PROFIT , September/1998, p. 41
By Jeff Chan
#1. Three Horizons of Growth. Some of the most cutting-edge firms are one-trick ponies dependent on a single product, notes Jeff Chan of McKinsey & Company in Toronto. To sustain growth, many firms are adopting a three-horizon approach:
Horizon One: a strong core business
Horizon Two: new businesses that are being formed and may not even be profitable yet. Management is focused on increasing revenues and market share.
Horizon Three: new ideas and dream businesses. Top management encourages various pilot projects in hope of developing a new product or business model, but will quickly cut off investment if the project looks doomed.
# 2. Staircases to Growth. In the mid-80’s, as major corporate mergers and diversification programs fell apart, the experts started saying “Stick to your knitting.” But restricting a business to “core competencies”, says Chan, limits a company’s growth prospects. “We see that great growth companies are ones that have a very expansive mindset about what their company is and what industries they will compete in. Over time, they tend to grow way beyond the bounds of their old business and their current capabilities.” The secret? “These businesses start off with a number of small steps. Having taken one step based on current capabilities, you start to build new capabilities, which in turn allow you to take more steps.” That way, companies expand their areas of expertise without jeopardizing all by taking big leaps that might be beyond their capabilities.