FREEDOM AND SAFETY
After weeks of the spread of the COVID-19 pandemic and widespread lockdown, we must now take stock of how the crisis has disrupted the strategic decision-making framework for organizations and try to build a new one to look beyond the immediate crisis.
One of the classic strategic frameworks used by businesses for sustaining growth in normal times is McKinsey & Company’s “three horizons” framework. First introduced in the late 1990s, the three horizons framework is based on the idea that businesses that sustain growth over time manage initiatives across three strategic “horizons.”
Horizon one initiatives are the core business initiatives that provide the most value today – they require operational excellence and superior execution and are the realm of experienced managers. Horizon two initiatives are those that address proven new opportunities on the cusp of scale-up – they require positioning and business building and are the realm of strategists and business developers. And horizon three initiatives are the long bets, often based on the expectation of disruptions – they are the realm of visionaries and futurists.
But what happens when a major disruption like the COVID-19 pandemic hits the global economy in a massively accelerated timeframe? Suddenly we are through the looking glass: the horizons are turned around, and a world envisioned only by futurists is playing out in real-time on data terminals, social network feeds, and television screens.
Almost overnight, horizon three has now become horizon one, as fashion houses scramble to convert production lines to make surgical masks, automotive companies to produce ventilators, and brewers and perfume house to make hand sanitizer. Now the final horizon represents the world that used to be the first one: the one where people can leave their houses to go to cafes and movie theatres, go shopping and purchase non-essential goods, and travel domestically and internationally more or less freely.
And yet in this new world, we can still use a version of the three horizons framework, one shaped by the nature of the pandemic and our responses to it. In this scenario, the first horizon is the one where much of the world is now or is likely to be soon. This is an emerging crisis horizon, where society is scrambling to respond to the radically changed situation and taking drastic measures to “flatten the curve” of the pandemic.
Most likely this will be followed by a second horizon that does not represent full recovery but is not the full crisis anymore. In this horizon, the most stringent restrictions are raised but others are kept in place, and supply chains and travel plans are subject to disruption by emerging restrictions on the back of secondary outbreaks. This is the horizon where the public health crisis is followed by its economic impact and shaped in part by governments’ response.
And then there is the new third horizon – the “after” – when the reaction to the COVID-19 health crisis has been assimilated into a new normal or ceded the stage to new disruptions. On one hand this “new normal” won’t be just a return to the “before,” as the pandemic response is accelerating several transformative processes that might be hard to reverse – from the expansion of governments’ role in the economy to the adoption of remote working protocols. But it is also unlikely to be a completely different world from the pre-pandemic: we have learned from the financial and technological disruptions of the past 30 years that there are parts of the fabric of society – from long lived infrastructure to complex regulatory frameworks – that are difficult to change quickly.
Some of the lessons from the original three horizons framework will likely hold true for this new one. The first is that the urgency of the immediate needs of horizon one initiatives always risk taking resources and attention from horizon two and three. If that is true in normal times, it is particularly true in a crisis.
The second is that without strategic discipline, many organizations might be rearranging initiatives into an unbalanced portfolio. In this context, overinvesting in horizon one and three at the expense of horizon two might be particularly dangerous, as horizon two might turn out to be the most critical juncture for many organizations to regain their footing after the wave of disruption.
But these lessons need to be adapted to a situation of disruption and uncertainty. As horizon one in a crisis is much more tumultuous and fast-moving than in “normal” times, it requires much more attention from top leadership attention. Similarly, clear foresight on horizon three becomes more complex in times of disruption, pulled between the possibility of reverting to the past and opening the space for further major disruptions. But what might be particularly challenging in this time is to effectively build and support an effective portfolio of initiatives for the second horizon, which might both mature faster than in “normal” times, and be harder to predict due to the rapidly changing regulator environment.
Taking a three horizons framework can help not just business but also governments, social enterprises, and even families and individuals, in assessing their priorities and allocating energy and resources, so that they are not overwhelmed by tunnel vision during the crisis and throughout the recovery.