Framework library · Growth strategy
Three Horizons of growth
Three Horizons treats growth as three portfolios run at once: extending and defending the core that earns today's profit, building the emerging businesses that should earn it in a few years, and creating options that may matter later. Each horizon needs different measures and a different kind of owner, and a business that funds only the first runs out of growth when the core matures.
Use it when
- The core business is mature or declining and the next source of profit is not yet clear.
- Growth initiatives compete for one budget and the core's needs always win.
- You want to check that the portfolio has something in each horizon and that each is measured in a way that suits it.
- A board asks what the business will look like in five to ten years.
Avoid it when
- You need to know which initiative is worth most. The horizons sort by maturity, not value. Compare initiatives with business cases or a weighted decision matrix.
- The business is a start-up with one product. All of it is horizon 2 or 3, and lean start-up methods fit better.
- You plan to treat the horizons as fixed time periods. They describe maturity, and a horizon 3 option can move quickly.
How to run it
List every growth initiative
Include extensions of the core as well as new ventures. Write each as a business, not a project: "resell capacity on two new subsea cables".
Assign each to a horizon
Horizon 1 extends or defends the core. Horizon 2 is an emerging business with customers and revenue but not yet at scale. Horizon 3 is an option: a pilot, a research project or a small stake.
Record investment and time to material revenue
What each will cost over the planning period, and in how many years it would add revenue you would notice at group level.
Give each horizon its own measure
Horizon 1 on profit and cash; horizon 2 on revenue growth and customers won; horizon 3 on milestones met and what has been learned.
Check the balance of investment
Compare the share of investment in each horizon with what the strategy needs. The totals by horizon show the split.
Give horizons 2 and 3 their own owners
Initiatives run by core managers on core targets are usually starved. Give them their own owner, budget and review.
Work through it
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Mistakes to avoid
- Putting everything new in horizon 3 to protect it from scrutiny. If it has paying customers, it is horizon 2.
- Measuring horizon 3 options on profit, which stops them before they can show anything.
- Funding horizon 2 from whatever is left after horizon 1. Set the split first.
- Leaving horizon 1 off the list. Extending the core is growth too, and usually the largest part of it.
Where it comes from
Mehrdad Baghai, Stephen Coley and David White of McKinsey & Company, The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise (Perseus Publishing, 1999); restated in "Enduring Ideas: The three horizons of growth", McKinsey Quarterly, December 2009. Source.
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