Tuesday, 4 July 2017

Understanding the 3 Horizons model

The 3 Horizons model is one of my favourite tools for helping people to think more strategically.

The 3 Horizons model suggests that a sustainable business plan should include a combination of 3 types of initiatives or projects:
  1. Horizon 1 includes all the initiatives that you need to do in order to maintain and fix your existing business - initiatives required to comply with changes to legislation, to maintain existing systems and to fix problems in your existing processes.
  2. Horizon 2 includes all the initiatives that you need in order to improve and grow your business and includes internal improvements, such as efficiency, effectiveness and quality improvements, as well as developing new products and entering new markets.
  3. Horizon 3 includes initiatives that will evolve and transform your business. These could take your business into new markets, new places in the value chain or new business models. It should include at least one initiative that could transform your industry - the so-called category killer.
You can easily see all 3 Horizons at play in a company like Uber. In Horizon 1 it is grappling with challenges to its employment practices and from traditional taxi firms and licensing authorities. In Horizon 2 it continues to expand into new cities and to develop new services. In Horizon 3 it is investing heavily in the development of autonomous vehicles which will undoubtedly change the very nature of car ownership and personal transportation. To succeed as a business, it must succeed in all 3 horizons at the same time. Its strategy must operate across all 3 Horizons.

I find the 3 Horizons model helpful in countering two problems I frequently encounter.

  1. Businesses that use strategy development as a precursor to the annual budget cycle tend to omit or significantly under-weight Horizon 3 initiatives. Restricted budgets keep people focused on the immediate issues of the day whilst demanding only incremental growth from existing business. Real change quickly becomes an unaffordable luxury.
  2. Businesses that approach strategy from a 'blue sky visioning' perspective tend to underplay Horizon 1 and 2 initiatives. As a result, the strategy is distant from most stakeholders' experiences of the organisation, and removed from its day-to-day operations. In some cases, businesses go as far as developing separate skunk-works to progress the strategy. Whilst this has some advantages, it can make progress difficult to integrate back into the business.

An organisation which is too focused on visionary transformation may not survive long enough to see it bear fruit. An organisation which is too focused on the here and now may be overtaken by events and rendered redundant by the competition.

Applying the 3 Horizons model to your strategy has three advantages:

  1. It quickly highlights whether your strategy is biased towards either the near term priorities or longer term transformation.
  2. It can help you rebalance your strategy by filling in any evident gaps.
  3. It helps stakeholders to understand the need to balance all 3 Horizons and pay attention to all of them on an ongoing basis.

You can now do your own 3 Horizons analysis using the innovative StratNavApp.com online tool for collaborative business strategy development and execution. Simple click on StratNavApp.com, register or log in, and add the 3 Horizons tool in the "Planning" quadrant.

The chart below, illustrating the 3 Horizons, was produced using StratNavApp.com.

See also: