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McKinsey’s Model, “3-Horizons of Innovation”, is Broken (Replace it with the 6-Hs of PDD™ and 2X your innovative opportunities) 

 February 20, 2019

By  Howard Cooper

Steve Blank published an interesting and insightful article, in the Harvard Business Review, Feb 1, 2019, which was also linked over to IdeaConnection,  the very next day, titled;

“McKinsey’s Three Horizon Model Defined Innovation for Years. Here’s Why It No Longer Applies”

An excellent article. Worth reading from top to bottom, two or three times. But, still short sighted and short on innovative solutions, as you will see below. The article does alert you to changes in speed of technological development and speed of innovative combining which makes McKinsey’s ‘Three Horizon Model’ timelines totally inadequate, only 19 years after the Three Horizons Model was first published as “The Alchemy of Growth”, by: Baghai, Coley, and White in 2000.

In all fairness to McKinsey, Steve Coley, co-author of “The Alchemy of Growth”, does state in a 2009 podcast and in the Dec 2009 McKinsey Quarterly  that the timeline width for each Horizon (H1 – H3) may vary depending on the product industry. This partially compensates for the fixed times given in the ‘Three Horizon Innovation Model’ as summarized in Steve Blank’s article:

  • Horizon 1 – ideas provide continuous innovation to a company’s existing business model and core capabilities in the short-term. (3 – 12 months)
  • Horizon 2 – ideas extend a company’s existing business model and core capabilities to new customers, markets, or targets. (18 – 36 months)
  • Horizon 3 – is the creation of new capabilities and new business to take advantage of or respond to disruptive opportunities or to counter disruption. (36-72 months)

Each horizon requires different focus, management, tools, and goals. McKinsey suggested that to remain competitive in the long run, a company allocate its research and development dollars and resources across all three horizons.”

To Steve Blank’s credit, he points out that adjusting the timeline for industry type does not protect you from Horizon 3 (H3) disruptive innovations created by rapid ‘innovative combining’ of existing components and/or technologies.  But, the danger and shortcomings of Blank’s article are;

First, He proposes only 4 alternate solutions for acquiring H3 Disruptive Innovations and then explains why each solution may not be very effective.

Secondly, Blank gives no solution for overcoming H1 Quality & Value challenges, nor for overcoming H2 New Product Development challenges, given shorter timelines.

Thirdly, Blank seems to assume all H3 opportunities (innovations) will be disruptive in nature. (Read, again, his Horizon 3 description, above.)  Most H3 developments are not disruptive. And, H3 is not defined as “disruptive” by McKinsey’s ‘Three Horizon Model’.  Horizon 3 represents opportunities for future growth that may take the form of new products, services, capabilities, and perhaps extensions into non-adjacent opportunities that show great promise but are highly uncertain. Or, future opportunities made possible by new or emerging technologies.  Most of these opportunities will not be disruptive. 

[See Clayton Christensen (the Father of Disruptive Innovation Studies) in his PhD Thesis and 1997 Book, “The Inventors Dilemma”.  A disruptive innovation is of little or no use to your customer base, so why would you seek it? Yet again, to Blank’s credit, disruptive innovations are where you need to look (whether coming from inside or outside your company) in order to identify the shorter timeline H3 opportunities and disruptions that could damage or kill your current operations.]

And Fourth, or lastly, Blank does not identify problems due to the Three Horizon Innovation Model (3HIM) being used as a “push management model” (top-down) rather than a “pull management model”.  Pull management having been proven so much more effective and efficient by Toyota and Honda during their 1980’s introduction of Lean Manufacturing, which produced less expensive and yet higher quality cars than the world had ever seen. So, you could say that, like so many products that come out of innovation centers today, 3HIM itself was somewhat obsolete before it was even introduced, in the year 2000. It is a push rather than pull model.

The Real Problem 

First, it is important to recognize the massive losses that come from the above problems, amplified by lack of an adequate innovation system of; methods, processes, tools and skills to generate, verify, develop and validate innovative solutions, products and services. This is likely the cause of hundreds of billions squandered and lost in the last decade. Squandered down the rabbit-hole of innovation.

“No decision in business provides greater potential for the creation of wealth (or its destruction, come to think of it) than the choice of which innovation to back.”

Robert Heller,
British business journalist and author. Ch. 5,
The Innovators,
The Decision Makers (1989).

Consider the financial loss, business failures and emotional trauma that occur when 4 out of 5 business start-ups fail in the first five years and when 4 out of 5 new innovative products analyzed and selected for backing by venture capitalists (VC’s) still fail. We call this the 80/20 Rule of failure. But, the VC’s argue, the one that succeeds will more than compensate for the four losses. And, that’s the way it’s been. But, what would happen if the VC’s had a way to flip or reverse this rule. What would happen if they could get 80% successes with only 10-20% failures? Literally, what would happen? That’s what I would call innovative.

Some think this 80/20 Rule of failure only applies to small companies, inventors working in a garage, or risky start-ups. But, consider this, from large well trained, well funded, professional organizations:

  1. During the decade, starting five years after 3HIM was introduced, from 2005 to 2015, approximately 80% of US Defense development projects (contracts) failed to advance to full rate production (failed to make it into the field). [Military Defense Projects Funded & Failed]
  2. A two year study on ‘Innovation Centers’ done by Capgemini Consulting Group and reported in 2015 revealed 84% ( 5 out of 6) of large corporate Innovation Centers set up between 2005 – 2015 have failed.
  3. Yet in 2018 one hundred large companies opened new innovation centers, usually near corporate headquarters.

Maybe this last group of companies “never got the memo”?  Maybe they should have thought about what Masaru Ibuka, founder of Sony, said:

“The key to success for Sony, and to everything in business, science and technology for that matter, is never to follow the others.”           

In Julia Vitullo-Martin and J. Robert Moskin, 

The Executive’s Book of Quotations (2002), 271

So, if the 80/20 Rule of Failure applies to large commercial companies, the US Dept of Defense and their large contractors, as well as to failure of large corporate innovation centers, then it is apparent we need to look elsewhere for a new model. A new system of processes and tools that can move us systematically toward reversing the <20% success rate to 80% success rate and only 20% failures. This would generate the greatest boost in history to our economy, to company profitability and to success rate for new product development in all industries, as well as greatly improved success rate for both the small entrepreneurial business and for the new Industrial Revolution 4.0, as a whole.

Peter Drucker verifies need for systematic process and tools, as the key to driving innovation, in the opening paragraph of his landmark paper “The Discipline of Innovation”, featured in Harvard Business Review’s “10 Must Reads on Innovation”, page 143, ISBN 978-1-4221-8985-6:, when he said:

 “DESPITE MUCH DISCUSSION THESE days of the “entrepreneurial personality,” few of the entrepreneurs with whom I have worked during the past 30 years had such personalities. But I have known many people—sales people, surgeons, journalists, scholars, even musicians—who did have them without being the least bit entrepreneurial. What all the successful entrepreneurs I have met have in common is not a certain kind of personality but a commitment to the systematic practice of innovation.”   — Peter Drucker

Drucker taught America, in the late 1940’s and 1950’s, that Business Management did not take a special personality or gift, it could be trained and accomplished by using the right processes and tools. Likewise, he is stating here that Innovation and Entrepreneurship does not require a certain personality or gift, it  can be trained and accomplished by following the right processes and using the right tools.

A New Model Needed – Revealing 2X more Innovation Opportunity

I read Drucker’s book “Innovation and Entrepreneurship” back in 1986. It fired my interest in innovation, so as an engineer I began looking at things differently and tried to improve every system or product to which I was assigned.

But, it wasn’t until May of 2010 that I made the biggest discovery of my engineering career, while sitting in a class, discussing structured innovation. This discovery, I now call, “Einstein’s Greatest Discovery – Never Told” (the title of a book I’m now writing).  This discovery changed my career and my success as an engineer. It secured my job at General Dynamics through seven years of large employee layoffs (2 layoffs per year) and five years of Sequestration cut-backs.  I had less seniority than most of those being laid off, but the company kept me on.  I was given higher pay and large annual bonuses as well as a chunk of stock options that paid off big time a few years later. Based on my discovery, I built a set of tools so that product development specialist could quickly access the principles needed to solve their problems, rather than wasting time guessing, brainstorming, mind-mapping, thinking outside the box (whatever that means) and instead of relying on time consuming experimentation and TAFT, Test-Analyse-Fix-Test…. Instead of feeling frustrated and feeling I was languishing in “cubical purgatory,” my job became fun. I was specifically requested to work on most of the company’s top problem/solution teams and I worked on each of their key defense projects. I was also selected to attend a 3 day workshop hosted by the division VP of Engineering and Development. Only 50 of the 3,500 employees were invited (those expected to be the most innovative employees).  Where previous employers had laid me off after a project was over, or down-sized me when their numbers “went South”, now, it seemed I could do no wrong and that an upward mobile career was guaranteed.

You see, it wasn’t really ‘me’ that made the big difference. It was the tool-set I was building, based on my big discovery. This tool-set, I now call the PDS-Generator, Principle Driven Solutions-Generator™.  Engineering and product development teams could, now, quickly solve their engineering constraints, reliability risks, safety hazards, produce-ability and productivity problems, etc. and close their customer requirement gaps.  I placed this tool on the company’s Intranet, so it could be used in any cubical, lab, or conference room and I wrote into our product development process a sub-process (procedure) for using the Tool. Over the following 5 years I was asked to help 26 different engineering teams to solve what each team was describing as an “unsolvable problem”.  We solved each problem, in a one-hour meeting,  using this PDS-Generator.

Some of these problem designs were; mechanical, some electronic, electro-mechanical, hydraulic, software related and some process problems. We didn’t waste time brain-storming, mind-mapping, guessing, nor ‘thinking outside the box’ (all 80/20 failure procedures). We simply used the PDS-G tool to lookup the correct principle that could best solve their problem, then applied it.  In that hour, each team was able to generate two or three innovative ways to solve their problem.  All 26 of these improved designs were then adopted by the US Army and put into production. They are now all (not 20% or 80%, but all 26) out in the battle field saving the US Army $233 million, over the legacy systems previously used.

Replace 3HIM with 6H-PDD™ 

When I saw this reversal of the 80/20 rule of failure and I saw the effectiveness of having the right principle, process and tools, I decided to take early retirement (Sept 2016) to expand on my discovery and document it so others like you and your organization may benefit. I continued finding other methods and principles to quickly and more effectively carry innovative improvements all the way through the design and development process. And tools to predict ‘the next big thing’ (opportunity) at each of the Six (6) Horizons of Innovation (identified below). This combined framework of tools and procedures I call PDD, Principle Driven Development. PDD helps speed a good idea or design concept into reality and adds value to the product or system as it goes through development and production. You see, it may be a good idea, but it is not ‘innovation’ until it is functioning in the real world. PDD functioins on the seven critical methods, procedures and tool-sets needed to form a complete rapid innovation and product development system. These seven methods were originally discovered, widely published and vetted between 1960 and 2007. But then, as each new method became popular, the older methods were largely forgotten.  I simply combined them, in proper sequence and functional relationship to form a complete system. ‘A “vehicle” if you will, to carry a small team or an entire organization 25X faster down the raceway of value creation (innovation), as they identify, develop, optimize, validate and deliver new and improved products into the real world (market place).

6H-PDD, 6-Horizon Principle Driven Development Model:

This PDD, Principle Driven Development System, is a framework of principles, tools and procedures that can be modified or adapted to your existing organization process and needs.  I now invite others to use PDD, to comment or make suggestions to help vet and improve the system. My experience shows PDD can help drive individuals and companies away from 80% market failures, and toward 80% market successes and often complete these projects in only 1/3rd the time. But, I remind readers that if they don’t have such a system (vehicle) to drive innovation, then they are still ‘walking’.

3-Horizon vs. 6-Horizons of Innovative Opportunity

The first point of comparison, when looking for a more robust capable model to drive innovation, should be to compare 3HIM vs. 6H-PDD horizons of opportunity:

3HIM, 3-Horizons of Innovative Opportunity 6H-PDD, 6-Horizons of Innovative Opportunity
H1. Current core operations of a company 1a. Improved value processes & operations
  1b. Improved value products & services
H2. Next, more valuable product for customer base 2a. Identifying next system iteration in value and product evolution.
  2b. Overcoming product physical constraints
H3. Future opportunities based on new immerging  technologies and capabilities 3a. Predicting the “Next Big Thing” for your industry or market
  3b. Identifying & merging disruptive innovations

PDD splits each of the ‘Three Horizon Model’ opportunities into two each. These six opportunities (or six horizons) are so different from each other, different in time, capturing process and different in tools needed to generate and capture the change. Different people, departments, tools, processes, budgets and funding may be necessary to capture and exploit each opportunity.  Without identifying, managing and empowering all six opportunities, at least half will be missed or ignored.

Further, the PDD model provides traction, speed, control and metrics. The above six opportunities are only initial and investigative activities which occur within the “Engine” block of the PDD system, above. Yet, no good idea or design concept is an innovation, until developed, optimized, manufactured and functioning in the real world. Therefore, the biggest portion of PDD components manage energy produced by the “Engine”. They convert and convey (develop and deliver) the power of the engine all the way out to the “Wheels”, where “the rubber meets the road.” As with any Vehicle, if one of these critical sub-systems is left out, or is not working in your PDD, then you still don’t have a Vehicle. You’re still walking.

A complete 6H-PDD model will help you to:

  1. Predict, forecast and characterize the next Innovation, before your competitor does.
  2. Play the ‘innovation game’ to solve long-standing system problems and design constraints, to add value without going over budget nor causing costly delays.
  3. Find and get components or services you need without losing your big idea or intellectual property. (Why re-invent the wheel)
  4. Solve safety, reliability, productivity and other specialty engineering problems 30-300X faster with the IfX and PDS-G tool, to boost customer value and to protect and improve profits before you get into manufacturing.
  5. Keep momentum, so that good ideas don’t ‘die in committee’, stagnate in round table discussions, or get killed by company politics. (Every good vehicle needs a drive-train.)
  6. Master and manage innovation with the missing 4th metric, to ensure your daily innovative efforts result in lower costs, improved functionality and customer value. Let profits soar.
  7. Know when to hit the brakes and to avoid market collisions.
  8. Eliminate 70-80% of the labor, time and expense of system Verification and Proto-type Validation, before full rate production.
  9. Move your organization 25X faster down the innovation raceway to market.
  10. Apply PDD to develop 15X more ‘hits’ than ‘misses’ and often do it in 1/3rd the time.

Special Offer:

Mention this article and get a $1000 online workshop for free, where I can help you apply PDD or the PDS-Generator to solve one of your system critical challenges. We can also examine the above ten ways PDD can help your organization and your innovative product development.

or

Contact Howard Cooper to Pre-Order his new book, “Einstein’s Greatest Discover – Never Told” only $27 and get as a pre-order bonus a $250 three part video seminar: “How You Can Wait Month’s or Years for An Epiphany, or Solve the Problem in Less Than an Hour”, using These Principles.”

About the author

Howard C. Cooper is a Design for Six Sigma Black Belt, Systems Engineer and founder of i3DAY Innovation. Over the past decade he coached 26 different product development teams at General Dynamics through solving their most critical challenges; design constraints, safety, reliability, etc. All 26 design and development projects were accepted in critical design peer reviews. All 26 were adopted by the U.S. Army, currently saving $233 million per year, over the legacy systems they had been using.

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