The Three Horizons
What problem are we trying to solve?
Most managers in mature companies are preoccupied with running their existing businesses. How might they operate core businesses AND build new ones at the same time?
Most founders of startups know how to innovate. How might they scale the business and reach profitability without sacrificing the vibrant startup culture? How might they repeat the initial success?
What is the solution?
Funding of products (and portfolios) should fall into three broad horizons (1) with well defined and clearly understood goals, distinct management practices and incentives, different types of KPIs and development methodologies. A successful company will develop capabilities in all three horizons to build a pipeline of opportunities for long term growth*.
The original order of horizons in “The Alchemy of Growth” is: H1 core, H2 growth, H3 ideas. It underscores the fact that profits made in core businesses earn the right to grow by sponsoring the other two horizons. Although I think the numbering should be reversed to show how an idea transitions through the horizons sequentially, I will keep the original sequence to preserve the reference to the book. However, I will refer to horizons by their main goals: innovate (for H3), grow (for H2), and profit (for H1). It makes more sense to me. Does innovation occur only in the initial horizon? No, it continues throughout the whole product lifecycle but the focus on the first horizon is squarely on innovation. Does growth stop in the profit (H1) horizon? No, but it does slow down because growth is not the primary objective anymore.
Horizon three represents ideas for future growth, options on future opportunities. Most of these ideas will never become profitable businesses. A successful corporation needs to develop capabilities to source, validate, and filter innovative ideas. These ideas may come from business or technology, they can be crowd-sourced from intrapreneurs. A company should not commit too many resources to H3 to promote out-of-the-box scrappy thinking.
Visionaries, unconventional thinkers, innovators, researchers.
Explore new opportunities, gain strategic insights.
Key Results: Number of ideas, value of converted ideas.
Product managers need to be acutely aware of the current horizon of their product and of the right time to transition to the next horizon. Because goals, incentives, and mindsets are different, decision making in the wrong horizon leads to disaster. For example, managing a product in the innovation horizon (H3) with the mindset for cost-cutting and efficiency (H1) will kill the idea for the wrong reason.
A practical approach is to transition a product management responsibility to a different product manager at the boundary between Grow (H2) and Profit (H1) horizons. However, at the portfolio level, we need managers who can transcend the mindset of a single horizon and manage products in all three horizons at the same time. This is difficult. A cross-functional portfolio board may help to make the right decisions. Please see more details in the articles about software PDLC and funding.