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Read the paragraph below and answer the questions that follows.

In developing their strategic compensation systems, where output is customer focused, employer’s
reward employees according to the extent of customer service they provide. This is widely used in
sales positions and commonly referred to as “commission”. Here employees are given a percentage
of sales, usually measured in units or pula. This percentage may change at predetermined levels.
Employees who are paid on a commission generally receive either, straight commission, which
means their total pay is determined by the commission formulae or salary plus commission, which
combines a monthly salary base with a commission incentive.
a) Outline stages with which business strategy development is dependent upon. (6 marks)
b) Discuss two business strategies that are considered in developing compensation systems
(6 marks)
c) Why should companies be concerned with developing customer focused strategies?
(3 marks)

1 answer

a) Stages of Business Strategy Development (6 marks)

  1. Situation Analysis: Assessing the internal and external environment to identify strengths, weaknesses, opportunities, and threats (SWOT analysis).

  2. Defining Objectives: Establishing clear, measurable, and achievable goals that align with the overall vision of the organization.

  3. Strategy Formulation: Developing strategies that will help achieve the defined objectives. This involves identifying target markets, competitive advantages, and resource allocation.

  4. Strategy Implementation: Putting the formulated strategies into action through coordinated efforts and resources, ensuring all employees are aware of their roles.

  5. Monitoring and Evaluation: Continuously assessing the effectiveness of the strategies in achieving the desired outcomes, making necessary adjustments based on performance data and feedback.

  6. Feedback and Adaptation: Incorporating lessons learned back into the strategy development process to refine and enhance the overall strategy over time.

b) Two Business Strategies Considered in Developing Compensation Systems (6 marks)

  1. Performance-Based Pay Strategy: This strategy ties compensation directly to employee performance metrics. By leveraging commission structures or bonuses based on individual and team performance, businesses motivate employees to meet or exceed their sales or service targets. This is particularly important in customer-facing roles where the quality of service directly impacts customer satisfaction and loyalty.

  2. Market-Based Compensation Strategy: This strategy involves setting pay levels based on market rates for similar positions within the industry. By conducting market analysis, companies ensure they remain competitive in attracting and retaining talent while aligning their compensation systems with prevailing market conditions. This helps to maintain employee morale and reduces turnover rates.

c) Reasons Companies Should Be Concerned with Developing Customer-Focused Strategies (3 marks)

  1. Enhances Customer Satisfaction: By prioritizing customer needs and preferences, companies can improve the quality of their products and services, leading to higher customer satisfaction and loyalty.

  2. Competitive Advantage: A strong customer focus can differentiate a company from its competitors. By creating superior customer experiences, a company can foster brand loyalty and attract new customers through positive word-of-mouth.

  3. Increased Profitability: Satisfied customers are more likely to return and make repeat purchases, which can drive revenue growth. Additionally, customer-focused strategies often lead to upselling and cross-selling opportunities, increasing overall profitability.