Last version published: 13/03/2023 12:01
Publication number: ELQ-95094-22
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McKinsey's Strategic Three Horizons Model Framework Template
A PowerPoint Template Slide of McKinsey's 3 Strategic Horizons Framework to optimise investments in a portfolio of current & future profitable projects.
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Developed in a 1999 book called "The Alchemy of Growth" by Mehrdad Baghai, Steve Coley and David White of Consulting Firm McKinsey & Company, the 3 strategic horizons model is a corporate growth strategy framework to articulate the tension between focusing on current performance and maximising future opportunities.
See original article here: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/enduring-ideas-the-three-horizons-of-growth and original book: https://www.amazon.com/Alchemy-Growth-Practical-Insights-Enterprise/dp/0738203092
✅ HORIZON 1: Now to 1-2 years (70% of Focus)
This is where the vast majority of investments and management teams are focusing on a day-to-day basis, given the ROI on this current business is short term and relatively highly predictable. The objective in Horizon 1 is to invest in projects that defend or increase your competitive position. This means providing incremental value to current customers and extending business to acquire new customers. Financially speaking, the objective of Horizon 1 is to build projects capable of maximising the remaining cash-flow opportunities (maintaining/increasing margins, increasing market share and sales volume) that can provide immediate or short term investment capabilities for horizons 2 and 3.
✅ HORIZON 2: 3 to 5 years (20% of Focus)
The objective of this horizon is to nurture and launch new emerging business lines, more of a natural extension that pure blue ocean strategies. This Horizon is generally defined by trends, innovations and forces that are currently progressively re-shaping or threatening your market (expansion of product lines, geographical expansion, new markets etc.). On top of re-positioning the global portfolio of revenue streams of your business on the new grounds to which your customers' demand is shifting, acquiring new customers in new markets with new products and services can also be the center of attention. As this phase usually adresses early-adopters of a given product/service, "jumping the chasm" to the early majority requires over-investing to make the market move forward (if this is not done automatically easily or by an external factor). As Horizon 2 is all about "think different", investing in entrepreneurial minded executives that can generate substantial profits and high profit margin businesses is key here. It's all about finding your future "cash cows". This is generally where companies position their top talents, capable of driving teams through difficult paths and business adventures (on the contrary to positioning them in Horizon 1 projects that don't need their strong and disruptive leadership as much). Horizon 2 tends to be the most neglected horizon as it is stuck between short term goals and the fancy "brand new and exiting" opportunities that lie in horizon 3. Missing success in Horizon 2 may mean a lack of financial capabilities down the road for Horizon 3 projects.
✅ HORIZON 3: 5+ years (10% of Focus)
Horizon 3, are your long term fuzzy bets on the future of the company, and markets (for the good or the worst), driven by high risk, high innovation and potentially top tier profit margins. Concretely, it can be: creating new ventures (via a startup studio for example), investing in research projects, creating pilot programs, partnerships with research institutions, schools, or taking stakes in innovative businesses (via a fund or directly). The objective here is to seed business lines that will make your business stay relevant in 5 to 10 years. As the current management generally tends to focus on 1 to 5 year initiatives, the role of the executive team is to voluntarily "carve out" some space and ressources for R&D with profiles that are satisfied of not seeing the fruit of their work come to life short term. The idea here is to take enough bets to be in a position to ride the next revolution in your industry (generated by your investments or not), with a slight or significant advantage.
🤔 CRITICS & LIMITS to the Horizons Model Framework:
Despite it's strong assets, some strategists believe that McKinsey's Three Horizons Model is no longer applicable (2019, Steve Blank, HBR). See here: https://hbr.org/2019/02/mckinseys-three-horizons-model-defined-innovation-for-years-heres-why-it-no-longer-applies
According to Steve Blank, the framework is based on time delivery of projects (short term, medium term, long term), which is typical of businesses with long R&D or Innovation cycles. In the 21st century, innovation can happen much faster than 5+ years. So Horizon 3 like projects can pop-up on market much quicker and change the rules of the game (notably making small changes via technology to Horizon 1 projects or businesses).
Given it's popularity in Business Schools and Strategy Departments, I decided to re-create a "universal" and more "pragmatic" Template Framework for consultants/executives to use when balancing a company's current and future perspectives, via a project by project based analysis.
I chose to represent VALUE (y axis), with Profit Margins (Current & Future), and TIME with a LN (Logarithmic) of Time, as to better visualise projects on one single graph (it would go way to the right otherwise). 16 projects can be analysed and position with this template (but you can edit this and add an unlimited number if you wish so). Note: suggested time frames for each industry are only an indication. Feel free to change them according to your own market parameters.
The file is an editable Microsoft PowerPoint Template Slide with an online or offline 9 step-by-step methodology, with pedagogical illustrations for each step.
Note: An EXCEL ONLY version is also available for download.
Should you have any questions on using this top tier Management/Strategy Framework Template slide, you're welcome to reach out to me via Private Message.
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1 PowerPoint Slide Template + 1 Underlying Excel Model + 1 Online 13 Step-By-Step Methodology + 1 EXCEL ONLY Version
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