The three Horizons of Innovation:
‍A Framework for identifying and prioritizing new ideas.

Innovation is a critical component of any organization's success. It allows companies to identify and seize new opportunities, improve existing products and services, and stay ahead of the competition. But with so many ideas to consider and limited resources, it can be challenging for organizations to determine which ideas have the most potential and should be prioritized. That's where the three horizons of innovation come in. Read this Stretch Innovation article to get started!

What Are the Three Horizons of Innovation?
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The three horizons of innovation is a framework for categorizing and prioritizing new ideas within an organization, founded by management consulting firm McKinsey. It helps companies identify which ideas have the potential to generate the most value in the short term, as well as those that may have long-term impact. By understanding the potential of each horizon, organizations can allocate resources and focus their efforts on the most promising areas of innovation. The three horizons are:

Horizon 1: Core Business
Horizon 1 represents the organization's current offerings and includes the products, services, and processes that are already being offered. These innovations are typically incremental and aim to improve existing offerings. For example, a company that makes smartphones may introduce a new model with faster processors and a better camera.

Horizon 2: Adjacent Opportunities
Horizon 2 represents new business opportunities that are adjacent to the organization's core business. These innovations are more disruptive and may require significant resources and effort to develop. For example, a smartphone company may decide to enter the smart home market by developing a line of smart home devices.

Horizon 3: Breakthrough Innovations
Horizon 3 represents innovations that are significantly different from the organization's current offerings and may require the development of new technologies or business models. These innovations are highly uncertain and may take a long time to mature. For example, a smartphone company may decide to invest in research on quantum computing, which has the potential to revolutionize the computing industry.

Practical Implications of the Three Horizons of Innovation
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The practical implications of the three horizons of innovation are significant for organizations that are looking to stay ahead of the curve and remain competitive in their industry. By prioritizing the development of new ideas based on their potential impact and the resources required to bring them to fruition, organizations can focus their efforts on the most promising areas of innovation and avoid wasting resources on ideas that are unlikely to succeed.

For example, a company may choose to allocate the majority of its resources to Horizon 1 innovations, which are likely to generate the most immediate value, while also setting aside a smaller budget for Horizon 2 and Horizon 3 innovations. This approach allows the organization to maintain a balance between short-term and long-term growth and ensures that it has a pipeline of promising ideas to draw upon as market conditions evolve.

It's important to note that the three horizons are not mutually exclusive and organizations should consider innovations across all three horizons in order to stay competitive. For example, a company may continue to improve its core offerings (Horizon 1) while also exploring new business opportunities (Horizon 2) and investing in long-term, breakthrough innovations (Horizon 3).

Examples of the Three Horizons of Innovation
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To better understand the three horizons of innovation, let's look at some examples of a smartphone manufacturer, a bakery and a clothing retailer:

Smartphone manufacturer
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Horizon 1
The smartphone manufacturer introduces a new model with faster processors and a better camera. This is an example of a Horizon 1 innovation because it is an improvement on the company's existing smartphone offerings.
Horizon 2
The smartphone manufacturer decides to enter the smart home market by developing a line of smart home devices. This is an example of a Horizon 2 innovation because it represents a new business opportunity that is adjacent to the company's core business of smartphone manufacturing.
Horizon 3
A smartphone manufacturer invests in research on quantum computing, which has the potential to revolutionize the computing industry. This is an example of a Horizon 3 innovation because it is significantly different from the company's current offerings and requires the development of new technologies.

Bakery

Horizon 1
A bakery introduces a new line of gluten-free baked goods. This is an example of a Horizon 1 innovation because it is an improvement on the company's existing baked goods offerings.
Horizon 2
A bakery decides to enter the food delivery industry by offering fresh, healthy meals that can be delivered to customers' homes. This is an example of a Horizon 2 innovation because it represents a new business opportunity that is adjacent to the company's core business of baking.
Horizon 3
A bakery invests in research on new baking techniques and technologies that have the potential to significantly reduce food waste and increase the efficiency of the baking process. This is an example of a Horizon 3 innovation because it is significantly different from the company's current offerings and requires the development of new technologies.

Clothing retailer

Horizon 1
A clothing retailer introduces a new line of sustainable, eco-friendly clothing made from recycled materials. This is an example of a Horizon 1 innovation because it is an improvement on the company's existing clothing offerings.
Horizon 2
A clothing retailer decides to enter the home decor market by developing a line of sustainable, eco-friendly home decor products made from recycled materials. This is an example of a Horizon 2 innovation because it represents a new business opportunity that is adjacent to the company's core business of clothing retail.
Horizon 3
A clothing retailer invests in research on new, innovative materials that can be used to create clothing and home decor products. These materials have the potential to be more durable, comfortable, and sustainable than anything currently available on the market. This is an example of a Horizon 3 innovation because it is significantly different from the company's current offerings and requires the development of new technologies.

Why it's Important to Consider All Three Horizons
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It's important to note that the three horizons are not mutually exclusive and organizations should consider innovations across all three horizons in order to stay competitive. Ignoring any of the horizons could lead to missed opportunities or a failure to adapt to changing market conditions.

For example, a company that focuses solely on Horizon 1 innovations may miss out on the potential benefits of Horizon 2 and Horizon 3 innovations. On the other hand, a company that focuses solely on Horizon 3 innovations may neglect its core business and miss out on opportunities to improve existing products and services.

Balancing innovation across all three horizons is key to success. It's important for organizations to have a clear understanding of the potential impact and resources required for each horizon in order to effectively allocate resources and focus efforts on the most promising areas of innovation.

Also read our other articles, to be fully prepared for growth: The Ansoff Matrix, The Growth Share Matrix and The Ambidextrous Organization.