The Mckinsey’s Three Horizons Model Defined Innovation For Years. Here’s Why It No Longer Applies and What’s Next To Address and Augment Emergent Enterprise Dynamics In The Digital Era.
Updated 20th Sept 2019 for Transformation Architects – with new Mckinsey Resources and introduction of Geoff Moore Zone To Win resources as approach to manage sustainable disruption as posited by Clayton Christensen – The Innovators Dilemma, and introduction to the AI and Business Model Canvas
Synopsis: Technology Transformations are particularly disruptive as they typically involve augmentation and automation of Organizational processes and capabilities with systems and technology.
Most organisations despite best intentions and endevors fail to some degree with technology led transformations. ERP has a success rate of less than 50%. Digital Transformation which extends core ERP’s to a broader digital fabric has in some cases failure rates greater than 90pc.
We are now approaching the third wave of post digital modernisation as we build towards Industry 4.0 and the Society 5.0 generation, where either Target Operating Model will require mastery of the illusive People-Data-Tech Trinity.
With fully digitized processes capabilities and services and products table-stakes for the Intelligent Enterprise in the Society 5.0 Era, at today’s transformation success rates most traditional non digital native organizations will fail — at huge expense to society.
- Why is failure of technology implementation so prevalent and getting harder despite awareness?
- What can be the cause for such massive sustained and growing transformation failure that has foxed the best brains for over half a century?
- What can be done to beat the odds?
This is a complex multi faceted answer but one key driver overlooked is dealing sufficiently well with the underlying dynamics and undercurrents driving organizations.
Much work has been said and done around Agile and more recently DevOps as a mechanism for addressing this issue. Whilst Agile may help address one dimension and problem – mapping technology to business uncertainty and dealing with that uncertainty both Agile and DevOps fail to address overlooked and far more distructive undercurrents of change.
The weather wind and currents that the enterprise must effectively master and navigate to progress.
In the “early days of sail” in digital transformation terms, when we were implementing ERP systems these forces were so slow and digitization so limited this barely mattered.
However, the bigger and wider and more essential the digital footprint, the greater the business imperative, the more aggressive the “weather conditions” — the digital imperative to match and overbear market forces, the greater the amount of wrecks.
Agile and Devops and all the efforts put in today, is like the rigging and running of the ship. It could help in the right context, but with the “internal” focus overriding, it says and helps nothing of the forces working on the ship or the enterprise for or against and the environment in which it sails or operates.
With the need to upgrade vessels or enterprises to become more capable to operate better in much more adverse conditions, failing to factor this often overlooked dimension into designs and Technology transformation plans is one key driver that already scuppers or drags down many transformations, and with the chaning environment set to get much worse.
To be clear, whilst this dynamic has always existed since the beginning of time, it’s only now we seek to combine and extend and push the People Data Technology dynamic to ever further boundaries this natural force becomes an increasingly important driving factor.
As with building a simple house or the newest highest skyscraper there are new natural forces techniques materials capabilities technologies and Know-how to be mastered to make the skyscraper safe that do not apply to the house.
The mechanisms for surfacing this force, and dealing with this in a rudimentary way needs much more work but some frameworks exist that can already massively improve your chances of success.
This essay is an introduction to that body of work and will help frame the problem and address the bigger issues of dynamics and forces impacting the enterprise and technology investment. This will require additional work, explanation and distillation at the frameworks level, the enterprise level, and operating environment level over the coming weeks and months.
In the linked article, the author states that the Mckinsey Three Horizons Model no longer applies as time has been rendered irrelevant. He argues, with incumbents burdened with legacy, in the 21st century fast disruptive Horizon Three attackers have the advantage. This post offers an adjusted model and proposes the model remains remarkably relevant to incumbent enterprises under attack from digital natives as an effective way to leverage their legacy and momentum to win.
As the article states the Three Horizons model remains relevant but for a hidden danger — treatment of Time. Mckinsey published the Three Horizons model back in the slow-motion days of 2000 when we all still had that “luxury.” and disruption played out in slow motion.
The author makes a critical point that the periods across the three horizon segmentation project out several years from the current state. He argues validly that with today’s accelerated pace the time horizon classification is no longer applicable, but the segmentation is.
In other words, thinking and classifying innovations in terms of time across the three horizons is the danger — as put simply, time is rendered irrelevant. The author provides useful examples like Uber and Airbnb as “horizon-three” disruptors who have arisen from nowhere, with technology speed power to disrupt incumbents overnight as they first gain the advantage in an undefended space, and then push to critical mass. He goes on to suggest helpful strategies for dealing with the new threat of innovation, like incentivizing external resources to work on your mission, combine existing strengths through acquisition, rapidly copy disruptive innovators, and innovate better than disruptors.
Perhaps to remain helpful to incumbent enterprises facing disruption at least, we should respectfully suggest the authors of the original book and article more appropriately bring the Three Horizons model up to the 21st-century standard and rebirth it as the “Three Lanes Model.” Lane-one is the main cash- cow legacy business, lane-two is incremental business model innovations, and lane-three is disruptive business model innovations. It is also more useful to consider the behaviors and interactions of the respective Actors within and across the lanes in terms of playing out in parallel “Through-Time.”
The point is with the “Three Lanes Model” incumbents, faced with the imminent threat of “lane-three” disruptors eating into their “lane-one” cash cow operations, executives are depleting scarce resources as they mount their largely ineffective “lane-three” countermeasures that fail to gain traction and scale. Worse still, it’s not just their scarce resource and time planning horizon that’s gone, but crucially their ability to recover-act-and-execute in time.
More significantly, technology is augmenting or replacing everything. Every company to survive is mandated a technology company first and in the business of X second. How then can a traditional pre-digital incumbent enterprise with legacy business and systems, whilst under massive attack, leverage its legacy and digital to fight back? The Three Lane Model can help.
Competitive advantage for traditional incumbent enterprises with vast legacy “keep the lights on” franchises is not just about planning and launching a pilot high risk slow to reach relative critical mass “horizon/lane- three” green field business disruptor model. It’s about leveraging legacy critical mass momentum by executing a disruptive “lane-three” or incremental “lane-two” attack strategy at their competitors’ red ocean “lane-one” cash cow operation turning it with a compelling offer to their blue ocean. Scaling fast and siphoning off their competitions cash-cow, while simultaneously running a competitor disruptor pattern to defend their own “lane-one” cash- cow against attack. Possibly with a “lane-2” bridge.
With this new three-lane competition and innovation model playing out in practice, enterprises defending and attacking against both existing incumbents and new greenfield digital native competitors have a way to target more effectively scarce investments and resources as they themselves transition to become digital natives — by doing and being digital. To orientate themselves and act with precision and agility they need to become an intelligent enterprise (or here for wikipedia definition) — with the digital edge.
They are under attack from all sides. They need to assimilate technology, capacity, cash, and competencies fast, and apply this scarce resource expediently and wisely, to help them through. While they realize this, alarmingly, many have so far struggled to adopt the necessary digital-edge capabilities at sufficient speed pace and scale to succeed. If you follow the latest Mckinsey literature on Digital success, some industries achieve as little as 4% success; none are so far higher than 20%. ERP which is arguably less challenging has never reached higher than 50% success.
Competitive advantage will, therefore, go to those Organisations who don’t just switch to action orientation. They must in the process embrace the tools and acquire the skills and competencies necessary and apply them well to play and win sustainable lane one-two-three missions across the innovation continuum. They are leveraging both their cash-cow franchises and momentum, along with people data and technology, to project a foothold in new markets with new operating and business models. It’s a game of strategy, tactics, as well as action. From a different start point and therefore with different rules than the digital native lane-three disrupters and attackers – who are already people data technology driven and advantaged by design.
Digital natives are already competing across this innovation continuum at level 2 and above with each other. Amazon with Alibaba for instance. For now, it’s enough and hard enough for a traditional business to gain the digital-edge and play well at level 1.
Achieving the Digital-edge is a real-life imperative for incumbents, there is no time and room to err. It’s a difficult, complex, compounding, and statistically dangerous set of moves with scarce resources — impacting stakeholders, livelihoods, and communities. We must find more ways to short circuit and de-risk their path to success — with the right models and tools to build confidence, enrich decisions, extend capabilities, develop and guide their way to victory.
So far, not enough organizations have acquired the right playbook to execute the necessary winning moves at speed and scale. Today there is an imbalance we must address: Too few winners and far too many losers.
Mastering the duality of digital: How companies withstand disruption
Additional resources to support transformation architects dealing with the dynamics of transformation
Digital disruption and digital adoption is driving the new three lane three horizon playbook. Very Interesting links and research that suggest the three lane three horizon model is playing out for those incumbents who are more than 20pc digitized. They are twice as likely over traditional incumbents to experience greater than 25pc higher organic revenue growth.
In addition, digitized incumbents command a 20 percent share, on average, of their core markets. That is five percentage points more than what respondents at traditional incumbents report, and four times what respondents at digital natives do.
The playbook for a traditional incumbent is to adopt both new digital business models AND digitize existing operations. It’s not enough to do either.
The threat level to your enterprise is on an interesting framework as indicated in the link – pace of change x degree of change.
McKinsey research shows that established companies win by addressing digital strategy’s dual imperatives: building new digital businesses while digitizing legacy operations.
Geoff Moore: Zone To Win – a detailed playbook and framework of how to consider and execute with disruptive innovafions sustainably – factoring a crucial technology dimension.
Book: Zone to Win: Organizing to Compete in the Age of Disruption
Slide Share Introduction: https://www.slideshare.net/rstrad1/zone-to-win-organizing-to-compete-in-the-age-of-disruption?
Updates and latest findings on Zone to Win
Zone Management: Five Areas Under Construction
Geoffrey Moore | 24 Jun 2019
Clayton Christensen: The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail
The famous book noted by Moore in Zone To Win that describes the problem innovators have balancing their investments in new innovations whilst harvesting their cash cow current operations.
A very useful framework for dealing with another dynamic of systems theory, dynamics, and forces of change is the Cynefin Framework. The author David Snowden developed this whilst working at IBM global services.
I have a presentation to update publish at some point (ask me if interested) that explains how this framework applies to modern systems thinking and design in particular around data and business intelligence and core systems. The challenge is we are heading towards and increasingly living in the Chaos and Complexity Zone.
A very useful AI dimension and execution framework for achieving a digital competitive edge that works in the above contexts
How to evaluate and categorize AI investments:
How to describe them with the AI project canvas: (note discussion in comments)
How to describe a business model … the business model canvas
We will be exploring this fascinating and generationally important subject, along with other digital-edge related challenges Actors — people teams and organizations are facing and experiencing in much more detail at the Digital|Edge.
We will seek to uncover useful discussions, experiences insights and answers, discover people, technology and data, to aid all Actors looking to learn and acquire knowledge and capability at the Digital|Edge.
In the meantime — what are you hearing seeing and experiencing worth discussing at your Digital | Edge?
