SAFe®’s investment horizon model helps portfolios visualize their growth strategy over time in a simple manner. This framework proves invaluable to portfolio managers when ensuring their portfolios sustain and grow over the long term.
The investment horizons help keep the focus on growth and innovation by balancing the needs of today with the envisioned future state. SAFe®’s Investment horizons categorize goals into four distinct horizons – Horizon 1 (Investing & extracting), Horizon 2 (Emerging), Horizon 3 (Evaluating), and Horizon 0 (Retiring).
Horizon 1 (Investing & Extracting) - This horizon represents the investments needed for today’s most significant assets generating revenue or helping the portfolio succeed.
Most organizations’ primary focus is horizon 1, for it deals with current business (existing portfolios and customers) and is operational in nature. Horizon 1 investments are generally driven by customers (feature requests), board or investors (stock valuation), competitors, or cost advantage.
SAFe® further divides Horizon 1 into two, namely -
Investing - These investments reflect solutions that require significant ongoing investment probably to support changing markets or technology.
Extracting - These investments represent stable solutions that deliver significant value with lower spending. Investments are made to assure continued value, profit, and cash flow.
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Horizon 1 investments focus on activities aligned with the current business and increase immediate revenues. It is all about running the existing business profitably by focusing on improving margins, bettering existing processes, and keeping the cash flow.
For organizations to maintain a high growth trajectory, it is equally vital to innovate continuously. The relevance of Horizon 2 & 3 investments is to bridge the gap between the reality of running the business today and innovating to be relevant tomorrow.
Horizon 3 (Evaluating) - Horizon 3 investments are dedicated to investigating new potential opportunities for profitable growth in the future. This could be creating entirely new elements for your business that don't exist today or even a change to the fundamental business model.
Generally, these are exploratory and research activities that are often somewhat isolated from the current operating model.
Horizon 3 usually requires modest investments with an ROI period of 3 to 5 years. The few aspirational ideas and their emerging solutions that provide a sufficiently compelling return on investment typically continue to horizon two while the others are culled.
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Horizon 2 (Emerging) - Horizon 2 investments are for the promising new solutions that have emerged from horizon three. Since these solutions have the potential to be the next generation Horizon 1 products, the business is willing to make ongoing investments in excess of the current return.
Horizon 2 investments can turn tricky pretty quickly, for they might need Horizon 1 resources and support but cannot deliver Horizon 1 level of returns. Care must be taken to ensure Horizon 2 is not starved of the operating resources needed to reach Horizon 1.
It is also a reality that few solutions in Horizon 2 may not deliver the anticipated returns, and the decision to stop will have to be taken. In such cases, some modest investment is likely still necessary to decommission the solution, as the horizon two solutions have usually made their way into the internal and external business ecosystem.
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Horizon 0 (Retiring) - All solutions eventually meet end-of-life. Horizon 0 reflects the investment needed to decommission a deployed solution, which frees the budget for more promising investments in other horizons.
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