How do you differentiate between incremental and transformational innovation?

Can the Three Horizons adaptation for regenerative futures help?

This week I’ve had the privilege of a flying visit to Devon to regenerate myself a little bit in the environs of my favourite parts of the South Hams in Devon; popping in to Schumacher College, connecting with Transition Town Totnes, a quick spin to Slapton Sands and hikes on Dartmoor in between. Luckily for me it coincided with a visit by Daniel Christian Wahl to lecture at Schumacher so we had a chance to sit down and brainstorm our forthcoming webinar on Regenerative Business with Connectle. And we got to chatting about the different kinds of disruptive innovation out there and how to tell what kind of innovation your innovation is, and whether it is incremental or transformational.

What is the difference between incremental innovation and regenerative innovation and why does it matter? A bit of scene-setting first..

Innovation As Usual

Most businesses look at innovation as a way in which to ensure their organisation continually moves forward, developing and re-developing a competitive proposition.

The problem for business is that most innovations fail. Earlier this year CB Insights published a list of the 132 biggest corporate flops of all time. You’ll recognise some of them.

The problem for people and planet is that we don’t need more innovations that use up more natural capital, create more un-recyclable waste, deplete the soil, biodiversity and forests, pollute the oceans, pump more CO2 into the atmosphere, accelerate climate change or deplete the human spirit any further than we already have. And we do need more innovations that work to solve the gigantic challenges we face — like climate change.

So what’s helpful here? Perhaps one of the reasons innovations fail is that there isn’t a good framework in place to look at the innovation in the context of the present and possible future, or a way of identifying whether the innovation is disruptive for the sake of being disruptive, or whether it really is a bridge towards a better future.

It began with The Three Horizons (of Growth)

Back in 2000 backed by McKinsey & Co, Mehrdad Baghai, Stephen Coley and David White wrote The Alchemy of Growth, in which appeared the Three Horizons framework. The framework was designed to help organisations assess potential opportunities for growth in the future without loosing focus on performance in the present, and was a system to help them assess and bypass ideas that were not expected to have real longevity. The framework came out of merging two ideas; the ‘S’ curve of business and the successful strategy of many high growth companies of the period.

The challenges of the ‘S’ curve will probably be familiar to you; the early stages of business — (the upward curve) where there is a lot of investment but little progress, followed by accelerating growth and profit, and then a period in which revenue and profit growth slows down and declines. At the time they wrote the book, they also looked at companies who had been successfully growing for a long period of time, and noticed that they were reinvigorating their business through a programme of ‘weed and seed’ of brands, products, services and ideas. And that they also had a deep understanding that you needed different people, language and cultures to ensure a process of constant weeding and seeding than you did to manage the current business as it existed. And so the three horizons of growth framework was born at McKinsey.

Almost 20 years on we’re in a different place. A place in which the systems which have underpinned the ecosystem of life on earth — oceans, water, energy, soil, forests, biodiversity — have been so disrupted and depleted, that we have already breached several planetary boundaries and have consistently failed to deliver the ‘human rights’ project framed in the UN Sustainable Development Goals. A place where what we are looking at in terms of innovation shouldn’t be about business growth, but about redesigning business to reduce the impact on planetary resources and increase the ability to solve the social and environmental problems we have created through our obsessional belief with constant growth as a model for business.

The Future belongs to the Three Horizons Framework for Regenerative Innovation

Luckily a few smart people have developed a completely different Three Horizons framework designed for use in regenerative innovation. You may wonder why I didn’t just leap into this framework? It’s simply because if you’ve been around in business leadership for a few years, you will know the McKinsey model. So I wanted to clear that up at the outset.

The Three Horizons Framework (below) developed by Bill Sharpe and colleagues at International Futures Forum, is a very different animal. It’s designed as a tool to facilitates conversations around innovation that transforms markets rather than sustains them. Daniel Wahl’s brilliant book Designing Regenerative Cultures features is as a foundational model for regenerative transformation.

But for the purposes of speed, let’s see if I can make a brief summary:-

Horizon 1 = ‘business as usual’ and any innovation happening here is designed to support business as usual to continue in the current vein. A good example is any new drug developed which is designed to be patented, used and sold to the existing health systems to create wealth for pharmaceutical company that invests, develops and markets its. Innovative product, yes. Systemically transformative and regenerative, no.

Horizon 3 = how we envision a future world that is regenerative by design, in other words in which we extract less than we regenerate — both in terms of ‘natural capital’ and also the human spirit. Even though we can’t describe that in detail because we stuck in the morass of Horizon 1! I imagine it as a world in which we have found a way of turning around our extractive system of carbon and minerals and producing indestructible waste out of that process, replenished earth’s vital systems including water and biodiversity, and designed a culture in which all life, including humans, can live in thriving co-existence without further depleting the earth. I know that sounds a bit Utopian, but if I didn’t believe it was possible, I might as well cash in my chips. Horizon 3 is completely transformative compared to existing times.

Horizon 2 = is where innovation gets really exciting. I’ll quote Daniel because he’s really clear on this. “Horizon 2 represents the ‘world in transition’ — the entrepreneurial and creative space of technological, economic and culturally feasible innovations that can disrupt and transform Horizon 1 to varying degrees and have either a regenerative, neutral or de-generative effect.”

So in this space you can have innovation that helps to drive ‘business as usual’, innovation that acts as a bridge towards the future we struggle to imagine but isn’t fully transformative, and you can have truly transformative innovation.

What narratives align to each Horizon?

Now let’s make it a bit more complex. There is a mindset or a way of thinking which aligns with the different horizons and narratives that reinforce that thinking and may inhibit transformative innovation.

Horizon 1 mindset is what has given us all the major systems that currently prop up our culture, civilisation and business models — including education, consumption & production, energy, transport, health systems. These are all systems that currently need transforming if we are to tackle ‘overshoot’. But they are the systems with which we are intimately familiar because we’ve grown up with them and been taught them in business schools. They are aligned to narratives dominated by the idea of separation and disconnection. As Otto Scharmer describes it in Leading From The Emerging Future:-

• the Ecological Disconnection — between humanity and nature resulting in environmental degradation, using 1.5 times the resources of planet Earth, where the narrative is about ‘humanity having dominion over the natural world’, there for our use and exploitation and constant growth is possible
• The Social Disconnection: 2.5 billion people live on less than $2 a day, growing inequality and lack of opportunity, the global North & South divide and where the narrative is ‘competition drives success’, giving the race to the bottom
• The Spiritual-Cultural Disconnection: people are excluded, experience lack of meaning and more and more feel depressed; where the narrative is ‘consumption makes you happy’

When it comes to innovation, we can bring this thinking with us if we are not acutely aware of it. It often hampers transformational innovation because we design innovations which ‘fit’ within this system and prop it up — often completely unintentionally and subconsciously.

Horizion 2 thinking is much more entrepreneurial and creative, sees the need for disruptive innovation and challenging the status quo but can still be accidentally caught up in Horizon 1 thinking and design models if we don’t always remember to question the narratives and mindset of H1 thinking.

Horizon 3 mindset and narratives are much more about acknowledging the inter-dependence of ecosystems, valuing all life not just human life, recognising that collaboration and co-creation trumps competition.

There are interesting psychological dynamics between people within the three horizons which are helpful to understand as Bill Sharpe explains. H1 sees H2 as risky and H3 as irrelevant. H2 sees H1 as obstructive and H3 as inspiring. H3 sees H1 as insanity and H2 as hopeful.

How can the Three Horizons Framework help innovators?

The framework facilitates discussions around what is happening in a particular system particularly well. Let’s try the food production system.

Start by looking at Horizon 1. Start by asking the question “What evidence exists that the current system is under strain, inadequate for current circumstances or failing?” and gather observations. They might include the UN report on eroding health in soil; the plummeting numbers of insects and pollinators; the rapid drop in biodiversity; the reduction in agricultural productivity despite intensive agricultural practices; farmer suicides in India; water pollution in New Zealand by the dairy industry — there’s plenty of evidence in this system. Map all the evidence that you know about.

Look at Horizon 3. Ask the question “What would a future system look like? What values and norms would support it? Are there any long term trends that are leading towards this vision?” Here it’s helpful to facilitate a group imagineering session to coalesce knowledge or use the Theory U process to prototype a new vision if one is missing. Let’s say you arrive at a world in which deforestation for agriculture is halted, rotational mixed farming practices are reintroduced, meat consumption is reduced worldwide to slow pressure of growing feed for animal feed, hydroponic growing accelerates, solar is used for energy in agriculture.

Then it’s time to look at current innovations emerging in H2. What examples do you know about where elements of your future vision already exist — either within your own organisation or the whole system? What innovations might be growth points of the future system? Perhaps these might include precision agriculture — reducing the use of chemical applications and making farming more efficient.

Once that’s done go back to Horizon 1&2 and examine what role the products, services and knowledge might play in Horizon 3? What will be worth keeping during the H2 transition period? What in H2 is most likely to help accelerate the transition into H3? What in H2 helps bridge the gap but isn’t truly transformative? If we take precision agriculture from that framework, we know that this is a ‘H2 holding’ innovation. It improves H1 but doesn’t transform that actual system itself. It’s a bridging innovation that may buy time while truly transformative innovation develops elsewhere.

Evaluate the thinking as well as the innovation

It helps to also evaluate the thinking or mindset behind the innovation you’re working on. Let me try another example. Yesterday we were talking about incentive challenges, prizes and competitions such as Peter Diamandis’s X Prize, or The Biomimicry Institute’s Global Design Challenge or accelerators like Unreasonable. The X Prize is probably one of the world’s largest incentive prizes. As it says on the website, “the incentive prize contest has existed for centuries. From the inception of the Longitude prize in 1714, through the Orteig prize that compelled Charles Lindbergh to fly across the Atlantic, prizes have ignited passions and brought about breakthroughs that no one thought possible.” Now it is absolutely true that X Prize has brought through some very transformative innovations. But is the idea of an incentive prize itself, truly transformational on a systemic basis?

Incentive Prizes usually have a pot of money to be won; often only one winner. Accelerators are rather similar, although some of these now spread the prize money on offer across a range of winners on a hierarchy. The process of being part of a prize however asks an enormous amount of work, hours and effort from applicants — the vast majority of whom go unrewarded and their ideas potentially missed. Of course they are showcased along the way and may attract investors and other support so it’s never a complete waste of time. But it does reinforce the worldview of competition as a positive dynamic for humans, along with the winner takes all mentality. It does have a hierarchical model which rewards the few not the many. Is that regenerative in terms of the human spirit? Does it encourage developmental innovation alongside technological? I have been a mentor on several global accelerator programmes and have seen initial camaraderie harden as the prize giving approaches which inevitably shuts down conversations, collaboration and creativity.

You can find more information about the Three Horizons for both growth and innovation for change framework here:

McKinsey Enduring Ideas: The Three Horizons Framework

International Futures Forum Practice Centre

International Futures Forum Slide Presentation

Daniel Christian Wahl on Medium

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Jenny Andersson runs the We Activate The Future network and supporting organisations who want to activate social and environmental purpose. She designs and facilitates creative exploration workshops which help companies with breakthrough thinking and innovation with stubborn problems they can’t solve by gathering the collaborative and colletive intelligence of their rightsholders.