With which lense do you look at the business your team or company is doing? The three horizons framework offers a lense that will help you to find the important balance of optimizing the present and shaping the future.
In 1999, the McKinsey partner Mehrdad Baghai, Stephen Coley, and David White introduced the concept in their book ’The Alchemy of Growth’. I remember it being presented at the McKinsey university in Passau, where the whole German office went back to school for a week to study new ideas for growth, strategy, and organization. The three horizons certainly stuck.
There are older concepts the three horizons are built upon. Instead of using three stages, Peter Drucker already made the distinction between running a business and innovation.
Steve Blank translated the three horizons into modern digital development speak here – it is very worthwhile to read.
What it is all about
When you are running a business or being responsible for a product, you have to make decisions all the time. The only moment you can act is the now.
The framework makes it transparent that in doing so you manage effectively three time horizons: the present, the forseeable future, and the distant future that has yet to come into its form.
You have an existing business or product that is currently giving you returns. You try to secure those returns or even make them larger. This is done by improving what you already have. Make everything more efficient, drive down cost. Or improve the quality of the delivery. Feedback from users and customers help to make something existing work better. Potential impacts can be calculated quite easily because you have a lot of data that describes your status quo.
The mindset is small improvements, the next 10% (which are in some cases rather large). In product development, this is about A/B testing and many shorter sprints for a working, live product.
The foreseeable future
The second horizons looks at expanding your core business. Take the same winning formula and change one ingredient. Examples are: a new region, language, line extension, service level, customer segment. A substantial new feature set, for example for a photo app to include videos.
The mindset is growth rather than profits. You leverage what you have in order to start a new (small) S-curve that will bring you returns in the nearer future. So instead of 10%, you think about 2x.
However, success is less clear than for the first horizon. Potential impacts are modelled by inference from your core business. Even though you can make educated guesses, it is less clear if the impacts you hope for turn out to be true. So you try to mitigate risks and start with smaller experiments before you fully roll out new initiatives. In product development, MVPs are typical for this horizon.
The distant future
The third horizon is concerned with things that are very much uncertain as of today. What will be the next big thing? What technology, business model, or change will disrupt your core business or product? Rather than being disrupted by somebody else, you try to do it by yourself.
The mindset is seeding. You experiment with small things, ideally many of them in parallel. It is very much about observing and learning. And you look for ideas that have the potential for 10x.
Most of the things won’t work out and will be stopped. As you don’t know which ones, this phase is about trying as much as possible. Progress is measured as learning. The third horizon should be accounted for as R&D cost without any specific profit target. In product management this horizon is about research discoveries and small start-up like teams that search around new business models.
Why I find it valuable
As many authors have pointed out, one of the most fundamental trade-offs is that between stability and change. Organizations gravitate towards stability. Management has to constantly push for innovation while getting the most benefit from the core business. You have to trigger change at the right point of time.
The three horizons help you to make those decisions consciously. It helps you to understand whether your portfolio of activities is well balanced between present and future. You need resources at all three horizons in order to stay in business in the long run.
I prefer the three stages to the difference established business / innovation. There are really two modes of innovation for growth: the one that changes a success formula and the other that comes up with something completely new. It is always helpful to know whether you try to do the first or the latter. They require different approaches.
And: the framework also emphasizes that the first horizon needs innovation as well. It is worthwhile to improve what you already have. After all, somebody has to pay the bill for the other two horizons.
Relevance for product management
As described above, the three horizons also apply to product management. Each horizon puts a different emphasis on tools: from continouos improvement of live product over MVPs to research discoveries and business model iterations.
It also sheds a light on one of the ever recurring discussions in product organizations: the role and relevance of roadmaps.
Roadmaps give direction and clarity. But you have to use them appropriately. Like the three horizons, roadmaps should have three levels of granularity. First, there are the next 2-4 sprints with quite some detail. Second are the major initiatives you plan for the next 3-9 months. They are described on a higher level of abstraction with less detail. Lastly, there is your product vision that describes with even less detail what your product is all about.
Paul Adams wrote a nice post about these three horizons of a roadmap.
Caution: don’t fall in love with a framework. They support, not replace thinking. Frameworks always have a point of view on reality. There are other views as well. Stop using a framework if it doesn’t help to create insights.