Letters to the Editor
To Succeed in the Long Term, Focus on the Middle Term In his article “To Succeed in the Long Term, Focus on the Middle Term” (July– August 2007), Geoffrey A. Moore succinctly describes the challenges of managing Horizon 2 businesses in large companies. His treatment resonates strongly with my own experience.
To Succeed in the Long Term,
by Geoffrey A. Moore
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Strategy’s no-man’s-land lies between the budget and the long-term plan.
BUSINESS STRATEGISTS like to think in portfolio terms. Whether it’s a question of cash cows versus rising stars or of businesses that prosper at different points in an economic cycle, it’s useful to have a framework for analyzing the mix and balancing investments wisely. With the publication of The Alchemy of Growth in the 1990s, Mehrdad Baghai and his colleagues from McKinsey & Company taught us to view portfolio management as having three time horizons. In their formulation, Horizon 1 corresponds to managing the current fiscal-reporting period, with all its short-term concerns, Horizon 2 to onboarding the next generation of high-growth opportunities in the pipeline, and Horizon 3 to incubating the germs of new businesses that will sustain the franchise far into the future. This time-horizon perspective is especially valuable for an executive team trying to ensure that its enterprise will endure and grow over the long term. Like good farmers, managers see that they must simultaneously harvest the current crop, till the ground for next season, and investigate new crops for the future. When enterprises find themselves
Andy Potts
Focus on the Middle Term
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When we originally created the three horizons model detailed in our book The Alchemy of Growth, my coauthors and I found that the most difficult part of the growth pipeline was the transition from Horizon 3 to Horizon 2. Moore has not only drawn attention to this treacherous terrain but has also offered six rules of the road to guide CEOs trying to accelerate the growth of a major new business.
What Moore doesn’t address explicitly, however, is what happens beyond the early transition stage. As Horizon 2 businesses gather momentum, scale up, and become major profit engines, they pose an entirely different (and difficult) set of challenges for CEOs. Horizon 2 businesses tend to move companies into new spaces, such as new products, customer segments, channels, and geographies. This shift can affect the very identity of the company. Some leaders, especially those who grew up in the legacy Horizon 1 businesses, resist this natural migration. Worried about the market’s reaction to such moves, they deprive the company of an opportunity to reposition itself with more comprehensive market definitions. In those cases, a change in leadership might be necessary in order to make the bold transition to a new world. Other executives, however, embrace the move, actively driving the natural evolution of both the brand and the company. When Apple Computer’s iPod and iTunes music store proved so successful that they challenged the computer company’s narrowly defined image, for example, Steve Jobs and his team officially propelled the enterprise – now known simply as Apple – into a broader competitive arena.
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LETTERS TO THE EDITOR
Alchemy Growth Partners Sydney
Moore responds: The idea that another stage exists on the journey from Horizon 3 to Horizon 1 is enlightening. The challenges Baghai points out revolve around the ability and willingness of a management team to participate in a fundamental change of corporate identity. Several companies have experienced transitions similar to Apple’s, including Intel (from memories to microprocessors), Nokia (from a diversified portfolio of businesses to an exclusive focus on wireless communications), and Kimberly-Clark (from pulp and paper to consumer products). In each case bold leadership was required to break and recast the mold. I can see how the inertia of an established reputation could be tough to overcome.
Managing Our Way to Economic Decline and Six Rules for Effective Forecasting Robert H. Hayes and William J. Abernathy’s article, “Managing Our Way to Economic Decline” (Best of HBR, July– August 2007), offers a landmark analysis of the root causes of America’s competitive weakness at the time it was first published, in 1980. Relating this piece to Paul Saffo’s article, “Six Rules for Effective Forecasting,” in the same issue is fascinating. Hayes and Abernathy support their arguments with several exhibits that highlight “our sorry decline.” If we extrapolate the trend line they depict, we
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The goal of forecasting is not to predict the future but to tell you what you need to know to take meaningful action in the present.
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by Paul Saffo
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EOPLE AT COCKTAIL PARTIES are always asking me for stock tips, and then they want to know how my predictions have turned out. Their requests reveal the common but fundamentally erroneous perception that forecasters make predictions. We don’t, of course: Prediction is possible only in a world in which events are preordained and no amount of action in the present can influence future outcomes. That world is the stuff of myth and superstition. The one we inhabit is quite different – little is certain, nothing is preordained, and what we do in the present affects how events unfold, often in significant, unexpected ways. The role of the forecaster in the real world is quite different from that of the mythical seer. Prediction is concerned
122 Harvard Business Review
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Marcos Chin
Mehrdad Baghai Managing Director
are bound to conclude that disaster is inevitable. Saffo points out, however, that the Six Rules for future does not unAccurate fold linearly. Instead, events occur in a sucForecasting cession of short-term S curves of growth and decline, often within a large longerterm curve. How these trends play out depends on wild cards that can affect the while, Japan and Europe, America’s course of events. The cathartic effect other greatest challenger, reached the of Hayes and Abernathy’s article itself end of their growth curves and began is a good example: A couple of years to stagnate – a situation from which after it was published, Thomas J. Peters they have barely begun to recover. and Robert H. Waterman, Jr.’s, book Today, the focus is on China and InIn Search of Excellence took the world dia, and the prevailing view seems to by storm, and the quality movement fi- be that their growth curves will trend nally gained traction in America. inexorably upward to the top rightToward the end of the 1980s, the Jap- hand corner of the chart. But that is anese prime minister commissioned a not guaranteed. When contemplating study of his country’s future in view of the future of the emerging economies the approaching new millennium. The we might keep in mind that Hayes and report’s main conclusion was that Japan Abernathy provide one still frame of a would remain the world’s second most picture, but Saffo leads us to consider powerful economy while the United the whole movie. States would rebound, thanks to an inBob Clarebrough nate competitive spirit that would drive Independent Consultant Americans to restructure their busiWeymouth, England nesses and regain their preeminent position in the world. And, indeed, that’s what happened. Perhaps the Japanese The Making of an Expert recognized that the U.S. had been on the declining slope of one S curve but In the article “The Making of an Expert” was more than capable of jumping into (July–August 2007), K. Anders Ericsthe growth phase of a new one. Mean- son, Michael J. Prietula, and Edward T. Cokely reinforce a belief in the value of experience. They rightly emphasize the importance of acquiring expertise and point out that leadership is not achieved in a day, but rather is the result of time, effort, strategy, and determination. Experts are not born virtuosos. They first need to establish their credentials Managing Our Way to Economic Decline and then move on to build relationships with the right stakeholders and acquire skills in their domains. They D need to bring value-added contribution to the organization and eventually create sustainable advantage through hbr.org
July–August 1980
by Robert H. Hayes and William J. Abernathy
Editor’s Note: This 1980 article, with its scathing and richly documented criticism of U.S. managers’ focus on short-term financial gain
at the expense of long-term competitiveness, sent shock waves through American business when it was first published. The inroads that European and Japanese companies have made into traditional U.S. industrial strong-
URING THE PAST SEVERAL YEARS, American business has experienced a marked deterioration of competitive vigor and a growing unease about its overall economic wellbeing. This decline in both health and confidence has been attributed by economists and business leaders to such factors as the rapacity of OPEC, deficiencies in government tax and monetary policies, and the proliferation of regulation. We find these explanations inadequate. They do not explain, for example, why the rate of productivity growth in America has declined both absolutely and relative to that in Europe and Japan. Nor do they explain why in many high-technology as well as mature industries America has lost
holds since then prove its prescience. Many of the problems raised by the authors have been addressed over the years, as Harvard Business School’s Robert H. Hayes notes in a sidebar written for this issue. But the original article’s call for self-examination and action is still relevant today, as U.S. companies face similar uncertainty and emerging competition – this time from China, India, and other developing economies.
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Robert Meganck
Clearly, the three horizons are more than just a novel portfolio management framework. By connecting an organization’s growth businesses to today’s core businesses, they mark a vector that describes the likely evolution of that company. A CEO’s decisions about which businesses to build in Horizon 2, therefore, will turn out to be critical.
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