how close is the third horizon?
Updated: Feb 9, 2021
McKinsey management consultants developed and successfully applied a 3-horizon model of innovation that called for investment and focus on current products, incremental and breakthrough innovations. It has been commented on in recent years as being in need of updating in the age of rapid digital disruption and transformation. It is argued that the slow-moving nature of big players in sectors, who need to invest significant focus in horizon 1 and 2 issues around current products and incremental innovations, leave them vulnerable to ever faster attacking disruptors. There is evidence from many sectors that these now have the advantage. Ask hotel chains, taxi companies, video and DVD stores, and commercial free-to-air TV stations, if this is real.
This argument for updating the 3-horizons of innovation was made in February 2019 when disruption was rife, but higher education was relatively stable. Two years later and the higher education world has undoubtedly changed.
Up to 2019, most innovation in universities was of re-evaluation of current products in terms of content, pedagogy, timetable, campus arrangements and use of technology. The first horizon consumed by far the greatest executive focus and investment in most universities, when they were in a relatively comfortable financial situation.
Incremental innovation, which was defined as extending the existing business model to new customers and markets, tended to be project or program based. A number of universities initiated and had some success with online, mobile, corporate and occasionally international ventures to seek new revenue streams. These were typically the projects that were priorities for strategic funding and focus. They featured prominently in 5 year plans even if they were not always well integrated with business as usual.
Breakthrough innovation, based on creating new capabilities and new business models to take advantage of disruptive opportunities or counter disruptive attacks from others, was rare. Its “conventional” time horizon, although McKinsey would dispute this, of 3-6 years put it in the perfect category of being ignorable in the 5-year strategic plan, and beyond the time horizon for many senior contract renewals. The extent of investment in genuinely breakthrough projects in universities in 2019, was low. Few examples are evident of any Australian universities that have embarked on real breakthrough innovation into a new business model that has disrupted the market place.
And then 2020 happened. Budgets got very, very tight. The executive focus turned even more on to current products, as we reviewed and trimmed course offerings and research. Our ability to offer current products safely and securely in 2020, and with financial sustainability in 2021-25, all became dominant in executive activity.
The hope I see comes from the exceptional sector-wide innovation in 2020. We saw ubiquitous transformation of face-to-face learning, research and support activities in days, that was maintained for months. There was widespread adaptation of current products, in the form of learning and other programs of university activity, and great innovative capability, competence and confidence was built. The fear I have is that there has been significant detrimental impact from widespread organisational change and job losses, on culture and capacity for any further and more substantial innovation.
It is now 2021. The time horizons for potential new entrants, that might look for disruptive opportunities in our sector, have shortened significantly. Now is the time when all of our universities have more opportunity and need to explore, and counter, disruptive transformations to the higher education business model, than ever before.
It is a time for investment, ambition, growth and seeking leadership. It is a time for dynamic and innovative leaders at all levels of our institutions to step up and seize the day.
Are our universities in a good position to do this right now? Are our leaders in good shape to encourage, empower, trust and inspire this to happen? Are university councils prioritising this in oversighting the activities and plans of leadership teams? Are staff demanding this and do they have the appetite, hunger, strength and courage to take this on?
We can be sure there are many potential external disruptors very keen to take advantage of the opportunities that have arisen and are actively pursuing them now.
And we can be very sure that employers, mature learners, school leavers, and current university students are incredibly focussed on gaining value from their higher education experience through learning, reputation, but also intangible benefits from social interaction, networks and facilitated links with potential employers. We heard a very articulate exposition of what it has felt like to be an undergraduate student in Melbourne in 2020 in the interview with Sarah on the HEDx podcast last week here on Campus Review.
She explained why she had chosen her area and campus of study. She also stated how well, in the circumstances, her university had cared for her and scrambled to ensure learning and contact was maintained. But her call for new modes of engagement, and her focus on whether the way study is now practiced means the value proposition of the traditional university business model is undermined, gave a compelling and inarguable call for universities to act. It requires them to rapidly move themselves to breakthrough innovations, or be at the mercy of disrupted innovation from new entrants.
As if leading a university in 2021 wasn’t hard enough. We now need current 5-year plans to be revisited, to prioritise breakthrough innovations into new business models, just to survive. At least they have the staff capability that would make this potentially possible. They just need the right leadership, culture and strategy don’t they?