Article Summary: The Three Horizons of Growth (McKinsey & Company)
The article Enduring Ideas: The Three Horizons of Growth by McKinsey & Company introduces a framework for managing growth and innovation over different timeframes. Known as the Three Horizons of Growth, this model helps companies balance short-term performance with long-term strategic innovation. The framework divides growth initiatives into three distinct horizons, each representing different types of investments, risks, and timeframes for returns. For product managers, the Three Horizons model provides a valuable guide for balancing immediate product improvements with longer-term, transformative innovation.
1. Horizon 1: Core Business Optimization
Horizon 1 focuses on optimizing and extending the current core business. This involves activities that maintain and improve existing products, services, and processes. The goal of Horizon 1 is to maximize profitability and efficiency in established areas of the business where the company already has a competitive edge. Horizon 1 projects are typically low-risk and generate immediate or near-term returns.
For product managers, this horizon involves:
Improving and enhancing existing products to better serve current customers.
Focusing on incremental innovations, such as feature updates or performance improvements.
Using data and customer feedback to make small, impactful changes that sustain the product’s competitive position.
2. Horizon 2: Expanding into Adjacent Markets
Horizon 2 involves exploring opportunities to expand the business into adjacent areas that are close to the core but not yet fully developed. These adjacent markets often have some overlap with the core business, enabling companies to leverage existing capabilities while exploring new customer segments or product variations. Horizon 2 projects carry moderate risk but can yield significant growth by opening up new revenue streams within a manageable scope.
For product managers, Horizon 2 initiatives might include:
Adapting an existing product to appeal to a new customer segment or geographic market.
Developing complementary products or services that expand the existing product line.
Experimenting with new applications of the product in related industries or markets.
Horizon 2 projects typically require more investment and a longer timeframe for returns than Horizon 1 but still maintain a strong connection to the core business.
3. Horizon 3: Breakthrough Innovation and Transformation
Horizon 3 is focused on high-risk, high-reward innovation projects that could potentially disrupt the business or create entirely new markets. This horizon involves long-term initiatives that aim to transform the company or introduce groundbreaking products. Horizon 3 projects are often exploratory, focusing on new technologies, business models, or emerging trends that could redefine the company’s future.
For product managers, Horizon 3 initiatives might include:
Experimenting with transformative technologies, such as artificial intelligence, blockchain, or new hardware innovations.
Developing products or services for markets that do not yet exist, requiring a forward-thinking approach.
Taking calculated risks to create disruptive solutions that may not yield returns in the short term but have the potential for significant impact.
Horizon 3 projects are highly speculative, requiring a tolerance for failure and a long-term commitment to innovation.
Key Takeaways for Product Managers:
Balance horizons: Allocate resources across Horizon 1, 2, and 3 to maintain a balance of short-term and long-term growth initiatives.
Focus on core improvements in Horizon 1 to sustain current performance.
Expand strategically with Horizon 2 by exploring adjacent opportunities.
Invest in transformation with Horizon 3 projects that position the company for the future.
By following the Three Horizons framework, product managers can strategically balance core optimization with adjacent growth and transformative innovation. This model ensures that resources are allocated wisely to address current business needs while also pursuing visionary projects that prepare the organization for future success.