The Three Horizons Innovation Framework: Balancing Today’s Priorities with Tomorrow’s Possibilities

One of the most common traps in corporate innovation is the overwhelming focus on short-term goals — quarterly results, current customer satisfaction, immediate process efficiencies. While these are important, they often come at the cost of long-term resilience and relevance. While, any initiative cannot succeed without the involvement of the business team, often these short term pressures on your BUs mean, innovation in true sense takes a back seat.

The Three Horizons Framework offers a way out. Originally popularized by McKinsey & Company, this framework helps organizations structure innovation across different time horizons, enabling them to optimize for the present while building the future.

In this article, I’ll break down the Three Horizons Framework in depth —

• how it works,

• why it’s powerful,

• and how companies at different stages of innovation maturity can use it effectively.

What Is the Three Horizons Framework?

The Three Horizons model divides innovation efforts into three distinct strategic categories — each focused on a different time frame, type of innovation, and level of uncertainty.

Horizon 1: Optimize the Core

This horizon focuses on enhancing and extending the current business. It’s all about improving operations, maintaining competitiveness, and increasing efficiency.

• Examples: Process digitization, cost reduction initiatives, incremental product improvements, customer experience enhancements.

• Ownership: Typically managed by business units and functional leaders.

• Success Metrics: Efficiency gains, EBITDA improvements, core revenue growth.

Horizon 2: Explore Adjacents

Here, the company starts to explore new business opportunities that are somewhat related to its current operations — expanding into new customer segments, adjacent markets, or offering new product variations.

• Examples: Launching a digital product alongside a physical one, expanding into new geographic markets, creating a new service layer around an existing product.

• Ownership: Often driven by innovation teams or strategic growth functions.

• Success Metrics: New revenue streams, market penetration, adoption in pilot segments.

Horizon 3: Create Future Bets

This is the most visionary horizon — focused on disruptive ideas, new business models, or technologies that could fundamentally reshape the company’s trajectory. It involves high risk but also high potential reward.

• Examples: Incubating internal startups, building AI-powered services, investing in radically new platforms or ecosystems.

• Ownership: Usually sits with corporate strategy, the C-suite, or venture/advanced R&D units.

• Success Metrics: Pipeline of viable ventures, early-stage customer validation, long-term portfolio ROI.

Why the Three Horizons Matter

The core idea behind the framework is simple: Companies must innovate at multiple levels simultaneously. Focusing only on Horizon 1 ensures near-term stability but risks long-term stagnation. Conversely, focusing only on disruptive innovation without optimizing the core leads to instability and potential loss of existing market share.

The Three Horizons model brings several practical advantages:

• Portfolio thinking: Encourages a healthy distribution of effort and capital across time horizons.

• Strategic alignment: Creates a shared language between business units, innovation teams, and leadership.

• Talent clarity: Helps allocate the right people and leadership styles to the right problems — for example, executors in Horizon 1 vs. experimenters in Horizon 3.

Applying the Framework by Innovation Archetype

Different industries and organizations may need to adopt this framework differently depending on their maturity level.

Innovation Leaders (e.g., tech, pharma, BFSI, automotive)

These companies usually operate across all three horizons simultaneously. They have dedicated teams, budgets, and governance structures for each. For them, the challenge is less about adoption and more about balancing resource allocation and managing dependencies across horizons.

Fast Followers (e.g., retail, logistics, energy)

For this group, the Three Horizons model can serve as a roadmap. Most begin by strengthening Horizon 1 while gradually building capacity in Horizon 2. A small, well-supported Horizon 3 initiative (such as a corporate incubator or strategic partnership) can help build future readiness.

Emerging Innovators (e.g., infrastructure, manufacturing, public sector)

These companies should focus initially on Horizon 1 to modernize core operations. Once there’s internal momentum, they can move into Horizon 2 experiments — perhaps via partnerships or digital extensions — before exploring long-term Horizon 3 bets.

Common Pitfalls to Avoid

Despite its simplicity, many organizations misuse or misapply the Three Horizons model. Here are a few traps to watch out for:

• Treating the horizons as sequential: These horizons are not steps in a process. They should be pursued in parallel, even if at different intensities.

• Starving Horizon 3 of support: Many disruptive ideas fail not because they’re bad, but because they’re judged with the wrong metrics too early (e.g., ROI or EBITDA).

• Blurring ownership: Mixing execution-oriented teams with experimental projects often results in diluted focus or innovation theatre.

Best Practices for Implementation

1. Define clear governance and KPIs for each horizon. The same success metrics cannot apply across all three.

2. Design separate funding mechanisms. Horizon 3 projects may need milestone-based funding or internal venture-style models.

3. Create cultural permission to explore. Innovation won’t thrive if every idea is judged by operational standards.

4. Use Horizon 2 as a bridge. This is where teams learn to take calculated risks and build repeatable innovation muscles.

Final Thoughts

In an age of disruption, companies need to innovate with both focus and foresight. The Three Horizons Framework is not just a strategic tool — it’s a mindset shift. It encourages leaders to build a portfolio of bets, time-staggered across present efficiencies, adjacent opportunities, and future reinvention.

The best time to start thinking across horizons was yesterday. The next best time is now.

Coming up in the next article: A deep dive into the Ambidextrous Organization model — how to structure your teams for both execution and exploration.

If you’d like the full visual summary of the Three Horizons, feel free to reach out or follow this page for more posts in the series.

To read more about the frameworks, follow the below link to the first post:

https://www.linkedin.com/posts/sahilgupta1988_corporateinnovation-openinnovation-innovationframeworks-activity-7328708904962445312-rLSD/