How do you keep your Digital Transformation program from being swallowed up by current pressures? Future initiatives with great potential are all too often sacrificed on the altar of short-term results. It’s a sad fact of life in Corporate America as well as in much of the rest of the world.
One of the best ways to minimize the likelihood of having your Digital Transformation efforts undermined is to address them in the context of the Three Horizons of Planning. The underlying concepts have been around for decades. However, they were brought to the fore in the 1999 book, The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise, by Mehrdad Baghai, Steve Coley, and David White and have since been strongly promoted, especially by McKinsey and Co., since about 2009.
Three Horizons of Planning
At a very high level, the idea is that organizations must have three interdependent but separate planning processes. 1st Horizon Planning is about today’s core business. Of course, 1st Horizon planning includes enhancements to and extensions of that core business. It also includes incorporating operational efficiencies, near-term process improvement, etc.
In parallel with 1st Horizon Planning we have 3rd Horizon Planning. 3rd Horizon Planning is about the long-term vision. What could be enabled by emerging technologies and a willingness to completely rethink business models and processes?
Here today’s constraints are off. This means we must look into the future a minimum of two years, and for larger organizations, five years or more. The idea is to provide a “time cushion” to allow for existing systems, processes, assets and infrastructure to be changed as much as needed to fully support the vision of a digital enterprise functioning within a digital business ecosystem.
2nd Horizon Planning is where the Digital Transformation rubber really meets the road. Necessarily, 3rd Horizon Planning must identify multiple possible future scenarios. The purpose of 2nd Horizon Planning is to identify which 3rd Horizon opportunities appear to be promising enough as well as close enough at hand to justify funding initiatives to begin pursuing them independently of your core 1st Horizon activities. Whether they are called “Skunk Works,” “Start-ups,” or “Intrapreneurial Initiatives,” they’ll require that you divert significant resources from 1st Horizon activities to invest in these intermediate-term 2nd Horizon undertakings.
While these kinds of programs have been tried many times, they have often failed. Despite being insulated from the pressures of Core operational performance expectations, they are unlikely deliver significant benefits in the long run unless they are consistent with a 3rd Horizon long-term strategy.
So, Digital Transformation is planned and executed in three parts. 3rd Horizon Planning develops the long-term vision of the Digital Enterprise. 2nd Horizon Planning starts putting in place those components of the Digital Enterprise that cannot be accommodated within the context of current Core operations. And 1st Horizon Planning address the evolution of those Core operations that are expected to be retained as needed to support their roles within the long-term vision.
Next: Digital Transformation and the Autonomic Enterprise.