Sportsman Shoes was a leader in the shoe industry for more than thirty years. The success of the company was anchored in a low-cost strategy. Another core component of their strategy was to sell a limited number of shoe designs, as well as the use of cost-efficient manufacturing systems and standardized operations. However, in recent years Sportsman’s competitive position was threatened by the influx of cheap imported shoe products. Thus, corporate leaders decided to adapt a differentiation strategy. In order to successfully transition from a low-cost strategy to a differentiation strategy, corporate leaders must deal with issues regarding human resource management practices and compensation.
The desire to use a differentiation strategy was based on a study of niche markets and the discovery that athletes are wiling to pay more in order to have shoes that meets the demand of a particular sport. At first glance, it seems like a practical solution to declining revenue. But, corporate leaders are well aware that in order to succeed, they need to restructure the product development function of the company. The main task up ahead will not only be limited to the retention of talented shoe designers, but also the need to hire operations specialist that will help them transition their manufacturing operations to produce the new shoe designs. There is also a need to help current employees to transition to their new work requirements.
The corporate leaders must learn everything that they can about differentiation strategy and its impact on human resource management. There is a need for a paradigm shift. It has to be pointed out that “cost leadership is mainly possible with large-scale production” (Bondarouk, 2009, p.308). The old way of doing things requires large-scale production and, therefore, standardized operations. In other words, there was little use for specialists operations. The service of a specialist was limited to the creation of a few shoe designs. After the template was completed, low-wage earners can be utilized to reproduce the said limited number of designs.
In the new system, the products are not standardized but specialized. Thus, a standardized operation can no longer work. It is important to “empower employees to serve customers better” (Snell, & Bohlander, 2012, p.70). At the same time, it is also imperative to “bend the rules a bit more and customize products and services around a customer’s particular needs to let customers have it their way” (Snell, & Bohlander, 2012, p.70). The company will have to train employees to have a different mindset when it comes to shoe manufacturing.
As a result, “competitive advantage is not gained through increased market share, but through a smaller loyal customer following that is willing to pay higher prices for differentiated products” (Glasgow, 2001, p.12). But it will create a greater level of stress for the workers who are not prepared to handle the new requirements. Management must hire specialists that will not only deal with new challenges, but also specialists that will help workers transition into a new business paradigm.
The manufacturing component is just one of the core issues that has to be dealt with successfully. Another major component that requires attention is the compensation strategy of the company. It has to be pointed out that “if the organization’s overall business strategy is based on the product or service differentiation, a low-cost compensation strategy will work in opposition to achieving the business strategy” (Rowley & Jackson, 2011, p.22). In the past, a uniform wage system was used. In other words, the amount of money paid to the workers was almost the same all throughout the factory floor. There was also no need to develop a compensation strategy that was commensurate to the success of the company. There was no need to provide that kind of incentive because the revenue was generated through a low-cost strategy. Thus, the number of shoes that were sold was dependent on the prices, and as the company maintains a low-operating cost, the revenue remains constant. Therefore, it was critical to maintain the salary of the employees.
If the company decides to utilize a differentiation strategy, a simplified compensation method will no longer work. Consider for instance the fact that “a change toward a differentiation strategy led to an increased use of advanced management accounting practices such as customer profitability analysis and quality improvement programs and in turn, a greater reliance on non-financial performance measures” (Chapman, Hopwood, & Shields, 2007, p.768). Aside from the need to hire specialists, the need to upgrade the compensation strategy of the company is also based on the fact that shoes are bought as a result of specialized needs and the need to purchase shoes of high quality. Thus, there is a need to monitor non-financial performance. These non-financial performances must be rewarded. But at this point, the company has no way of determining this aspect of future operation.
It is, therefore, imperative to remember the following:
“to the extent that knowledge, decision-making, planning, communications, or managing change exist within a core group of positions ultimately responsible for the company’s ability to differentiate itself, these positions need to be paid consistent with market and behavioral requirements for success in the long-term”.
The specialized designs of shoes are not the only thing that corporate leaders must look into. They will have to realize that the success of the differentiation strategy is dependent upon the capability of the workers to deal with new requirements. At the same time, there is a need to maintain a core group of specialists that will help the company produce differentiated products.
In the past, the company can afford to pay a relatively low salary with minimal incentives. Their low-cost strategy prevents them from developing an elaborate compensation strategy as they struggle to lower the cost of their products. But they have to change this mindset if they need to produce differentiated products. There must be an appropriate mix of salary and non-salary components in the said compensation strategy, as well as the need to link business unit performance and corporate performance (Chapman, Hopwood, & Shields, 2007, p.768). The new compensation strategy does not only reward the performance of a particular business unit but also the overall performance of the company.
Sportsman Shoes was compelled to adopt a new strategy. But the mindset of the workers was based on a low-cost strategy. The corporate leaders must employ specialists to help workers transition into a new work environment and a new corporate culture. The company also needs to hire specialists who will help them restructure the manufacturing process. There is also a need to incorporate new management systems that will help them monitor not only the preferences of customers that will lead to specialized designs, but also the performance of the workers. The compensation strategy must provide incentives to the core group of specialists that will help the company produce differentiated products, as well as the workers who will have to learn to deal with the specialized needs of customers. Therefore, there is a need to focus their attention on the customer in order to produce a differentiated product.