The three horizons framework was first proposed by McKinsey consultants Baghai, Coley and White in 1999 in their book The Alchemy of Growth, as a way of balancing and focusing an organisation’s growth efforts. Essentially, each horizon represents the time it will take for its growth ambitions to be realised: you could think of them as short-, medium- or long-term horizons. Each horizon requires different types of innovation to support its ambitions, so it is a useful approach to balancing your innovation portfolio.
In McKinsey’s model, Horizon One is about maximising your current business through efficiencies and profitability. This means innovation efforts to support horizon one tend to focus on incremental changes to your current business model, product or service.
Horizon Two is about finding and developing emerging opportunities, including entrepreneurial ventures, that might be realised in the medium term.
The third horizon is about radical changes and developing entirely new business models or products/services. Horizon Two and Horizon Three will, therefore, require riskier and longer term approaches to innovation.
The crucial element of the three horizons model is that the three horizons run concurrently, and your portfolio needs to include some of each type of innovation in order to sustain your organisation. If you focus solely on short-term changes, you will fail to plan for the long term, while focusing only on long-term, radical innovation makes you vulnerable to competition in the short and medium term.
It has been suggested that a good balance for your innovation portfolio should be 70% sustaining innovation (horizon one), 20% exploring adjacencies and new ventures (horizon two) and 10% radical innovation (horizon three). Tagging your projects with the horizon they support therefore allows you to assess the ratio of your innovation portfolio.
In recent times, some innovation thinkers have challenged the linear nature of the three horizons model, suggesting that the speed of technological development means that radical innovation can happen much faster than the model allows.
Some further reading:
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