Organisations are operating in fast changing times. This is particularly well illustrated by the new tools and platforms being built with Generative AI and AI Agents. These are enabling organisations to automate and optimise products, services and processes, from drafting reports to designing creative assets. However, while such technologies excel at driving quick wins in terms of efficiency and cost saving, on their own, they will not help organisations thrive in the medium and long-term. The Three Horizons Model provides a structured framework to address this challenge.
The Three Horizons Model Overview
- Horizon 1 (H1): Core activities that sustain current revenue and operations. Technologies such as AI are exceptionally good at automating and optimising these processes.
- Horizon 2 (H2): Emerging opportunities that extend or adapt current business models to drive growth.
- Horizon 3 (H3): Disruptive innovations and radically new ideas that redefine industries.
The risk many organisations face with AI is over-reliance on Horizon 1, leading to potential stagnation and vulnerability to disruptive competitors. Let’s explore how organisations can balance these horizons.
Horizon 1: Leveraging AI for Efficiency
AI tools are a game-changer for Horizon 1, enabling organisations to streamline operations and reduce costs:
- Professional Services Firms: Firms can use AI to draft reports, create presentations, and analyse data more quickly. For example, a law firm might use AI to generate legal contracts in minutes rather than hours. However, this undermines traditional time-based billing models, as clients will question paying premium fees for AI-driven outputs that take less time.
- Marketing Agencies: AI can generate social media content, ad copy, and customer insights at scale. While this boosts productivity, it also commoditises creative services, reducing perceived value.
- Customer Service: Chatbots powered by Generative AI can handle routine queries efficiently, reducing costs. But over-reliance on automation risks eroding the personal touch that differentiates brands.
Focusing solely on these efficiencies without addressing longer-term strategies can lead to commoditisation, declining revenues, and client pushback.
Horizon 2: Adapting and Innovating Business Models
To stay competitive, organisations must identify adjacent opportunities to adapt their business models. Examples include:
- Professional Services Firms: Instead of charging by time, firms could shift to value-based pricing models, where fees are linked to outcomes (e.g., cost savings or revenue growth achieved through AI-driven insights).
- Marketing Agencies: Agencies could pivot to AI consultancy services, helping clients implement and customize AI tools for their needs rather than just producing content.
- Healthcare Providers: Generative AI can speed up diagnostics and patient communications, but healthcare organizations could explore subscription models for continuous AI-driven health monitoring and personalised care.
- Media and Publishing: While AI-generated content reduces production costs, companies can invest in interactive and immersive storytelling experiences, using AI as a tool for co-creation with audiences.
Horizon 2 requires organisations to recognise shifts in client expectations and market dynamics while building capabilities that expand beyond their core offerings.
Horizon 3: Embracing Disruption and Pioneering New Frontiers
Ignoring Horizon 3 makes organisations vulnerable to agile competitors who may redefine the industry entirely. Consider these well-known examples:
- Kodak vs. Instagram: Kodak dominated film photography (H1) but failed to invest in digital and social media-driven image sharing (H3). Instagram disrupted the market by focusing on the social experience of photography.
- Taxi Industry vs. Ride-Sharing: Traditional taxi services optimized their operations (H1) but were blindsided by Uber and Lyft’s disruptive ride-sharing models (H3).
- Retail vs. E-commerce: Legacy retailers like Sears focused on physical stores (H1) while Amazon pioneered e-commerce and same-day delivery (H3).
For organisations leveraging Generative AI, H3 might involve entirely new ways of delivering value:
- Education: AI-powered personalised learning could disrupt traditional classroom models, offering customised learning paths tailored to individual students.
- Finance: Decentralised finance (DeFi) platforms could replace traditional banking structures, using AI to optimise financial transactions and lending.
- Healthcare: AI-driven predictive analytics might shift focus from treatment to prevention, creating entirely new healthcare ecosystems.
Balancing the Horizons in the Age of Generative AI
- Invest in Horizon 1 but Don’t Over-Rely on It: Use Generative AI to optimise current operations but recognise that these efficiencies are not a long-term competitive advantage. Build processes that can adapt to changing client demands and market conditions.
- Customer Journey Mapping can identify customer pain points that could be addressed.
- Service Blueprinting can extend the Customer Journey Map to look at how an organisation meets and could meet customer pain points as well as being a good way to stress test new thinking.
- Allocate Resources to Horizon 2 Opportunities: Encourage innovation that builds on core competencies. This could mean experimenting with new pricing models, services, or partnerships.
- Design Thinking is a great framework to root thinking in client needs rather than organisational ones.
- Collaborative Innovation Sprints to explore ways to evolve current offerings and capture emerging opportunities.
- Prepare for Horizon 3 Disruption: Dedicate a portion of your strategy and resources to exploring the potential disruptions that could redefine your industry. Stay ahead by actively experimenting with bold, transformative ideas.
- Blue Ocean Thinking offers a framework that frees organisations to engage in more creative thinking about their products and services.
- Visioning and Foresight to encourage long-term, disruptive thinking and help participants envision transformative future opportunities.
- Foster a Culture of Agility: To effectively balance the horizons, organisations need a culture that embraces change, experimentation, and risk-taking. Encourage teams to think beyond immediate tasks and consider long-term implications.
- Three Horizons Thinking helps organisations and their people organise their thinking and actions.
- Horizon Mapping and Resource Allocation helps teams identify current focus areas and align resources effectively across the three horizons.
Conclusion
Generative AI is an incredibly powerful tool for improving Horizon 1 activities, but organisations that fail to look beyond immediate efficiencies risk stagnation and disruption. The Three Horizons Model provides a roadmap for balancing current operations with innovation and future growth. By investing in Horizons 2 and 3, organisations can not only avoid becoming the next Kodak but also position themselves as leaders in a rapidly evolving world.
Matomico offers Workshops and Consultancy on Three Horizons Thinking, Customer Journey Mapping, Service Blueprinting, Design Thinking, Collaborative Innovation Sprints, Blue Ocean Thinking, Visioning and Foresight and Horizon Mapping and Resource Allocation to equip organisations and their people with actionable frameworks to think and act with impact now as well as the medium and longer term future.
Martin Talks
Matomico
martin@matomico.com