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matthunter.com© 2012 Matt Hunter
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Product
management
strategy
15TH APRIL 2013
matthunter.com© 2012 Matt Hunter
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matthunter.com
Maturing businesses often experience declining growth. A
core reason for this is their failure to invest in developing a
product pipeline. Focused on the short term needs of
customers, product managers and the C-level invest heavily
in the development of tweaks and refinements to existing
products, but fail to pursue longer term developments that
have the potential to create entirely new products or
competencies.
Originally developed by McKinsey in the 1980s, the Three
Horizons framework provides practical conceptual tools
which help managers avoid these pitfalls.
This presentation condenses and merges highlights from the
three horizons model and more recent successors. It
provides a framework for product managers and C-level
executives to discuss
and prioritise their product investments.
matthunter.com© 2012 Matt Hunter
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Important Notice
All third party information featured in the presentation slides remains the intellectual
property of their respective originators. All use of information is done under the fair use
copyright principal, and I do not assert any claim of copyright for any quotation, statistic,
fact, figure, data or any other content that has been sourced from the public domain.
Whilst efforts are made to ensure accuracy, no warranties can be given.
I do assert a claim of copyright for my domains, matthunter.com, my site design, slide
design, database design, look and feel, and my logo (“the cube”).
The core material in this work is shared under a creative commons license [attribution
3.0 unported (CC by 3.0)]. Readers are free to share (copy, redistribute, transmit) and
remix (adapt the work), including for commercial use; but must properly attribute the
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Further viewing of this presentation indicates your understanding of and consent to these
conditions.
First edition: 15th April 2013
Second edition: 20th July 2013
matthunter.comDIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY
matthunter.com© 2012 Matt Hunter matthunter.com
Many technologies demonstrate an “S-curve”
relationship between investment and progress
Cumulative
R&D Effort
Progress
Early investments
make limited
progress
A breakthrough
point is reached
and progress
accelerates
dramatically
Eventually, the
technology starts
to plateau and
new investments
have a limited
effect
matthunter.com© 2012 Matt Hunter matthunter.com
This basic pattern is viewable across many industries
matthunter.com© 2012 Matt Hunter matthunter.com
Eventually, a technology is pushed to its absolute limit
and further investment yields no further gains
Cumulative
R&D Effort
Progress
Limit of technology
Initially increasing
then declining R&D
productivity within a
given physical
architecture
Performance is
ultimately constrained
by physical limits
matthunter.com© 2012 Matt Hunter matthunter.com
Eventually, every technology has its limits
Sailing ships
Ultimately constrained by the power of the wind
Copper wire
Ultimately constrained by transmission
capability
Semi-conductors
Ultimately constrained by the speed of the
electron
matthunter.com© 2012 Matt Hunter
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Technology s-curve
Associated with this technology S-curve, we can see a
profit curve for investing firms
Time (years)
Technological
Progress
Profit
Cumulative
Effort
0
Loss
Technology profit curve
Early
investments
appear loss
making
After
break-
through,
profits
rocket
As
technology
plateaus,
further
investment
is value
destroying
For firms, it makes sense to stop investing as the technology becomes more mature
and yields fall below the cost of R&D investment
matthunter.com© 2012 Matt Hunter matthunter.com
As one technology plateaus, it may be possible to move
to a new technology and drive further progress
Time (years)
“Old”
technology
curve
“New”
technology
curve
At this point,
moving to the
“new” technology
looks like an
expensive step
backwards
Progress
But after
working through
early problems
(hopefully!), a
break through
occurs and
progress starts
to surge ahead
once again
Whilst the new
technology is
in early stages
of
development,
it offers a poor
alternative to
the
established,
old technology
Performance
gap
Businesses rarely invest through the dip
matthunter.com© 2012 Matt Hunter matthunter.com
IBM and DEC lost market share to Microsoft and
Intel
Modis, T. Predictions - 10 Years Later. (Growth Dynamics, Geneva,
Switzerland, 2002), 335. ISBN 2-9700216-1-7.
matthunter.com© 2012 Matt Hunter matthunter.com
Failure to plan for and manage shifts in technology is
the main reason successful incumbents lose market
share
Mainframe
Computing
1960s
Mini
Computing
1970s
Personal
Computing
1980s
Desktop
Internet
1990s
Mobile/Social
Computing
2000s
New winners
IBM
NCR
Control Data
Sperry
Honeywell
Burroughs
New winners
DEC
Data General
HP
Prime
Computer-
Vision
Wangs Labs
New winners
Microsoft
Cisco
Intel
Apple
Oracle
EMC
Dell
Compaq
New winners
Google
AOL
eBay
Yahoo!
Yahoo!Japan
Amazon
Tencent
Alibaba
Baidu
Rakuten
New winners
Apple
Facebook
Samsung
…
Note: Winners from 1950s to 1980s based on Fortune 500 rankings, winners in 1990s based on peak market capitalisation.
Source: Adapted from Morgan Stanley’s Mobile Internet Report 2009 Setup, with additional 2000s section.
matthunter.com© 2012 Matt Hunter matthunter.com
Over time, a successful technology strategy should
blend together multiple S-curves…
Time (years)
Tech
Progress
S-curve 1
S-curve 2
S-curve 3
matthunter.com© 2012 Matt Hunter matthunter.com
And sustain a steady growth in profits
Time (years)
Tech
Progress
OR
Profits
S-curves
Profits
matthunter.com© 2012 Matt Hunter matthunter.com
Horizon 1
Horizon 2
Horizon 3
This is the basis of the “three horizon” model
Time (years)
Profit
matthunter.com© 2012 Matt Hunter
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The three horizon model
Keeping the three horizons in mind, we should
plan to manage projects in each horizon differently
Horizon 1
Tweaks,
derivatives &
product support
Horizon 2
New product
platforms
(“V2.0”)
Horizon 3
Break-throughs
& new platforms
Time (years)
Profit
The first horizon
involves
implementing
innovations that
improve your
current
operations
Horizon two
innovations are
those that
extend your
current
competencies
into new, related
markets
Horizon three
innovations are
the ones that will
change the
nature of your
industry and
generate new
compentencies
matthunter.com© 2012 Matt Hunter
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The Three Horizons model is a simple framework to help
managers consider whether they are planning for the
future properly
Managers are often lured into focusing too much on short
term projects:
Horizon 1 projects tend to exploit an established technology. Small R&D
investments can produce significant gains. Focusing on generating
obvious value, managers exert all their effort here.
Horizon 2 projects are usually under-funded and have
their support removed too early
H2 projects are things like launching a product extension or V2.0 of a
horizon 1 product. Because the project usually involves moving on to a
subtly difference S-curve, H2 projects require a strong initial investment
before they start to deliver progress. But management often compares
the short-term ROI of these investments with projects in Horizon 1 and
simply decides not to invest.
Horizon 3 projects are often completely ignored
Most businesses don’t have any long term plan to develop a
breakthrough technology. If / when another firm develops this
breakthrough, managers will scramble to catch up. This is when
technology firms most often fail.
matthunter.com© 2012 Matt Hunter
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matthunter.com
The three horizon model
Keeping the three horizons in mind, we should plan to
manage projects in each horizon differently
Horizon 1
Tweaks, derivatives
& product support
Horizon 2
New product platforms
(“V2.0”)
Horizon 3
Break-throughs
Time (years)
Profit
The first horizon
involves
implementing
innovations that
improve your
current
operations
Horizon two
innovations are
those that
extend your
current
competencies
into new, related
markets
Horizon three
innovations are
the ones that will
change the
nature of your
industry and
generate new
compentencies
matthunter.com© 2012 Matt Hunter
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Horizon 1
Tweaks, derivatives & product support
<6 months
Innovations that improve your current
operations.
“profit from the core”, exploit core
competences ,capitalising on existing
strengths
Description:
Related
concepts:
Common
mistakes:
Expanding into new markets too
soon,
OR
Excessive incrementalism
Organisational
focus:
Organisations are usually geared
towards delivering these
projects.
Source of
value:
Superior execution, and a culture
of hustle, or leveraging an existing
customer base / monopoly position
Number of
projects:
Businesses typically have many
small projects in this horizon,
which require limited resource
investment and deliver quickly.
Management is focused on ROIMetrics:
Businesses are typically focused on horizon 1 by
default
H1 Example Product
matthunter.com© 2012 Matt Hunter
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Illustration of number of projects typically seen in horizon 1,2 and 3
Typically, businesses have most of their activity in
horizon 1
Horizon 1
Tweaks, derivatives
& product support
Horizon 2
New product platforms
(“V2.0”)
Horizon 3
Break-throughs
Time (years)
Profit
Businesses typically
have many projects in
this horizon, which
require limited resource
investment and deliver
quickly.
matthunter.com© 2012 Matt Hunter
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Horizon 2
New product platforms
(6 months to 1 year)
Extend your current competencies
into new, related markets.
Description:
Related
concepts:
Common
mistakes:
H2 is incredibly difficult to manage.
Seem similar to your current products
Temptation is to use the same metrics
to assess their success. You are likely
to abandon them too quickly
because it will seem like they’re
not performing well.
Organisation
al
focus:
Projects require senior management
(“champions”) involvement to ensure
they get appropriate priority.
Source of
value:
Positional advantages (leveraging
other assets).
Number of
projects:
A smaller number of H2 projects should
be undertaken.
Metrics:
Horizon 2 projects need to managed with a sense of
entrepreneurialism and focus on growth
Entrepreneurialism, Balanced score
cards
Growth rates, progress against
technology mile-stones, revenue,
NPV
H1 Example Product
H2 Example Products
matthunter.com© 2012 Matt Hunter
Click to edit Master title style
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Illustration of number of projects typically seen in horizon 1,2 and 3
Typically, businesses have a little activity in horizon 2
Horizon 1
Tweaks, derivatives
& product support
Horizon 2
New product platforms
(“V2.0”)
Horizon 3
Break-throughs
Time (years)
Profit
Businesses typically
have many projects in
this horizon, which
require limited resource
investment and deliver
quickly.
matthunter.com© 2012 Matt Hunter
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Horizon 3
Break-through products or services
(>3 Years)
Horizon three innovations are the ones that will change the nature of your
industry. Generally, these are radical innovations.
Description:
Related
concepts:
Common
mistakes:
H3 projects can seem like expensive distractions from daily business. But if
management neglect to prepare for the future, they run the risk that the core
business will become redundant and collapse. Most businesses have no plan
for horizon 3.
Organisation
al
focus:
CEO leadership is needed to select these projects and to ensure the business
takes investment in them seriously
Source of
value:
Value is typically delivered by being a first mover, establishing a quasi-
monopoly.
Number of
projects:
Businesses should pick a small number of main themes to invest around
and then experiment with multiple projects around the themes, expecting some
experiments to fail and others succeed. This is to not be mistaken for
managing a portfolio of unrelated investments in the hope that some
succeed.
Metrics:
Horizon 3 projects need CEO-level leadership and a
focus on achieving technical milestones
Vision Statements
Metrics are predominantly stage gate based, demonstrating that certain
technical hurdles can be met within a investment limit
matthunter.com© 2012 Matt Hunter
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It is rarely obvious what an H3 product
looks like for a business
matthunter.com© 2012 Matt Hunter
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Illustration of number of projects ideally seen in horizon 1,2 and 3
Most businesses have no active investments
in horizon 3
Horizon 1 Horizon 2 Horizon 3
Time (years)
Profit
Businesses typically
have many projects in
this horizon, which
require limited resource
investment and deliver
quickly.
Businesses support
fewer H2 projects,
measuring progress
against stage-gates and
killing-off under-
performers.
?Seen as an expensive
distraction or pipe-
dream, H3 is usually
neglected
matthunter.com© 2012 Matt Hunter
Click to edit Master title style
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Illustration of number of projects ideally seen in horizon 1,2 and 3
A more optimal spread of projects balances the needs
of the three horizons
Horizon 1 Horizon 2 Horizon 3
Time (years)
Profit
Businesses typically
have many projects in
this horizon, which
require limited resource
investment and deliver
quickly.
Businesses support
fewer H2 projects,
measuring progress
against stage-gates and
killing-off under-
performers.
Businesses choose a
small number of themes
to invest in for H3, then
“spread their bets”
(Venture capital style)
with several small bets
within those themes
matthunter.com© 2012 Matt Hunter matthunter.com
Critically, management of projects in each horizon
differs
Horizon 1
Tweaks, derivatives
& product support
Horizon 2
New product platforms
(“V2.0”)
Horizon 3
Break-through
products or services
Short-term
profitability
Cash-flow
ROI
NPV
Market
projections
Technical demos
NPV calculations
nested in
decision trees
Real Options
Advanced
market
estimates
Management
science
Leadership
Art
Key Metrics
& Tools:
Main
Players:
Product
Managers
Functional &
Technical Heads
CEO & CTO
Overall
Vibe:
matthunter.com© 2012 Matt Hunter matthunter.com
How do you select which horizon a project fits into?
• Re-balancing the project portfolio over the three horizons normally
means killing off some existing projects
• Can be controversial in the business…
• If we start culling projects in “Horizon 1”, product managers will try to
get re-classified as “Horizon 2” to keep their projects alive
• There are also other political motivations that effect how people
want their projects to be viewed
• Being classed as a “breakthrough” means higher profile support and
less scrutiny on profitability in the short term, so some will try to push
for H3
• Helps if we have a system to focus the discussion
• The following method uses two simple questions to try to answer
whether a project is likely to be in horizon 1, 2 or 3
matthunter.com© 2012 Matt Hunter
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Change in customer focus
First question: “To what extent does this project serve
a different group of customers?”
LOW CHANGE Existing customers and previously
identified needs
MEDIUM CHANGE Helps us win someone else’s customer
by serving their previously identified
needs OR
Takes us into an existing market
segment that we weren’t competing
in before
HIGH CHANGE Serves a new group of customers
meeting a need that was previously
unidentifed
matthunter.com© 2012 Matt Hunter
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Level of innovation required
Second question: “To what extent does this project
require an innovation in our technology or processes?”
LOW
INNOVATION
Tweaks an existing product or
provides support to it
MEDIUM
INNOVATION
Expands our product range with a
new but similar product
OR
Releases another generation (“V2.0”)
of an existing product
HIGH
INNOVATION
Requires new organisational
capabilities OR results in an entirely
new product or service that we sell
matthunter.com© 2012 Matt Hunter matthunter.com
We can define a project’s horizon based on the extent to
which it demands more innovation & accesses new
customers
Horizon 3:
Breakthrough
Projects
Horizon 2: New product
platforms
Horizon 1:
Tweaks, derivatives
& product support
Customers
Less Change More Change
Innovation
More
Less
Adapted from Wheelwright & Clarke 1992, Pierre Azoulay 2012; with Horizon features overlaid
matthunter.com© 2012 Matt Hunter matthunter.com
Horizon 3:
Breakthrough
Projects
Horizon 2: New product
platforms
Horizon 1:
Tweaks, derivatives
& product support
Customers
Existing
Customers
New Customers OR
Enters a different
existing segment
New
Customers
Less Change More Change
New
Core
Product
or Service
Next
Generation of
Product or
Service
Product or
Service
Extensions
Derivatives &
Tweaks
Innovation
More
Innovative
Less
Innovative
Adapted from Wheelwright & Clarke 1992, Pierre Azoulay 2012; with Horizon features overlaid
We can define a project’s horizon based on the extent to
which it demands more innovation & accesses new
customers
matthunter.com© 2012 Matt Hunter matthunter.com
Plotting existing and proposed projects against these
dimensions we can determine which horizon they fall in
Project list
matthunter.com© 2012 Matt Hunter matthunter.com
Typically, businesses will find the majority of their
projects fall in H1, a few in H2 and few (or none) in H3
Project list
matthunter.com© 2012 Matt Hunter matthunter.com
Balancing the project portfolio over the horizons then
requires a mix of culling, reviving and generating
projects
CULLING
Some of the horizon
1 projects should be
considered for
cancellation (or if
possible outsourcing)
to create capacity for
H2 and H3
GENERATING
Management should think deeply and
canvas opinion throughout the business to
generate more prospective projects in H3
REVIVING
It’s usually easy to
find more H2
projects – typically,
they are sitting in
engineers’ desk
drawers because
they were
previously
attempted but
cancelled too soon
matthunter.com© 2012 Matt Hunter matthunter.com
How many projects in each horizon? No hard rules.
Google aims for 70/20/10
“We spend 70 percent of our time on core search and ads.
We spend 20 percent on adjacent businesses, ones
related to the core businesses in some interesting way.
Examples of that would be Google News, Google Earth,
and Google Local. And then 10 percent of our time should
be on things that are truly new…
How do you enforce that 70/20/10 rule? For a while we
put the projects in different rooms. That way, if we were
in one room too long, we knew we were not spending our
time correctly. It was sort of a stupid device, but it
worked quite well. Now we have people who actually
manage this, so I know how I spend my time, and I do
spend it 70/20/10”.
Eric Schmidt, then Google CEO, speaking to Business 2.0
magazine, December 1st 2005
matthunter.com© 2012 Matt Hunter matthunter.com
So let’s start with a 70/20/10 split of projects across
the horizons
matthunter.com© 2012 Matt Hunter
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Product Management Strategy Summary
• 1) Balancing short term profit and long term value
• Most businesses are overloaded with short term feature development that is
called for by existing customers.
• Being too reactive to existing customers, businesses under-invest in longer term
product extensions and big-win initiatives
• Planning for horizon 2 and horizon 3 helps avoid “death by incrementalism”
• 2) Recognising when to manage projects differently
• H1: ROI & efficiency
• H2: NPV & market share
• H3: Options
• 3) Projects can classified as H1, H2 or H3 with a degree of science
• Classify projects based on the degree of innovation required and the extent to
which projects appeal to existing or new customer groups
• 4) Explicitly target a 70/20/10 spit of projects over the 3 horizons
• Choose a project split which reflects your need to maintain present projects
versus deliver long run growth
matthunter.com© 2012 Matt Hunter
Click to edit Master title style
matthunter.com
Matt Hunter is a senior product manager with
experience in consumer web, mobile apps and digital
marketing.
Matt is presently Director of Product Management at
App Annie in Beijing. Previously, he headed Product
Development and Digital Marketing at Confused.com, a
British insurance comparison engine. Matt also worked
as a consultant with Bain & Company in Europe, South
Africa and Australia.
He is the holder of an MA in Economics & Management
from the University of Oxford, an MSc in Strategic
Information Systems from Cardiff University and the
MIT-Tsinghua International MBA.

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Product Strategy

  • 1. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Product management strategy 15TH APRIL 2013
  • 2. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Maturing businesses often experience declining growth. A core reason for this is their failure to invest in developing a product pipeline. Focused on the short term needs of customers, product managers and the C-level invest heavily in the development of tweaks and refinements to existing products, but fail to pursue longer term developments that have the potential to create entirely new products or competencies. Originally developed by McKinsey in the 1980s, the Three Horizons framework provides practical conceptual tools which help managers avoid these pitfalls. This presentation condenses and merges highlights from the three horizons model and more recent successors. It provides a framework for product managers and C-level executives to discuss and prioritise their product investments.
  • 3. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Important Notice All third party information featured in the presentation slides remains the intellectual property of their respective originators. All use of information is done under the fair use copyright principal, and I do not assert any claim of copyright for any quotation, statistic, fact, figure, data or any other content that has been sourced from the public domain. Whilst efforts are made to ensure accuracy, no warranties can be given. I do assert a claim of copyright for my domains, matthunter.com, my site design, slide design, database design, look and feel, and my logo (“the cube”). The core material in this work is shared under a creative commons license [attribution 3.0 unported (CC by 3.0)]. Readers are free to share (copy, redistribute, transmit) and remix (adapt the work), including for commercial use; but must properly attribute the original work to me. Such attribution should not suggest that I make any endorsement of the user or their derived use of my material. Further viewing of this presentation indicates your understanding of and consent to these conditions. First edition: 15th April 2013 Second edition: 20th July 2013 matthunter.comDIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY
  • 4. matthunter.com© 2012 Matt Hunter matthunter.com Many technologies demonstrate an “S-curve” relationship between investment and progress Cumulative R&D Effort Progress Early investments make limited progress A breakthrough point is reached and progress accelerates dramatically Eventually, the technology starts to plateau and new investments have a limited effect
  • 5. matthunter.com© 2012 Matt Hunter matthunter.com This basic pattern is viewable across many industries
  • 6. matthunter.com© 2012 Matt Hunter matthunter.com Eventually, a technology is pushed to its absolute limit and further investment yields no further gains Cumulative R&D Effort Progress Limit of technology Initially increasing then declining R&D productivity within a given physical architecture Performance is ultimately constrained by physical limits
  • 7. matthunter.com© 2012 Matt Hunter matthunter.com Eventually, every technology has its limits Sailing ships Ultimately constrained by the power of the wind Copper wire Ultimately constrained by transmission capability Semi-conductors Ultimately constrained by the speed of the electron
  • 8. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Technology s-curve Associated with this technology S-curve, we can see a profit curve for investing firms Time (years) Technological Progress Profit Cumulative Effort 0 Loss Technology profit curve Early investments appear loss making After break- through, profits rocket As technology plateaus, further investment is value destroying For firms, it makes sense to stop investing as the technology becomes more mature and yields fall below the cost of R&D investment
  • 9. matthunter.com© 2012 Matt Hunter matthunter.com As one technology plateaus, it may be possible to move to a new technology and drive further progress Time (years) “Old” technology curve “New” technology curve At this point, moving to the “new” technology looks like an expensive step backwards Progress But after working through early problems (hopefully!), a break through occurs and progress starts to surge ahead once again Whilst the new technology is in early stages of development, it offers a poor alternative to the established, old technology Performance gap Businesses rarely invest through the dip
  • 10. matthunter.com© 2012 Matt Hunter matthunter.com IBM and DEC lost market share to Microsoft and Intel Modis, T. Predictions - 10 Years Later. (Growth Dynamics, Geneva, Switzerland, 2002), 335. ISBN 2-9700216-1-7.
  • 11. matthunter.com© 2012 Matt Hunter matthunter.com Failure to plan for and manage shifts in technology is the main reason successful incumbents lose market share Mainframe Computing 1960s Mini Computing 1970s Personal Computing 1980s Desktop Internet 1990s Mobile/Social Computing 2000s New winners IBM NCR Control Data Sperry Honeywell Burroughs New winners DEC Data General HP Prime Computer- Vision Wangs Labs New winners Microsoft Cisco Intel Apple Oracle EMC Dell Compaq New winners Google AOL eBay Yahoo! Yahoo!Japan Amazon Tencent Alibaba Baidu Rakuten New winners Apple Facebook Samsung … Note: Winners from 1950s to 1980s based on Fortune 500 rankings, winners in 1990s based on peak market capitalisation. Source: Adapted from Morgan Stanley’s Mobile Internet Report 2009 Setup, with additional 2000s section.
  • 12. matthunter.com© 2012 Matt Hunter matthunter.com Over time, a successful technology strategy should blend together multiple S-curves… Time (years) Tech Progress S-curve 1 S-curve 2 S-curve 3
  • 13. matthunter.com© 2012 Matt Hunter matthunter.com And sustain a steady growth in profits Time (years) Tech Progress OR Profits S-curves Profits
  • 14. matthunter.com© 2012 Matt Hunter matthunter.com Horizon 1 Horizon 2 Horizon 3 This is the basis of the “three horizon” model Time (years) Profit
  • 15. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com The three horizon model Keeping the three horizons in mind, we should plan to manage projects in each horizon differently Horizon 1 Tweaks, derivatives & product support Horizon 2 New product platforms (“V2.0”) Horizon 3 Break-throughs & new platforms Time (years) Profit The first horizon involves implementing innovations that improve your current operations Horizon two innovations are those that extend your current competencies into new, related markets Horizon three innovations are the ones that will change the nature of your industry and generate new compentencies
  • 16. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com The Three Horizons model is a simple framework to help managers consider whether they are planning for the future properly Managers are often lured into focusing too much on short term projects: Horizon 1 projects tend to exploit an established technology. Small R&D investments can produce significant gains. Focusing on generating obvious value, managers exert all their effort here. Horizon 2 projects are usually under-funded and have their support removed too early H2 projects are things like launching a product extension or V2.0 of a horizon 1 product. Because the project usually involves moving on to a subtly difference S-curve, H2 projects require a strong initial investment before they start to deliver progress. But management often compares the short-term ROI of these investments with projects in Horizon 1 and simply decides not to invest. Horizon 3 projects are often completely ignored Most businesses don’t have any long term plan to develop a breakthrough technology. If / when another firm develops this breakthrough, managers will scramble to catch up. This is when technology firms most often fail.
  • 17. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com The three horizon model Keeping the three horizons in mind, we should plan to manage projects in each horizon differently Horizon 1 Tweaks, derivatives & product support Horizon 2 New product platforms (“V2.0”) Horizon 3 Break-throughs Time (years) Profit The first horizon involves implementing innovations that improve your current operations Horizon two innovations are those that extend your current competencies into new, related markets Horizon three innovations are the ones that will change the nature of your industry and generate new compentencies
  • 18. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Horizon 1 Tweaks, derivatives & product support <6 months Innovations that improve your current operations. “profit from the core”, exploit core competences ,capitalising on existing strengths Description: Related concepts: Common mistakes: Expanding into new markets too soon, OR Excessive incrementalism Organisational focus: Organisations are usually geared towards delivering these projects. Source of value: Superior execution, and a culture of hustle, or leveraging an existing customer base / monopoly position Number of projects: Businesses typically have many small projects in this horizon, which require limited resource investment and deliver quickly. Management is focused on ROIMetrics: Businesses are typically focused on horizon 1 by default H1 Example Product
  • 19. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Illustration of number of projects typically seen in horizon 1,2 and 3 Typically, businesses have most of their activity in horizon 1 Horizon 1 Tweaks, derivatives & product support Horizon 2 New product platforms (“V2.0”) Horizon 3 Break-throughs Time (years) Profit Businesses typically have many projects in this horizon, which require limited resource investment and deliver quickly.
  • 20. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Horizon 2 New product platforms (6 months to 1 year) Extend your current competencies into new, related markets. Description: Related concepts: Common mistakes: H2 is incredibly difficult to manage. Seem similar to your current products Temptation is to use the same metrics to assess their success. You are likely to abandon them too quickly because it will seem like they’re not performing well. Organisation al focus: Projects require senior management (“champions”) involvement to ensure they get appropriate priority. Source of value: Positional advantages (leveraging other assets). Number of projects: A smaller number of H2 projects should be undertaken. Metrics: Horizon 2 projects need to managed with a sense of entrepreneurialism and focus on growth Entrepreneurialism, Balanced score cards Growth rates, progress against technology mile-stones, revenue, NPV H1 Example Product H2 Example Products
  • 21. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Illustration of number of projects typically seen in horizon 1,2 and 3 Typically, businesses have a little activity in horizon 2 Horizon 1 Tweaks, derivatives & product support Horizon 2 New product platforms (“V2.0”) Horizon 3 Break-throughs Time (years) Profit Businesses typically have many projects in this horizon, which require limited resource investment and deliver quickly.
  • 22. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Horizon 3 Break-through products or services (>3 Years) Horizon three innovations are the ones that will change the nature of your industry. Generally, these are radical innovations. Description: Related concepts: Common mistakes: H3 projects can seem like expensive distractions from daily business. But if management neglect to prepare for the future, they run the risk that the core business will become redundant and collapse. Most businesses have no plan for horizon 3. Organisation al focus: CEO leadership is needed to select these projects and to ensure the business takes investment in them seriously Source of value: Value is typically delivered by being a first mover, establishing a quasi- monopoly. Number of projects: Businesses should pick a small number of main themes to invest around and then experiment with multiple projects around the themes, expecting some experiments to fail and others succeed. This is to not be mistaken for managing a portfolio of unrelated investments in the hope that some succeed. Metrics: Horizon 3 projects need CEO-level leadership and a focus on achieving technical milestones Vision Statements Metrics are predominantly stage gate based, demonstrating that certain technical hurdles can be met within a investment limit
  • 23. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com It is rarely obvious what an H3 product looks like for a business
  • 24. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Illustration of number of projects ideally seen in horizon 1,2 and 3 Most businesses have no active investments in horizon 3 Horizon 1 Horizon 2 Horizon 3 Time (years) Profit Businesses typically have many projects in this horizon, which require limited resource investment and deliver quickly. Businesses support fewer H2 projects, measuring progress against stage-gates and killing-off under- performers. ?Seen as an expensive distraction or pipe- dream, H3 is usually neglected
  • 25. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Illustration of number of projects ideally seen in horizon 1,2 and 3 A more optimal spread of projects balances the needs of the three horizons Horizon 1 Horizon 2 Horizon 3 Time (years) Profit Businesses typically have many projects in this horizon, which require limited resource investment and deliver quickly. Businesses support fewer H2 projects, measuring progress against stage-gates and killing-off under- performers. Businesses choose a small number of themes to invest in for H3, then “spread their bets” (Venture capital style) with several small bets within those themes
  • 26. matthunter.com© 2012 Matt Hunter matthunter.com Critically, management of projects in each horizon differs Horizon 1 Tweaks, derivatives & product support Horizon 2 New product platforms (“V2.0”) Horizon 3 Break-through products or services Short-term profitability Cash-flow ROI NPV Market projections Technical demos NPV calculations nested in decision trees Real Options Advanced market estimates Management science Leadership Art Key Metrics & Tools: Main Players: Product Managers Functional & Technical Heads CEO & CTO Overall Vibe:
  • 27. matthunter.com© 2012 Matt Hunter matthunter.com How do you select which horizon a project fits into? • Re-balancing the project portfolio over the three horizons normally means killing off some existing projects • Can be controversial in the business… • If we start culling projects in “Horizon 1”, product managers will try to get re-classified as “Horizon 2” to keep their projects alive • There are also other political motivations that effect how people want their projects to be viewed • Being classed as a “breakthrough” means higher profile support and less scrutiny on profitability in the short term, so some will try to push for H3 • Helps if we have a system to focus the discussion • The following method uses two simple questions to try to answer whether a project is likely to be in horizon 1, 2 or 3
  • 28. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Change in customer focus First question: “To what extent does this project serve a different group of customers?” LOW CHANGE Existing customers and previously identified needs MEDIUM CHANGE Helps us win someone else’s customer by serving their previously identified needs OR Takes us into an existing market segment that we weren’t competing in before HIGH CHANGE Serves a new group of customers meeting a need that was previously unidentifed
  • 29. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Level of innovation required Second question: “To what extent does this project require an innovation in our technology or processes?” LOW INNOVATION Tweaks an existing product or provides support to it MEDIUM INNOVATION Expands our product range with a new but similar product OR Releases another generation (“V2.0”) of an existing product HIGH INNOVATION Requires new organisational capabilities OR results in an entirely new product or service that we sell
  • 30. matthunter.com© 2012 Matt Hunter matthunter.com We can define a project’s horizon based on the extent to which it demands more innovation & accesses new customers Horizon 3: Breakthrough Projects Horizon 2: New product platforms Horizon 1: Tweaks, derivatives & product support Customers Less Change More Change Innovation More Less Adapted from Wheelwright & Clarke 1992, Pierre Azoulay 2012; with Horizon features overlaid
  • 31. matthunter.com© 2012 Matt Hunter matthunter.com Horizon 3: Breakthrough Projects Horizon 2: New product platforms Horizon 1: Tweaks, derivatives & product support Customers Existing Customers New Customers OR Enters a different existing segment New Customers Less Change More Change New Core Product or Service Next Generation of Product or Service Product or Service Extensions Derivatives & Tweaks Innovation More Innovative Less Innovative Adapted from Wheelwright & Clarke 1992, Pierre Azoulay 2012; with Horizon features overlaid We can define a project’s horizon based on the extent to which it demands more innovation & accesses new customers
  • 32. matthunter.com© 2012 Matt Hunter matthunter.com Plotting existing and proposed projects against these dimensions we can determine which horizon they fall in Project list
  • 33. matthunter.com© 2012 Matt Hunter matthunter.com Typically, businesses will find the majority of their projects fall in H1, a few in H2 and few (or none) in H3 Project list
  • 34. matthunter.com© 2012 Matt Hunter matthunter.com Balancing the project portfolio over the horizons then requires a mix of culling, reviving and generating projects CULLING Some of the horizon 1 projects should be considered for cancellation (or if possible outsourcing) to create capacity for H2 and H3 GENERATING Management should think deeply and canvas opinion throughout the business to generate more prospective projects in H3 REVIVING It’s usually easy to find more H2 projects – typically, they are sitting in engineers’ desk drawers because they were previously attempted but cancelled too soon
  • 35. matthunter.com© 2012 Matt Hunter matthunter.com How many projects in each horizon? No hard rules. Google aims for 70/20/10 “We spend 70 percent of our time on core search and ads. We spend 20 percent on adjacent businesses, ones related to the core businesses in some interesting way. Examples of that would be Google News, Google Earth, and Google Local. And then 10 percent of our time should be on things that are truly new… How do you enforce that 70/20/10 rule? For a while we put the projects in different rooms. That way, if we were in one room too long, we knew we were not spending our time correctly. It was sort of a stupid device, but it worked quite well. Now we have people who actually manage this, so I know how I spend my time, and I do spend it 70/20/10”. Eric Schmidt, then Google CEO, speaking to Business 2.0 magazine, December 1st 2005
  • 36. matthunter.com© 2012 Matt Hunter matthunter.com So let’s start with a 70/20/10 split of projects across the horizons
  • 37. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Product Management Strategy Summary • 1) Balancing short term profit and long term value • Most businesses are overloaded with short term feature development that is called for by existing customers. • Being too reactive to existing customers, businesses under-invest in longer term product extensions and big-win initiatives • Planning for horizon 2 and horizon 3 helps avoid “death by incrementalism” • 2) Recognising when to manage projects differently • H1: ROI & efficiency • H2: NPV & market share • H3: Options • 3) Projects can classified as H1, H2 or H3 with a degree of science • Classify projects based on the degree of innovation required and the extent to which projects appeal to existing or new customer groups • 4) Explicitly target a 70/20/10 spit of projects over the 3 horizons • Choose a project split which reflects your need to maintain present projects versus deliver long run growth
  • 38. matthunter.com© 2012 Matt Hunter Click to edit Master title style matthunter.com Matt Hunter is a senior product manager with experience in consumer web, mobile apps and digital marketing. Matt is presently Director of Product Management at App Annie in Beijing. Previously, he headed Product Development and Digital Marketing at Confused.com, a British insurance comparison engine. Matt also worked as a consultant with Bain & Company in Europe, South Africa and Australia. He is the holder of an MA in Economics & Management from the University of Oxford, an MSc in Strategic Information Systems from Cardiff University and the MIT-Tsinghua International MBA.