So why did I name this blog ‘3rd Horizon’? Because that’s kinda where I like to work.
Most companies are ruthlessly operationally-focussed – few more so than media companies, which tend to ‘live’ from ratings book to ratings book, interrupted only by monthly or quarterly sales figures. It is a tough, highly competitive world, so it is easy to forgive executives for having such a short-term focus.
But a short-term focus tends to beget short-term problems.
Ask any CEO, from any industry sector, and chances are they will tell you that their No.1 Challenge is innovation.
Innovation is the key to top-line growth, competitive advantage and keeping competitors on the back foot. Yet most companies are much better at executing their current activities in the current climate than they are at anticipating and responding to long-term changes in the business environment.
And that’s a problem.
I recently prepared a presentation for a client as part of a business case for developing an innovation capability. The first slide contained the following ‘situational awareness’ summary:
- Revenue growth from core business units is limited in the current environment.
- Key focus is aggressively defending revenue erosion due to growth in online budgets.
- Shareholders / market increasingly factoring future growth options into share price.
- Media sector under growing pressure from offshore competition and ‘discontinuous’ technologies.
- 80%-90% management focus on operational issues.
- Typically, 95% of new initiatives fail – even when companies stay within traditional areas of activity.
Regardless of which industry your company operates in, its size, or its relative competitive position, I suspect this is a fairly accurate summary of your current position.
Businesses tend to cluster their internal capabilities and activities into three silos, each of which addresses a distinct business horizon:
Horizon 1 – Environmental Intelligence – These are activities that provide insight into, or create capabilities with respect to, current markets for products or services. The primary focus tends to be understanding the dynamics of the market as it exists today, and where it will be in 6-12 months time. For obvious reasons, most businesses tend to devote a significant portion of their management attention to this horizon.
Horizon 2 – Operational Performance – These are activities that provide insight into, or create capabilities with respect to, enhancing operational performance in current business areas. The primary focus is increasing the sustainability and profitability of existing operations, with a bias towards actions that can be implemented or undertaken within the next 12-24 months. As companies (or markets) mature, this increasingly becomes their dominant mindset.
Horizon 3 – Future Business Opportunities – These are activities associated with exploring and discovering future opportunities – those true ‘step-change’ options for future revenue streams. Very few companies invest significant time, money or effort into Horizon 3-related activities, as the payback period tends to be more than 3 years (in some industries, it may be 5-10 years before identified opportunities can be successfully exploited).
Innovation can and does happen across all three horizons. Horizon 1 innovation tends to involve product + service enhancements or ‘tweaks’. Horzion 2 innovation tends to involve improvements in business process or ‘greenfield’ developments in related business lines. But Horizon 3 innovation tends to be more fundamental. Whereas H1 and H2 innovation happens at the product or business unit-level, H3 happens at the corporate strategy level and/or business model layer. It is thus is more challenging and, if done right, profitable.