How to Use the McKinsey Three Horizons Framework for Global Growth

Understanding Business Growth

McKinsey’s Three Horizons Model

The McKinsey Three Horizons Framework is a handy guide for companies looking to manage their growth and discover their big-time potential. Think of it as a growth road map, dividing your journey into three different paths or horizons:

• Horizon 1: This is about keeping the good times rolling with your current business. It’s like squeezing the most out of what’s already working for you.
• Horizon 2: Encourages you to watch for new kids on the block. These could be emerging businesses and new ways to make money.
• Horizon 3: It’s time to dream big here. Start cooking up those brand-new business ideas and planning for long-term wins (Cascade).

Now you gotta balance your focus across these horizons. Research suggests that a typical split is 70% of your effort in Horizon 1, 20% in Horizon 2, and just a smidge — 10% — for Horizon 3. This approach helps keep things ticking now while paving the way for future adventures.

Horizon	What’s the Focus	Effort Split
1	Core Business Basics	70%
2	New Opportunities	20%
3	Bold New Ventures	10%

Importance of Growth Strategies

Making smart growth moves is key in today’s fast-paced business game. The Three Horizons Framework helps companies juggle the present needs while eyeing future glories. By splitting up the timeframes for growth, strategies get a clear boost for better results.

Rolling the framework into your routine lets you keep your ace assets in sight while planning for a time without them. It sharpens your strategic edge and keeps you nimble. Companies that reshuffle their setups toward growth chances show a 10-year total return to shareholders that’s nearly double those who don’t go this route (Flevy).

In simpler words, this model stresses the need for solid planning to get the upper hand. Following a structured guideline can lead to wiser choices and easier shifts from what’s happening now to reaching for those ambitious dreams. Want more scoop on how this framework ticks? Check out our articles on the McKinsey Three Horizons Framework process and its purpose.

The Three Horizons Framework

The McKinsey Three Horizons Framework gives businesses a nifty way to juggle the here-and-now with what’s coming down the pike. It’s like having a crystal ball, but without the hocus pocus. By thinking in terms of different timelines for growth, companies can get their ducks in a row in the old, new, and future markets.

Horizon 1: Core Business Optimization

Horizon 1’s all about keeping the fat stacks rolling in from the company’s main moneymakers. Think of it as giving the company’s cash cows a nice comfy pasture to graze in. This is where a company tweaks and tunes to squeeze out every last drop of value left in its current business operations. Keeping things running smoothly here is like making sure the stage lights are on before launching into the next big act (McKinsey).

In Horizon 1, companies should:

• Sharpen operational practices to save a few pennies
• Amp up customer service so folks keep coming back
• Get crafty with products to claim more of the pie

Plopping about 70% of the company’s resources here keeps the piggy bank full, which is crucial for funding the exciting stuff on the horizon.

Horizon 2: Emerging Opportunities

Horizon 2 is like planting seeds for the future while hanging out in the present. It’s all about sniffing out new market possibilities, playing with fresh tech, and peeking into future trends. Businesses throw around 20% of their efforts into these experiments, hoping to strike gold with innovation and partnerships.

Horizon 2 activities could be:

• Trying on new products or services for size with the help of market data
• Teaming up with or buying out the little guys to explore fresh turf
• Pumping resources into R&D to ride the next big wave

By keeping an ear to the ground and a finger on the pulse, companies can ride the waves of change and get ready to leap into Horizon 3, where the future of their business takes shape.

In a nutshell, the McKinsey Three Horizons Framework is all about striking the right balance between the old and the bold. Horizon 1 is keeping it real with core operations, while Horizon 2’s about getting the ball rolling on new ventures. This method lets companies grow steadily and adapt like chameleons in a market that’s always on the move. For a deeper dive into how this plays out, check out mckinsey three horizons framework purpose.

Implementing the Three Horizons

Getting a grip on the McKinsey Three Horizons Framework ain’t rocket science, but it does mean juggling what’s happening now with what dreams you wanna chase down the track. Nail this, and your organization can not only survive but thrive in a way that keeps ’em guessing.

Balancing Current & Future Innovations

This balancing act is all about knowing the deal with each horizon. Horizon 1’s got your back with making the current gig humming—pushing those products and markets to their full potential. Now, Horizon 3 is your big dreamer, carrying the banner for audacious plays that aren’t gonna pay off today but might just be the star of tomorrow. Horizon 2 is the sweet spot, connecting the dots between what’s working now and those bright ideas we’re just starting to figure out.

You gotta frequently check where your innovation mojo is at across these horizons. Why? So you can jump on market shifts quick-smart and back those wild ideas that could shift the game. Stick-with-the-old, and you might miss out when Horizon 3-like disruptions come knocking.

Horizon	Focus Area	Time Frame
Horizon 1	Keeping the Business Ticking	Now
Horizon 2	New Revenue Hopes	Soon Enough
Horizon 3	Big, Bold Goals	Down the Road

The Three Horizons Framework is all about weaving today’s tricks with those big, shiny future plans, making sure the present stuff doesn’t squish the excitement of tomorrow’s innovations (Cascade).

Allocating Resources Strategically

When it comes to spreading your resources, you ain’t just throwing stuff at Horizon 1 and hoping for the best. Nah, it means getting clever with the doled-out dollars, knowledge, and clock—spread them out across all horizons to keep that innovation engine running on all cylinders.

Here’s how it can roll out:

• Cash Injection: Set aside dough for the short-haulin’ projects in Horizon 1, but make sure there’s still some left in the piggy bank for those curious, wild rides in Horizon 2, and the far-flung dreams of Horizon 3.
• Talent Pool: Pop team members into slots where they can bring their right-now skills while dipping their toes in long-term visionary stuff.
• Time Juggle: Split the hours so teams can crack on with what’s due today but not forget to look ahead and get prepped for future undertakings.

By playing it smart with how you hand out resources, companies can still hold their ground in today’s market while sneaking up on those newfangled ideas for later. It’s all about keeping the balance without tipping over, making your mark in the scene (Flevy).

Wrapping your head around the McKinsey Three Horizons Framework is like upgrading your organizational playbook: making sure you’re on the ball now whilst being ready to jump into the big leagues tomorrow. For a deeper dive on what this framework’s all about, check our piece on mckinsey three horizons framework purpose.

Driving Long-Term Success

The McKinsey Three Horizons Framework acts as a handy compass for businesses aiming for growth without running out of steam. By eyeballing different business development angles and strategic investments, companies can keep their sights on both today’s to-dos and tomorrow’s potential.

Reaping Benefits of Balanced Portfolios

Picture a balanced portfolio as your ticket to future-proofing your business. Companies that juggle their investments with an eye on the Three Horizons Model have a better shot at keeping the growth game strong (Flevy). Research shows that when organizations spread their resources across all three horizons—rather than just chasing today’s wins (Horizon 1)—they boost their odds of long-lasting profits and a solid market stance.

Here’s a peek at the possible gains from investing wisely across the Three Horizons:

Horizon	Focus Area	Expected Return on Investment
Horizon 1	Core Biz Smartening Up	1.0x
Horizon 2	New Terrains & Markets	1.5x
Horizon 3	Cutting-Edge Innovations	1.9x

Back in 2020, a McKinsey study revealed that businesses tweaking their portfolios for future growth handed shareholders a 10-year total return nearly twice as juicy as those who didn’t play this strategy (Flevy). This highlights the importance of hooking up with the McKinsey Three Horizons Framework when looking abroad.

Performance Evaluation Across Horizons

For the Three Horizons Model to hit the bullseye, it’s vital for businesses to keep tabs on how they’re doing across each horizon. This kind of check-up sheds light on where they might need to finetune things for better resource use and game planning.

Essential metrics for each horizon could include:

• Horizon 1 (Core Biz): Customer hang-on rates, market slice, and smooth operations.
• Horizon 2 (Emerging Openings): Boost in market zones, launch of new stuff, and partnerships that work.
• Horizon 3 (Innovations Ahead): Ramping up R&D, pace of new ideas, and making game-changing tech.

By rolling out a methodical performance measuring system, folks can shuffle their strategies and investments as needed, making sure they’re always lined up with the big-picture goals. This ongoing check-in is key to squeezing the most out of the McKinsey Three Horizons Framework.

Creating such a tight ship of evaluation lets organizations not just react to market shifts, but actually foster a vibe of get-ahead innovation and growth. This can pump up the company’s lead in the race in a constantly changing scene. For extra tricks on working this framework magic in different spots, swing by the McKinsey Three Horizons Framework application.