The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.
Understanding the McKinsey Horizon Model
The McKinsey Horizon Model was developed after two decades of extensive research on high-growth companies. At this point, it is useful to make the distinction that McKinsey’s growth strategy should not be confused with an innovation strategy. Instead, the three horizons model should be used to implement a growth strategy – which in turn drives future strategies centered on innovation.
McKinsey’s model is also ideal for large businesses with expansive member boards that have different visions for the future of the organization. Here, the model seeks to create a united and cohesive plan for growth over time. Ideally, milestones are set regarding investments, results, and profits.
Using the McKinsey Horizon Model in practice
Imagine that three horizons are plotted on a graph, with time on the x-axis and the potential growth of the company on the y-axis. Let’s take a look at each horizon according to its position on the graph.
At the bottom left of the graph, a business is at the start of its journey with low potential growth. As a result, the first horizon usually describes activities that currently contribute to revenue generation and company stability.
Once stability has been achieved, the business can look at short-term projects that will deliver growth in the next 1-3 years – but actual timeframes will vary from industry to industry. For example, a tech start-up might experience higher initial growth than a new café.
In the middle of the graph, several years have passed and the business has experienced a moderate amount of growth. Second horizon growth strategies should ideally span 2-5 years and often relate to adopting processes, revenue streams, or technologies from other industries.
Therefore, the chance of successful growth is relatively high, despite the longer time frames.
After a significant amount of time has passed, the company now has more resources to devote to large and complex strategies that may take 5-15 years to materialize. These strategies may relate to research, pilot programs, and brand new product offerings.
Given their large upfront cost, third horizon strategies often have a focus on incremental improvements. But because of their longer time frame and a large number of variables, many strategies are risky and can become unprofitable.
- The McKinsey Horizon Model is a strategy that is particularly beneficial for mature companies that tend to devote fewer resources to growth.
- The McKinsey Horizon Model helps large businesses with different points of view settle on a unified direction for the future of the company.
- The McKinsey Horizon Model offers a framework of three horizons. These act as stepping stones for businesses that want to balance current profitability with future growth.
Connected Business Frameworks
- Ansoff Matrix
- Business Strategy Frameworks
- Blue Ocean Strategy
- BCG Matrix
- Competitive Moat
- Porter’s Five Forces
- Profit Margins