Despite our love for embracing the new, there’s nothing quite like an enduring innovation framework.

McKinsey’s ‘Three Horizons’ is one such useful and time-honored taxonomy: a way of helping various stakeholders to visualize and realize an ambidextrous organization. The core principle is simple: companies can continue to build and execute on existing business models, whilst simultaneously creating new capabilities.

Horizon 1 provides continuous innovation to existing models, staying true to its core.

Horizon 2 extends existing business models to new markets.

Horizon 3 creates brand new capabilities that won’t fit within existing business models.

The difference is that now, contrary to the binary 20th-century reality, a brand new idea could be brought to MVP much faster than an existing product iteration. This got Steve Blank to declare that the model no longer applies.

But although indeed the relative delivery timeframes of these horizons have been shaken up by digital disruption, the model is still very useful as a shorthand for prioritizing innovation initiatives.

It is not a question of which Horizon you use, then, but which Horizon you use when - and in what measure? How do they work in relation to one another, or not?

Innovation leaders from GE, EnBW and AirFrance KLM have been there and done that, from sunrise to sunset. We summarize their perspectives on the Three Horizons and the instruments that work alongside them, as shared on stage at Innov8rs Paris (April 2019).

A Hybrid or ‘Haretis’ Horizon Model

"It was really different moving to an industrial infrastructure company [GE] from a software giant [Google]", admits Deborah Sherry, Senior Vice President and CCO of GE Digital.

She talks about the real lessons to be learned at the intersection of these two totally different cultures, which she analogizes with the popular fable of the hare and the tortoise.

Digital culture is the hare. It moves quickly, realizing things every day that we could never have conceived of even a couple of years ago.

The digital hare sees the light with an MVP to get the core of what customers need out as quickly and as cheaply as possible - then failing fast with rapid experimentation. Software is launched imperfectly and then iterated on, and if something needs a patch - it’s fixed on-the-fly. Owing to low costs, the risk and consequence of failure is relatively small… after all, you can always roll back what you’ve rolled out.

In the other race lane, industrial culture is the tortoise. Industrials operate and rely on infrastructure that has decades-long lifecycles characterized by careful, slow and deliberate building. A train or a plane can’t fail and be fixed later - they need to be built to perfection because their sole purpose is to be safe and reliable.

And yet, the industrial sector can be incredibly expensive - often wasteful. This doesn’t benefit the environment, nor the economy.

We live in a multi-speed world, and Deborah’s team works at the forefront of bringing digital into manufacturing, where they have learned how to bring the best of both paces and worlds together - it’s a hybrid creature and culture, which she calls the Haretis.

The Haretis can meet many corporate goals, so whether it’s achieving more with less, sustainability or even just survival due to tough competition, the two sides of industrial and digital, tortoise and hare, can collaborate closely to bring the fast moving iterative nature to the slow, deliberate world of industrial engineering - for example using software to predict engine failures before they happen, based on big data.

This means that the software needs to be just as reliable as the hardware it serves. As well as a new breed of engineering, this means respecting great teamwork between industrial and digital teams - and training industrials to think like digitals, as digital migrants:

  • Digital Mindsets are Made, Not Born: this means saving millions of dollars by maximizing on the decades of industrial experience engineers have, and providing them with the training they need to perform big data analyses and insights to train Machine Learning Algorithms. This is easier than taking a digital native and trying to teach them decades of industrial knowledge.
  • Digital Natives Lead in Tandem with Migrants: taking top performers from the industrial side of the business and putting them in charge of digital transformation didn’t work in terms of pace or people. GE took those with the aptitude and the will from industrial, and partnered them with productive disruptors in digital to create a powerful duo.
  • Power in Dual Perspectives: in talent, it’s crucial to have both deliberate perfection and fast-paced experimentation. The digital migrants appreciate the legacy and can carry the rest of the business and the skeptics along on the journey - and this is critical.

Balancing The Best of Two Horizons

Meanwhile, EnBW’s Christine Weinhold and Bridgemaker’s Kilian Veer talk about the value of combining intrapreneurship and corporate entrepreneurship to maximize innovation success. How to manage the challenge of synchronizing this into a strategy which makes sense?

With Christine on the intrapreneurial, inside-out bench, and Kilian as a classic outside-in entrepreneur, they each outline two horizons, their instruments, and the instances in which they are most valuable.

“If you have an idea which is close to your core, use the internal. If it’s something radical, maybe use the external. But there are advantages and disadvantages to these independent of how you want to use them” explains Kilian.

The Advantages of Outside-In
  • Intrapreneurship means a lack of tech freedom: you want to use Slack? It’s not compliant. If you have a new business model and you’re not able to choose the stack that the business is running on, you could be in big trouble
  • Corporate stakeholder management can weigh startups down: you have a lot of people telling you which way to go in corporates, which results in a lack of business freedom. Every radical decision has talk involved, whereas corporate entrepreneurs get to fulfil their own destiny
  • Strong survival instincts breed creativity: with less hand-holding and more freedom comes responsibility - and it also brings hunger and the need to survive. If you’re constantly challenged by the market, if you never know what the next day will bring, and this drives you to constantly come up with creative ways of doing business.
The Disadvantages of Outside-In

Open innovation and open-source isn’t always the solution:

  • Keeping control over the ideas you have: perhaps there’s a patent you just don’t want to go out in the open as a corporation.
  • Access to a pool of internal resources: constraints and lack of resources can be an advantage or a disadvantage. If you opt for intrapreneurship, you have the corporate assets (skilled people) at your fingertips to more easily make your idea work and gain an edge.
  • Speeding up at the resourcing stage: intrapreneurship grants a different kind of freedom. Where an outside-in approach may work faster in terms of decision-making, time-to-market may leap ahead through the ease of internal resourcing.

And Christine describes how EnBW has taken a holistic approach to bring the best of both approaches into their innovation strategy, with success:

“We built all the instruments over the course of five years: intense intrapreneurship programs, participating in accelerators, building external ventures, and creating a venture arm. We clustered them into three organizational structures, and we learned that these three different structures require different responsibilities, and ways of running and interacting with startup teams.”

For the intrapreneurs, this meant intensely molding and refining the skills of internal employees to act more like entrepreneurs. And for external entrepreneurial ventures, this was all about serving as ambassadors internally to help the startups work around internal structures.

EnBW also implemented four main topic areas, which they saw as their strategic innovation advantages, and then assigned topic leaders - leading subject matter specialists - to build each respective portfolio. They defined a strategy for each topic, which involved projecting what the ecosystem for this area would look like in the future, and where EnBW would fit within it.

Through these opportunities, the teams could develop new business models - and then, choose which instrument to use based on the type of market and model. Could they find an unfair advantage internally, or would they need other investors? Which swimlanes should they start the initiative with?

“To achieve success structurally, the topic leaders were combined in one unit just below the CEO - which gave us the freedom and the commitment from the company to become like pirates. Because all topic leaders were on one level, and running different instruments, we could closely link our activities.

Where the magic really happens is when we look at everyday business, and the topic leaders start to set the strategy which is the glue logic between different startups - internally or externally, interlinking those startups with one another… They discuss challenges, synergies, partners and business units, helping each other to become more successful faster.”

Topic leaders have the network to add value, initiating internal and external cooperations, but also offering a protective wall between corporate and startup activities when needed.

Takeaways from the two approaches?
  1. Run both inside-out and outside-in initiatives, but make them holistic… you can’t focus on one side or the other, otherwise, you miss opportunities
  2. C-level support makes it happen
  3. Innovation is a people business. Make the most of the people you have
  4. Don’t force a startup culture onto your corporate if it doesn’t fit, and instead accept the fact that the existing culture may not be exactly what you need. Have the courage to find it elsewhere.

Focusing On Radical Newness

BigBlank is a startup studio backed by AirFrance KLM. Their CEO, Hubert Riondel, talks about how BigBlank created a totally new playbook for corporate innovation by building startups from scratch.

The question about innovation programs is really ‘which outcome do you want?’ Corporate innovation often just becomes innovation theater, through which you can only scratch the surface. This performance creates good PR value and marketing insights, but it doesn’t really change the status quo:

“How do you really make yourself future-proof?", Hubert asks.

“Everything you need to do is two-fold: how to exploit and improve what you already know and do, and how do you explore completely new opportunities? Companies are fine with the exploitation part, moving around their existing business models, but the right side is hard: you need to unlearn habits, and explore where there are no existing playbooks. This is something we’ve been working on.”

This meant changing their perspective: how could BigBlank be the best Co-Founder or Entrepreneur, to build the future of travel as a start-up? This was easier to present on a slide than do for real. How did they move from prototyping to first customer traction?

Becoming A Learning Factory, aka a Company That Knows Nothing

They go back to square one by seeking, sourcing, sparking and scaling. BigBlank started with finding the fuel. By guiding start-ups towards seed funding up to Series A, they have a stable launchpad for take-off. Then it’s time to add their ‘unfair advantage’ - corporate assets - which includes an ecosystem of partners ready to work with them; deep expertise on specialist areas, as well as graphic designers, product developers and business analysts that can ignite their big idea to move through the first modes of iteration. They combined this into a methodology, which moved at an intense pace to help the startup focus on the right problems.

Then, how did they find the right business model to scale?

  • “We prepare our startups for their life, not ours”: Hubert explains the importance of helping startups to structure and build autonomously, so they’re able to grow, raise money, and build their own culture. This translates into...
  • Enabling and trusting them: when they leave the studio, the corporate doesn’t own more than 25% of the company, which is a bold move. When you absorb any new startup, you take your due diligence, get to know the team, how it’s operating and if the results are real - finding their sweet spot.
  • Gathering superpowers: Hubert places an emphasis on finding the best team, bringing the top skills to entrepreneurs - and helping them to actually execute at speed. It could mean the capability to build a mobile app in less than a day, as opposed to a month; or unlocking the funding for a project within hours, not years.
  • Detach startups from corporate functions: To move fast, startups need to set up their own processes completely separate from corporate decision-making: “Don’t believe the C-levels when they assure you that have all the free reign - the default structure is ‘no process’, because we build our own”.
  • Take care of your street cred: it’s all about the quality of your relationships, so don’t ‘fake it until you make it,’ and instead observe the entrepreneurial code and the ecosystem you’re operating in. ‘Entrepreneur’ is not something you put on your LinkedIn profile… it’s a way to create value in a very different way to a corporate.

As Steve Blank points out in his article, the trap of the Three Horizon model is not recognizing that today many disruptions can be rapidly implemented by repurposing existing Horizon 1 technologies into new business models — and that speed of deployment is disruptive and asymmetric by itself. 

So, maybe it doesn't really matter (anymore) how you are placing your bets and balancing your approach across and between the Thee Horizons, as long as you keep that new fundamentally changed context in mind.