TLDR The AgriTech company experienced growth stagnation despite prior market share gains. The exec team adopted the McKinsey 3 Horizons Model to optimize resources and explore new revenue streams. This led to a 15% YoY revenue growth, improved operational efficiency, and a robust innovation pipeline, underscoring the need for balanced investment across strategic horizons for sustained success.
TABLE OF CONTENTS
1. Background 2. Strategic Analysis and Execution Methodology 3. McKinsey 3 Horizons Model Implementation Challenges & Considerations 4. McKinsey 3 Horizons Model KPIs 5. Implementation Insights 6. McKinsey 3 Horizons Model Deliverables 7. McKinsey 3 Horizons Model Best Practices 8. McKinsey 3 Horizons Model Case Studies 9. Resource Reallocation for Horizon 3 Ventures 10. Integration of Horizon 2 and 3 Initiatives with Core Business 11. Measuring the Success of Horizon 3 Innovations 12. Ensuring Organizational Buy-In for the 3 Horizons Strategy 13. Additional Resources 14. Key Findings and Results
Consider this scenario: The organization is an innovative AgriTech company facing a plateau in growth after a rapid market share expansion.
Its executive team recognizes the need to apply the McKinsey 3 Horizons Model to balance maintaining core business profitability, while simultaneously seeking new streams of revenue and exploring futuristic investments in technology. The organization seeks to optimize its portfolio to ensure long-term sustainability and resilience against market volatility.
Upon initial review, the organization appears to be overly focused on the short-term profitability of Horizon 1, potentially at the expense of long-term growth opportunities in Horizons 2 and 3. A secondary hypothesis might suggest that the organization's innovation pipeline for Horizon 3 is not sufficiently robust to counteract emerging competitors. Additionally, there may be a misalignment between the organization's strategic aspirations and its operational capabilities.
The methodology to be employed is a structured 4-phase approach that aligns with the McKinsey 3 Horizons Model, aimed at ensuring sustainable growth while fostering innovation and maintaining current business operations. This process allows the organization to systematically evaluate and prioritize initiatives across all three horizons.
For effective implementation, take a look at these McKinsey 3 Horizons Model best practices:
Executives may question the allocation of resources across the horizons, particularly the investment in long-term, speculative Horizon 3 initiatives. It's essential to maintain a balanced portfolio where resource allocation supports both current profitability and future growth. Another consideration is ensuring the organization's culture and capabilities are aligned with the strategic priorities of each horizon. Finally, executives will be interested in how this model can be scaled and adapted as the organization grows.
The expected business outcomes include sustained revenue growth, improved competitive positioning, and a robust pipeline of innovations. By strategically allocating resources across the three horizons, the organization can expect to see a 20-30% increase in efficiency for Horizon 1 activities, a doubling of viable opportunities in Horizon 2, and a significant increase in disruptive innovations emerging from Horizon 3.
Potential implementation challenges include resistance to change, especially when shifting resources towards more speculative projects in Horizon 3. Ensuring clear communication and demonstrating the potential long-term value of these investments will be crucial for overcoming skepticism.
KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.
These KPIs provide a clear picture of the organization's strategic health across its portfolio, informing decisions and adjustments to strategy as market conditions evolve.
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A McKinsey study indicates that companies that actively manage their business portfolios through a horizon-based approach are 20% more likely to achieve above-average growth. The implementation of the 3 Horizons Model in the AgriTech firm demonstrated that systematic evaluation and strategic resource allocation across the horizons can drive both immediate efficiencies and long-term innovation.
Another insight from the implementation was the importance of fostering a culture that embraces experimentation, especially for Horizon 3 initiatives. This cultural shift can be facilitated by leadership through clear communication of strategic intent and the celebration of both successes and learned failures.
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To improve the effectiveness of implementation, we can leverage best practice documents in McKinsey 3 Horizons Model. These resources below were developed by management consulting firms and McKinsey 3 Horizons Model subject matter experts.
A Fortune 500 company in the energy sector applied the 3 Horizons Model to diversify from its core oil & gas business into renewable energy and smart technology, resulting in a 35% increase in market capitalization over five years.
An international food & beverage conglomerate used the model to streamline its core brands while investing in health-conscious products and technologies, leading to a 50% growth in their emerging business portfolio within three years.
A professional services firm leveraged the 3 Horizons framework to transition from traditional consulting to digital services, achieving a 40% increase in digital revenue streams in just two years.
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Allocating resources to Horizon 3 ventures, which are inherently more speculative and risk-prone, requires a delicate balance. It's not merely about funding; it's about nurturing a culture that supports innovation and risk-taking. A study by McKinsey showed that high-performing organizations allocate on average 70% of their resources to core businesses (Horizon 1), 20% to developing opportunities (Horizon 2), and 10% to creating genuinely new businesses (Horizon 3).
To ensure effective allocation, it's crucial to establish a rigorous process for evaluating the potential of Horizon 3 initiatives. This involves setting clear criteria for investment, such as strategic alignment, market potential, and capability fit. Additionally, organizations must be willing to pivot quickly if an initiative does not meet its milestones, reallocating resources to more promising ventures.
Integrating Horizon 2 and 3 initiatives with the core business can be challenging due to different operational tempos and risk profiles. To address this, it's essential to have dedicated teams for Horizon 2 and 3 projects, with clear mandates and the autonomy to operate differently from the core business. According to BCG, companies that have separate teams for new ventures improve their chances of successful integration by as much as 30%.
These teams should also have a direct line of communication to the leadership to ensure strategic alignment and quick decision-making. Regular cross-functional meetings can help in sharing insights and progress, aligning the initiatives with the overall strategic direction of the company, and facilitating resource sharing where possible.
Given the long-term nature of Horizon 3 innovations, traditional financial metrics may not be the best indicators of success in the early stages. Instead, metrics such as learning velocity—the rate at which insights are generated and applied—can provide a more immediate gauge of progress. Accenture's research indicates that companies focusing on non-financial metrics in the early stages of innovation can improve their innovation ROI by up to 27%.
Moreover, it's important to develop a portfolio view of Horizon 3 initiatives, understanding that not all will succeed but that collectively they represent the future growth engine of the company. This portfolio should be dynamically managed, with regular reviews to kill failing projects quickly and double down on those showing promise.
Securing organizational buy-in for the 3 Horizons strategy starts at the top. Leadership must be united in its commitment to the model and communicate its importance to the entire organization. Deloitte's insights show that companies where senior leadership consistently communicates the vision and strategy see a 22% higher success rate in achieving strategic objectives.
Furthermore, it's critical to involve key stakeholders early in the process and to create opportunities for employees to contribute to innovation initiatives. This can take the form of innovation labs, hackathons, or cross-functional project teams. By fostering a sense of ownership and participation, organizations can build a culture that supports the strategic ambitions across all three horizons.
Here are additional best practices relevant to McKinsey 3 Horizons Model from the Flevy Marketplace.
Here is a summary of the key results of this case study:
The implementation of the McKinsey 3 Horizons Model at the AgriTech company has yielded significant positive outcomes, notably in operational efficiency, opportunity identification, and innovation. The surpassing of the efficiency improvement target in Horizon 1 activities demonstrates the effectiveness of focusing on operational excellence and market penetration. The successful doubling of Horizon 2 opportunities and the launch of five disruptive innovations in Horizon 3 validate the strategic allocation of resources and the emphasis on fostering a culture of experimentation. The 15% year-over-year revenue growth is a testament to the balanced investment across the horizons, aligning with the organization's strategic aspirations for sustained growth and improved competitive positioning.
However, the results were not without their challenges. The expected revenue growth, while impressive, suggests there may have been untapped potential, especially in Horizon 3 initiatives where speculative investments hold the promise of exponential returns. This indicates a possible underestimation of the resources or risk appetite necessary to fully exploit these opportunities. Additionally, while organizational buy-in was high, ensuring sustained engagement and innovation from all employees remains an ongoing challenge. An alternative strategy could have involved more aggressive investment in Horizon 3, coupled with a structured program to foster intrapreneurship, encouraging more grassroots innovation initiatives.
Based on these findings, the recommended next steps include increasing the investment and resources allocated to Horizon 3 initiatives to capture greater long-term value. Additionally, implementing a company-wide intrapreneurship program could harness the collective creativity and insights of the workforce, further strengthening the innovation pipeline. Regular review and reallocation of resources across the horizons should be institutionalized to maintain strategic agility and responsiveness to market changes. Lastly, continuing to cultivate a culture that celebrates risk-taking and learning from failure will be critical for sustaining innovation momentum.
Source: Luxury Brand Growth Strategy for High-End Fashion in Asian Market, Flevy Management Insights, 2024
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