The Three Horizon Model

Horizon — the limit of a person’s mental perception, experience, or interest

Every business needs a plan. When starting out, the business plan shows the customer base, marketing strategy, basic operating needs, costs, and the number of units sold at a certain price to be profitable. This plan helps the business hit the ground running. But once the business is up and running, the planning doesn’t stop just yet. Actually, the planning never stops. There will be strategy meetings, budget meetings, and brainstorming sessions, all of which are necessary to keep the business rolling. Without goals though, all of that planning is for nothing. This is where the Three Horizon Model comes in. In its most basic definition, the Three Horizon Model is a set of consecutive business goals or horizons. Each goal or horizon, at least in the beginning, should build upon the last goal. Each goal should be as far as you think you can take the business from where it is currently. The Three Horizon Model is a growth strategy developed by McKinsey & Company. The model is a growth strategy meant to help manage coordinated growth.

I’ve heard it said of the Three Horizon Model that it is flawed because it only has three horizons. The physical horizon is as far as the eye can see. If you keep moving, once you get to where the previous horizon was, you can see to a new horizon, giving your business an opportunity for new goals and new growth.

So back to all of those I mentioned. The Three Horizon plan can be set up to cover this week, three months in the future, and then six months in the future. There will always need to be new goals at the next horizon. That’s where the strategy and planning meetings come in. Maybe the business moves into a new market after it is up and running at the home base.

The Three Horizon Model is meant to always keep your business moving forward. Without goals, continuous growth is difficult. But, without growth, it’s hard to keep a business alive. For some businesses, it may make more sense to modify the plan and us five or more horizons, using goals that are smaller and more obtainable.

The model defines each horizon as the following:

Horizon 1: Current Period — Consolidate your current business model

Horizon 2: Future in the Medium Term — Expand your activity

Horizon 3: Future in the Long Term — Consolidate your new business model

Amazon is a great example of implementing the Three Horizon Model

1. Horizon 1 — Become a profitable online bookstore

2. Horizon 2 — Diversify the online marketplace, offering all types of products

3. Horizon 3 — Improve the profitability of all the new economic activities

From there, Amazon went on to have a 1 Trillion dollar market capitalization.

The model can be applied to a sales team, or individual salesman, as well

1. Horizon 1 — The Salesman receives a book of business

2. Horizon 2 — Salesman adds 5 new accounts

3. Horizon 3 — Salesman and manager audit book of business, identifying growth accounts, accounts with potential, and accounts that need to be unassigned

Implementing a review process stage as one of the horizons helps to identify areas of growth and areas of stagnation. Sometimes it is hard to identify areas that aren’t bringing value without having an outsider perspective.

Standing still without a plan won’t get your business very far. The Three Horizon Model, while it won’t guarantee success, should be a good place to start. It was created by a powerhouse marketing and analytics firm and then used to create and build the largest online retailer. It can help you get yours off the ground too.