Vertex’s Balanced Scorecard

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to the internal business process perspective.

Employee satisfaction is of utmost importance for employees to deliver their level best. The focus of Vertex current scorecard measures is on processes and not on people and innovation. Vertex considers training and empowering workers as important for

implementing its high- quality, low-cost strategy. Therefore, employee training and employee satisfaction should appear in the learning and growth perspective of the scorecard.

On the other hand, adding new product development measures to internal business processes is also important. As Vertex reduces defects, Vertex’s costs will not automatically decrease because many of Vertex’s costs are fixed. Instead, Vertex will have more capacity available to it. The key question is how Vertex will obtain value from this capacity. One important way is to use the capacity to produce and sell new models of its products. Of course if this strategy is to work, Vertex must develop new products at the same time that it is improving quality. Hence, the scorecard should contain some measure to monitor progress in new product development. Improving quality without developing and selling new products (or downsizing) will result in weak financial performance.

4. What problems, if any, do you see in Vertex’s improving quality and significantly downsizing to eliminate unused capacity?

Improving quality and significantly downsizing to eliminate unused capacity is difficult. The key to improving quality at Vertex is training and empowering workers. As quality improvements occur, capacity will be freed up, but because costs are fixed, quality improvements will not automatically lead to lower costs. To reduce costs, Vertex’s management must take actions such as selling equipment and laying off employees.

The main problem is to lay off employees now, the remaining employees have no incentive to work hard to improve quality in the future.

For these reasons, Vertex’s management should first focus on using the newly available capacity to sell more product. If it cannot do so and must downsize, management should try to downsize in a way that would not hurt employee morale such as through retirements and voluntary severance.