This is a guest article by Brian Lassiter. If you want to contribute an article to Baldrige.com, check out the guidelines here.

In a recent talk, Bill Mills, CEO of Executive Group, claimed that “organizations are perfectly designed to get the results they are getting.” I think that’s a compelling thought. If you’re struggling right now, blame it not on the economy but on your business model—one that may not be appropriate for today’s environment. Bill’s premise—and I completely agree—is that success is largely due to an organization’s strategic positioning in the marketplace: being at the right place at the right time to capitalize on a market need, to create value for a set of buyers, and to benefit from the flow of resources (money).

But Bill goes on to claim that strategic positioning may only be part of the equation: Success is also based on an organization’s ability to create a business model that fully capitalizes on that market need. In other words, just being at the right place at the right time doesn’t ensure success.

Enter the notion of a “blue ocean strategy.” In their book by that name, W. Chan Kim and Renee Mauborgne ask readers to imagine a market universe composed of two sorts of oceans: red oceans and blue oceans. Red oceans represent all industries in existence today; it is the known market space where industry boundaries are defined and accepted and competitive rules are generally known. Blue oceans represent all the industries not in existence today. Basically, this is the unknown—or at least untouched—market space.

“In blue oceans, competition is irrelevant because the rules of the game are waiting to be set,” they write. As a result, companies can set prices where the market will bear them without having to consider competitive offerings (at least not at the outset). Growth and profit are enhanced, according to Kim and Mauborgne, when organizations swim in blue oceans instead of red. Southwest Airlines, Cirque du Soleil, and Apple come to mind.

The authors suggest six principles for creating blue ocean strategies:

1. Reconstruct market boundaries. By redefining how you define “market,” you open up potential blue oceans.
2. Focus on the big picture, not the numbers. Create strategic plans that are less about numbers and jargon and more about a vision for future success.
3. Reach beyond existing demand. “Aggregate demand, not by focusing on differences that separate customers but by building on the powerful commonalities across non-customers to maximize the size of the blue ocean.”
4. Get the strategic sequence right. Follow a process that allows you to move from buyer utility to pricing to cost structure to market adoption to implementation.
5. Overcome key organizational hurdles. Build leadership to manage the new business model.
6. Build execution into strategy. Integrate a blue ocean culture for sustained performance and constant evolution.

How do you implement these principles? Increase value for customers and drive costs down for the company. The difference from traditional economics is that blue ocean strategies require changing the business model rather than just the product or service. Think Southwest. It didn’t just change the core product (your flight): It changed virtually everything else in the business model that surrounded that product.

Brian S. Lassiter

President, Minnesota Council for Quality

(3 votes, average: 4.67 out of 5)

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