Having a long-term strategy is more critical than ever, but the pressure to meet short-term profits can often come at the expense of long-term growth. To achieve long-term business goals, we will be sharing why many high-growth companies use the three horizon framework.
What Is The Three Horizon Framework?
There are several variations of the three horizon framework, but they all focus on trying to reconcile the competing demands of the organization as well as building new ones. This model is beneficial in balancing resources and creating a healthy revenue stream from both short-term and long-term profits. You can use this as a growth strategy framework to think about the future of your organization and manage growth in a coordinated way. At Innovationedge, we define these horizons as:
Horizon 1 innovations are generally incremental, short-term projects that yield results in 1-3 years. Examples include items such as line extensions, feature updates, and ways to optimize what your organization is already doing. These innovations address bottom-line growth needs and focus on maximizing the current profit picture. This makes Horizon 1 innovations easier to justify when it comes time for your organization’s annual review because tangible results are often within sight.
Horizon 2 innovations are typically something brand new to the organization and yield results in 2-5 years. This could be something that already exists in another industry or adjacent market and is applied to the new context of your organization to create a higher value and a competitive advantage. Examples include adapting technology, processes, or revenue stream structures that currently function well in a different industry. These innovations address top-line growth.
Horizon 3 innovations are the most disruptive. These are breakthrough, new to the world innovations that generally produce long-term results in 5-12 years. This involves launching an entirely novel product or service rather than providing an improved product or service. Often, Horizon 3 innovations include expansion into new business areas, regions, geographies, or the creation of new to the world products or services. These innovations address top-line growth.
How Can You Embrace The Three Horizon Framework?
To begin using the three horizon framework for your organization, you will need to identify which horizon each project in your current growth strategy fits into. Ask yourself questions about how long it will take to yield results, when you can reasonably expect to generate a profit, and what your predicted ROI looks like to help you make these decisions.
Once you have this mapped out, share your strategy, predictions, and reasoning with the rest of your team. This is a powerful way to align team members and get them involved. It will also help illustrate why certain long-term innovation projects take time and why are they are worth the investment.