Academic journal article Journal of Business Strategies

Employee Perceptions of the Relationship between Strategy, Rewards and Organizational Performance

Academic journal article Journal of Business Strategies

Employee Perceptions of the Relationship between Strategy, Rewards and Organizational Performance

Article excerpt

Abstract

This study explores the relationship between organizational strategy, reward practices, and firm performance. Researchers have not extensively investigated this potentially important topic. This paper presents some initial empirical evidence that supports the notion that different types of reward practices more closely complement different generic strategies and are significantly related to higher levels of perceived organizational performance.

Employee Perceptions of the Relationships Between Strategy, Rewards and Organizational Performance

Results of previous research regarding the efficacy of various business strategies has been confusing and contradictory. We suspect that certain reward practices may be associated with stronger organizational performance based on the type of strategy being used by the firm. The use of reward practices which logically complement a specific organizational strategy should serve to motivate employees to help the organization perform at a higher level.

While reward practices may facilitate the successful implementation of organizational strategies, theorists and practitioners, for the most part, have largely ignored this potential relationship (Lawler, Mohrman, and Ledford, 1995; Lawler, 1994; Gomez-Mejia and Balkin, 1992; and Ledford, 1995a). Clearly from both a practitioner and an academic viewpoint, exploratory research on the relationship between reward practices, firm performance and organizational strategies is warranted. It is hoped that this initial exploratory analysis will spur future research into this important research question.

Relevant Literature

In the next sections, (1) generic organizational strategies; (2) the potential relationship between generic strategies and performance; (3) firm performance measures; and (3) reward practices are discussed.

Generic Strategies

While various types of organizational strategies have been identified over the years (Miles and Snow, 1978; Chrisman, Hofer, and Bolton, 1988: Porter, 1980) Porter's generic strategies remain the most commonly supported and identified in key strategic management textbooks (see for example, David. 1999; Miller, 1998; Thompson and Stickland, 1998) and in the literature (Kim and Lim, 1988; Miller and Dess, 1993).

Porter (1980) proposed three generic strategies that can yield competitive advantage, namely cost leadership, product differentiation, and focus. Porter (1980) suggests to ensure long-term profitability, the firm must make a choice between one of the generic strategies rather than end up being "stuck in the middle."

Cost Leadership. Lower costs and cost advantages result from process innovations, learning curve benefits, economies of scale, product designs that reduce manufacturing time and costs, and reengineering activities. A low-cost or cost leadership strategy is effectively implemented when the business designs, produces, and markets a comparable product more efficiently than its competitors. The firm may have access to raw materials or superior proprietary technology which help to lower costs.

Product Differentiation. Product differentiation fulfills a customer need and involves tailoring the product or the service to the customer. This allows organizations to charge a premium price to capture market share. The differentiation strategy is effectively implemented when the business provides unique or superior value to the customer through product quality, features, or after-sale support. Firms following a differentiation strategy can charge a higher price for their products based on the product characteristics, the delivery system, the quality of service, or the distribution channels. The quality may be real or perceived based on fashion, brand name, or image. The differentiation strategy appeals to a sophisticated or knowledgeable consumer who wants a unique, quality product and is willing to pay a higher price. …

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