Understanding the Dynamics of the Value Chain

Introduction

Introducing an organization-wide variable compensation system based on overall company performance is one of the key initiatives that should be pursued in the efforts to effectively manage the value chain. Yet, the subject is largely absent in any discussion of value chain–related issues. As we have seen, the value chain involves interdependencies, cooperation, and team performance. Compensation systems need to be designed to reinforce those behaviors to more tightly tie the identity of frontline workers to the goals and objectives of the firm. Organization-wide variable pay for everyone can boost productivity and profitability that generates a return on investment (ROI) that essentially makes the system self-financing. It is the ...