What is 3 Horizon Innovation Model and How it Can Help Businesses Adapt to Change

What is the Three Horizons Innovation Model?

The three-horizon innovation model is a strategic framework that helps organizations balance their attention to innovation efforts in the short, medium and long term. The idea is to keep an eye on the future while maintaining and solving the problems of the present, which connects the present with the desires and aspirations of the future.

It was introduced by McKinsey and is commonly used by companies to manage their innovation portfolio and ensure a balanced approach to innovation. As companies mature and become corporate titans, innovation is often sidelined in favor of growth and market expansion. While improving core businesses is essential to maximize profits, it is also important to focus on emerging opportunities and innovative companies.

The Three Horizons Innovation Model helps align innovation efforts with potential future challenges, and is based on the company's innovative vision.

As the name of this framework suggests, the three horizons innovation model is divided into three areas: maintaining the core business, nurturing the emerging business and creating new business.

As Julie Dvorakova, Partner Success Manager at Plug and Play, says, the idea is to manage a very broad portfolio of projects, according to the 70/20/10 rule.

First horizon – maintaining the core business

The primary focus of the initial horizon centers on developing corporate innovation strategies aligned with the products or services already offered by the company. This approach aims to amplify their value, introducing incremental optimizations to ensure sustained relevance in the market and elevate customer satisfaction.

It's important to keep the current business model working well and innovation is the key to progress. The results of these innovations are reflected in the company in the short term. The time it takes to see results can differ by industry, usually taking 1 to 3 years. This timeframe aims to maintain and improve the business simultaneously.

Second horizon – nurturing the emerging business

The second phase of innovation is crucial for companies. This is when they adjust their products or services to fit new trends in the market. They do this to keep customers interested as their preferences change over time. By constantly improving what they offer, companies aim to be leaders in innovation and provide the best solutions and keep upgrading their product or service.

This effort isn't just about staying relevant - it's about striving for success in new ways. It involves thorough research and careful planning to make sure everything goes smoothly. This process doesn't happen quickly; it takes around 3 to 5 years to see results. This long timeline shows how dedicated companies are to adapting and thriving in today's ever-changing market.

Third horizon – creating a new business

The third step of the innovation model aims to create a brand-new way of doing business that will help the company grow in the long term. This is where we do research to find groundbreaking ideas and figure out what the company needs to do to stay relevant. We also make pilot tests to see if new business ideas could work and how they might look. In fields like open innovation, it usually takes 10 to 15 years for these new business models to fully develop. It's a slow process because we need to carefully test and refine our ideas to make sure they'll succeed in the future.

If you want to know more about Corporate Innovation download our Ebook

An Essential Guide to Corporate Innovation

How to implement the Three Horizons Innovation Model in a smarter way?

In the fast-paced landscape of corporate innovation, having a strategic approach is paramount. Julie Dvorakova, an expert in open innovation services at Plug and Play, emphasizes the importance of aligning innovation strategies with corporate objectives. This alignment lays the foundation for sustainable growth and competitiveness in the long term.

To share a successful innovation vision ask yourself the following questions:

• What will the future look like in the next 5, 10, or 20 years?
• How can you realize that vision?
• What strategies will propel you toward your goals?

There's a common misconception in the realm of corporate innovation that suggests implementing innovative actions sequentially, as if they were a checklist to be ticked off one by one. However, the reality is far more complex. Achieving optimal results in innovation demands synchronization across multiple time horizons - short, medium, and long term.

The Three Horizons Model provides a framework for this approach. As illustrated in the image below, it delineates three distinct horizons representing varying time and value scales.

These horizons must be faced simultaneously by the company. Instead of waiting to finish one phase to start another, for example, finishing Horizon 1 strategy to start Horizon 2 strategy, everything should be done in parallel. This ensures the exploitation of synergies between them, allows each of the innovations to be adapted depending on the company's situation, balances risks and also contributes to the culture of continuous innovation.

Implementing the Three Horizons Model effectively requires strategic portfolio management. The 70/20/10 rule offers a practical guideline: allocate resources to 70% of projects for horizon 1 (short term), 20% for horizon 2 (medium term), and 10% for horizon 3 (long term). This balanced approach ensures that companies invest in innovation across different time frames, adapting to the evolving business landscape.

By embracing the Three Horizons Model and adopting a forward-thinking mindset, companies can navigate the complexities of corporate innovation with agility and foresight. This holistic approach enables them to innovate across multiple horizons, driving sustained growth and relevance in an ever-changing market.

Elevate your innovation and drive exponential growth with Plug and Play. Seek guidance from our seasoned experts to craft a robust corporate innovation strategy tailored to your unique needs.Take the first step today, and let's turn your vision into reality.