TLDR The mid-sized telecom provider faced stagnation in its core business and sought new growth avenues through the McKinsey 3 Horizons Model, struggling with resource reallocation and organizational resistance. The initiative successfully increased Horizon 2 revenues by 20% and strengthened the innovation pipeline for Horizon 3, highlighting the importance of a balanced investment strategy for sustained growth.
Consider this scenario: The organization is a mid-sized telecom provider specializing in direct-to-consumer services, facing stagnation in its core business and seeking to identify new growth avenues.
It aims to leverage the McKinsey 3 Horizons Model to balance maintaining current operations, while simultaneously investing in innovative technologies and exploring untapped market segments. With market saturation in its primary services, the company is experiencing diminishing returns and is in urgent need of diversification to sustain long-term growth.
Initial assessments suggest that the telecom firm's stagnation may stem from an overemphasis on Horizon 1 activities, potentially at the expense of Horizon 2 and Horizon 3 opportunities. Another hypothesis is that there is a misalignment between the company's investment strategies and the rapidly evolving consumer expectations in the telecom sector. Additionally, it is possible that the organization lacks a systematic approach to identifying and scaling new ventures that could drive future growth.
Strategic Analysis and Execution
The methodology proposed is a structured 5-phase approach to applying the McKinsey 3 Horizons Model effectively, designed to ensure a balanced portfolio of growth initiatives across all three horizons.
- Current Portfolio Evaluation: Assess the current distribution of resources and initiatives across the three horizons. This phase involves:
- Identifying key revenue generators and their potential lifespan.
- Evaluating ongoing investments and their alignment with consumer trends.
- Conducting a competitive benchmarking analysis.
- Horizon 2 Opportunity Identification: Focus on identifying emerging opportunities that can scale rapidly and contribute to future earnings. Key activities include:
- Market analysis to pinpoint growth areas.
- Internal ideation workshops to foster innovative thinking.
- Feasibility studies to assess the potential of new ideas.
- Horizon 3 Visioning: Envision long-term future growth areas by:
- Exploring disruptive technologies and business models.
- Establishing partnerships for co-innovation.
- Creating a strategic roadmap for transformative initiatives.
- Resource Reallocation: Rebalance investments to support initiatives across all horizons by:
- Developing a financial model to optimize resource allocation.
- Implementing governance structures to support dynamic investment shifting.
- Setting up cross-functional teams to enable agile execution.
- Monitoring and Adjustment: Establish a review mechanism to track progress and make necessary adjustments by:
- Defining clear KPIs for each horizon.
- Regularly reviewing the portfolio to ensure strategic alignment.
- Adapting the strategy based on market feedback and internal performance.
For effective implementation, take a look at these McKinsey 3 Horizons Model best practices:
Implementation Challenges & Considerations
Concerns may arise regarding the balance between short-term profitability and long-term investments. It is vital to communicate that while Horizon 1 activities are necessary for immediate revenue, Horizons 2 and 3 are essential for future-proofing the business against industry disruptions and maintaining competitive advantage.
The expected outcomes after full implementation include a diversified revenue stream, a more robust innovation pipeline, and increased organizational agility. A financial uplift of 20% in Horizon 2 activities within the first two years is a realistic target, given similar case benchmarks.
One potential challenge is organizational resistance to change, particularly when reallocating resources to less proven ventures. Building a culture that values experimentation and learning can mitigate this risk.
Implementation KPIs
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.
Measurement is the first step that leads to control and eventually to improvement.
- Revenue Percentage by Horizon: to ensure balanced growth and investment.
- Innovation Pipeline Strength: to measure the potential of Horizon 3 ventures.
- Time-to-Market for Horizon 2 Products: to gauge the agility of the innovation process.
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McKinsey 3 Horizons Model Best Practices
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.
Key Takeaways
In the context of the McKinsey 3 Horizons Model, it is crucial for leaders to not only focus on the present but to actively prepare for the future. According to McKinsey, companies that allocate 70% of their investments to core business activities, 20% to emerging opportunities, and 10% to new frontiers are better positioned for sustained growth.
As digital transformation reshapes the telecom industry, firms must adapt their strategy development to include Horizon 3 initiatives that could redefine their business models. Gartner reports that 56% of CEOs have noted digital improvements have led to increased revenue.
Deliverables
- Horizon Growth Strategy Plan (PowerPoint)
- Resource Allocation Financial Model (Excel)
- Innovation Pipeline Dashboard (Excel)
- Market Analysis Report (PDF)
- Strategic Roadmap for Horizon 3 Initiatives (PowerPoint)
Explore more McKinsey 3 Horizons Model deliverables
Case Studies
A leading global telecommunications company successfully applied the McKinsey 3 Horizons Model to expand into the Internet of Things (IoT) market, which now represents a significant portion of its Horizon 2 revenue stream.
Another case involved a regional telecom operator that diversified into cloud services, leveraging its existing infrastructure and customer base to quickly scale its new offering, illustrating the power of effectively managed Horizon 2 growth.
Explore additional related case studies
Additional Resources Relevant to McKinsey 3 Horizons Model
Here are additional best practices relevant to McKinsey 3 Horizons Model from the Flevy Marketplace.
Key Findings and Results
Here is a summary of the key results of this case study:
- Increased Horizon 2 revenues by 20% within two years, aligning with the initial financial uplift target.
- Strengthened the innovation pipeline, significantly enhancing the potential of Horizon 3 ventures.
- Achieved a more agile time-to-market for Horizon 2 products, improving competitive positioning.
- Successfully reallocated resources to support balanced growth across all three horizons.
- Implemented a robust monitoring and adjustment framework, ensuring strategic alignment and adaptability.
The initiative's success is evident in the achievement of the targeted 20% revenue uplift in Horizon 2 activities, a testament to the effective identification and scaling of emerging opportunities. The strengthened innovation pipeline for Horizon 3 ventures indicates a solid foundation for future growth and the ability to adapt to industry disruptions. The improved agility in bringing Horizon 2 products to market has enhanced the company's competitive edge. These results underscore the importance of a balanced investment strategy across the McKinsey 3 Horizons Model for sustained growth. However, the process was not without challenges, notably organizational resistance to reallocating resources towards less proven ventures. An alternative strategy could have involved more gradual resource shifting or piloting smaller-scale projects to demonstrate potential returns, thereby easing the transition and mitigating resistance.
Given the success and lessons learned from this initiative, the recommended next steps include further exploration and investment in Horizon 3 technologies and business models, particularly those with the potential to disrupt the telecom sector. Additionally, fostering a culture of innovation and experimentation is crucial; thus, implementing more structured programs for employee ideation and engagement in Horizon 2 and 3 projects could prove beneficial. Finally, continuous monitoring and flexible reallocation of resources should be maintained to adapt to market changes and internal performance metrics.
Source: Luxury Brand Growth Strategy for High-End Fashion in Asian Market, Flevy Management Insights, 2024
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