McKinsey’s ‘3-Horizons Model’ is Broken – Replace it with PDD™, to Reverse the 80/20 Rule of Innovation Failures

Steve Blank published an interesting and insightful article, in the Harvard Business Review, Feb 1, 2019, which was also linked over to IdeaConnection, like 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. It alerts 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.)  Many, if not 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-adjacencies that show great promise but are highly uncertain. Or, future opportunities made possible by new or emerging technologies.

[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 but 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.

A New Model – A New Solution – 6H-PDD™ to Replace 3HIM

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.”           –Quoted in Fortune (24 Feb 1992). 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.

I read Drucker’s book “Innovation and Entrepreneurship” in 1986. It fired my interest in innovation, so as an engineer I began looking at things differently and tried to improve systems 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. 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 a set of Excel tools I had built, from my big discovery. This toolset, I now call the PDSG, Principle Driven Solutions Generator™, could show engineering teams how to quickly solve their engineering constraints, reliability risks, safety hazards, producibility 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 4 years I was asked to help 22 different engineering teams to solve what each team was describing as an “unsolvable problem”.  We solved each problem by playing what I call the ‘one-hour innovation game’ using this PDSG.

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 PDSG 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 22 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 22) out in the battle field saving the US Army $158 million, over the legacy systems previously used.

When I saw this reversal of the 80/20 rule of failure and I saw the effectiveness of having the right process and tools, I decided to take early retirement (Sept 2016) to research my discovery further. I continued finding other methods and tools needed to help speed a good idea or design concept into reality (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. I have found and combined seven necessary methods with their processes and toolsets to form a complete rapid innovation or 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-Horizons of Innovation with Principle Driven Development:

This 6H, 6-Horizons model is a framework empowered by PDD, Principle Driven Development. PDD can be modified or adapted to your existing organization, process and needs.  I now invite others to comment or make suggestions to help vet and improve the 6H-PDD model.  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’.

3HIM vs. 6H-PDD 

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, Three Horizons of Innovative Opportunity MVIS, MaxValue Innovation System (6 Horizons)
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 the industry
  3b. Identifying & merging disruptive innovations

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

Further, the 6H-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 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 PDSG 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. Move toward generating and producing 4X the ‘market hits’ rather than ‘misses’.

About the Author

Howard C Cooper is a systems analyst and innovative product development coach.  He helps solve engineering constraints, close customer requirement gaps and solve reliability issues, safety hazards, producibility and productivity problems 30-300X faster using his PDS-G, Product Driven Solutions Generator. He also helps business leadership implement the PDD to achieve 4X the ‘market hits’ rather than ‘misses’.  He provides online or onsite couching and guidance in playing the one-hour ‘Innovation Game’ to generate instant solution to current or long-standing system problems. He seeks to advance and promulgate PDD usage across America and throughout the defense industry, to ‘make America great again’ and to help win the ‘Industrial Revolution 4.0’.

Special Offer:

Mention this article and get a $1000 coaching session free, to play the one-hour ‘innovation game’ and solve one of your system critical challenges and examine the above ten ways PDD can help your organization.


Contact Howard Cooper to Pre-Order his new book, “Einstein’s Greatest Discover – Never Told” and get a $10 discount $27.00 only $17,  as well as a $250 three part video seminar on “How You Can Wait Month’s or Years for An Epiphany, or You Can Solve the Problem in Less Than an Hour, Using These Principles.”

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