Ten years ago, McKinsey&Company published an article based on research performed by employee Steve Coley. He asked himself how companies were able to maintain growth on the long term. His conclusion was that leaders had to steer their current operations in the right direction AND that they must explore opportunities for future growth. The model that Coley made to illustrate this point, is called the ´3 horizons framework´.
Before we have a closer look at that model, let us consider the role of the chief executive officer or captain. In the maritime sphere, the captain is the person in charge. Charting the course and moving the ship through treacherous weather rests on his or her shoulders. In recent years we have begun to see the advent of autonomous shipping. New technology allows for a situation where multiple vessels can be piloted by one captain from the shoreside. This evolution can help us visualize the model that Coley is proposing.
Instead of the literal dividing lines between surface level and sky, Coley talks about horizons in the figurative sense. The first horizon that Coley describes are the core activities of a company – that the brand is mainly associated with – which provide the most profit and cashflow. Navigating those waters consists of trying to improve performance and maximizing the value that is left inside the company. The second horizon according to Coley are the rising opportunities that are gaining momentum. These refer to closely related products, services or enterprises that may generate a significant profit within three to five years. Initiatives such as these require large investments. Coley links the third horizon to ideas for profitable growth in five to twelve years. Think of pilot projects like research, proof of concepts or minority stakes in new companies. The specific focus of those pilots can be far removed from the core activities.
Although these three horizons are spread across a period of many years, Coley believes it is important to be active on each front at all times. Similar to the captain at the shoreside, the CEO no longer has to keep track of just one ship, but needs to attend to many ships at once. Choosing the right crew for each ship is crucial. Coley suggests assigning experienced employees and managers to the first horizon. The second horizon demands entrepreneurial profiles that want to set up a new business.
The most ambitious and visionary workers set sail for the third horizon. They stay in touch frequently with the highest level of command to report in. This way, a captain manages to leave several ships afloat, thereby safeguarding the future of the company.
The drawback of models such as the 3 horizons framework is that people get tricked into following it too blindly. The most successful CEOs are able to reach their destination first, guided by their inner compass. Captains may need to recalibrate their navigation instruments often and remain open to what their crew and what their instinct tells them. Together with innovation hub The Beacon, we at PortXL Antwerp hope to serve as a guiding light for captains of industry in the face of such challenges.