Plan for Growth
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Are you so busy working in the business of today that you don’t have time and energy to focus on building the business of tomorrow? The “three horizons” model1 can help. It provides a framework to help you think about growing your company in a way that balances the competing demands of focusing on the present whilst investing for the future.
Figure 1. The Three Horizons of Growth
Horizon 1 – Defend and extend core businesses
Horizon 1 contains the businesses that generate profits and cash flow today. These businesses may still have some growth potential but, eventually, they will flatten out or decline. They provide the skills and resources for growth.
Innovation in horizon 1 businesses is about finding better ways to deliver the current business. You should aim to shore up your competitive position and unlock the remaining potential in the core businesses.
Although businesses may spend 100% of their resources on horizon 1 activities, you should aim to limit this to around 85% to free up resources to invest in future growth activities.
Horizon 2 – Build emerging businesses
Horizon 2 contains businesses on the rise: fast-moving, entrepreneurial ventures that may or may not be generating profits in the short term. They need continuing investment to finance rollouts. They are expected to become significant profit generators over the medium term.
Innovation in horizon 2 businesses is about bringing new ideas to fruition. You should aim to build capabilities and fuel growth in new businesses.
Businesses typically spend about 12.5% of business resources on horizon 2 activities.
Horizon 3 – Create options for future businesses
Horizon 3 is about seeding options today for the future, some of which will prove successful and contribute significant profits in the long term. This may involve undertaking or partnering in research activities (see the Develop Your Idea module for assistance available), pilot projects and possibly start-ups.
Innovation is horizon 3 is about identifying and nurturing options for the future. Businesses typically spend around 2.5% of resources on horizon 3 activities.
How do you rate your business?
Horizon 1 (H1)
Are your core businesses generating enough profit to allow you in invest in growth?- Do you have a strong performance orientation to push profits higher in the next few years?
- Is your cost structure competitive with that of the rest of your industry?
- Has your operating performance been stable?
- Has your market share grown?
- Is your company reasonably well protected from new competition, technologies, or regulations that could significantly change things?
Horizon 2 (H2)
- Do you have any new businesses capable of creating as much profit as the current core businesses?
- Are these new businesses growing in the marketplace?
- Are you willing to make substantial investments to accelerate new business growth?
Horizon 3 (H3)
- Does your leadership team set aside time to think about growth opportunities and industry trends?
- Have you developed a portfolio of options for reinventing businesses and creating new ones?
- If so, are these ideas very different from those on the list last year? Three years ago? Five years ago?
- Are you developing ways to turn these ideas into new businesses?
If you have answered yes to all or the majority of these questions you are doing well – maximising the current businesses while planning and investing for the future.
If you have answered yes to the H1 activities but not to the H2 or H3 activities, you are very focused on the present, which can easily happen, particularly in tough economic times. However you need to invest for the future upturn and beyond as well.
Answering yes to a majority of H2 and H3 activities but not H1 means that you may be excessively focused on growth and may not be able to finance that growth unless you can generate sufficient revenue today.
If you have answered yes to the majority of H1 and H2 questions you are fueling profitable growth but unless you are developing a stream of new options, growth will stall sooner or later.
1 Adapted from The Alchemy of Growth
Links to subsections of this topic
Leadership and Culture
Build the right team
Plan for Growth
Business Model
Monitor Performance
Uptake Technology
Programs and Services