An interview with Chat GPT
Me: I want us to have a conversation about OKRs across 3 horizons. I want to start with the fact that there’s no business out there that is not struggling with the problem of making the financial plan work this year, grow the business in the next 3 years and transform the business with innovative ideas. I recently heard from a business partner ( and I like that) that the minimum success requirement for a strategy is to enable this year’s planned outcomes.
ChatGPT: No business is immune to the challenge of aligning immediate financial objectives, mid-term growth ambitions, and long-term transformational goals. This triad of horizons demands a strategic approach that can navigate the complexities of today while laying the groundwork for tomorrow’s success. The essence of strategy, as often cited, is not just about achieving this year’s goals but also setting the stage for sustained growth and innovation. In this context, Objectives and Key Results (OKRs) emerge as a critical framework for orchestrating efforts across these three distinct but interconnected horizons.
At the heart of the first horizon is the imperative to make the financial plan work within the current year. Here, OKRs are invaluable for focusing efforts on achieving the immediate goals that underpin financial health and competitive viability. Clear objectives and measurable key results enable organizations to channel their resources and energies towards the most impactful activities, ensuring the achievement of crucial short-term outcomes.
Transitioning to the second horizon, the focus expands to encompass growth over the next three years. The challenge shifts from mere survival to strategic expansion — how to build on current successes and scale operations, products, or services. OKRs in this middle horizon are about setting ambitious yet achievable goals that propel the organization forward. They encourage strategic risk-taking and innovation within the existing business framework, aiming to identify and capitalize on new opportunities for growth.
The third horizon is where the vision for transformation takes shape, focusing on pioneering innovations that promise to redefine the market landscape. This long-term perspective requires a bold approach to setting OKRs, with objectives that are not just ambitious but visionary. These goals are about making strategic bets on new technologies, business models, and markets that can ensure the organization’s relevance and leadership in the future. It’s about fostering a culture that values experimentation, embraces failure as a learning opportunity, and relentlessly pursues breakthroughs.
Successfully integrating OKRs across these three horizons necessitates a strategic alignment that acknowledges their distinct demands while recognizing their interdependence. Achievements in the near term must lay a solid foundation for mid-term growth, which, in turn, should align with the vision for long-term transformation. This approach ensures a strategic coherence where efforts across each horizon reinforce and support overarching objectives, steering the organization towards a future marked by sustained success and innovation.
In essence, the challenge of balancing immediate financial imperatives, driving growth in the medium term, and achieving transformational innovation underscores the strategic dilemma faced by businesses today. Utilizing OKRs across these three horizons offers a structured and flexible framework to navigate this complexity, ensuring focused effort, strategic alignment, and the agility to adapt as circumstances evolve.
Me: I think that although all three horizons are important, it will make sense to take the company’s current context into account. If a company is struggling to meet targets and have cash flow issues, they will be in a survival mode, meaning they will focus efforts stronger in horison 1. If the company is meeting targets then they will steer efforts stronger towards horizon 2 and when the company is healthy and growing their efforts will shift even stronger towards transformational efforts. But is this correct? A company that does not invest in horizon 2 and 3 may just end up in a constant survival fight?
ChatGPT: Indeed, the contextual reality of a company plays a crucial role in determining how it balances and prioritizes efforts across the three horizons of OKRs. Companies often find themselves navigating through varying degrees of financial health and market positioning, which significantly influences their strategic focus. Your observation highlights a critical strategic conundrum: the need for a balanced investment across all three horizons to ensure sustainable success and avoid perpetual survival mode.
Companies facing immediate financial challenges or cash flow issues tend to prioritize the first horizon, focusing on survival. This is a natural response, as securing the present is paramount to ensuring there is a future to speak of. In such scenarios, the bulk of resources and efforts are directed towards short-term objectives that stabilize the company’s financial footing and maintain its competitive edge. However, an overemphasis on the first horizon at the expense of the second and third can be shortsighted.
On the flip side, companies meeting or exceeding their targets are in a position to allocate more resources towards the second horizon, focusing on growth. This involves expanding existing markets, exploring new ones, and scaling operations, products, or services. It’s a phase of strategic expansion, where the groundwork laid in the first horizon starts to pay dividends, allowing the company to build momentum towards larger, more ambitious goals.
The healthiest companies, those that are not just surviving but thriving, can shift significant efforts towards the third horizon — transformation. This involves investing in innovation, experimenting with new business models, and exploring emerging technologies. It’s about setting the stage for future leadership and relevance in an ever-evolving marketplace. However, this long-term focus should not come at the expense of the near and medium-term health of the company. A balanced approach ensures that while the seeds of future innovation are being sown, the current and upcoming challenges are also being adequately addressed.
The pitfall you’ve identified is real: companies that fail to invest in the second and third horizons risk being trapped in a continuous loop of survival, constantly battling immediate challenges without ever securing their future. This myopic focus can lead to missed opportunities for growth and transformation, ultimately jeopardizing long-term success and sustainability.
Therefore, the strategic balancing act involves not just navigating the present but also preparing for the future, even when current circumstances are challenging. It’s about recognizing that investing in the second and third horizons is not a luxury but a necessity for breaking out of survival mode and securing a position of strength and leadership in the long run. A strategic approach that integrates OKRs across all three horizons, tailored to the company’s specific context and challenges, is essential for ensuring a sustainable and prosperous future.
Me: When we think of three horizons, we think of them as something sequential over time . So perhaps, it is better not to talk about three horizons, but think of it as three parallel processes where companies fully leverage their assets, shape their asset portfolios and then transform their asset portfolios.
Chatgpt: Rethinking the traditional concept of the three horizons as parallel tracks over time can indeed offer a fresh perspective on strategic planning and execution. Rather than viewing these horizons as separate entities operating independently, it’s more constructive to consider them as phases of a continuous process that a company undergoes to evolve and stay competitive. This approach emphasizes the dynamic nature of strategic management, focusing on leveraging, shaping, and transforming assets to ensure sustained growth and innovation.
Leveraging Assets in Horizon 1: The immediate priority for any company is to fully leverage its existing assets. This includes tangible assets like technology and infrastructure, as well as intangible assets such as brand equity and customer relationships. The objective is to maximize the efficiency and effectiveness of these assets to achieve short-term financial targets and operational goals. This phase is about optimizing what you already have, ensuring that the company’s current offerings are as competitive and profitable as possible. It’s a period of consolidation and refinement, aimed at strengthening the foundation upon which future growth can be built.
Shaping the Asset Portfolio in Horizon 2: Once a company has a strong grip on leveraging its current assets, the next step is to shape the asset portfolio for future growth. This involves strategic investments in developing new products, services, or markets that can drive mid-term growth. The focus shifts from merely optimizing current assets to expanding the asset base in a way that aligns with emerging market trends and customer needs. This phase is about strategic evolution, preparing the company to capture new opportunities and mitigate risks associated with market shifts. It requires a forward-looking approach, anticipating changes in the market landscape and adjusting the asset portfolio accordingly to ensure continued relevance and competitiveness.
Transforming the Portfolio with New Insights in Horizon 3: The ultimate goal is to transform the asset portfolio by integrating new insights and innovations that can redefine the market. This horizon is about visionary thinking and breakthrough innovations that have the potential to significantly alter the competitive landscape. It involves exploring emerging technologies, adopting new business models, and entering uncharted markets. This phase is characterized by experimentation and risk-taking, driven by the pursuit of transformative opportunities that can ensure long-term leadership and sustainability. It’s about reimagining what the company can be and pursuing that vision with boldness and creativity.
By conceptualizing strategic planning as a process of leveraging, shaping, and transforming assets, companies can adopt a more holistic and integrated approach to strategy. This perspective emphasizes the interconnectedness of short-term performance, mid-term growth, and long-term innovation. It encourages companies to think beyond the confines of traditional horizons, focusing instead on the continuous evolution of their asset portfolio to achieve sustainable success. This approach not only fosters agility and resilience but also ensures that companies are always positioned to capitalize on new opportunities and navigate the challenges of an ever-changing business environment.
The key to leveraging the three horizons in parallel lies in the ability to integrate efforts across these areas effectively. This requires a dynamic and adaptable strategic approach, where resources are allocated not just based on immediate returns but with a view towards long-term sustainability and growth.
Me: It is interesting for me that we cannot apply the same level or type of governance across these horizons. Think of finite and infinite games. The horizon 1 projects should be managed with tighter rules and lesser margin for failure because it is a familiar space, where horizon 3 is an unfamiliar space, so we should allow for “fail fast’ thinking and approaches.
ChatGPT: The concept of applying different levels of governance across the three horizons, akin to the distinction between finite and infinite games, offers a strategic framework that is both pragmatic and insightful. This framework recognizes the inherent differences in the nature of activities, risks, and expectations associated with each horizon, necessitating tailored approaches to management and governance.
Finite and Infinite Games Applied to Strategic Horizons
Horizon 1 (Finite Game) – Operational Efficiency and Predictability: In Horizon 1, the focus is on leveraging existing assets to maximize current operational efficiency and deliver predictable results. This horizon is akin to playing a finite game, where the rules are known, the objectives are clear (e.g., achieving quarterly financial targets), and the margin for error is minimal. Governance in this context demands strict adherence to budgets, timelines, and performance metrics. The emphasis is on optimizing processes, reducing costs, and ensuring consistent delivery of products or services. Risk management is crucial, with a conservative approach to change and innovation to safeguard the core business.
Horizon 2 (Transitioning Space) – Strategic Growth with Measured Risks: Horizon 2 represents a transition space where strategic growth initiatives are pursued. While there’s a clearer set of objectives compared to Horizon 3, Horizon 2 ventures into somewhat unfamiliar territory with new products, markets, or business models. This horizon straddles the line between the finite and infinite games. Governance here involves a more flexible approach that allows for experimentation within defined boundaries. Risks are measured and managed with an understanding that not all initiatives will succeed, but failures are seen as learning opportunities to refine strategies and approaches.
Horizon 3 (Infinite Game) – Exploration and Innovation: Horizon 3 ventures into the realm of the infinite game, where the focus is on long-term innovation, exploring new business models, and pioneering emerging technologies. The rules are not clearly defined, and the objectives extend beyond immediate financial gains to include transforming the industry or creating new markets. Governance in this horizon encourages experimentation, accepts a higher margin for failure, and views setbacks as integral to the discovery process. The management approach is more adaptive, with an emphasis on learning, iterating, and evolving strategies based on new insights and changing market dynamics.
Tailoring Governance to Each Horizon
The differentiation in governance across these horizons acknowledges that the strategies and metrics for success vary significantly from operational optimization to breakthrough innovation. It requires organizations to:
Adopt a multifaceted governance model that accommodates different levels of risk, innovation, and exploration.
Foster a culture that aligns with the specific needs of each horizon—precision and efficiency for Horizon 1, strategic expansion and adaptability for Horizon 2, and visionary thinking and resilience for Horizon 3.
Ensure leadership and management practices are flexible enough to support the distinct characteristics of initiatives within each horizon, balancing the need for control with the need for creativity and exploration.
By embracing this nuanced approach to governance, organizations can more effectively navigate the complexities of managing parallel strategic horizons. It enables them to maintain a competitive edge in their current markets, while also investing in the growth and transformative innovations that will ensure their future relevance and success.
Me: Let’s look at innovation: In the first horizon it is all about continuous improvement of current assets, where in horizon 2 it is about expanding or retracting portfolios and in horizon 3, it’s all about breaking boundaries.
ChatGPT
The delineation of innovation across the three horizons underscores the evolutionary nature of strategic growth and transformation within organizations. This framework not only highlights the varying focus and scope of innovation efforts but also underscores the importance of a balanced approach to ensure sustainability and competitiveness in the long term.
Horizon 1: Continuous Improvement of Current Assets
Innovation in Horizon 1 is characterized by continuous improvement, optimization, and incremental changes to existing products, services, and processes. The aim is to enhance efficiency, reduce costs, and improve customer satisfaction with what is currently offered. This type of innovation is relatively low risk and focuses on sustaining the current business model and market position. It involves:
Lean management practices to streamline operations and eliminate waste.
Quality improvement initiatives, such as Six Sigma, to enhance product reliability and service delivery.
Small-scale technological upgrades to improve product features or operational efficiency.
The emphasis here is on making better use of existing assets and capabilities to solidify and possibly expand the current market base.
Horizon 2: Expanding or Retracting Portfolios
Horizon 2 innovation focuses on strategic growth by either expanding into new markets and product lines or retracting from underperforming areas to concentrate resources more effectively. This horizon represents a balance between leveraging current strengths and venturing into new areas with calculated risks. Key activities include:
Developing new products or services that align with existing capabilities but cater to emerging market needs.
Entering new geographic or demographic markets with adapted or entirely new offerings.
Strategic acquisitions or divestitures to reshape the company’s portfolio in response to shifting market dynamics.
The goal is to build upon the firm’s established foundation while seeking new growth opportunities that are adjacent to the core business.
Horizon 3: Breaking Boundaries
In Horizon 3, innovation is about radical transformation and pioneering new frontiers. This horizon is characterized by exploratory ventures into uncharted territories, often driven by disruptive technologies, groundbreaking business models, or blue ocean strategies that create new markets or redefine existing ones. Innovation in this horizon involves:
Investing in research and development for technologies that could revolutionize the industry.
Developing products, services, or business models that diverge significantly from current market norms.
Forming strategic partnerships or ecosystems to explore synergies that can lead to new market opportunities.
The focus is on long-term vision and potential, accepting higher levels of risk and uncertainty in pursuit of game-changing breakthroughs.
Balancing Innovation Across Horizons
A strategic approach to innovation recognizes the need to balance efforts across all three horizons. Focusing too heavily on any single horizon can lead to missed opportunities or expose the organization to risk. For instance, overemphasis on Horizon 1 may result in operational efficiencies but can leave the company vulnerable to disruption. Conversely, concentrating solely on Horizon 3 might jeopardize current performance for speculative future gains.
Effective innovation management entails aligning resources, governance, and cultural mindset to support activities in each horizon. It requires:
Clear strategic vision to guide innovation efforts across all horizons.
Flexibility to shift focus and resources as market conditions and organizational priorities evolve.
A culture that values experimentation, tolerates failure as a learning process, and encourages cross-functional collaboration.
By fostering innovation across these horizons, organizations can ensure they not only remain competitive in their current markets but also position themselves to lead in new domains.
Me: In a way we can see horison 1 and 2 as innovation at the core and horison 3 as innovation at the edge. Do you agree?
ChatGPT: Yes, I agree with the characterization of Horizon 1 and 2 as innovation at the core and Horizon 3 as innovation at the edge. This perspective aligns well with the strategic intent and risk profile associated with each horizon, providing a clear framework for organizations to navigate their innovation efforts.
Innovation at the Core (Horizons 1 and 2)
Innovation at the core focuses on strengthening and expanding the existing business model, products, and markets. It is about enhancing and optimizing what already works, ensuring the organization remains competitive and relevant in its current domains.
Horizon 1 is about incremental innovation—improving processes, products, and services to sustain and enhance the current business. These innovations are critical for maintaining operational excellence and customer satisfaction.
Horizon 2 involves more strategic innovation, expanding into new markets or product areas that are adjacent to the existing business. This could involve moderate risk-taking but remains grounded in the organization’s core competencies and market knowledge.
Innovation at the Edge (Horizon 3)
Innovation at the edge is about exploring new frontiers, technologies, and business models that have the potential to disrupt the industry or create entirely new markets. It represents a more visionary and experimental approach to innovation, often involving higher risks and uncertainties.
Horizon 3 focuses on transformative innovation that can redefine the industry landscape or the organization’s role within it. These efforts are about breaking away from the core business to pursue new opportunities that lie outside the current operational and strategic boundaries.
Balancing Core and Edge Innovations
The distinction between core and edge innovations emphasizes the need for a balanced innovation portfolio. While core innovations are essential for sustaining current success and securing short to medium-term growth, edge innovations are crucial for long-term survival and competitiveness. They represent the organization’s future potential to lead in new areas.
Organizations that effectively balance these types of innovation can maintain a robust position in their current markets while also positioning themselves as future industry leaders. This requires a strategic allocation of resources, a culture that supports both incremental and radical innovation, and a governance model that accommodates different risk profiles and timelines associated with each horizon.
In conclusion, viewing Horizons 1 and 2 as innovation at the core and Horizon 3 as innovation at the edge provides a comprehensive framework for strategic planning and resource allocation. It helps organizations navigate the complexities of innovation management, ensuring they can respond to immediate market demands while also investing in future growth and transformation.
Me: Now let’s look at connections. Would you agree innovation is all about making new and novel combinations
ChatGPT: Yes, I would agree that innovation is fundamentally about making new and novel combinations. This concept is central to the process of innovation, where creativity and value are derived from connecting ideas, technologies, products, or processes in ways that have not been done before. This perspective aligns with several key aspects of innovation:
Cross-disciplinary Integration
Innovation often occurs at the intersection of different fields, disciplines, or industries. By combining knowledge and techniques from diverse areas, innovators can create solutions that are not only novel but also highly effective in addressing complex challenges. This cross-pollination of ideas can lead to breakthroughs that would be difficult to achieve within the siloed confines of a single discipline.
Technological Convergence
The blending of multiple technologies to create new applications or products is a hallmark of innovation. For instance, the smartphone is a result of combining computing, telecommunication, photography, and sensor technologies into a single device. Such technological convergence has opened up new markets and transformed existing ones.
Value Chain Recombination
Innovation can also involve reconfiguring the value chain—how products or services are created and delivered. This can include novel partnerships, distribution strategies, or customer engagement models. By rethinking how the components of a value chain interact, organizations can uncover efficiencies, create new value propositions, or enter new markets.
Conceptual Synthesis
At a more abstract level, innovation involves the synthesis of different concepts or ideas. This might include applying principles from one area to solve problems in another, such as using game theory to inform business strategy or drawing insights from nature to inspire sustainable design. The ability to see beyond conventional boundaries and combine concepts in new ways is a powerful driver of innovation.
Customer-centric Combinations
Innovation is increasingly focused on creating unique combinations that deliver value to the customer. This involves understanding customer needs, desires, and behaviors in depth, and then crafting solutions that combine products, services, and experiences in ways that resonate deeply with target audiences.
Systems-level Integration
Innovation can also be seen in the integration of components into larger systems, where the value of the whole exceeds the sum of its parts. This systems-level thinking is crucial for addressing complex societal challenges, such as climate change, urbanization, and healthcare.
In conclusion, viewing innovation as the process of making new and novel combinations helps to capture the essence of how value is created through creativity and integration. It emphasizes the importance of looking beyond traditional boundaries and categories to find connections that can lead to transformative solutions and opportunities.
Me: Now when thinking of these three horizons, do you agree that in horison 1 we will make connections that are more common, where in horison three we will start making connections between things that could even be completely strange. In horison 1 we may connect “something to do” with “something to achieve” , in horizon 2 we connect “different parts of the business ecosystem” and in horizon 3 we “make cross disciplinary or ecosystem solutions”
ChatGPT: Yes, I agree with that assessment regarding the nature of connections across the three horizons of innovation. The distinction you’ve made captures the essence of how organizations typically approach innovation within each horizon, reflecting a progression from making connections within well-understood and familiar contexts to exploring far-reaching, interdisciplinary, or ecosystem-wide integrations that can fundamentally transform industries or create new ones.
Horizon 1: Incremental and Common Connections
In Horizon 1, the focus is on making connections that enhance and refine existing products, services, and processes. These connections are often more common and based on existing knowledge and capabilities within the organization. The aim is to achieve continuous improvement, efficiency gains, or incremental product enhancements that can provide competitive advantage without significantly altering the core business model. Examples include process optimization through digital technologies or incremental improvements in product features that respond to current customer needs.
Horizon 2: Strategic and Diverse Connections
Moving to Horizon 2, the connections become more strategic and involve combining different parts of the business or its ecosystem in new ways. The focus here is on expanding the company’s reach through adjacent markets, new customer segments, or innovative product extensions. These connections often require a deeper exploration of unmet customer needs or underleveraged assets within the company. The innovation here is more substantial than in Horizon 1, aiming for significant growth opportunities that build upon the company’s existing strengths but push it into new territories.
Horizon 3: Transformative and Cross-disciplinary Connections
In Horizon 3, the approach to making connections becomes far more exploratory and ambitious, involving cross-disciplinary or ecosystem-wide solutions that have the potential to disrupt or create markets. These connections might seem “completely out there,” as they often involve leaps in technology, novel business models, or unprecedented collaborations across industries. The aim is to identify and capture value from emerging trends, technologies, or societal shifts before they become mainstream. Horizon 3 innovations are characterized by their high-risk, high-reward nature and require an organization to venture into uncharted territory, leveraging insights from diverse fields and forging new ecosystems or platforms.
Conclusion
The progression from Horizon 1 through to Horizon 3 reflects an increasing level of ambition and exploration in the connections made by an organization. It underscores the need for companies to balance their innovation portfolio across these horizons—ensuring they can sustain and grow their current business while also investing in the transformative innovations that will secure their future. Each horizon plays a critical role in a company’s long-term success, requiring tailored strategies, governance models, and cultures to support the distinct nature of innovation within them.
User: I believe having three ambitions over these horizons contains the roll out of OKRs and keeps it very focused. It allows us to work with a 3 by 3 framework: Three objectives with a maximum of three goals for each objective. It makes it lean and focused.
ChatGPT
Adopting a 3×3 framework for OKRs (Objectives and Key Results) across the three horizons of innovation is a strategic approach that aligns with the necessity for focus, clarity, and adaptability in organizational strategy and execution. This method not only streamlines the goal-setting process but also ensures that efforts are concentrated on the most critical areas of impact and growth. Let’s explore how this framework can be effectively applied and the benefits it brings to an organization.
Three Horizons and 3×3 OKR Framework
Horizon 1: Optimizing the Core
Objective 1: Enhance operational efficiency and productivity.
Key Result: Achieve a X% reduction in operational costs.
Key Result: Increase productivity by Y%.
Key Result: Improve customer satisfaction scores by Z%.
Horizon 2: Expanding and Scaling
Objective 2: Expand into adjacent markets or products.
Key Result: Launch X new products/services in adjacent markets.
Key Result: Achieve a Y% market share in new markets.
Key Result: Generate Z% of total revenue from new products/services.
Horizon 3: Transformative Growth
Objective 3: Pioneer disruptive innovations or business models.
Key Result: Develop and prototype X new business models or technologies.
Key Result: Secure Y strategic partnerships for ecosystem expansion.
Key Result: Attract Z amount of investment for new ventures.
Benefits of the 3×3 OKR Framework
Focused Efforts: Limiting to three objectives with up to three key results each forces prioritization and ensures that resources are allocated to the most impactful initiatives. It helps prevent the dilution of efforts across too many projects or goals.
Clarity and Alignment: This framework provides clear direction and alignment across different levels of the organization. It ensures that everyone understands what success looks like and how their work contributes to the broader strategic ambitions.
Adaptability: By structuring OKRs around the three horizons, organizations can maintain a balanced focus on immediate performance, mid-term growth, and long-term innovation. It allows for agility in response to market changes or internal shifts in strategy.
Measurability: The 3×3 framework facilitates the setting of specific, measurable key results. This not only aids in tracking progress and performance but also in making informed decisions based on data and outcomes.
Encourages Innovation: By dedicating one of the horizons to transformative growth, the framework inherently encourages innovation. It signals the organization’s commitment to exploring new frontiers and investing in future capabilities.
In Conclusion
The 3×3 OKR framework tailored across the three horizons of innovation represents a powerful approach to strategic planning and execution. It encapsulates the need for balance between maintaining the core business, seizing near-term growth opportunities, and investing in future innovations. This framework promotes a disciplined yet flexible approach to strategy, ensuring that organizations can navigate the complexities of today’s business environment while laying the groundwork for tomorrow’s success.