strategy tools / Three Horizons of Growth

In short

Manage innovation and growth across three distinct time horizons.
Can be used for: Innovation and Product Development
The Three Horizons of Growth is a strategic framework that helps organizations manage innovation and growth across three distinct time horizons. Horizon 1 represents the core business activities that drive current revenue and profitability. Horizon 2 focuses on emerging opportunities and business ideas that have the potential to become significant revenue streams in the near future. Horizon 3 involves exploring and investing in disruptive innovations and new markets that could shape the organization's future growth. By balancing investment and resources across all three horizons, companies can effectively manage both short-term performance and long-term sustainability.
Type of tool: Innovation Management
Expected outcomes:
- Enhanced strategic planning capabilities
- Improved ability to envision future growth opportunities
- Better alignment of resources across different time horizons
- Increased focus on innovation and long-term sustainability
- Clearer understanding of current revenue drivers and potential future revenue streams
- Enhanced agility in responding to market changes and disruptions
- Strengthened competitive positioning through a balanced approach to growth
- Facilitated decision-making on resource allocation and investment priorities
- Encouraged a culture of continuous innovation and exploration
- Greater resilience to industry shifts and technological advancements

In detail

The Three Horizons of Growth is a powerful strategic framework that provides organizations with a structured approach to managing innovation and growth across different time horizons. Developed as a tool for strategic planning and visioning, this framework enables companies to navigate the complexities of the business landscape by simultaneously focusing on their current operations, emerging opportunities, and future disruptive innovations.

At its core, the Three Horizons of Growth model divides a company's strategic focus into three distinct horizons. Horizon 1 represents the organization's existing core business activities that drive current revenue and profitability. This horizon is all about optimizing and maximizing the performance of the company's current products, services, and operations. It involves maintaining operational efficiency, improving customer satisfaction, and sustaining market leadership in the present business environment.

Moving on to Horizon 2, this horizon shifts the focus towards exploring emerging opportunities and business ideas that have the potential to become significant revenue streams in the near future. Horizon 2 is where companies invest in new technologies, markets, and business models that can drive growth and expansion beyond their existing core business. It involves identifying and nurturing innovative ideas that have the potential to become the next big thing for the organization.

Finally, Horizon 3 takes a more forward-thinking approach by encouraging companies to explore and invest in disruptive innovations and new markets that could shape the organization's future growth. This horizon is all about thinking outside the box, challenging the status quo, and envisioning the future landscape of the industry. It involves taking calculated risks, experimenting with new ideas, and positioning the company for long-term success in a rapidly changing business environment.

By balancing investment and resources across all three horizons, companies can effectively manage both short-term performance and long-term sustainability. The Three Horizons of Growth framework helps organizations strike a balance between exploiting their current capabilities and exploring new opportunities for growth and innovation. It encourages companies to think strategically about their future direction, anticipate industry trends, and adapt to changing market dynamics.

In essence, the Three Horizons of Growth is a versatile tool that enables companies to align their strategic planning efforts with their long-term vision for success. By understanding the distinct characteristics of each horizon and how they contribute to overall growth and innovation, organizations can make informed decisions about where to allocate resources, how to prioritize initiatives, and which opportunities to pursue to drive sustainable growth and competitive advantage.

How to use it

Identify the core business activities that currently drive revenue and profitability for your business (Horizon 1).
Explore emerging opportunities and business ideas that have the potential to become significant revenue streams in the near future (Horizon 2).
Investigate disruptive innovations and new markets that could shape the future growth of your organization (Horizon 3).
Balance your investment and resources across all three horizons to effectively manage short-term performance and long-term sustainability.
Enhance your strategic planning capabilities by considering growth opportunities across different time horizons.
Envision future growth possibilities and align resources accordingly to maximize potential revenue streams.
Foster a culture of continuous innovation and exploration within your business to stay ahead of market changes and disruptions.
Make informed decisions on resource allocation and investment priorities based on a clear understanding of current revenue drivers and future growth prospects.
Strengthen your competitive positioning by taking a balanced approach to growth that focuses on both innovation and sustainability.
Build resilience to industry shifts and technological advancements by actively managing all three horizons of growth.

Pros and Cons

Pros	Cons
Helps organizations maintain a balance between short-term performance and long-term sustainability Enables companies to effectively manage innovation and growth across different time horizons Provides a structured approach to strategic planning and visioning Encourages organizations to invest in both core business activities and future growth opportunities Facilitates the identification of emerging opportunities and potential revenue streams Guides decision-making by categorizing initiatives based on their impact on current and future business Supports the exploration of disruptive innovations and new markets for future growth Enhances strategic agility by fostering a forward-looking mindset Promotes a holistic view of the organization's growth trajectory Helps align resources and investments with the organization's overall strategic objectives	Overemphasis on short-term results in Horizon 1 may lead to neglect of long-term growth opportunities in Horizons 2 and 3. Difficulty in accurately predicting which emerging opportunities in Horizon 2 will actually materialize into significant revenue streams. Risk of spreading resources too thin across all three horizons, resulting in lack of focus and impact. Challenges in effectively managing the different timelines and resource requirements of each horizon simultaneously. Potential resistance from stakeholders who may prioritize immediate returns over long-term investments in disruptive innovations. Limited flexibility to adapt to rapidly changing market conditions and technological advancements. Inherent bias towards maintaining the status quo in Horizon 1, hindering the organization's ability to embrace radical change in Horizon 3. Complexity in aligning the strategic priorities and resource allocation across multiple horizons within the organization. Difficulty in measuring the success and impact of investments across the three horizons due to varying timelines and outcomes. Risk of overlooking potential synergies and connections between activities in different horizons, leading to missed opportunities for growth and innovation.

Pros

Cons

Helps organizations maintain a balance between short-term performance and long-term sustainability
Enables companies to effectively manage innovation and growth across different time horizons
Provides a structured approach to strategic planning and visioning
Encourages organizations to invest in both core business activities and future growth opportunities
Facilitates the identification of emerging opportunities and potential revenue streams
Guides decision-making by categorizing initiatives based on their impact on current and future business
Supports the exploration of disruptive innovations and new markets for future growth
Enhances strategic agility by fostering a forward-looking mindset
Promotes a holistic view of the organization's growth trajectory
Helps align resources and investments with the organization's overall strategic objectives

Overemphasis on short-term results in Horizon 1 may lead to neglect of long-term growth opportunities in Horizons 2 and 3.
Difficulty in accurately predicting which emerging opportunities in Horizon 2 will actually materialize into significant revenue streams.
Risk of spreading resources too thin across all three horizons, resulting in lack of focus and impact.
Challenges in effectively managing the different timelines and resource requirements of each horizon simultaneously.
Potential resistance from stakeholders who may prioritize immediate returns over long-term investments in disruptive innovations.
Limited flexibility to adapt to rapidly changing market conditions and technological advancements.
Inherent bias towards maintaining the status quo in Horizon 1, hindering the organization's ability to embrace radical change in Horizon 3.
Complexity in aligning the strategic priorities and resource allocation across multiple horizons within the organization.
Difficulty in measuring the success and impact of investments across the three horizons due to varying timelines and outcomes.
Risk of overlooking potential synergies and connections between activities in different horizons, leading to missed opportunities for growth and innovation.

When to Use

Businesses evolve from a simple idea into complex entities that undergo various stages of growth, learning, and adaptation before ultimately reinventing themselves to remain competitive. Throughout these stages, leveraging the right tools can significantly enhance success and efficiency. Below are the typical stages highlighting the stages where this tool will be useful. Click on any business stage to see other tools to include in that stage.

Stage	Include
Brand Development
Brand and Reputation Management	✓
Bureaucracy Reduction and Process Optimization
Business Planning	✓
Concept Refinement	✓
Continuous Learning and Adaptation	✓
Feedback Loop
Financial Management and Funding
Global Expansion	✓
Idea Generation	✓
Initial Marketing and Sales
Innovation and Product Development	✓
Leadership Development and Succession Planning	✓
Legal Formation
Market Expansion	✓
Market Research
Minimum Viable Product Launch
Operational Setup
Prototype Development
Regulatory Compliance and Risk Management
Scaling Operations	✓
Strategic Partnerships and Alliances	✓
Sustainability Practices	✓
Team Building
Technology Integration and Digital Transformation	✓

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