IBDP Design Technology - 9.1 Corporate strategies

Innovation and Markets / 9.1 /
Corporate Strategies

Companies and businesses can utilize a range of different strategies to develop products, services and systems. The success of a company relies heavily on the strategies it adopts. The evaluation of products, services and systems can inform the selection of the most appropriate strategies to follow that will enable a company to achieve its objectives.

9.1.1 | Pioneering vs imitative strategy

When pioneering a product or service, a company is the first to market with a new innovation. This innovation could be a unique and very different product from anything that already exists. It could also be a smaller innovation introducing new materials, new production processes, new technology or a radically new form. A lot of classic design (topic 6) pioneered such features.

A good example of a pioneering strategy would be James Dyson's vacuum cleaners which incorporated a radical new technology and drastically altered the appearance of traditional vacuum cleaners (Dyson then did the same with hair dryers). Dyson was pioneering, but so was Hoover who introduced the very first household vacuum cleaner in the first place.

Advantages of pioneering are

Temporary monopoly until competitors catch up.
Set technical standards.
First access to resources, materials and suppliers.
Company image as a “pioneer” or "innovator".

Disadvantages of pioneering are

High-risk strategy.
Costly R&D in material, production and process development.
High failure rate - radical change may not appeal to all.
Competitors can benefit from your research and development.
Negative company image if the product fails.

Using an imitative strategy, a product designer or manufacturer would analyse existing products within a market sector and use a very similar format (almost copying) for their own product development. The used technology, materials and production processes would be similar. This approach enables the manufacturer to reduce design and development time and therefore cost.

A process that imitative manufacturers use to extract knowledge or design information from existing products is reverse engineering. This involves disassembling and analysing the components and inner workings of a product in detail to determine how the original designers created their product. There are situations in which this strategy might be considered ethically wrong.

The Apple iPhone launched in 2007. The Samsung Galaxy in 2009.

Apple introduced a new technology for portable music.

Zara pioneered 'fast fashion'.

Dyson pioneered a new mechanism for vacuum cleaners

9.1.2 | Product Development

Product development involves selling new products in existing markets, primarily targeting existing customers. This can be done through increased research and development to appropriately target customer needs and requirements in a changing market. Part of product development can also be product line extension. This is especially effective when the product itself has reached the maturity or decline stage of the product's life cycle. Brand development is also part of a product development strategy - these can be major or even minor design or functionality changes. Apple is a good example of a company that employs a product development strategy effectively.

9.1.3 | Product Diversification

Product diversification is a risky corporate strategy as it involves selling new products in new markets. Product diversification is achieved by becoming involved with new products to ‘diversify’ the products a company already offers as part of a brand range. This strategy mainly is used by large corporations after all other growth strategy opportunities have become saturated. The advantage of having a large product portfolio is that if the sales of one product or product family drop it doesn't put the entire company at risk.

The Kraft Heinz Company (KHC), commonly known as Kraft Heinz, is an American food company formed by the merger of Kraft Foods and Heinz. Kraft Heinz is the third-largest food and beverage company in North America and the fifth-largest in the world with $25.0 billion in annual sales as of 2019. In addition to Kraft and Heinz, over 20 other brands are part of the company's profile including Boca Burger; Gevalia; Grey Poupon, Oscar Mayer, Philadelphia Cream Cheese, Planters, Primal Kitchen, and Wattie's of which eight have total individual sales of over $1 billion. Kraft grew out of a wholesale cheese-delivery business established in Chicago in 1903 by James L. Kraft. The Heinz Company was founded in Sharpsburg, Pennsylvania, in 1869 by Henry John Heinz (1844–1919), who was later to become nationally known as the “Pickle King.

9.1.4 | Market Penetration

Market penetration involves taking an existing product and selling it (or more of it) in an existing market. The strategy focuses mainly on increasing the market share of a product. A product that successfully penetrates a market is recognised and bought by customers in that market or market segment. Businesses can penetrate a market by using competitive pricing, improved or increased advertising or implementing customer loyalty schemes. The approach of market penetration is a low-risk business strategy.

Under Armour is a good example of a company that has demonstrated successful market penetration. The company sells performance apparel, and in recent years it has surpassed Adidas to become the number-two athletic-wear provider in the U.S. The company has persistently focused on selling athletic footwear, clothing, and accessories, and was able to capture a leadership position in the market with that strategy.

9.1.5 | Market Development

Market development involves finding new applications for existing products, therefore opening up new markets for the company. This can be achieved by selling established products and marketing them directly to new customers. This may require re-packaging, new promotional material or a new pricing strategy. Altering distribution channels, as well as entering international markets are other methods for market development. Market development can be riskier than other strategies as there are more factors that could determine the business’ success or failure. The main advantage of market development is that the company is very familiar with the product line. No matter which method of market development is used, market research is needed - this is especially true if expanding into international markets when cultural awareness may be key.

In recent years, Adidas has targeted its sportswear products towards the leisurewear sector. Through this market development strategy, Adidas has become a very successful brand in this clothing.

9.1.6 | Hybrid Approaches

Using more than one of the previously mentioned strategies is a Hybrid Approach. The majority of product developments are brought to market through selected elements and combinations of different strategies. There is no exact formula that enables a product to succeed in the market, this is often why new products from inexperienced designers and manufacturers with low capital find it difficult to enter a market that is already flooded with large, experienced manufacturers designers and suppliers.

The Ansoff Matrix is a tool that offers four types of product and market growth strategies for businesses. It is named after Russian American Igor Ansoff, an applied mathematician and business manager, who created the concept.

An Ansoff matrix can also be used to consider corporate strategies, but also to analyse how existing companies have used these strategies.

9.1.8 | Corporate Social Responsibility

Corporate social responsibility is a form of self-regulation for a company and centres around the development of goals related to three areas:

Economic - Operations should not disturb larger economic structures (e.g. lead to job loss) or take risks with their financial sustainability.
Social - Operations should not negatively impact the livelihood of communities.
Environmental - Operations should not have a negative impact on the natural world.

Companies that consider corporate social responsibility as a goal need to assess the impact of their operations in relation to these three areas in order to maximize the benefits and minimize the disadvantages. It is important to consider the ways in which a company might achieve this, and how effective the responsible corporate strategy actually is. More often than not corporate responsibility is motivated by marketing purposes (e.g. green washing and social washing).

When a company consistently prioritizes its social responsibilities over profit, it is considered a social enterprise.