How to Master the 3 Horizons of Product Strategy
Today is the tomorrow you worried about yesterday.— John T. Tindsley, author and lecturer in Theology at University College
A typical product manager’s day is filled with requests from others:
“I want you to get on a sales call with a key prospect”
“I have an angry customer on the phone”
“I need you to pitch the product to our Board of Directors”
These “urgent” activities seem so important at the time. But the truth is that they rarely impact the future.
When we get so caught up in today’s demands, we fail to look out at tomorrow and ask, “Where are we going?” That is why many product managers end December saying, “I was busy every day, but didn’t really accomplish anything.” In these situations, PMs realize that they likely helped others accomplish their goals — without achieving any of their own.
Luckily, there is a solution. Product managers do not have to choose between being tactical or strategic. Instead, we can spend time each week managing deliverables and working on future planning.
This approach is known as the three horizons of growth. I believe it is central to a strong product strategy — and many management leaders share this perspective.
Definition
In The Alchemy of Growth, Mehrdad Baghai, Stephen Coley, and David White explain three horizons of growth for products. Clayton Christensen explored the concept further in The Innovator’s Dilemma, and Geoff Moore adapted it to his lifecycle model in Escape Velocity.
This idea’s essence is that we must look at products along three horizons: now, next, and beyond. While we operationalize our existing products (Horizon 1), we must also be planning what’s next (H2) and what’s after that (H3).
Horizon 1 is today’s core business — the products and services available to our existing customers. We must keep these products current to meet the needs of existing markets and customers.
Horizon 2 represents the work we’re doing now for future delivery — the stuff on the roadmap. This often involves revising products for new markets or adding significant functionality to existing products to make them more attractive to new markets.
Horizon 3 is where most innovation is focused. It’s the work we are doing with new technology for existing markets or entirely new products for new markets.
Optimization
In many ways, the three horizons concept ties nicely with the Boston Consulting Group’s Growth–Share Matrix. Looking at market growth and relative market share, Horizon 1 products represent the cash cows that pay for investments in emerging Horizon 2 and 3 initiatives. And each horizon represents a unique set of initiatives.
Horizon 1 is optimized for profit. The excess profits will fund your next generations of products. Optimizing for profit means reducing the scope of new development to maintenance rather than great gobs of new functionality. It also means reducing or eliminating your promotional spending. And in most cases, you’ll explore alternative sales approaches, moving to a less expensive method of selling. Ideally, Horizon 1 products can be sold over the phone or via the website. This means that you no longer need “hunters” — you now need “farmers” at this stage.
Horizon 2 is optimized for revenue and market share. You want to grow your customer list and build your market presence. You’ll want to re-deploy your sales people from the H1 products to focus exclusively on the H2 products. You’ll focus most of your promotional spending on these products.
Horizon 3 is optimized for learning. Before we can scale a new kind of product, you must learn how to work in new environments, such as learning how to create apps or deliver services via video or provide storage in the cloud.
Competition
Perhaps you’ve heard of companies who plan to “leapfrog the competition.” I have never seen this succeed. To catch up and then exceed what competitors deliver is almost impossible. Developers, marketers, and salespeople are all forced to do too much too quickly. In these situations, product teams try to operationalize technology and products that they don’t yet understand. This is no way to beat competitors.
Case in point: the product management industry’s move to cloud delivery. Once this occurred, many companies found themselves unprepared for the cloud’s operational aspects. Cloud-based products must be maintained and operated differently. What was previously done by internal IT staff is now the provider’s responsibility.
This led to a host of questions: “Do you have backups?”; “Do you have a recovery plan?”; “Have you tested your ability to recover client data?” Oh, and, “Is my information protected?” Internal IT departments mastered these questions years ago. But they were — and still remain — new for many cloud-based vendors.
Time Management
Are your product managers and development leads focused on maintaining H1 or creating H2? If so, then who (if anyone) is focused on H3?
Sales teams should be split in two: one team of farmers for H1 and another of hunters for H2. Promotional marketing expenditures should be focused more on H2 — building market share and growing revenue and awareness.
As for development and product management teams? They should spend little time on H1, most of their time on H2, and some time on H3 initiatives.
Defining roles and responsibilities across the three horizons is a tool for your product playbook. It is an initiative that involves a lot of hard work. But this work will ensure that your product team is systematic in its methods and consistent in deliverables. It is the backbone of great product strategy, and no product manager should lead without it.
How do you allocate your time across the three horizons?
This is a guest post by Steve Johnson. If you are looking to be a great product manager or owner, create brilliant strategy, and build visual product roadmaps — start a free trial of Aha!
About the author
Steve Johnson is a recognized thought leader and storyteller within the technology product community. At Under10 Consulting, he helps product teams implement the latest methods for today’s business environments.
