REWARD STRATEGY:

VERTICAL &
HORIZONTAL
ALIGNMENT
LECTURE 3

LECTURE OBJECTIVES
REWARD STRATEGY DEFINED
AREAS & LEVELS OF ALIGNMENT
CORPORATE STRATEGIES & PAY ISSUES
BUSINESS STRATEGIES & PAY STRATEGY OPTIONS
REWARDS & OTHER HR PRACTICES

REWARD STRATEGY DEFINED

THE DELIBERATE UTILISATION OF THE PAY SYSTEM AS AN ESSENTIAL
INTEGRATING MECHANISM THROUGH WHICH THE EFFORTS OF
VARIOUS SUB-UNITS AND INDIVIDUALS ARE DIRECTED TOWARD THE
ACHIEVEMENT OF AN ORGANISATIONS STRATEGIC OBJECTIVES,
SUBJECT TO INTERNAL AND EXTERNAL CONSTRAINTS. WHEN PROPERLY
DESIGNED, CONTINGENT UPON THE ORGANISATIONS STRATEGIC
OBJECTIVES AND CONSTRAINTS, IT CAN BE AN IMPORTANT
CONTRIBUTOR TO THE FIRMS PERFORMANCE.
GOMEZ-MEJIA AND BALKIN (1992)

AREAS OF ALIGNMENT

LEVELS OF STRATEGY
Corporate-Level Managers

Corporate
Strategy
Two-Way Influence

Division Managers

Business Strategies
Two-Way Influence

Functional Mgrs

Functional Strategies
Two-Way Influence

Operating
Mgrs

Operating Strategies

CORPORATE LEVEL STRATEGY

VERTICAL INTEGRATION
INPUT DOMAIN & OUTPUT DOMAIN
CONTROL OF TRANSACTION COSTS

RELATED DIVERSIFICATION
LEVERAGING CORE COMPETENCIES
SHARING ACTIVITIES
POOLED NEGOTIATING POWER

UNRELATED DIVERSIFICATION
CORPORATE RESTRUCTURING & PARENTING
PORTFOLIO MANAGEMENT

CORPORATE LEVEL STRATEGY

RELATED DIVERSIFICATION
HAIRCARE: PANTENE, HEAD & SHOULDERS, CLAIROL
HOUSEHOLD CLEANING/CARE: FLASH, FABREZE,
LAUNDRY: DAZ, ARIEL, FAIRY, BOUNCE
PAPER: BOUNTY, PAMPERS
BEAUTY: OIL OF OLAY, MAX FACTOR
RELATED DIVERSIFICATION THROUGH ACQUISITION AND
INTERNAL START-UPS
FITS/SYNERGIES
SAME WHOLESALE DISTRIBUTION
COMMON RETAIL SETTINGS & SHOPPERS
ADVERTISED & PROMOTED THE SAME WAY

CORPORATE LEVEL STRATEGY UNRELATED DIVERSIFICATION

EXAMPLES
BUSINESS GROUPS

CONGLOMERATE ADVANTAGE
ALIGNMENT OF ORGANIZATIONAL PROCESSES WITH CHOICE
OF BUSINESS
ALIGNMENT OF INITIATIVES WITH EACH OTHER
ALIGNMENT WITH OWNERSHIP STRUCTURE

VERTICAL ALIGNMENT
CORPORATE STRATEGY
DIVERSIFIED BUSINESS UNITS --- BUSINESS UNIT
PERFORMANCE
LESS DIVERSIFIED BUSINESSES AND MORE COORDINATION
BETWEEN UNITS --- CORPORATE PERFORMANCE

VERTICAL ALIGNMENT (CONTD.)

BUSINESS STRATEGY
PORTERS MODEL AND MILES AND SNOWS TYPOLOGY
BUSINESS STRATEGY AFFECTS PAY AND VICE VERSA

TYPES OF BUSINESS STRATEGIES

CUSTOMER SERVICE
QUALITY
INNOVATION
COST
PRODUCTIVITY

BUSINESS LEVEL STRATEGY

ANSOFF MATRIX CHOICE OF MARKETS & PRODUCTS

BUSINESS LEVEL STRATEGY

MILES AND SNOW TYPOLOGY - EFFECT OF ENVIRONMENT

BUSINESS STRATEGIES & REWARD

STRATEGY OPTIONS
Business Strategy

Reward Strategy

Achieve added value by improving employee

motivation and commitment

Introduce or improve performance pay plans

individual, team, gain-sharing.

Achieve added value by improving

performance/productivity

Introduce or improve performance pay, plans

and performance management processes.

Achieve competitive advantage value by

developing and making the best use of
distinctive core competences

Introduce competence-related pay

Achieve competitive advantage by technological

development

Introduce competence-related or skill-based pay

Achieve competitive advantage by delivering

better value and quality to customers.

Recognise and reward individuals and teams for

meeting and exceeding customer service and
quality standards/targets.

Achieve competitive advantage by developing

the capacity of the business to respond quickly
and flexibly to new opportunities

Provide rewards for multi-skilling and job

flexibility. Develop more flexible pay structures
(broad-banding)

Achieve competitive advantage by attracting,

developing and retaining high-quality
employees.

Ensure that rates of pay are competitive. Reward

people for developing their competencies and
careers in a broad-banded pay structure.

HORIZONTAL ALIGNMENT
Other HR practices
Within pay strategy