McKinsey's Three Horizons of Growth
Three Horizons splits growth into defending today's core business, building tomorrow's emerging one, and seeding options for what comes after, so a company doesn't starve its future by only funding what already works.
Overlapping curves rise and fall across the page, each one cresting just as the next begins its climb.
Reach for this when…
- All the investment goes to the core business and nothing is being seeded for later.
- A promising new line keeps losing budget fights against the core because it isn't profitable yet.
- Leadership wants 'innovation' but has no way to separate it from business as usual.
How to run it
- List everything you invest in and sort each into Horizon 1, 2 or 3.
- Horizon 1: the core business, judge it on efficiency and cash.
- Horizon 2: emerging bets, judge it on growth rate, not yet profit.
- Horizon 3: options and experiments, judge it on learning, not returns.
- Set a different investment and reporting rhythm for each horizon.
- Move winners from Horizon 3 into 2, and from 2 into 1, deliberately.
A worked example
Situation. Mikko Virtanen runs Tampere Connect, a business-process outsourcing firm in Tampere, Finland, whose entire budget process was built around one metric: this quarter's margin.
Applied. He split the business into three horizons: the core voice-support contracts (H1), a growing data-annotation service (H2), and an unfunded AI-training-data pilot two staff were running on the side (H3). He gave H2 a growth target instead of a margin target, and gave H3 a small ring-fenced budget instead of none.
Result. The data-annotation line, freed from a margin test it wasn't ready for, doubled in a year. The AI pilot found a paying client within six months, something that had never happened while it was unofficial and unfunded.
The catch
The horizons blur in practice, and a Horizon 3 bet that starts working gets dragged back into Horizon 1 metrics before it's ready, which kills it. It also needs real discipline to keep funding Horizon 3 when Horizon 1 is under pressure and everyone wants to raid the budget. Without that discipline it's three columns on a slide, not a strategy.
The moment you judge a Horizon 3 bet by this quarter's margin, you've already killed it.
Origin: Mehrdad Baghai, Stephen Coley & David White (McKinsey)