Using the 3 horizons
We take a short look at McKinsey’s Three Horizons Framework and how they are accelerating and collapsing with the present.
What is this framework?
In 2000, McKinsey, a highly successful and innovative big business consulting firm proposed a breakthrough framework to help businesses navigate through their maturity. In their book Alchemy of Growth, authors Baghai, Coley and White make the point toward a more relevant time horizon model that actually gives agency over not only the evolution of a core business through time but also over the uncertain future.
For those not familiar with the Three Horizon Framework (THF), let’s say that its understanding is not only useful but critical since it gives businesses a poweful tool to not only better perform in their business-as-usual scenario but help them develop the ability and accuity to detect new forces they can be leveraged and examine plausible futures that can be created.
When the THF was articulated at the very beginning of the 21 st century, it was introducing a dynamic framwork to protect current capabilities and develop new ones but horizons were not compressed as much as they are today. We never know when a garage entrepreneur will come up with something that will put our market on its head.
Most businesses operate on a tactical level in their day-to-day activities like selling more but in order to become highly competitive they need to explore new opportunities and plausible futures so they are not trying to sell a product or offer a service that their market has a shrinking appetite for or that might be disrupted by something we don’t know about.
When we look at the timeline of a business, we traditionally use the accounting or financial modeling model of a short-term (1-3 years), medium-term (3-5 years) and long-term (5+ years) and within this model, most of the time, we project an extension of our “business-as-usual” scenario while also providing some growth scenarios but mainly as an extension of our past and current capabilities. It may include some innovation that seem logical to our business and growth model.
The “diminished” model
When we want to get a little more “strategic” we usually focused on shorter horizons or what I call a diminished model of our business horizons in order to be more proactive (or reactive) in our activies and probably address some potential threats and develop perceived opportunities as a result of some strategic thinking and planning. Those horizons cover the short term (1 year) medium (2-3 years) and long-term (5+ years).
Choosing a shorter or longer horizon may change things in term of how we manage risk and how fast or slow we deal with the uncertainty of the future but the real limitation of the original model was that each horizon was managed within its own silo.
This is an excellent representation of the Three Horizons Framework
The “accelerated” or “collapsed” model
As changes are happening in an accelerated way either by the effect of some external natural forces like COVID-19 or by innovators/disruptors like UBER for example, what we see is that this acceleration causes thoses horizons to form pockets in the present. We are observing a coexistence of the emerging trends and of disruptive futures in the present. The horizons are not siloed anymore. For example, business digitalization that seemed to be a medium-term strategy is taking hold into the present as a ready-to-implement technology that the more progressive or future-ready organizations have implemented or are implementing.
As we can see below, all 3 horizons take hold in the present and intersect as one is fading and the next one is taking hold (like the second curve principle).
What we know and don’t
One of the biggest obstacle to developping horizons and understanding disruption lives in the domain of what we don’t know. What is new to us appears as such because we are not in the knowing, we are inside of our knowledge and cognitive biases. One good way to start involves exploring wild knowledge and extend our understanding through the use of foresight and one able instrument to further our learning would be the framework developped by Bill Sharpe also aptly named Three Horizons framework (3H).
Sharpe wanted to depict overlapping waves of technological innovation and change more realistically than traditional technology road-mapping. As we can see below, this depiction is very useful as a conceptual model to aid people thinking about current assumptions, emerging changes, and possible and desired futures.
This framework forces us to see the Horizons with the mindset of the Managers, the Entrepreneur and the Visionairy.
First Horizon – current context and conditions; the focus is maintaining stability, and the mindset is that of the manager.
Second Horizon – actions taken in the present to resist change, to adapt to change, or to build on change; the focus is on creating and managing change, and the mindset is that of the entrepreneur.
Third Horizon – transformative emerging changes, ideas about possible futures, and visions of preferred futures; the focus is on transformation and disruption, and the mindset is that of the visionary.
What to do?
The natural tendency of our brain is to focus on threats and this survival mode is no place for futures thinking. In order to go beyond the current, we have to train our brain, create new pathways of thinking and use our imagination. This unatural process is a must to muster if not master our relationship with the future and futures thinking.
We must open ourselves to possibility thinking, we must have difficult conversations with people that are so different that our brain shuts off. We must ask difficult questions and beautiful ones too (A beautiful question is an ambitious yet actionable question that can begin to shift the way we perceive or think about something—and that might serve as a catalyst to bring about change. From A MORE BEAUTIFUL QUESTION: The Power of Inquiry to Spark Breakthrough Ideas by Warren Berger, 2014).
Study the Horizons, understand them, play and experiment with them. I can’t think of a simpler and easier way to start.
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