Though creativity plays a large part in innovation and growth, a structured approach is necessary to be truly successful. Frameworks such as the 3 Horizons of Growth can help you in your endeavors. The catch is this: you have to use these models correctly.

As a RevelX partner, I know the business value of great ideas. You may remember my article about methods to be more creative. This time I want to focus on another aspect of creativity: the structured approach of innovation that will help organizations grow. Models such as the 3 Horizons of Growth are a great way to shape this process, but there are also some pitfalls…

What is the 3 Horizons Model?

The 3 Horizons framework, originally launched by McKinsey in 2009, focuses on growth and offers businesses a structure for looking to the future without losing sight of the present.

Horizon 1 (H1) refers to the present: the current business model and competitive edge of an organization. These are the products or services the company is known for and which result in the biggest profits and cash flow. Innovation in H1 pertains to defending the current core business from competition and disruption in the short term. This is what innovation guru Clayton Christensen calls “sustaining innovations”. The business does this in a planned and orderly manner, ensuring that uncertainties and risks are minimized.

Horizon 2 (H2) is all about emerging opportunities. An example is a promising entrepreneurial venture likely to generate substantial profits in the future, but one that could require considerable investment. The developments in H2 take place in the here and now. In this stage of “disruptive innovation”, as Christensen calls is, an entrepreneurial mindset is needed, but at the same time, there will be necessary learning from past experiences.

Horizon 3 (H3) is the future. What would the business look like if it could start again without restrictions and take into account new emerging technologies and other developments? This perspective is about disruption and revolutionary change. Building on Christensen’s work, the International Futures Forum coined the term “transformative innovation” to describe this process.

This Is the Best Way to Apply the 3 Horizons

The basic idea of the model is that a company works simultaneously on activities with all 3 horizons. Only in this way can continuous, long-term growth be realized. But I have seen many instances in which the 3 horizons were not applied correctly.

For example, many corporations just focus on H1, innovate incrementally, and get disrupted by players who adopt other ways of innovation in their industry. This situation is often seen in OEM-type organizations that focus their innovation efforts predominantly on product development. This has mainly to do with an internal focus.

Other organizations struggle with the H3 perspective. It is hard for them to make future innovations align with their day-to-day operations. Many corporates invest heavily in growth labs only to find that they are far away from the core business, and therefore deliver very little tangible results.

10 Types of Innovation to the Rescue

To successfully apply the McKinsey model, corporate innovators should have a balanced innovation portfolio covering all 3 horizons:

  • H1: defending the core (sustaining innovation)
  • H2: extending the business (disruptive innovation)
  • H3: transformative innovation

This balanced portfolio can be created by applying a different framework: the 10 Types of Innovation, developed in the late 1990s by Larry Keeley. The 10 Types of Innovation model is valuable because it helps you identify innovation across the entire business. It achieves this by identifying 10 different elements in the innovation process:

  1. Profit model: the way in which you make money
  2. Network: connections with others to create value
  3. Structure: alignment of your talent and assets
  4. Process: signature or superior methods for doing your work
  5. Product performance: distinguishing features and functionality
  6. Product system: complimentary products and services
  7. Service: support and enhancements that surround your offerings
  8. Channel: how your offerings are delivered to customers and users
  9. Brand: representation of your offerings and business
  10. Customer engagement: distinctive interactions you foster

How To Use the 10 Types?

The idea behind the 10 types is to challenge yourself to check if your innovation efforts are firing on all cylinders. There are two tests here:

  1. How many types of innovation do you apply?
  2. In what way are they sustaining, disruptive, or transformative?

There should always be a balance. Great innovators innovate on a minimum combination of 3 types of innovation over all of the horizons. How do you stack up?

Do you need help with these models? Just ask me!