Re-Evaluating the Link Between Product Market Strategies, Skill and Pay: Evidence from the Australian Café Sector

This paper addresses the apparent empirical puzzle that has emerged regarding the link between product market strategies, skill and pay in the service sector (e.g. Ashton and Sung 2011, Boxall and Purcell 2008, Schuler and Jackson 1987). Initial research focused on the manufacturing sector claimed a strong link.  Firms deploying quality-based strategies were associated with ongoing training and skill development and higher pay, whereas firms reliant on cost reduction strategies were associated with minimal training and skill development and low pay (e.g. Dumaine 1992, Lawler et al. 1992, Sanz-Valle et al. 1999, Schuler and Jackson 1987, Youndt et al. 1996). However, more recent research examining services has produced mixed findings.  Some research has suggested that the link exists in services whereas other research has contested the existence of the link (e.g. Frenkel 2005, Lloyd 2005, Lloyd et al. 2013, Mason 2011, Sung et al. 2009).  Research is yet to explain this important contradiction in findings and reconceptualization of the link between competitive strategies, skill and pay has been called for (e.g. Lloyd et al. 2013, Mason 2004).

This paper draws on case studies in the Australian café sector to provide that explanation. The Australian café sector provides an ideal context for such research as it represents a bourgeoning segment of the service sector (DEEWR 2013, Lin 2013). Eight cafés were purposively selected, half of which deployed standard, cost-based, strategies while the other half deployed specialty, quality-based, strategies.  Semi-structured interviews (with managerial and non-managerial staff) and non-participant observation were used to assess the skill- and pay-levels associated with frontline workers performing two jobs:  barista and café assistant. The findings reveal that product market strategies, skill and pay were linked at the job- or occupation-level but only for baristas, not for café assistants – the latter remained low skilled and low paid regardless of firm product market strategy.

This finding provides new insights into the existing contradictions regarding the competitive strategy-skill-pay link in the service sector. They suggest that analysis of any purported link between product market strategies, skill and pay needs to focus on the job- or occupation-level rather than the sector- or firm-level as assumed by prior research (Ashton and Sung 2011, Boxall and Purcell 2008, Frenkel 2005, Lloyd et al. 2013, Mason 2004, Schuler and Jackson 1987). Moreover, as the paper suggests, such analysis might then open for re-interpretation the original findings and claims from the initial research of the manufacturing sector.  It also suggests a need to refocus policy to address competitive strategy-skill-pay links onto the job-level.