THE THREE HORIZONS APPROACH TO GROWTH

SUSTAINED GROWTH IS UNDERPINNED BY A CONTINUOUS PIPELINE OF ENTERPRISE BUILDING ACTIVITIES

A challenge facing many directors and executives is how to maintain a focus on current activities whilst actively thinking about the future. This can result from the lack of a coherent way to discuss current issues, emerging opportunities and future options. One approach to planning that addresses this challenge is called the three horizons of growth.1 It provides a framework to think about growth in a way that balances the competing demands of focusing on the present whilst investing for the future. The time horizons are measured over a period of years and each includes different sets of strategies to address the development needs of the organisation.
Value Horizon 3 >
Visionaries create viable options

particularly useful when considering the long-term development of the enterprise and potential operating initiatives.

Horizon 1
Horizon 1 is typically about improving and extending present operations doing what is currently done in better ways. The leadership style associated with H1 performance is typically that of an operator who is focused on improving short-term performance. Deep functional expertise is required alongside industry experience and a drive for greater efficiency. As the focus is on performance, there are no excuses for poor performance in H1.

Horizon 2
Horizon 2 sees the creation of new opportunities that will extend the H1 operations. But rather than being focused on continual improvement in short-term performance, H2 is about bringing new ideas to fruition. This involves increased risk taking and dealing with a greater degree of uncertainty than Horizon 1. For this reason, the no excuses style relevant to H1 is seldom appropriate to the second horizon.

Horizon 2 >

Business builders develop new opportunities

Horizon 1 >

Operators extend the core

Time

Applicability
We have used this approach with organisations in a range of business, government and non-profit sectors and have found it to be easy to understand and powerful. Because it is readily implemented, the 3 horizons approach provides a common language for strategic conversations that can be used by executives and directors alike. It provide a way to cluster strategic thinking in terms of goals and strategies over particular time periods. It is

Horizon 3
Horizon 3 is where the visionaries excel. This is where futures must be imagined, researched and developed. This requires seeding options today for the future and just as options cost on the market, so these type of options cost as well in the form of research, pilot projects and possibly investment in start-ups.

Incremental Steps
Whilst the 3 horizons extend over many years, the approach does not propose major strategic leaps be attempted. McKinsey and other2 research has found that sustainable growth enterprises embark on incremental development projects rather than long-term galactic or mega projects. Long-term development projects are broken down into small discrete steps, each of which can be justified individually but can also be linked to form a largerscale project. A staircase is developed in which options are seeded, models are proven then replicated and, finally, opportunities become H1 core activities.
Replicate Proven Model Manage For Profitability

Assessing Your Horizons

Organisations that have been successful in sustaining growth over extended periods are naturally good at managing across the three horizons concurrently, although it is noted that this is somewhat unusual. A survey can be conducted of Directors and Executives to determine their perception of current organisational focus, yielding profiles that suggest dependent strategies.
Value

Seed Growth Options

Test Business Model

Time

H3 > Create H2 > Build H1 > Extend

This may suggest that the Group is operating soundly in the 1-year timeframe and has lots of ideas for H3. But further investment may be required to turn these ideas into viable opportunities in H2. This provides a powerful starting point for strategic dialogues and planning sessions that bring pragmatic, developmental and visionaries perspectives to the forefront of planning.
1

Building Capabilities
Planning strategies is one thing. Having the capabilities required to implement them is another. Operational skills are one type, but there are other capabilities that are just as important for an organisations continued development. These other capabilities include: Priveleged Assets, such as brand and reputation; Growth-enabling Skills, such as capital and risk management; and, Special Relationships, such as those that are held by individual Directors.

Baghai M, Coley S & White D, The Alchemy of Growth kickstarting and sustaining growth in your company, Orion Business, London, 1999.

See for example, Quinn B, Intelligent Enterprise, Free Press, NY, 1992.

Such capabilities are developed over long periods of time and include not only skills and knowledge but also processes, systems and technologies. Each combine in a tight web of activity that brings advantage to the organisation and that is difficult for other entities to replicate. These capabilities underpin growth across each of the 3 horizons. Not all will exist at any given point in time and so must be developed with the long-term strategic direction in mind.

Barrington Consulting Group Pty Ltd 34 Salvado Road, Wembley WA 6014 T: (08) 9388 9500 F: (08) 9388 9511 E: john.barrington@barrington.com.au