Three Growth Horizons

The Three Growth Horizons concept was popularized in a book by a number of McKinsey consultants (Mehrdad Baghai and others) in 1996. The book was based on a study of 40 growth companies, where the authors tried to identify how these successful companies approach and implement growth strategies. The key pattern that the authors identified is one of a step-by-step approach, a “staircase of initiatives.” Companies certainly keep an eye on the longer term strategy, but also simultaneously manage the near term. Each time a short term target is reached, a new capability is developed, a small acquisition is integrated, successful growers look at this as a platform for the next step. This may be a platform to continue to execute towards a strategic goal that had been set in the past. But it may also be a stage where new opportunities arise, that the company may not have been aware of before.
One of the key prerequisites of this approach is the simultaneous management of different time horizons. The core business needs to be defended and extended – this is the base where successful companies “earn the right to grow.” In the second growth horizon are a select number of opportunities that typically already have a significant size to have a positive impact on the overall top line of the company. In the third growth horizon are seeds that the company plants. Some of them may work out, some of them may not. Many of them are likely to be small, entrepreneurial ventures.

We used this concept recently in a growth strategy workshop with the division of a services firm. The client had an important core business which was quite cyclical. A number of other, smaller business lines existed, and the executive team struggled to really understand which ones to focus on. The three growth horizons concept proved quite helpful to the team. It allowed them to classify “grow” and “seed” business lines, and differentiate expectations, investments, and action plans accordingly. Not all growth opportunities are created equal!