Why Social Enterprises Use the McKinsey Three Horizons Framework

Understanding Three Horizons

The McKinsey Three Horizons Framework is a nifty tool that helps companies, including social enterprises, tackle the ups and downs of growth and jumpstarting new ideas. Let’s get into the juicy bits about where it came from and what makes it tick.

History of the Framework

Back in 1998, a dynamic trio by the names of Merhdad Baghai, Stephen Coley, and David White came up with the Three Horizons Framework. Think of it as a crystal ball for businesses—trying to keep one foot in today’s game while also aiming for tomorrow’s jackpot. According to NTT DATA, it’s all about juggling the here-and-now, what’s next, and the future. It’s like planning your wardrobe, where you’ve got the go-to jeans (short-term), those fancy pants you bought for that thing next month (medium-term), and the snazzy suit you’ll eventually fit into (long-term).

Bill Sharp jumped in later, giving the framework some more zip. This model splits the future into three horizons:

• Horizon 1 (H1): Keep doing what works
• Horizon 2 (H2): Shake it up with fresh ideas
• Horizon 3 (H3): Set sights on the big future

Businesses can use this strategy map to handle crazy-fast tech changes and shifting environments. And get this: a whopping 40% of bigwig CEOs worldwide are worried that continuing the old routine might spell trouble in a decade (NTT DATA).

Components of the Three Horizons Model

The Three Horizons Model is made up of three bits, each representing a different side of strategic growth.

Horizon	Focus	Description
Horizon 1 (H1)	Keep things ticking	Zeroes in on making current operations run like a well-oiled machine.
Horizon 2 (H2)	Mix things up	Focuses on creating new products or business styles to ease into growth.
Horizon 3 (H3)	Make the magic happen	Charge up those wild ideas to secure future market dominance.

This framework gives businesses a nudge to rethink their ways and divvy up resources smartly across all horizons. With the McKinsey Three Horizons framework, companies can find a common ground in their objectives and make decisions aligned with those future goals, helping them thrive amidst all the buzz.

For more tips on how to use this model, peek at our other reads on mckinsey three horizons framework process and mckinsey three horizons framework vs swot.

Application in Business Strategy

McKinsey’s Three Horizons Framework helps social enterprises juggle today’s duties with tomorrow’s dreams. The model splits strategy into three time spans, each with its own goals and schedule.

Horizon 1: Current Business Ventures

Horizon 1 is all about making what you have now work better. It’s crucial for keeping things running smoothly and the profits rolling in. The aim here? Make customers happy, grab a bigger slice of the pie, and fine-tune operations.

Goals	Focus Areas
Improve Existing Products	Better features, top-notch quality, happy customers
Optimize Processes	Make things run smoother, cut costs
Maximize Efficiency	Boost performance, train the team

To stay on top, you gotta keep tweaking and listening to feedback. Want more info on this phase? Check our detailed guide on mckinsey three horizons framework horizon one.

Horizon 2: Future Growth Opportunities

Horizon 2’s all about what you can achieve in 2 to 5 years. It’s the time to brainstorm new products and services that take full advantage of what your business already does well. Maybe even find new markets or borrow successful ideas from other areas.

Goals	Focus Areas
Expand Product Lines	Tweak current products or come up with new twists
Explore Adjacent Markets	Find ways to apply what works in different arenas
Incremental Innovations	Play around using what you’ve already got

Creating a culture that welcomes fresh ideas and tests them out is crucial. For more on this phase, check out our resource on mckinsey three horizons framework horizon two.

Horizon 3: Long-term Innovation Strategies

Horizon 3 is the land of big ideas and future-focused plans. It often means putting money into cutting-edge tech and business models that shake things up. Think of how Uber and Airbnb rocked traditional setups (Harvard Business Review).

Goals	Focus Areas
Disruptive Innovations	Pouring resources into new concepts
Exploratory Projects	High-risk ventures that may take a while to pay off
Future Market Positioning	Getting ready for changing customer tastes

It’s about taking risks and dedicating resources to game-changing innovations. For tips to guide you through, visit our article on mckinsey three horizons framework horizon three.

Employing the Three Horizons Framework helps social enterprises grow wisely and keep an eye on both today’s demands and tomorrow’s opportunities.

Implementing the Three Horizons Model

Rolling out the McKinsey Three Horizons Framework isn’t just about talking shop; it takes some real strategy with both a map and a game plan. It’s all about spinning those plates — short, medium, and long-term — without dropping any.

Planning and Resource Allocation

To make this bad boy work, you’ve got to get real clear on where the dough goes. Each of those horizons has its own style, needing special ingredients and know-how:

• Horizon 1 (H1): The name of the game here is to make what you’ve already got even better. Throw some investment into tweaking processes and little upgrades to keep the folks happy and coming back.

• Horizon 2 (H2): This is where you start playing with bigger ideas. Keep your focus on trying new things that fit with what you’re good at. Pour resources into beta tests and market experiments to make those dreams come true.

• Horizon 3 (H3): It’s all about looking way down the line. Think moonshots and tech that’s about to break the mold. Invest in R&D that could flip the script on your entire industry.

Here’s a cheat sheet to keep all that allocation in check:

Horizon	Key Focus	Resource Game Plan
H1	What You’re Doing Now	Streamline processes, polish current offerings
H2	What’s Next on the Horizon	Boost new product tests, validate ideas
H3	Where You’re Aiming Long-Term	Power up R&D, chase after groundbreaking tech

Balancing Short, Medium, and Long-Term Goals

Getting the Three Horizons right is like baking a cake: balance is key. You’ve got to manage your goals so everyone at the table gets a slice they’re happy with:

• Short-term (H1): These are the here-and-now goals that keep the machine running like clockwork. Handle today’s customer needs and stay sharp in the current market ring.

• Medium-term (H2): Time to flex those innovation muscles. Take what you’re already doing well and build something new out of it. It’s the sweet spot for shifting ideas into action using your existing mojo.

• Long-term (H3): Dream the big dreams. Look at future game-changers and shifts that could take years but will redefine the game if you nail them.

Regular check-ups on how you’re faring in each horizon keep everything aligned. Track your progress, tweak plans when needed, and keep all horizons humming. Flexibility is your best friend here. Being open to change while feeding each horizon with what it needs can keep you sharp — and ready for whatever the market throws at you.

Want more scoop on using this framework? Catch articles like the McKinsey Three Horizons Framework Purpose and McKinsey Three Horizons Framework Process.

Case Studies and Practical Examples

Three Horizons Model in Action

The McKinsey Three Horizons Framework is like the Swiss Army knife for industries, particularly in the auto biz. Take Toyota, for instance; they’re a masterclass in using this model. They’ve kept their eye on the ball with short-term improvements to keep their current fleet top-notch. Meanwhile, medium-term, they’re busy tinkering with innovations like the Prius hybrid. And for the long haul? They’re sinking their teeth into exciting stuff like hydrogen fuel cells and self-driving cars (NTT DATA).

This growth setup is a game-changer for firms wanting to hit their stride. By knowing their positioning—whether they’re sprucing up the present, adding sprinkles of innovation, or going for big transformational leaps—they can make the right moves resource-wise. The Three Horizons model helps management paint not just the current picture but also their dream future, making sure that growth is on track across the board (Digital Leadership).

The model gives folks a way to yak about different paths to growth and spells out three clear vibes:

• Horizon 1: The now business, dealing with the daily grind.
• Horizon 2: The makeover stage, shifting gears toward fresher methods.
• Horizon 3: The big dream projects and wild ideas that keep folks daydreaming (Springer).

Success Stories and Lessons Learned

The fun times with the Three Horizons Model aren’t just auto-exclusive. McKinsey’s brainchild has made waves across different areas, highlighting how key it is to spread your bets across today, tomorrow, and the day after. Initially, it guided businesses through various growth stages by marrying short-term needs with long-term aspirations (Harvard Business Review).

One of the neat things about this model is it helps companies see the big picture and divvy up resources smartly. By throwing the right ideas at each horizon, businesses can set their future course, making sure their growth plans are both solid and in sync with what they want to achieve. Those who’ve latched onto this framework talk about having meaty discussions that serve up real insights and pave the way for conquering new market heights (Digital Leadership).

For more nuggets on using the McKinsey Three Horizons Framework and why it’s the cat’s pajamas for social enterprises, check out mckinsey three horizons framework and mckinsey three horizons framework application.