I’m a big fan of McKinsey’s “Three Horizons” Model of innovation.
When first articulated by Baghai, Coley and White in 2000, in “The Alchemy of Growth,” the “Three Horizons” model was a breakthrough. However, in the 21st century the model has a fatal flaw that risks making companies lag behind competitors — or even putting them out of business.
The model described innovation occurring on three time horizons. Horizon 1 ideas provide continuous innovation to a company’s existing business model and core capabilities in the short-term. Horizon 2 ideas extend a company’s existing business model and core capabilities to new customers, markets or targets. Horizon 3 is the creation of new capabilities and new business to take advantage of or respond to disruptive opportunities or to counter disruption. Each horizon requires different focus, management, tools and goals.
While traditional analysis suggests that Horizon 3 disruptive innovations take years to develop, in today’s world this is no longer the case. In fact, it’s the speed of deployment of Horizon 3 products, strategies and capabilities that are a devastating upset to the status quo.
For incumbents, there are four ways to counter rapid disruption:
— INCENTIVIZE EXTERNAL RESOURCES TO FOCUS ON YOUR GOAL. Combine the existing strengths of a company or agency and its business model by acquiring external innovators who can operate at the speed of the disrupters. Google, for example, bought Android. The risk here is that a mismatch of culture, process and incentives may strangle the newly acquired innovation culture.
— RAPIDLY COPY THE NEW DISRUPTIVE INNOVATORS AND USE THE INCUMBENT’S BUSINESS MODEL TO DOMINATE. The risk here is that copying innovation without understanding the customer problem can result in solutions that miss the target.
— INNOVATE BETTER THAN THE DISRUPTERS. This is extremely difficult for large companies or government agencies as it is as much a culture and process problem as a technology problem. Startups are born betting it all.
The trap of the Three Horizon model is not recognizing that today many disruptions can be rapidly implemented by repurposing existing Horizon 1 technologies into new business models — and that speed of deployment is disruptive and asymmetric by itself.
In the 21st century the attackers have the advantage, as the incumbents are burdened with legacy.
(Steve Blank is an adjunct professor at Stanford University.)