Principles of Blue Ocean Strategy
The six main principles guide companies through the formulation and execution of blue ocean strategy in a systematic, risk-minimizing manner.
The first four principles address blue ocean strategy formulation:
1. Reconstruct market boundaries. This principle identifies the paths by which managers can systematically create uncontested market space across diverse industry domains, hence attenuating search risk. Using a Six Paths framework, it teaches companies how to make the competition irrelevant by looking across the six conventional boundaries of competition to open up commercially important blue oceans.
2. Focus on the big picture, not the numbers. This principle, which addresses planning risk, presents an alternative to the existing strategic planning process, which is often criticized as a number-crunching exercise that keeps companies locked into making incremental improvements. Using a visualizing approach that drives managers to focus on the big picture, this principle proposes a four-step planning process for strategies that create and capture blue ocean opportunities.
3. Reach beyond existing demand. To create the greatest market of new demand, managers must challenge the conventional practice of aiming for finer segmentation to better meet existing customer preferences, which often results increasingly small target markets. Instead, this principle, which addresses scale risk, states the importance of aggregating demand, not by focusing on the differences that separate customers but rather by building on the powerful commonalities across noncustomers.
4. Get the strategic sequence right. The fourth principle describes a sequence that companies should follow to ensure that the business model they build will be able to produce and maintain profitable growth. When companies follow the sequence of (1) utility, (2) price, (3) cost, and (4) adoption requirements, they address the business model risk.
The remaining two principles address the execution risks of blue ocean strategy.
5. Overcome key organizational hurdles. Tipping point leadership shows managers how to mobilize an organization to overcome the key organizational hurdles that block the implementation of a blue ocean strategy. This principle mitigates organizational risk, outlining how leaders and managers can surmount the cognitive, resource, motivational, and political hurdles in spite of limited time and resources.
6. Build execution into strategy. This principle introduces fair process to address the management risk associated with people’s attitudes and behaviors. Because a blue ocean strategy represents a departure from the status quo, fair process is required to facilitate both strategy making and execution by mobilizing people for the voluntary cooperation needed for execution. By integrating execution into strategy formulation, people are motivated to act.