The Three Horizons framework by McKinsey & Company offers a way to manage both current and future opportunities for growth. McKinsey & Co. discovered that there were common factors amongst companies achieving an excess of 30% growth in each year for ten years. When analyzed, McKinsey identified three horizons on which the companies were succesful.
The Three Horizons Framework
The Thee Horizons Framework illustrates how to manage current performance while maximizing opportunities for growth. Organizations who implement this framework have a common language that they can use from top to bottom to describe how they are investing and preparing themselves for growth. It takes a different kind of leadership or organizational approach to make the framework work. Each horizon takes a different metrics and management styles. All three horizons should be managed concurrently.
Horizon One – Super execution
Horizon One represents the company’s core business today. The kind of people a company needs here are business maintainers. Experienced business managers that are able to make profit and generate cash flow for the company. The important metric here is Return On Invested capital (ROIC) while the goal is extending and defending this core business.
Horizon Two – Positional advantage
Horizon Two includes the rising stars of the company that over time will become the new core business. To do so the company needs business builders. People that are entrepreneurial and focus on milestones. The key metric is Net Present Value (NPV). The management should focus on building emerging business.
Horizon Three – Insight and foresight
Horizon Three consists of nascent business ideas and opportunities that could be future growth engines. The company needs passionate, market-oriented champions and visionaries to create viable options for growth. The metric is Option Value. Companies that are successful in managing Horizon Three initiatives tend to experiment a lot, but do so around three to five clusters.