Mike Walsh: The Dual Horizon Problem / Strategy

Our best futurist speaker, Mike Walsh mike walsh.jpg is also an experienced executive coach and advisor to some of the world’s leading CEOs, entrepreneurs and business leaders. In his recent blog post he talks about the Dual Horizon Problem – the challenge faced by the CEO of IBM, HP, Netflex and many more. Some sail through safely, some not. What makes the difference?

Enters Mike:

I don’t like boats. I get sea sick easily and my worst nightmare is being caught out in the middle of the ocean in a storm. When that happens my original plans – however grand – go straight out the porthole. Business leaders face a similar dilemma. You can spend a weekend retreat discussing the far future, but on Monday the only scenario that counts is the immediate future of cash flow, customers and competitors. So how do you reconcile two distinct timelines which require radically different strategies for attainment? I call this paradox the ‘Dual Horizon Problem’.

In the Dual Horizon Problem, there are two timelines to consider. The first horizon is what you can see from your present vantage point. It might be the next quarter or the next year – but the important factor is that the measures for survival are based on growth in your current business model. In a crisis, you may realise instinctively that you are heading in the wrong direction – but in fact, you are likely to be so consumed with trying to salvage your position using your traditional strategies, to worry about re-orientating to a new business model.

To see beyond the waves to the next horizon, you need to exercise a little imagination. Try this quick exercise. Start with a clean sheet of paper with two columns. Write a list of your major products and services (what you sell), business models (how you sell) and customer channels (where you sell) on the left. Now take your best guess at what direction consumer behaviour and disruptive technology might take in the next few years, and then push your ideas a bit further. Use this to write a list of items in the right hand column that should neatly oppose your current business. Congratulations! You have just sighted your second horizon.

Without a plan to reach your second horizon, you may survive the present only to fall short of the future. It is like escaping a storm, only to discover that don’t have a final destination. Are you heading to an island paradise or the rocks of death? Not something you want to leave to chance! But before you get too excited, keep in mind that focusing on your second horizon alone is just as bad as ignoring the future altogether.

Consider HP. The company recently made headlines when they announced an intention to exit the consumer PC business. HP’s management recognised that in the future, margins in the consumer hardware business were shrinking, competition intensifying and product commoditising. They imagined shifting to a second horizon business based on the Cloud – a platform that seemed to offer much more attractive growth prospects. The only catch – as HP’s senior leaders discovered when their stock price plummeted – was that shutting down divisions that contribute large chunks of your present day operating revenue without a clearly defined vision for the future, is unlikely to win much support from investors.

Arguably, IBM handled their horizon transition much more effectively in 2004 when they made a similar shift to technology services away from PC hardware. A key difference between the two companies is that when IBM sold their PC business to Lenovo, they retained both a significant shareholding and strong management influence in the old business. They were also clever to structure the deal to increase the market awareness of the IBM brand throughout Asia. Only when Lenovo achieved a profitable market position did IBM gradually reduce their shareholding. In doing so, IBM not only gracefully segued from their first to second horizon business model, they were able to neatly re-organise their cost structures in the process.

Sometimes companies can have the right dual horizon strategy, and yet slip up on their customer communications. A good example is Netflix. Netflix were very astute in building a horizon one entertainment aggregation business using mailed distributed DVDs at a time when broadband speeds and Hollywood licensing arrangements were not sophisticated enough to handle a streaming model. Using their revenue and customer base from horizon one, they then started to ramp up an online model that enhanced their primary proposition – all of which came dramatically undone when the company announced sudden hikes in pricing and a decision to split the two businesses. Netflix lost a devastating chunk of customers and their CEO was forced to publicly apologise.

Navigating a path to the future is not easy. And worse yet, the pace of both technological and consumer change today means that you no longer have the luxury of waiting until the market catches up before you make your move. That’s why I believe that as a leader today you have to cultivate ‘Dual Horizon’ thinking, which although somewhat schizophrenic, will give you the perspective to lead your company through a transformation process without sinking it in the process.

When working with many of my clients at Tomorrow on this problem, I have advised them not to destroy their horizon one business, in their question for new growth. If you turn everything upside down overnight, you run the risk of either becoming overwhelmed by the reality of corporate inertia, or worse, irrevocably destabilising your current profit engine. Better instead to spin out a new unit – empowered to make a clean start, to trial emerging technologies, break business rules and most of all, to think big.

The best way to get things moving is to round up all your trouble-makers, dreamers and hackers and give them the space and protection to try new things. Watch closely. At the right moment you can either bring them back into your business, or fold your business into the new venture. And be assured that you won’t be the first to have sailed that route. To paraphrase the late great Steve Jobs – if you have ride out the storm of the present into an uncertain future – its better to be a pirate than join the navy.

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