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 analysing 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 One corresponds to managing the current fiscal-reporting period, with all its short-term concerns; Horizon Two to onboarding the next generation of high-growth opportunities in the pipeline; and Horizon Three to incubating the germs of new businesses that will sustain the franchise far into the future.
This time-horizon perspective is especially valuable for an executive team trying to ensure its enterprise will endure and grow over the long-term. Like good farmers, managers see they must simultaneously harvest the current crop, till the ground for next season and investigate new crops for the future. When enterprises find themselves caught off-guard by a changing marketplace, management often assumes its mistake was in failing to invest sufficiently in Horizon Three projects. That turns out to be wrong.
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