Thursday, April 07, 2005

Competing on pay is a weak strategy

Conversations today with a supplier about what's happening in the market. One of our competitors 'is throwing money at it'. Let them.

Being the top payer in a market is a weak strategy. To develop a long term competitive advantage in any market you have to offer something which is hard to replicate. Pay leadership is really simple to copy. Furthermore it reduces margins. Maybe it works if you really believe that your operation is better than anyone else can achieve (and you can therefore generate abnormal returns.)

It would also help if people choose employment purely on pay, but they don't. Key factors are complex, differentiated and shift with life stages.

What is harder to copy is having the greatest employee development, an exciting organisational culture, ingrained values. These things take time, commitment and constant effort to develop.

Pay needs to be competitive but you only need to pay above market rates if you can't generate advantage any other way. And all it takes is one quick conversation with the FD and we can destroy your competitive advantage in seconds.