The current way most corporations and innovation groups use the Horizon Planning Model is fundamentally wrong.

This model comes from the book “The Alchemy of Growth” published in 1999 by Stephen Coley, Mehrdad Baghai, and David White. The original purpose of the Horizon Model was to help businesses find ways to protect their existing revenue sources and develop new future ones. A lot of this model holds up today pretty well, but things have inevitably changed quite a bit- so it needs updating.

In the concept of “Horizon Planning”, there are three horizons that we should be developing products for. Yet too often, innovation teams are expected to deliver breakthrough innovations (that should come with a longer time horizon) and ROI within a short period of time. This just isn’t feasible.

At our recent Innov8rs Unconference, Brant Cooper – Author of “The Lean Entrepreneur” and CEO at Moves the Needle – discussed why the (current) Horizon Planning Model is wrong and proposed a new way to think about (investing in) corporate innovation.

Why Is The (Current) Horizon Planning Model Broken?

“The Alchemy Of Growth” is not a book about innovation per se. It's about growth, and the three “horizons” are the time horizons for various growth initiatives:

  • Horizon 1 (H1) is about extending and defending the core business and existing revenue sources. Returns are near-term (0-3 years).
  • Horizon 2 (H2) defines new revenue streams that come from sources which likely require 3-5 years to scale.
  • Horizon 3 (H3) describes initiatives today that will create future opportunities. Profits are 10 years away (if they ever appear). H3 ultimate goal is to replace existing revenue streams.

At some point, innovators co-opted the original model and equated H3 to “disruptive” or “breakthrough” innovation. Yet innovation was not ever part of the initial core concept. Furthermore, this rarely produces any value because most companies will never do or need disruptive innovation.

And then, H2 became incremental or sustaining innovation that belongs to no one and happens only by accident or through aggressive sales, marketing, or cost-cutting. This typically means modifying existing products or technology to create new markets or applying external technology in new ways.

H1 devolved into continuously improving the core business from a financial efficiency point of view. It’s viewed purely as an execution exercise, and it's all about operational efficiency.

In short, the current model of Horizon Planning has diverged from its original thesis. Instead of focusing on growth or new revenues, it has been molded into three-time horizons depending on how far out the returns for the projects were projected to be and based on "level of innovation". Such a model rationalizes not funding innovation and has caused a sad state of affairs:

  • Innovation teams are charged with breakthrough innovation but measured by immediate ROI
  • Companies arbitrarily use a 70-20-10 rule for horizon investing
  • Companies believe that they can determine what kinds of people work best in each horizon
  • Business Units don’t consider innovation to be their job

This corrupted version of Horizon Planning doesn't work for one fundamental reason: innovation is not predictable. You can’t lay it out on a time horizon. You don't know if an idea will work, how big the success will be, how long it will take, and who will come up with the big idea or who will validate or scale it.

And growth can come from anywhere, at any time. It's not determined by the time horizon, how far away we guessed it was, or the model itself. In other words, growth doesn't necessarily come from innovation. Companies that prioritize their projects based on the “time to ROI” allocate their resources inefficiently.

“It takes 1000 startups to get to a unicorn. Companies that assign a few teams to go do breakthrough innovation are going to be disappointed”.

Visibility Planning: Fixing The Horizon Planning Model

Thinking of horizons based on “visibility” can help fix the Horizon Model. In organizations, visibility is a measure of the distance into the future at which outcomes can be clearly discerned. Visibility varies according to initiative and how soon the outcome is needed. It’s heavily affected by emerging technology, demographic trends, economic trends, and ongoing disruptions (e.g., pandemic, war, supply chain, labor constraints, etc.).

Visibility Planning helps determine the proper allocation of resources such that organizations meet their short-term priorities, while also making progress on longer-term objectives, all based upon evidence.

“The difference is that Horizon Planning arbitrarily assigns a time variable and an innovation level to initiatives even though the timing and outcome is unknown. Instead, Visibility Planning measures initiatives by uncertainty and evidence, where time and impact are outputs”.

This alternative model – through a 2×2 matrix “the Project Prioritization tool” – helps estimate the likelihood of achieving desired outcomes based on market data and insights. It helps visualize where to invest resources based on evidence and impact.

And when your planning includes visibility, you can prioritize your projects on four different levels:

  • V1: initiatives, or "execution" endeavors, with high impact and high evidence for success that are known to have a positive impact. Your resources should already be concentrated here.
  • V2a: low-impact projects that have a high degree of confidence about what needs to be delivered. Resources should also be allocated to these projects, but they can be scheduled over a longer period of time since they are expected to have lower impact.
  • V2b: this level is rarely, if ever, considered. These projects, with high impact and low evidence, are often funded and resourced, but rarely achieve the desired outcomes. And when an execution mindset dominates even though there's much uncertainty, the risk of wasting resources is high. Balancing execution with "exploration" activities to learn what value needs to be created for stakeholders (and the level of effort required to get there) can be a better solution.
  • V3: This is usually where all ideas start- little to no evidence of their impact and level of effort is unknown. Thus how one deals with these can vary widely. Furthermore, these ideas require exploration work and this might be where innovation teams work, but ideally, whoever owns the idea is given the tools and time to generate evidence.

In Summary

The Horizon Planning model is a staple concept in corporate innovation, alongside the clarion call that corporations must disrupt themselves or manifest breakthrough innovation. From these concepts flow strategic planning, product portfolio management, resource allocation, and so on. But what if it's wrong?

According to Brant Cooper, the current way we use the Horizon Planning model has diverged from its original thesis: rather than focusing on growth, it has been molded into three-time horizons based on "level of innovation". Depending on how far out the return on the investment was expected, the projects were originally labeled by time horizons (1, 2, or 3). While today a "disruptive" or a "breakthrough" innovation is classified as H3, a "sustaining" or incremental innovation is classified as H2, and an improvement in financial efficiency is classified as H1.

Such a model has a fundamental problem: true innovation is unpredictable. A second point is that growth can come from various sources, not just "innovation".

Luckily, there’s a new way to think about corporate innovation, i.e., Visibility Planning. Visibility Planning is evidence-based, unlike Horizon Planning, which prioritizes projects based on their "level of innovation" and "time to ROI". In other words, market data and insights are used to estimate the likelihood and timing of achieving outcomes. And the progress toward the desired outcomes determines the time horizon.