McKinsey & Company has long been regarded as one of the most prestigious and influential management consulting firms in the world. Since its founding in 1926, McKinsey has worked with many of the largest and most successful global corporations to help address their most pressing strategic challenges. One of the issues that McKinsey has provided guidance on is how organizations can improve their capacity for innovation. The McKinsey innovation framework offers a structured approach based on years of research and experience working with innovative companies across industries. The core components of the framework include the Three Horizons model and the Seven Elements model.
In this blog post, we will provide an overview of the highly regarded McKinsey innovation framework. We will explore the key elements of the Three Horizons model and the Seven Elements model to understand how this framework can help companies innovate more effectively.
The Three Horizons Model
The Three Horizons model is an important part of McKinsey’s innovation framework. It proposes that companies should balance three different horizons when managing their innovation portfolio:
Horizon 1: Extend and defend the core business through incremental innovations. This horizon focuses on optimizing existing products, services, and business models to maintain the company’s core business. The innovations here tend to be smaller scale and lower risk.
Horizon 2: Build emerging businesses and offerings that leverage existing assets and capabilities. This horizon focuses on innovations that extend the company’s current capabilities into new spaces, creating incremental revenues. Examples could include taking current products into new customer segments or developing new distribution channels.
Horizon 3: Create viable options for future business opportunities through breakthrough innovation. This horizon is about placing bets on innovative ideas that could disrupt the industry and hold significant long-term potential. The bets are small initially but have high potential upside.
The key insight the Three Horizons model provides is that companies need to manage and invest in a portfolio of innovations across all three timeframes. Neglecting any one horizon can put the long-term health of the company at risk. Incremental improvements keep the core business efficient while small bets on radical ideas provide options for the future.
Leading consumer products company P&G exemplifies best practices in using the Three Horizons model. While strongly focused on its core brands like Tide and Gillette, P&G also creates new brands like Swiffer and pursues future innovations like detergents synthesized from plant oils, not petroleum.
The Three Horizons model provides a simple but powerful way for companies to structure their innovation efforts for both short-term and long-term results. When implemented effectively, it can help drive sustained competitive advantage over time.
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The Seven Elements Model
The McKinsey Seven Elements model provides a comprehensive blueprint for building an organizational innovation system. The seven interdependent elements are:
- Aspire – This involves setting innovation aspirations and strategic direction for the company. Leadership needs to decide what role innovation will play in the overall growth strategy. This provides alignment on the scope of innovation efforts.
- Choose – This element focuses on defining the innovation portfolio and allocating resources to strategic “buckets” aligned with the Three Horizons model. The goal is to create a balanced portfolio of horizon 1, 2, and 3 innovation initiatives.
- Discover – This critical element involves processes for generating, capturing, and rigorously testing new ideas and insights from across the organization and outside the ecosystem. Effective idea management systems and insight-gathering techniques are key.
- Evolve – This element covers capabilities for incubating, accelerating, and scaling up the most promising innovations. Dedicated innovation labs, accelerators, and company-wide scaling processes help evolve ideas into reality.
- Accelerate – This element focuses on rapidly prototyping, testing, and commercializing innovations through agile development and fast iteration. The goal is to accelerate time-to-market and learning.
- Scale – This element is about mainstreaming successful innovations and building adoption across the whole organization. Disseminating best practices and leveraging synergies between business units is key.
- Mobilize – This final element entails aligning your organization around innovation goals through leadership, metrics, incentives, training, and culture. Building innovation capabilities across the workforce mobilizes the organization.
McKinsey’s research shows that applying these seven elements in an integrated system is key to maximizing innovation impact over the long term.
Key Benefits of the Framework
The McKinsey innovation framework provides several important benefits for companies looking to improve their innovation performance:
Firstly, the framework gives senior leaders a way to set clear aspirations and strategic direction for innovation across the company. The Three Horizons model and Seven Elements provide models to guide strategy development and goal-setting.
Secondly, the framework brings structure to managing different types of innovations across short, medium, and long-term time horizons. The Three Horizons model ensures a balanced portfolio of incremental and breakthrough innovations.
Thirdly, the Seven Elements model gives actionable and proven guidance for building capabilities across the entire innovation system. Companies get an end-to-end blueprint they can tailor to their needs.
Additionally, the framework emphasizes balancing both incremental and breakthrough innovations through the Three Horizons model. Companies often over-index on only short-term or long-term innovations.
Fifthly, the framework focuses on mobilizing the entire organization around innovation, not just having a siloed R&D department. Building capabilities and engagement across the company is a key focus.
Finally, the framework is based on decades of research and experience working with highly innovative companies across industries. It provides proven models deeply grounded in real-world applications.
Overall, for companies struggling with how to improve innovation outcomes, the McKinsey framework gives a structured and holistic approach. Combined with strong leadership commitment, the framework can drive lasting cultural and strategic transformation.
Implementation Challenges
While the McKinsey innovation framework provides a robust model on paper, executives need to be aware of the key challenges faced in implementing it effectively:
- Requires strong, consistent commitment from senior leaders – Gaining traction requires leaders to devote time to innovation strategy and communicate its importance.
- Must align innovation portfolio with overall corporate strategy – Innovation efforts can’t be isolated, they should support overall strategic goals.
- Necessitates upfront investment into building innovation capabilities – Time and money must be invested to develop innovation skills and processes.
- Means establishing new metrics, incentives, and cultural values around innovation – Innovation requires different performance metrics balanced with longer time horizons for returns.
- Demands breaking down organizational silos and fostering collaboration – A tendency to protect existing domains can hinder cross-functional innovation.
- Can meet resistance from employees comfortable with the status quo – Innovation requires new ways of thinking and working that not all will embrace.
- Expect some failures and false starts – Innovation is an iterative process of testing and learning, with setbacks expected.
However, when done right, the payoff of increased innovation capability outweighs the challenges. Disciplined implementation and strong leadership commitment are key.
Tips for Applying the Framework
Companies looking to implement the McKinsey innovation framework should consider the following tips:
- Secure strong senior leadership endorsement and oversight – Make innovation a strategic priority fully backed by the CEO and top team.
- Conduct an innovation-readiness assessment – Evaluate current capabilities versus the desired state across the Seven Elements.
- Start small, pilot the framework in parts of the organization – Seek early wins before scaling it across the full company.
- Use agile, iterative approach – Continuously test, gather learnings, and refine framework adoption. Expect missteps.
- Customize framework elements to match company culture and strengths – Adapt the models to fit your context while preserving their core principles.
- Establish a dedicated innovation team to drive adoption – Appoint change agents to coordinate framework roll-out.
- Provide extensive communication and training – Ensure all employees understand the framework and their role.
- Develop a stage-gate process for funding innovation initiatives – Organize rigorous milestones for allocating resources to innovations.
- Celebrate innovation successes – Recognize teams and individuals that exemplify innovation behaviors.
- Learn from other leading innovators – Study how peers in your industry are approaching innovation.
Following these tips can smooth the deployment process and drive greater engagement across the organization. With deliberate effort and commitment, the McKinsey innovation framework can take root and yield tangible results.
Conclusion
The McKinsey innovation framework provides a structured and proven approach for companies seeking to improve their innovation capacity and outcomes. The core components of the framework, including the Three Horizons model and the Seven Elements model, offer actionable guidance for building a holistic innovation system.
The Three Horizons model ensures a balanced portfolio of short, medium and long-term innovations, while the Seven Elements provide an end-to-end blueprint for developing capabilities across the innovation value chain. From setting aspirations to mobilizing the organization, the McKinsey framework aims to embed innovation into the core fabric of the company.
While implementing the framework poses challenges around leadership commitment, investment requirements, and culture change, the rewards can be immense. Companies who pursue the framework diligently can gain lasting competitive advantage through enhanced innovation. In today’s disruptive business landscape, the ability to continually innovate is more critical than ever. The McKinsey innovation framework provides a roadmap to get there.