Michael Porter Generic Strategies Cost Leadership Differentiation Focus

Prepare a 1-2-page guiding principles document for staff compensation at a new company.

Introduction

For the human resource (HR) manager, the focus is on designing policies that consistently reflect the company’s business image. Being incongruent is simply not a winning strategy. If a company chooses to be the best in field, it automatically requires its policies to be the same. One of the major roles for human resource practitioners in this process is to ensure that the compensation polices reflect the organization\’s image. If a company strives to be the best in the field and attract and retain top talent, the compensation strategy must be designed accordingly.

There are numerous possibilities for high-level business strategies, and it is often useful to consider these in fairly basic terms in relation to HR programs and compensation systems.

For example, Harvard Professor Michael Porter (2003) defined three “generic strategies” of businesses:

• Cost leadership – being the low cost producer.
• Differentiation – providing a better or unique product.
• Focus – concentrating on a narrow market.

Gerhart and Newman (2020) defined three somewhat different but closely related business strategies (as well as associated business responses):

• Low cost. (The business response is operational efficiency.)
• Innovator. (The business response is product leadership, mass customization, and short product life cycles.)
• Customer focus. (The business response is delivering products matching or exceeding customer expectations.)

The key is to align an overall HR program (including a compensation system) with the relevant business strategy.

Gerhart and Newman, for example, describe appropriate HR program alignments and compensation systems associated with their defined business strategies. A low-cost strategy would have an HR program that would emphasize doing more with less. Compensation systems aligned to this strategy would be focused on labor costs, productivity, and controls on work. In contrast, an innovator strategy would include an HR program that uses agile processes, encourages risk-taking, and involves innovative people; compensations systems associated with this strategy would have flexible job descriptions that could adjust to changing needs and market-based pay that rewards innovation. The customer focus strategy would logically have an HR program with the goal of pleasing customers and exceeding their expectations, and the compensation system would reward employees based upon customer satisfaction incentives.

While thinking about compensation strategies, it is important to consider the ethical issues that influence compensation policy and how they may or may not harmonize with personal, corporate, and societal values. Also, think about the fundamental relationship an individual has with a company and how the contract for work and reward may represent a deeper contract between the employee, the employer, and the society in which the business is conducted.

It is helpful to look at the needs of the company and the individual from both a practical and ethical perspective. Within this context is the legal and regulatory framework that guides the standards of human resource policy, including labor laws that were addressed in your other human resource courses, specifically laws relevant to wages and benefits.

References

Gerhart, B., & Newman, J. M. (2020). Compensation (13th ed.). New York, NY: McGraw-Hill.

Porter, M. E. (2003). Competitive strategy: Techniques for analyzing industries and competitors. Chicago, IL: Simon & Schuster.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Evaluate the components that comprise an effective total compensation program.
  • Describe a company for which a vision will be created.
  • Identify a business strategy aligned with a company.
  • Create guiding principles for developing a comprehensive compensation policy.
  • Assess the adaptability of compensation guiding principles to different economic conditions.
  • Describe an HR program aligned with a business strategy for a new company.
  • Explain how existing businesses in a company\’s community affect the business strategy and compensation vision of the company.
• Competency 2: Evaluate the components and implementation of base-pay programs.
  • Describe a compensation system aligned with a business strategy for a new company.

Preparation

Imagine that you are the HR manager for a new company just opening its doors in your community. The owners have asked you to prepare a vision for compensating the staff. They do not want specific policies but rather guiding principles that will help them collect data and write specific HR policies later.

Complete the following:

• Describe the type of business, the number and types of employees (such as exempt and non-exempt), and the customer base you will use as your example company for this assessment, as well as the state and city or area of the state where your company is located.
• Identify a business strategy that is most appropriate for the company, and include an analysis of why you believe this is the case.
• Discuss the appropriate business response, HR program alignment, and compensation system for this new business.
• Create a list of essential guideposts for developing a total compensation policy. In your vision, include statements that can be made public to your customers and employees.
• Consider whether your vision will be strategic in a strong economy, as well as in an economic downturn. Will you be able to adapt your vision during various economic conditions?
• Describe an HR program aligned with the business strategy chosen for the new company.
• Describe how other existing businesses in your community affect the compensation vision and strategy of this new company. You can reference the Overview of BLS Wage Data by Area and Occupation Web page from the Bureau of Labor Statistics Web site (cited in the Resources) to help you research information for your response.

Your analysis should be 1-2 pages long. Be sure to use proper APA style (6th edition) and formatting.

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Evaluate the components that comprise an effective total compensation program.
  • Describe a company for which a vision will be created.
  • Identify a business strategy aligned with a company.
  • Create guiding principles for developing a comprehensive compensation policy.
  • Assess the adaptability of compensation guiding principles to different economic conditions.
  • Describe an HR program aligned with a business strategy for a new company.
  • Explain how existing businesses in a company\’s community affect the business strategy and compensation vision of the company.
• Competency 2: Evaluate the components and implementation of base-pay programs.
  • Describe a compensation system aligned with a business strategy for a new company.