McKinsey & Company developed the 3 Horizons of Corporate Innovation model to visualize how a company grows as they take on innovation projects.
Innovation projects and opportunities fall into three areas: opportunities within a company, in adjacent industries and markets, or completely new industries and markets.
Many companies face a slowdown or stagnation in their growth because they often focus on only one of these areas. McKinsey & Company uses the model to show the value of innovating in all three areas simultaneously.
Companies can explore multiple innovation opportunities, and unlock exponential growth by focusing on all of these areas simultaneously.
The three areas have three corresponding horizons of innovation. These are detailed below.
Horizon 1: Core Growth
The first horizon is all about growth and innovation opportunities that are found within a company. This includes improving and optimizing the core business or current offerings of a company.
Most companies see this as the starting point where they start exploring the idea of innovation. While this is true, even innovative companies need to repeatedly return to this horizon to improve and innovate.
Innovations that fall under this horizon include upgrading a company’s existing products and optimizing internal processes and strategies.
But before any innovation can happen, a company needs to first develop a capability to innovate.
A company develops this capability by training its team in innovation and equipping them with the skills and knowledge they need to successfully innovate. Companies can send their innovators to innovation-learning programs such as those offered by the Global Innovation Management Institute (GIMI).
GIMI’s innovation certification programs equip innovators with its tried-and-tested innovation tools, methodologies, and theories. Upon completion, innovators can immediately begin applying these within their businesses.
GIMI has trained and certified over 10,000 innovators worldwide from companies like Pfizer, HSBC, and the Ayala Corporation. The Embiggen Innovation Institute is the exclusive certified training partner of GIMI in the Philippines.
The Asian Institute of Management (AIM) offers the Post Graduate Diploma in Corporate Innovation & Digital Leadership. It is a non-degree program that trains innovators in the practice of innovation and innovation management, offered in partnership with the Embiggen Innovation Institute.
Its action-learning methodology ensures participants are ready to apply what they learned immediately after completing the program.
McKinsey & Company warns that companies should not just focus on Horizon 1 as it stifles innovation and growth. Instead, it suggests that companies should balance their resources among all three horizons to enable sustainable innovation-led growth.
This is why once a company has built its capability to innovate, it should begin exploring how to innovate under Horizons 2 and 3.
Horizon 2: New Growth
Horizon 2 is where a company begins exploring innovation opportunities in industries and markets adjacent to its core business. Taking these opportunities may be the solution to solving a stagnation in growth after focusing solely on Horizon 1 innovation.
Companies innovating under this horizon commonly adapt successful technologies found in other industries and markets into their contexts. These newly adapted technologies will often complement the existing products and services of the company
One way a company can do this is by investing in or acquiring innovative startups. Because of this, venture capital-as-a-service (VCaaS) is often used as an innovation solution under this horizon.
Under VCaaS, companies partner with external organizations, such as Embiggen Capital, to help them identify and invest in startups. Companies usually seek an external partner to help them invest in startups because they lack experience and expertise.
External VCaaS partners, which are experienced in venture capital, ensure that the investing company deploys its capital in the right opportunities. These opportunities are scrutinized to ensure that they are aligned with investment goals and have the potential to unlock long-term growth.
As a result of VCaaS, the investing company unlocks a new avenue of growth through the startups it invested in.
Despite the potential for growth in this horizon, it is often not enough. There are only a limited number of adjacencies to a company’s core business which limits opportunities. This is where Horizon 3 innovations come in.
Horizon 3: Emerging Growth
Horizon 3 innovations are the most value-adding but are also the most expensive. McKinsey & Company says it is often overlooked, in favor of the less resource-intensive Horizon 1 innovations.
Innovations under this horizon are completely unrelated to a company’s core business. This means that to innovate under Horizon 3, a company first needs to identify completely new avenues of growth in unrelated industries and markets.
One innovation strategy used in this horizon is corporate venture building.
Here, a company creates a new venture which is an independent business, separate from the venturing company’s core business. The venture operates in a completely new industry and often in an untapped market.
A venturing company first has to identify an unsolved problem that has substantial demand to be solved. Then, it builds the venture which will create a solution to this problem
Corporate venture building is often done with the help of a partner venture builder such as Embiggen Digital Ventures, as the process is tedious and expensive.
Globe Telecom, Inc. and its venture GCash show the value of innovating under Horizon 3. Globe, one of the major telecommunications companies in the Philippines, ventured into the fintech space in the early 2000s.
It created GCash together with its venture builder, Mynt. Today, GCash is one of the most widely used e-wallets in the Philippines with over 70 million users.
The venture generated new value for the Globe organization in many ways.
GCash gave the Globe organization a new avenue for long-term and innovation-led growth in the previously untapped fintech space. Mynt was valued at more than USD 2 billion in 2021, a great return on investment for their Horizon 3 innovation.
Takeaways and new horizons
The 3 Horizons model developed by McKinsey and Company helps companies visualize the many innovation opportunities available.
It is important to remember that the model is not a step-by-step guide to innovation. All companies need to focus on each horizon simultaneously to generate long-term growth for their organization.
A company can re-focus its priorities, break away from a pattern of stagnation and unlock new exponential growth by using the 3 Horizons of Corporate Innovation Model in conjunction with other innovation models, strategies, and methodologies,
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