Why you need the horizon model


I notice that the 3 horizon model is a massively misunderstood concept. A lot of people think horizon 1 is what you should be doing this year, horizon 2 is about goals and tasks for the next few years and horizon 3 is the future. The time period varies. Some think horizon 2 is 2 to 5 years and horizon 3 is 5 to 10 years. For others the period is shorter.

Unfortunately, most don’t have the time to sit through a discussion on the horizon model and what you have is a shake of head and continuation with the belief that horizon model is built around planning periods.

Recently though I was reading Simon Wardley’s work (you can find it here) and it gave the input to build an easy to understand explanation.

Why do we need a 3 horizon outlook for our business?

The first hurdle for any business is understanding that the business is built on life cycles and the stage of life cycle you find yourself in, will dictate your business performance. The second important realization is that the stage of life cycle of your business is not determined by you, but by your environment.

Wardley identifies 4 stages of any product or business cycle; genesis, custom built, mature offering (product or service, including asset sale or rental) and commoditisation (asset sale or rental).

Genesis is the phase when the offering or business is still unique or newly discovered.

Custom-built is the phase when the offering is still uncommon and has been put together for a specific set of customer, often bespoke. It is built for a specific environment and focus is on refining and improving.

The mature offering phase is when the product has been standardized and can be reliably delivered to multiple customers and geographies. It is a phase when it can deliver profitability in a reliable manner.

Commoditization is the phase in which the offering is delivered on an industrialization model, large volumes and low margins. It is highly standardized, very little differentiation and is purely efficiency driven with low deviation from standards.

The challenge often faced by organization is that while they may be a new entrant, they could be entering a mature or commoditised environment.

As a business you have very little influence to limit the move towards commoditisation. Can you survive commoditisation? There are businesses that will always be commoditised such as utilities (water, power, etc.), resources such as minerals, metals, etc., agricultural produce, fertilizers, and many such items. Survival depends on scale, larger players can only survive. Evidence of this is the mega corporations that exists. So despite what the socialist might say, a small farmer can’t survive because the category is commoditised.

Every organization hence necessarily needs to have offerings that fit into all the stages of lifecycle. You need to have mature and/or commoditised offerings, have custom built offerings that have the potential to mature into profitable offerings and have ideas that are in the genesis phase that will move to custom built and eventually become mature offerings.

The 3 horizon framework is a strategy tool for ensuring that the business has such a sustainable outlook.

Horizon 1 deals with all initiatives that focus on the mature and commoditised business. These will focus on efficiency improvements, product extensions and market expansion that will try to maximize growth and profitability.

Horizon 2 deals with all initiatives that focus on the emerging opportunities that are custom built / bespoke in nature, which will eventually become mature. These initiatives will focus on pilot implementations, proof of concepts and scale-up of offerings.

Horizon 3 deals with all initiatives that focus on the future, ideas and concepts that are in the genesis stage. The initiatives will focus on experimentation, hypothesis testing, new research, identifying new capabilities, technologies and concepts that the organization can use.

You need to be focussed on all 3 horizons at the same time!

Unfortunately, each of them require very different capabilities.

Horizon 1 requires a very high goal orientation and systematic approach to achieving them. It requires leaders who are good at setting goals and directions, a command and control culture. It requires very close focus on market trends and customer centric thinking. The focus here is on best practices and problem-solving is about sensing, categorizing, analysing and responding.

Horizon 2 on the hand focuses is on how the organization can integrate new differentiating elements with existing industrialized or mature elements to create unique differentiated offerings. It requires a need focus, you will be dealing with emerging needs that are poorly defined and evolving. It requires responsiveness and agility to make changes to the offering and refining it. The leadership skills required are very different; challenging status quo and ability to cultivate and grow myriad talents. The competencies required include design thinking, ability to scale-up, experimentation, ability to integrate technologies, build new business models etc. Problem solving focuses on emerging practices, probing, hypothesis testing, sensing and responding.

Horizon 3 is about future orientation, it’s about marrying new and emerging technologies with an ability to imagine the future. Leadership skills include explorer mind set as well as an ability to identify and acquire futuristic opportunities. The capabilities include agile mindset and practices, scenario planning, experimentation, technology watch, proto-typing etc.

If you have innovation ambition, you necessarily need a 3 horizon focus. Reach out to me for help on the subject.

Krishnan Naganathan

Krishnan is a leading innovation consultant and focuses on helping people and organizations innovate and build capabilities for innovation. He brings over 25 years of experience in the industry and consulting. You can reach him by phone / WhatsApp: +919791033967 or email: krishnan@thinkhorizonconsulting.com

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