The Idea in Brief
Why do so many promising ventures fail? After transforming hot ideas into fledgling businesses, some companies drop them when executives realize they won’t pay off quickly. In other firms, managers poach new projects’ resources to boost established businesses’ short-term returns. Result? Companies kill or starve young businesses—wasting the resources already invested in them.
To avoid this fate, Moore offers these suggestions: First, imagine your innovation pipeline as comprising three time horizons: “Horizon 3” (ideas for future businesses), “Horizon 2” (young businesses), and “Horizon 1” (established businesses). Then ensure that Horizon 3 ideas survive the transition to Horizon 2 and Horizon 1. To do so, avoid holding Horizon 2 businesses to Horizon 1 standards. For example, accept that Horizon 2 efforts will pay off in the medium term, not immediately. And safeguard Horizon 2 resources, so nascent projects can mature to adulthood—and eventually generate handsome returns.
The Idea in Practice
Moore offers these rules for managing your Horizon 2 projects:
Insulate Horizon 2 from Horizon 1 to ensure that young businesses get—and keep—needed resources. For example, Cisco knew its greatest growth opportunities were in developing economies, where young businesses wouldn’t get much attention from Cisco’s regular sales force. So the company created a separate “developing countries territory” with its own executives and sales force. Within that territory, Cisco then designated 12 asset-rich new markets (such as Dubai) for Horizon 2 treatment. In these countries, sales teams and executives focused on winning transformational deals with government agencies and telecommunications companies—efforts that they knew would take some time to produce results.
Use acquisitions to help fill any Horizon 2 vacuum. When the high-tech downturn hit, Cisco found itself with a serious Horizon 2 vacuum in several emerging high-growth categories. It revived growth by acquiring Andiamo Systems to anchor its entry into storage area networks, Linksys and Airespace to attack the wireless network market, and numerous software companies to gain ground in the security market.
Establish different norms for Horizon 2 efforts. Your Horizon 1 processes, metrics, and targets are all geared to profitably underwriting the operations of a large, established business. Yet those norms are toxic to Horizon 2 ventures, which need time to attract new customers to their offering. So, negotiate exceptions to all of them for the duration of your Horizon 2 timeline.
Assign your best leaders to Horizon 2 projects. Make sure Horizon 2 projects are led by people who understand entrepreneurial deployment and know how to build a business to a level where existing operations can take over. Make these full-time commitments. And measure leaders’ success by growth coming from timely and effective entry into a hot market category.
Block cross-horizon resource migration. Once you’ve determined which leaders and how much funding you’ll devote to a Horizon 2 effort, stick to that resolution. Don’t let Horizon 1 managers hoard or poach resources to protect their established businesses.
Business strategists like to think in portfolio terms. Whether it’s a question of cash cows versus rising stars or of businesses that prosper at different points in an economic cycle, it’s useful to have a framework for analyzing the mix and balancing investments wisely. With the publication of The Alchemy of Growth in the 1990s, Mehrdad Baghai and his colleagues from McKinsey & Company taught us to view portfolio management as having three time horizons. In their formulation, Horizon 1 corresponds to managing the current fiscal-reporting period, with all its short-term concerns, Horizon 2 to onboarding the next generation of high-growth opportunities in the pipeline, and Horizon 3 to incubating the germs of new businesses that will sustain the franchise far into the future.
