The Fatal Flaw of the Three Horizons Model

A version of this article first appeared in the Harvard Business Review

I’m a big fan of McKinsey’s Three Horizons Model of invention. (if you’re unfamiliar with it there’s a brief description a couple of paragraphs down.) It’s one of the fastest ways to describe and prioritize innovation ideas in government agency or a business.

In the 21stcentury the Three Horizons version has a fatal flaw which could put companies out of business and government agencies behind their adversaries. While analysis suggests that Horizon 3 disruptive innovations take years to grow, in today’s world this is no longer the case. The three horizons aren’t bound by time. Horizon 3 ideas — disruption – can be delivered as ideas for Horizon 1 — existing products.

So as to not be left behind, companies / government agencies will need to focus on speed of deployment and delivery across all three horizons.

When first articulated by Baghai, Coley and White from the 20th century, the Three Horizons version was a simple way to explain to senior management the need for an ambidextrous organization – the idea that companies and government agencies will need to execute existing business / assignment models while simultaneously creating new capabilities.

The Three Horizons provided an taxonomy. The model described innovation occurring in three time horizons:

Horizon 1 ideas provide continuous innovation to rsquo & a company;s core capabilities and existing business model.
Horizon 2 ideas extend a business ’s existing business/model and core capabilities to new customers, markets or targets.
Horizon 3 is the creation of new capabilities to take advantage of or react to opportunities that are disruptive or to counter disruption.

Each horizon requires different focus, different management, different tools and different targets. McKinsey suggested that to remain competitive in the long run a company allocate its research and development dollars and assets across all three horizons.

And rsquo & here;s the big idea. We assigned delivery time to each of the Horizons. For instance, some organizations defined Horizon 1 as new characteristics that could be delivered in 3-12 months; Horizon two as version extensions 24-36 months outside; and Horizon 3 as generating tumultuous products/business/mission models 36-72 months outside.  When tumultuous ideas took years engineer to research and deliver this time-based definition made sense.

That’s true in the 21st century.

Disruption — Horizon 3 ideas — can be delivered as Horizon 1 ideas.

For instance, Uber took existing technology (smartphone program, drivers) but built a special business model (gig economy disrupting taxis) and the Russians used existing social networking tools to wage political warfare. Disruption happens by building on existing technologies configured delivered, and combining them with a & ldquo; rdquo; mindset & rate of good-enough deployment as a force multiplier.

What’s an Example of Rapid Horizon 3 Implementation?
In the commercial space AirBnB, Uber, Craigslist, Tesla, and the explosion of machine learning alternatives (built on hardware originally designed for computer graphics (Nvida)) are examples of radical disruption using existing technologies in extremely short intervals.

From the government space, Russian interference with elections, and China building island bases in the South China Sea as well as repurposing ICBMs as conventional weapons to attack aircraft carriers, are examples of radical disruption using existing technologies deployed in extremely short intervals.

What’s Different about Rapid Horizon 3 Disruption?
These Horizon 3 deliverables most importantly speed, over any other characteristic and emphasize disruption, asymmetry. Serviceability, maintainability, completeness, scale, etc. are secondary to rate and asymmetry.

To competitors or to existing requirements and acquisition systems they seem like minimal products – barely ended prototypes. But the new products escape from the building, interrupt incumbents and once established, they then refactor and scale. A new competitor/threat which obsoletes their product line/infrastructure/business / assignment model is now faced by incumbents.

Why Do the Challengers/new Entrants Have the Edge?
Ironically rapid Horizon 3 disruption is most frequently used not by the market leaders but from the challengers/new entrants (startups, ISIS, China, Russia, etc.). The new players don’t have any legacy systems to maintain, no requirements and acquisition processes, and are single-mindedly focused on disrupting the incumbents.

Four Strategies to Deal With Disruption
For incumbents, there are four ways to counter rapid disruption:

Incentivize external resources to focus on your goal/mission. For example, NASA and Commercial Resupply Services with SpaceX and OrbitalATK, Apple and the App Store, DARPA Prize challenges. The large organizations used startups who may build and deliver products for them — by offering the startups needed to something — a distribution platform, contracts, or prizes. This may be a contract with a net or one startup . Combine the strengths of a company/agency and its business/mission version by obtaining. For instance, Google buying Android. The risk here is that the mismatch of process, culture and incentives may strangle the newly acquired innovation culture.
Copy the new disruptive innovators and use the incumbent’s version to dominate. For instance, Microsoft copying Netscape’s web browser and using its dominance of operating system supply to win, or Google copying Overture’s pay per click model and using its dominance to market ads. The risk here is that without understanding the client problem/mission, copying innovation can result.
Innovate than the disrupters. (Extremely tricky for large companies/government agencies since it’s just as much a culture/process problem for a technology issue. Startups are born betting it all. Large organizations are executing and protecting the heritage.) Successful examples, Apple and the iPhone, Amazon and Amazon Web Services (AWS). Gov’t agency and armed drones.

Lessons Learned

The Three Horizons version is quite useful for prioritizing innovation initiatives, as a shorthand.
Some Horizon 3 disruptions do take long periods of growth
However, today Horizon 3 disruptions can be quickly implemented by repurposing existing Horizon 1 technology into new business/mission models
Speed of deployment of a product that is disruptive/asymmetric is a force multiplier
As the incumbents are burdened with legacy, the attackers have the advantage
Four ways for the incumbents to counter disruption:

Incentivize external resources
Acquire external innovators
Rapidly copy
Innovate than the disrupters

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