One of my favorite strategy frameworks is the “Three Horizons Model”. I first encountered the framework in Geoffrey Moore’s “Living on the Fault Line” in the early-aughts. Moore borrowed it from McKinsey who first wrote about it in 2000.
The goal of the model is to provide a framework to organize short vs mid vs long-term priorities. Its power is its intuitive simplicity. The three horizons represent where growth and profits are coming from in near, medium and long term. When I use it, I define horizon #1 as nominally the next 12 months; horizon #2 is 12 to 30 months out, and horizon 3 is the time beyond.
One of the greatest sources of waste and disconnect in strategy/planning efforts is lack of clarity on timeframe. The CRO argues vehemently that feature X is needed to keep close rates up in the next 3 quarters on the current cash cow. The CTO argues that we need to invest in the new technology that customers are starting to ask about. The CFO is looking for an ROI justification for any new development. The Three Horizons Model is the most useful tool I have found to bring productive clarity to this debate.
The reality is that the CRO, CTO and CFO are often all making valid points. By mapping the initiative under discussion into one of the 3 horizons, it’s much easier to resolve. Prioritizing within a horizon is much easier than prioritizing across horizons. Also, the measure of success is different in each of the horizons. Having a simple framework to map initiatives and to apply the appropriate measure of success is remarkably clarifying. It’s also helpful to set a top-down allocation of development resources across the horizons to create the right emphasis and drive prioritization. 70%-20%-10% is a common benchmark. Start here and adjust as it makes sense for your business.
And one of the greatest sins of management is to habitually optimize for one horizon over another. It’s easy to be overly tactical and some are overly strategic. Market leaders are able to balance across the horizons, executing well in the near term while placing the right bets at the right time to catch the next waves of growth. The Three Horizons is the best tool I have found to help with this difficult task. Like all models, however, it has its limitations and is far from panacea. I was struck by this article from Steve Blank this week.
The Fatal Flaw of the Three Horizons Model and How To Fix It
I agree with Steve’s core point in the article. The fixed timeframes implied by the model is overly simplistic. And – yes – the pace of modern innovation may compress the time scales. But let’s not throw out the baby with the bathwater. Even in rapidly changing markets, the model is very useful in organizing your bets. The key thing to keep in mind is the model is not a map of when to act; it’s a map of when to expect returns. If a horizon 3 bet shows nearer term promise, you can always pull it forward.