This article provides a detailed response to: How should companies balance the allocation of human resources across the three horizons, especially when Horizon 1 demands immediate attention? For a comprehensive understanding of McKinsey 3 Horizons Model, we also include relevant case studies for further reading and links to McKinsey 3 Horizons Model best practice resources.
TLDR Organizations must adopt a Strategic and Flexible Approach to Human Resource Allocation across the Three Horizons of Growth, ensuring a balance between immediate operational needs and long-term innovation and growth.
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Balancing the allocation of human resources across the three horizons of growth—Horizon 1 (core business that provides the most revenue today), Horizon 2 (emerging opportunities that have the potential to become significant), and Horizon 3 (future ideas that could potentially transform the organization)—is a strategic challenge that organizations face. This challenge is intensified when Horizon 1 demands immediate attention due to its direct impact on current performance and profitability. However, neglecting Horizons 2 and 3 can jeopardize the organization's future competitiveness and growth. In this context, it is essential for organizations to adopt a strategic approach to resource allocation that ensures sustainability and long-term success.
Understanding the Three Horizons Framework
The Three Horizons Framework provides a model for organizations to manage current operations while simultaneously preparing for future growth. Horizon 1 focuses on optimizing and extending the core business, Horizon 2 is concerned with building emerging opportunities, and Horizon 3 is about creating viable options for future growth through innovation. Each horizon requires a different type of investment and resource allocation, including human resources. The challenge lies in ensuring that attention to the immediate needs of the core business does not stifle innovation and long-term growth.
Organizations often struggle with this balance because Horizon 1 activities typically offer the most immediate financial returns, leading to a natural inclination to prioritize these activities. However, a study by McKinsey emphasizes the importance of investing in all three horizons for sustained long-term growth, noting that organizations that actively manage their portfolio across the three horizons tend to outperform their peers in terms of revenue and earnings growth.
Effective management of the three horizons requires a strategic approach to resource allocation that is both dynamic and adaptable. Organizations must develop the ability to shift resources as priorities change without losing sight of their long-term strategic goals.
Strategic Allocation of Human Resources
To balance the allocation of human resources across the three horizons, organizations should first conduct a thorough analysis of their current and future needs. This involves understanding the skills and competencies required for each horizon and assessing the current capacity. One approach is to categorize employees based on their skills and potential contributions to each horizon. For example, employees who excel in operational efficiency and process improvement are crucial for Horizon 1 activities, while those with a strong innovation mindset and ability to work in ambiguous environments are better suited for Horizon 3 initiatives.
Another key strategy is to implement flexible staffing models that allow for the movement of human resources between horizons as needed. This could include cross-functional teams, temporary assignments to innovation projects, or rotational programs that expose employees to different parts of the organization. Accenture's research highlights the effectiveness of agile organizational structures in supporting dynamic resource allocation, enabling organizations to respond more quickly to changing market conditions and opportunities.
Moreover, investing in continuous learning and development is essential to prepare the workforce for future challenges. This includes not only technical skills but also soft skills such as adaptability, critical thinking, and creativity. Organizations should create a culture of learning that encourages employees to develop their skills in areas that align with the organization's long-term strategic objectives.
Real-World Examples
Google is a prime example of an organization that effectively balances its resources across the three horizons. Its core advertising business (Horizon 1) generates the bulk of its revenue, but the company also invests heavily in new technologies such as artificial intelligence and quantum computing (Horizon 3). Google's "20% time" policy, which allows employees to spend 20% of their time on projects that interest them, has led to the development of new products and services that contribute to the company's long-term growth.
Another example is Amazon, which continuously invests in Horizon 3 innovations while maintaining a strong focus on its e-commerce platform (Horizon 1). Amazon Web Services (AWS), which started as a small project within the company, has grown into a major component of Amazon's business portfolio, demonstrating the value of investing in long-term growth opportunities.
These examples illustrate the importance of allocating human resources strategically across the three horizons. By fostering a culture of innovation, encouraging cross-functional collaboration, and investing in employee development, organizations can ensure they are well-positioned for both current and future success.
In conclusion, balancing the allocation of human resources across the three horizons requires a strategic and flexible approach. Organizations must not only focus on optimizing their core business but also invest in developing emerging opportunities and exploring future innovations. By doing so, they can achieve sustained growth and maintain a competitive edge in an ever-changing business environment.
Best Practices in McKinsey 3 Horizons Model
Here are best practices relevant to McKinsey 3 Horizons Model from the Flevy Marketplace. View all our McKinsey 3 Horizons Model materials here.
Explore all of our best practices in: McKinsey 3 Horizons Model
McKinsey 3 Horizons Model Case Studies
For a practical understanding of McKinsey 3 Horizons Model, take a look at these case studies.
Growth Strategy Redesign for Professional Services in Competitive Market
Scenario: The organization in question operates within the professional services industry, facing stagnation in its core offerings while grappling with the challenge of allocating resources effectively across the McKinsey Three Horizons of Growth framework.
Telecom Infrastructure Expansion Strategy in D2C
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.
Strategic Growth Framework for Space Technology Firm in Competitive Market
Scenario: A firm specializing in space technology is struggling to balance its current operations with innovation and new market expansion, in line with the McKinsey 3 Horizons Model.
Luxury Brand Diversification Strategy Development
Scenario: The organization is a well-established luxury fashion house looking to innovate and expand its portfolio.
Industrial Chemicals Growth Strategy for Specialty Materials Firm
Scenario: The organization is a specialty chemicals producer in the industrial sector, grappling with the challenge of sustaining growth while maintaining profitability.
Horizon Growth Strategy for Aerospace Manufacturer
Scenario: The organization is a leading player in the aerospace industry, grappling with the challenge of sustaining long-term growth amid rapid technological changes and competitive pressures.
Explore all Flevy Management Case Studies
Related Questions
Here are our additional questions you may be interested in.
Strategy & Operations, Digital Transformation, Management Consulting
This Q&A article was reviewed by David Tang. David is the CEO and Founder of Flevy. Prior to Flevy, David worked as a management consultant for 8 years, where he served clients in North America, EMEA, and APAC. He graduated from Cornell with a BS in Electrical Engineering and MEng in Management.
To cite this article, please use:
Source: "How should companies balance the allocation of human resources across the three horizons, especially when Horizon 1 demands immediate attention?," Flevy Management Insights, David Tang, 2024
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