Geoffrey Moore, author of the book Crossing the Chasm, recently wrote an article in the Harvard Business Review about a growth portfolio framework called Horizon 1-2-3 (H1-2-3). The framework, originally developed by Mehrdad Baghai, Stephen Coley, and David White, established a view that companies that are successful in the long term have growth initiatives in three stages: Horizon 1, the mature slow growth businesses; Horizon 2, the emerging high growth businesses; and Horizon 3, the embryonic ideas and pilots often found in R&D.  Moore asserts in the article that he has observed a tendency of companies, particularly technology companies, to take promising H3 projects and launch them directly into H1 where they often are unsuccessful under the weight of near-term financial pressures and the need to conform to the current business model and organizational norms. The Clarion Group has used the H1-2-3 framework with dozens of clients over the years, and we have seen the phenomenon Moore describes occasionally.  However, using the H1-2-3 framework as a diagnostic, we have also seen other trends more frequently – trends which impede our clients’ ability to grow.

Back to Basics – Horizon
1-2-3 Framework
The H1-2-3 framework is built around the point of view that to sustain growth, a company must maintain a continuous pipeline of business-building initiatives. Keeping the pipeline full enables a company to have new growth engines ready when existing ones begin to falter. If growth is the goal, the pace of replenishment must be faster than the pace of decline. Companies that keep growing are distinguished by their ability to create new businesses – they can innovate in their core businesses and build new ones at the same time.

Most companies are preoccupied with existing businesses; they must learn to pay more attention to where they are headed versus channeling all of their energy into where they are today. The authors of the H1-2-3 framework offer a coherent way to talk about current businesses, new enterprises coming on stream, and future growth options – the three Horizons of Growth. Each horizon has unique business model characteristics and management challenges. Our experience is that companies often lack a clear understanding of these differences or cannot muster the discipline required to successfully manage new ideas through the three horizons, resulting in unrealized growth opportunities.

Moore highlights one misstep in the H1-2-3 growth portfolio management process; we would like to offer three more for your consideration.

Misstep: The Need
to Grow (too) FAST!!!
We have observed many businesses who bypass the H3 stage almost completely. There are a couple of things driving this. First, leadership is often feeling the pressure to find the next growth engine fast. This can take the shape of some extensive market assessment and then a large scale launch into the marketplace (H2) without the benefit of the value proposition validation (“How much will the market pay?”) and a distribution strategy road test (“Can we deliver this through our existing channels or will new distribution be required?”).

Compounding this process is often the lack of a more formal R&D product development process which, by definition, should be forcing the initial market testing. We very often hear, “We need someone to lead our product development process because it currently sits nowhere.” Or, the product development process struggles under the umbrella of the broader Marketing organization.

There is also the real challenge of finding the right person to lead the H3 effort.  An entrepreneur is the natural choice, if such a person can be found; but the individual also needs to understand the H1/H2 business well enough to be able to see the path to integration.  It’s tough finding the right person for this role.

The consequence of skipping H3 is often a large scale misfire in the marketplace resulting in a lack of confidence in the product or service within the company. We argue that there is no free lunch. In an attempt to hurry up, the company often has to back up into H3 type market and operating model validation activities. Where H1-2-3 discipline is followed, we find ultimately a more efficient path to bringing growth initiatives to their fullest fruition.

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