Evaluating Horizon Three Concepts

Investing in the future is a tricky business.

There’s a reason 1 in 4 Americans have no retirement savings. The future is far away, and more near-term financial needs take precedence. We may recognize the importance of saving for retirement but difficult decisions disrupt our idealism.

The task of saving for retirement is not unlike the task business leaders have of investing in the future (you can call it Horizon 3 if you’re a McKinsey fan). Ideally, you allocate 70% of investment to the core business, 20% to emerging opportunities, and 10% to keep an eye on what’s to come. However, when faced with the reality of managing a P&L, investing in the distant future gets sidetracked by a sea of competing priorities.

This challenge is compounded by a simple fact of “Horizon 3” concepts - building business cases for them is tough. Traditional quantitative measures we might use for Horizon 1 concepts don’t flatter the nature of Horizon 3. Any measure of market opportunity, ROI, or timing is likely unreliable (*read: “garbage”) based on weak assumptions about technology we don’t yet understand.

So what do we do? How do we evaluate Horizon 3 concepts in a way that flatters their risky, unknowable future? I think the key might be qualitative data.

(*gasp) I know! How dare I!

When it comes to these far-off concepts, we need to justify two things: resonance and relevance.

Resonance responds to the question, “How would our customers respond to this?” I’m not talking about intention to purchase. In fact, we should all stop talking about intention to purchase. It is a highly unreliable measure, and typically only explains about 30% of the variability in actual purchasing behavior. I’m talking about using qualitative methodologies (interviews, observations, focus groups) to understand how (if at all) the Horizon 3 concept could fit within the customer’s context. I use the term “resonance” very intentionally. With most Horizon 3 concepts, you can’t even gauge usefulness or desirability yet. Odds are that the customer (maybe even the whole company) does not even understand the concept much less its value.

Relevance responds to the question, “Does this align with our strategic direction?” Does the concept fit within our purpose, mission, vision, and the reason we exist as an entity? This requires everyone have the same definition of the strategic direction - that alone is a tall order. I think this can be accomplished qualitatively too. Using your leaders as your “end users” and leveraging the same qualitative methodology you would use to assess resonance.

Allow resonance and relevance to determine how much effort your concept deserves. If the answer is “it’s worth the effort,” then experimentation is the next stop along the journey. And here, it becomes critical to acknowledge that in the game of predicting the future, you’re going to be wrong…a lot. So organizationally, you must require tolerance of failure and the ability to catalog lessons learned from that failure to fuel future experiments.

It doesn’t hurt if all of this is incentivized and factored into your compensation plan as well, but we’ll save that for another post.

These thoughts are my own and do not represent the viewpoints of any company or organization with which I’m affiliated.