The Three Horizons of Innovation

In today’s rapidly evolving business landscape, innovation has garnered much attention. Companies that can adapt and innovate effectively to meet changing customer needs, and capitalise on new opportunities are lauded across the industry.

In my experience working within very innovative organisations, and helping a number establish their innovation practices, I find that innovation naturally breaks down into three distinct horizons, each representing a unique approach to driving growth and value creation.

In this blog, I’ll explore each horizon and how to easily characterise them. Whether you’re an entrepreneur, executive, or innovation leader, understanding and leveraging the three horizons of innovation is critical.

Horizon 1: Product Improvements

The first horizon of innovation is product improvements. This is the daily grind of refining and enhancing your existing products to meet the evolving needs and expectations of your clients. It’s about staying ahead of the competition, protecting your revenue streams, and incrementally improving your business model. This horizon is all about maintaining relevance and sustainability in the marketplace.

Product improvements can take many forms, such as:

Enhancing product features and functionalities
Improving the user experience
Optimising production processes
Updating product designs and aesthetics
Integrating new technologies and materials
Refining pricing and packaging strategies

By focusing on product improvements, companies can:

Sustain their market share and revenue
Strengthen their brand reputation and customer loyalty
Stay ahead of the competition and avoid obsolescence
Create a culture of continuous improvement and innovation within the organization

Horizon 2: Adjacencies

The second horizon of innovation is adjacencies. This involves finding new revenue streams by exploring opportunities that are immediately adjacent to your existing products or services. This could mean developing a new product for your existing customer base or expanding into a new market segment that aligns with your core competencies. By successfully navigating this horizon, companies can achieve a significant step change in revenue and growth.

Adjacent opportunities can include:

Expanding into new geographic markets
Developing new product lines or services that complement existing offerings
Leveraging existing customer relationships to enter new industries
Partnering with other companies to offer bundled solutions
Creating new business models or revenue streams

By exploring adjacencies, companies can:

Diversify their revenue streams and reduce dependence on a single product or market
Capture new market opportunities and expand their customer base
Strengthen their competitive position and gain a competitive advantage
Create new revenue streams and increase profitability

Horizon 3: Disruptive Innovations

The third and most coveted horizon of innovation is disruptive innovations. This is the holy grail of innovation, where companies can leverage disruptive forces to take a significant lead over their competitors or enter entirely new markets and opportunities. The potential ROI for disruptive innovations is typically the highest, but it also requires a longer time horizon to realize. These innovations can completely transform industries and create new markets.

Examples of disruptive innovations include:

Revolutionary new technologies that disrupt existing industries
Game-changing business models that upend traditional approaches
Disruptive products or services that capture new customer segments
Paradigm-shifting ideas that create entirely new markets

By pursuing disruptive innovations, companies can:

Create entirely new industries and market opportunities
Gain a significant competitive advantage and establish a leadership position
Capture new customer segments and expand their market share
Drive long-term growth and profitability through radical innovation

The Time to ROI: A Long-Term Perspective

It’s essential to remember that innovation is a long-term game. While the ROI may not always be linear, the time to realise the benefits tends to increase as you move from one horizon to the next. This means that companies must be willing to invest in the long-term growth and development of their business, even if it means sacrificing short-term gains.

In conclusion, understanding and navigating the three horizons of innovation is critical for companies looking to achieve sustainable growth and success. By focusing on product improvements, adjacencies, and disruptive innovations, businesses can position themselves for long-term success and stay ahead of the competition in an ever-changing market landscape.