Written by Graham Norris
Despite an acceleration in the trend away from cash during the pandemic, cash still exists, and it seems it will be giving us a long kiss goodnight. So how might this demise, assuming it will continue, unfold, and what opportunities might emerge in the meantime?
One tool to use to better understand this evolution is the three horizons model developed by Bill Sharpe. This model not only provides insight on possible futures, but also the attitudes that can create, propel, or hinder trends related to a particular phenomenon.
Briefly, the three horizons are:
- a managerial mindset – The current state of affairs.
- an entrepreneurial mindset – A period of transition.
- a visionary mindset – The new state of affairs.
By understanding the current state of affairs and possible future situations, it becomes possible to identify what might happen in between – the risks and opportunities.
We can use the example of cash to see how this works.
- Current State
The three horizons can be visually represented on a chart showing prevalence against time. We start with now – what defines the current situation, and what signals of the future can we detect? How is cash used now, and what competing views of the alternatives are already apparent?
- New State
The next step is to look at the distant future of the third horizon. This requires imagination, curiosity, and an open mind. We’re not trying to guess what is actually going to happen, but rather to consider what could happen. There are numerous, or perhaps innumerable, possibilities you might want to explore. It is also worth considering what of the present situation will endure. In our example, is there any characteristic of cash that is indispensable?
- Transition State to go from Current to New
Finally, how might we move from the first horizon to the third? This is where the opportunities present themselves, although perhaps not for long. As we move from one condition to another, there are winners, losers and confusion, all offering the potential for innovation.
You can see some ideas in the chart, but it’s important to conduct this exercise for yourself or with your team to get the most relevant results, and then ask:
- How might we fill the gaps created by the evolution of the trends we want to examine?
- How will we manage the risks presented by the future in relation to any particular trend?
- How would we respond to a counter-trend (e.g. In reference to the presented example, a resurgence of cash)?
- What can we do now to better position ourselves in relation to what the three horizons tool is revealing for us?