategy” framework is a powerful tool that can help organizations do just that. In this blog post, we will explore what the Three Horizons of Strategy are and how high-performing organizations use them to achieve success.
What are the Three Horizons of Strategy?
The Three Horizons of Strategy is a framework that helps organizations think about the different stages of innovation and change that they need to navigate to achieve long-term success. The framework was first introduced by McKinsey & Company in 1999 and has since become a widely adopted model for strategic planning.
The Three Horizons of Strategy are:
- Horizon 1: Exploiting the Core
- Horizon 2: Building the Emerging Business
- Horizon 3: Creating the Future
Let’s take a closer look at each horizon and what it means.
Horizon 1: Exploiting the Core
Horizon 1 involves optimizing and improving the current business model, products, and services to maintain competitiveness and profitability. This is the most immediate horizon and is focused on delivering results in the short term.
An analogy for Horizon 1 could be a car manufacturer. Just as a car manufacturer needs to continually improve its existing models to stay competitive, businesses need to continually focus on optimizing their core operations to remain competitive.
Horizon 2: Building the Emerging Business
Horizon 2 involves exploring and experimenting with new business models, products, and services that will eventually become the core of the business. This horizon is focused on delivering results in the medium term.
An analogy for Horizon 2 could be a farmer planting new crops. Just as a farmer needs to experiment with new crops to find the ones that will be profitable, businesses need to experiment with new products and services to find the ones that will become the core of their business.
Horizon 3: Creating the Future
Horizon 3 involves envisioning and creating entirely new businesses, products, and services that do not yet exist in the market. This horizon is focused on delivering results in the long term.
An analogy for Horizon 3 could be an explorer discovering a new land. Just as an explorer needs to be creative and innovative to explore new territories, businesses need to be creative and innovative to create new products and services that have the potential to transform entire industries.
How high-performing organizations use these Three Horizons of Strategy
High-performing organizations use the Three Horizons of Strategy to ensure that they are not just focused on the short term, but are also planning for the future. They use the framework to identify potential disruptions and opportunities in the market and to create a roadmap for innovation and growth.
For example, Amazon is a company that has successfully used the Three Horizons of Strategy. Horizon 1 for Amazon is its e-commerce business, which it has continually optimized and improved over the years. Horizon 2 for Amazon is its cloud computing business, Amazon Web Services (AWS), which started as an experiment but has since become a major source of revenue for the company. Horizon 3 for Amazon is its exploration of new markets, such as healthcare and autonomous vehicles.
Another example is Apple. Horizon 1 for Apple is its iPhone business, which it has continually optimized and improved over the years. Horizon 2 for Apple is its exploration of wearables, such as the Apple Watch, which has become a major source of revenue for the company. Horizon 3 for Apple is its exploration of new technologies, such as augmented reality.
In conclusion, the Three Horizons of Strategy is a powerful tool that high-performing organizations use to drive innovation and growth. By thinking beyond their current operations and developing a strategic vision that encompasses a broad range of future possibilities, these organizations can position themselves for success in the long term.
The Three Horizons of Strategy framework helps organizations to:
- Focus on the short term while planning for the future
- Identify potential disruptions and opportunities in the market
- Create a roadmap for innovation and growth
- Continuously optimize and improve existing operations
- Experiment with new products and services to find the ones that will become the core of the business
- Create entirely new businesses, products, and services that have the potential to transform entire industries
In today’s rapidly changing business environment, the Three Horizons of Strategy is a framework that can help organizations stay competitive and achieve long-term success. By using the framework to explore new possibilities and to plan for the future, high-performing organizations can position themselves as leaders in their industries.