Check out our FREE Resources page – Download complimentary business frameworks, PowerPoint templates, whitepapers, and more.







Flevy Management Insights Q&A
How does the McKinsey 3 Horizons Model guide companies in prioritizing research and development projects?


This article provides a detailed response to: How does the McKinsey 3 Horizons Model guide companies in prioritizing research and development projects? 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 The McKinsey 3 Horizons Model guides companies in R&D prioritization by ensuring a balanced portfolio across immediate core business improvements, medium-term growth opportunities, and long-term industry-transforming innovations, strategically allocating resources for sustainable growth.

Reading time: 4 minutes


The McKinsey 3 Horizons Model is a framework designed to help organizations manage their growth initiatives across three horizons: maintaining and defending the core business, developing emerging opportunities, and creating genuinely new lines of business. This model is particularly useful in guiding organizations in prioritizing research and development (R&D) projects, ensuring a balanced portfolio that includes short-term performance goals, medium-term growth initiatives, and long-term transformative opportunities. By categorizing R&D projects into these three horizons, organizations can strategically allocate resources, foster innovation, and sustain long-term growth.

Horizon 1: Core Business Initiatives

Horizon 1 focuses on supporting and refining the current core business operations that generate the majority of an organization's revenue. R&D projects under this horizon are typically aimed at incremental innovations that enhance existing products or services, improve efficiency, and extend the current market share. These projects are crucial for sustaining immediate cash flows and profitability, which in turn, finance ventures in the other two horizons.

For example, a global consumer goods company might invest in R&D to improve the formula of a best-selling detergent, making it more effective at lower temperatures. This not only strengthens its market position against competitors but also responds to growing consumer demand for environmentally friendly products. Such incremental innovations are essential for maintaining relevance and competitiveness in fast-moving markets.

Organizations often allocate a significant portion of their R&D budget to Horizon 1 initiatives, as these projects are less risky and promise quicker returns. However, the challenge lies in balancing these safe bets with more speculative investments in Horizons 2 and 3, which are crucial for future growth and survival.

Are you familiar with Flevy? We are you shortcut to immediate value.
Flevy provides business best practices—the same as those produced by top-tier consulting firms and used by Fortune 100 companies. Our best practice business frameworks, financial models, and templates are of the same caliber as those produced by top-tier management consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture. Most were developed by seasoned executives and consultants with 20+ years of experience.

Trusted by over 10,000+ Client Organizations
Since 2012, we have provided best practices to over 10,000 businesses and organizations of all sizes, from startups and small businesses to the Fortune 100, in over 130 countries.
AT&T GE Cisco Intel IBM Coke Dell Toyota HP Nike Samsung Microsoft Astrazeneca JP Morgan KPMG Walgreens Walmart 3M Kaiser Oracle SAP Google E&Y Volvo Bosch Merck Fedex Shell Amgen Eli Lilly Roche AIG Abbott Amazon PwC T-Mobile Broadcom Bayer Pearson Titleist ConEd Pfizer NTT Data Schwab

Horizon 2: Emerging Opportunities

Horizon 2 projects focus on developing opportunities that have the potential to become future core businesses. These initiatives often involve expanding into new markets, developing new product lines, or significantly enhancing existing offerings. While these projects carry more risk than Horizon 1 initiatives, they are essential for medium-term growth and diversification.

For instance, an automotive company might invest in the development of electric vehicles (EVs) as part of its Horizon 2 strategy. While the initial R&D and market development costs are high, and the short-term returns may be uncertain, such investments are critical for positioning the company in a rapidly growing segment that could soon become its core business.

Effective management of Horizon 2 R&D projects requires organizations to be agile and willing to pivot based on market feedback and technological advancements. These projects often necessitate partnerships, acquisitions, or significant internal development efforts. They serve as a bridge between the current core business and future innovations, ensuring the organization remains relevant as industries evolve.

Horizon 3: Creating the Future

Horizon 3 is where organizations invest in creating future lines of business with the potential to transform the industry or create entirely new markets. These R&D projects are highly speculative and carry the highest risk, but they also offer the most significant potential returns. Horizon 3 initiatives require organizations to explore cutting-edge technologies, radical innovations, and unproven business models.

An example of a Horizon 3 initiative could be a technology firm investing in quantum computing research. While the practical applications and market for quantum computing are still largely undefined, the potential to revolutionize fields such as cryptography, material science, and complex system simulation is immense. Such transformative innovations could redefine the competitive landscape and establish the organization as a market leader in a new domain.

Organizations typically allocate a smaller portion of their R&D budget to Horizon 3 projects, due to their speculative nature and long-term horizon. However, these investments are critical for future-proofing the organization and ensuring its long-term survival and growth. Managing Horizon 3 projects requires a high tolerance for failure, a visionary leadership team, and a culture that supports innovation and experimentation.

In conclusion, the McKinsey 3 Horizons Model provides a structured approach for organizations to balance their R&D portfolio across short-term performance enhancements, medium-term growth opportunities, and long-term transformative innovations. By categorizing R&D projects into these three horizons, organizations can strategically allocate resources, mitigate risks, and ensure a steady pipeline of innovations that support sustainable growth and competitiveness in an ever-changing market landscape.

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.

Did you know?
The average daily rate of a McKinsey consultant is $6,625 (not including expenses). The average price of a Flevy document is $65.

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.

Read Full Case Study

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.

Read Full Case Study

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.

Read Full Case Study

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.

Read Full Case Study

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.

Read Full Case Study

Luxury Brand Diversification Strategy Development

Scenario: The organization is a well-established luxury fashion house looking to innovate and expand its portfolio.

Read Full Case Study

Explore all Flevy Management Case Studies

Related Questions

Here are our additional questions you may be interested in.

What role does sustainability play in shaping the initiatives of the Three Horizons, especially in Horizon Three?
Explore how Sustainability in Strategic Planning and Innovation shapes Horizon Three's future growth opportunities, ensuring long-term viability and competitive advantage. [Read full explanation]
What implications does the increasing importance of sustainability and ESG criteria have on Horizon 3 investments?
The growing emphasis on sustainability and ESG criteria is fundamentally transforming Horizon 3 investments, necessitating their integration into Strategic Planning, Operational Excellence, and stakeholder engagement to drive innovation, manage risks, and ensure long-term value creation. [Read full explanation]
How can the McKinsey Three Horizons Model guide companies in integrating digital transformation across all aspects of business?
The McKinsey Three Horizons Model guides digital transformation by optimizing current operations, investing in emerging opportunities, and innovating for the future, ensuring a balanced approach for sustained growth. [Read full explanation]
How does the rise of artificial intelligence and machine learning technologies impact the strategic planning within the McKinsey 3 Horizons Model?
AI and ML technologies significantly impact Strategic Planning within the McKinsey 3 Horizons Model by optimizing core operations, identifying emerging opportunities, and enabling radical innovation for future growth. [Read full explanation]
What strategies can be employed to ensure a smooth transition of initiatives from Horizon Two to Horizon One?
Ensure a smooth transition from Horizon Two to Horizon One by focusing on Strategic Alignment, Resource Allocation, Capability Building, Cultural Adaptation, and effective Change Management for sustained innovation and success. [Read full explanation]
How can the McKinsey 3 Horizons Model be applied to enhance corporate social responsibility initiatives?
The McKinsey 3 Horizons Model guides organizations in integrating CSR into immediate operations, developing future capabilities for social and environmental challenges, and creating transformative business models for long-term sustainability and societal impact. [Read full explanation]

Source: Executive Q&A: McKinsey 3 Horizons Model Questions, Flevy Management Insights, 2024


Flevy is the world's largest knowledge base of best practices.


Leverage the Experience of Experts.

Find documents of the same caliber as those used by top-tier consulting firms, like McKinsey, BCG, Bain, Deloitte, Accenture.

Download Immediately and Use.

Our PowerPoint presentations, Excel workbooks, and Word documents are completely customizable, including rebrandable.

Save Time, Effort, and Money.

Save yourself and your employees countless hours. Use that time to work on more value-added and fulfilling activities.




Read Customer Testimonials



Download our FREE Strategy & Transformation Framework Templates

Download our free compilation of 50+ Strategy & Transformation slides and templates. Frameworks include McKinsey 7-S Strategy Model, Balanced Scorecard, Disruptive Innovation, BCG Experience Curve, and many more.