RESULT OBTAINED
Canonical method
Three horizons of growth: sharing effort between the core, the relays and the bets
What must be established
A useful analysis keeps its controls visible.
- 01
Classify each initiative by how new the customers served and the offer are, not by the date at which it is expected to pay off.
- 02
Set in writing a target allocation of resources across the three horizons, justified by the organisation’s sector and position.
- 03
Judge each horizon by its own criteria and write down, for each relay and each bet, the signal that makes it advance, change horizon or stop.
Decision reference
Make the next choice more explicit.
DECISION SUPPORTED
How should growth resources be shared between the core business, the emerging relays and the bets, and by what criteria should each be judged?
DELIVERABLE TO KEEP
A portfolio of initiatives classified into three horizons, with the allocation of resources, the criteria of each horizon and the rules for moving on and stopping.
NEXT ELEMENT TO EXAMINE
Ansoff matrixExplore →Classify by novelty, not by date
The first horizon is the core: today’s customers and offers, to be improved and defended. The second gathers the relays: one of the two terms is kept and the other changed, new customers for a known offer or a new offer for known customers, as in the Ansoff matrix. The third brings together the bets: both customers and offer are new, or a business model the organisation does not yet practise. The original model tied these horizons to time, the third paying off only after several years. That criterion has aged badly: breakthrough innovations now roll out in a few months, and an organisation that leaves its third horizon for later cedes the ground to those who attack quickly. It is therefore better to classify an initiative by its distance from the core, that is, by what it requires that is new in customers, offer and capabilities, than by the date at which a return is hoped for.
- Core: current customers and offer
- Relays: one new term
- Bets: everything is new
- Distance rather than date
Allocate effort, then hold the allocation
Without a written target, the core absorbs everything: its returns are visible and close, those of the relays and bets uncertain, and they are the ones cut in the first difficult quarter. A study in the Harvard Business Review observed that the best-performing companies in its sample, in industry, technology and consumer goods, devoted about 70% of their innovation resources to the core, 20% to adjacent initiatives and 10% to transformational initiatives, while 70% of the returns came from the latter. It is an observation, not a norm: the balance changes with sector and position. Simulated example: on a growth budget of €2m, an allocation of 70, 20 and 10 gives €1.4m for the core, €0.4m for the relays and €0.2m for the bets. The target is set before the projects are classified, and each gap found at the review is explained rather than endured.
- Target written before the projects
- Observation, not norm
- Gap explained at the review
- Bets protected from cuts
Judge each horizon by its own criteria
A bet judged on the year’s margin is condemned in advance: it does not have one yet. The core is judged on margin, market share and customer satisfaction. Relays are judged on revenue growth, the pace of customer acquisition and a profitability that is getting closer. Bets are judged on what they have learned: assumptions validated or refuted, milestones passed, options opened. According to the same study, they also need teams separated enough from the core, stage-by-stage funding rather than an annual budget, and indicators that are not yet financial. The transition rule is written in advance: a bet whose central assumption is validated becomes a relay, a relay that carries a significant share of revenue joins the core, and an initiative that misses its milestone stops instead of continuing through inertia. The portfolio is reviewed each period, horizon by horizon.
- Core: margin and share
- Relays: growth and customers
- Bets: learning and milestones
- Written transition and stop rules
DECISION ASSET
Three horizons portfolio
Each initiative is classified by its distance from the core, receives its share of resources and is judged by the criteria of its horizon, until it moves on or stops.
Classification
- Input
- Customers, offer and capabilities
- Control
- How far from the core?
- Output
- Assigned horizon
Allocation
- Input
- Growth resources
- Control
- Written, justified target?
- Output
- Share per horizon
Criteria
- Input
- Indicators per horizon
- Control
- Suited to the horizon?
- Output
- Assessment grid
Transition
- Input
- Milestones and signals
- Control
- Advance, move or stop?
- Output
- Dated decision
- Nagji and Tuff, Managing Your Innovation Portfolio, Harvard Business Review, 2012 (opens in a new tab)Allocation observed between core, adjacent and transformational among the best-performing companies, and the management conditions specific to each level.
- Blank, McKinsey’s Three Horizons Model Defined Innovation for Years. Here’s Why It No Longer Applies, Harvard Business Review, 2019 (opens in a new tab)Why tying the horizons to time no longer holds when breakthrough innovations roll out in a few months.
MOVE FROM ANALYSIS TO YOUR DECISION
Produce a testable decision mandate
MOVE FROM ANALYSIS TO YOUR DECISION
Produce a testable decision mandate
RETURN TO THE DECISION SYSTEM
See the canonical definition of marketing strategy→