The Three Horizons approach was developed by Steve Coley, a McKinsey Director Emeritus, to guide businesses to sustain their current performance while considering future opportunities and innovations for growth.
Main Benefits of McKinsey’s Three Horizons of Growth
McKinsey’s Three Horizons of Growth model helps you:
- Ensure sustainable growth
- Maintain a balance between your current business and growth strategies
- Promote team alignment between your stakeholders
Explanation of McKinsey’s Three Horizons of Growth
Even though businesses are aware of the importance of innovation, they fail to give attention to the subject due to the drawbacks of possible declining growth. The Three Horizons of Growth creates a framework for companies that wants to prepare a development plan while assessing the innovation ventures, new opportunities, and long-term growth strategies.
Horizon 1
This is to identify the core business and operations of the company. In this step naming the services and products that provide significant profit is essential. Finding the strengths and building on them to maximize the current performance is the key to this Horizon. Projects on this step are expected to show results in the short term, generally within 1-3 years.
Horizon 2
This Horizon is where a business’ finds new opportunities as an extension to their current business. A new product launch or geographical expansion are some of the nurturing ideas. Compared to the previous horizon, these expansions require a more extended period. Results from these innovations can be observed within a 2-5 year period.
Horizon 3
On the last Horizon, companies must focus on creating new businesses and ventures with high value-added to the business. This innovation period contains risks since some new ideas could be disruptive. It takes 5 to 12 years for these innovations to generate successful results.
How to Apply McKinsey’s Three Horizons of Growth?
Maintain and improve your existing business. Use BCG Matrix or Growth-Share Matrix to optimize your portfolio, GE – McKinsey Matrix; Keller’s Brand Equity Pyramid to prioritize investments and find out your brand equity; Break-Even Analysis to assess the feasibility of your business.
Pursue emerging opportunities. Use CAGE Distance Framework to adjust your business to new markets/locations, PESTEL Analysis to identify opportunities and threats, and PMESII-PT to execute a complex strategy in new markets.
Introduce new businesses. To spread your ideas faster, use the Diffusion of Innovation Theory, Teece’s Win-Lose Innovation Model to defend your new ventures against imitators, and create new markets and business opportunities; use the Four Tools of Blue Ocean Strategy.
Additional Tips and Readings
- The Ansoff Matrix to examine, prepare, and plot their growth strategies,
- VRIO Framework to ensure long-term competitive advantage,
- Unique Selling Proposition to make your business stand out,
Contact us to apply McKinsey’s Three Horizons Strategy and enhance your business step by step.
