William Mathews

6/12/19

EU Design’s Rise in the Apparel and Fashion Industry: Formalizing

Management and Incentive Systems

Current Situation
EU Design is a successful trim supplier in the fashion industry but is experiencing some
growth challenges as the company shifts from a small to medium-sized business. EU Design’s
CEO, Roberto Berardi, leads the company placing high value on superior customer service,
while promoting an informal work environment with the aim of allowing employees to be
independent and creative. The company’s dedication to developing strong relationships with its
customer base since its inception is a driving factor contributing to its growth in an increasingly
competitive industry. Despite EU Design’s success, the company’s lack of a clear vision and
strategy, informal management style, increasingly complex organizational structure, and
inadequate employee development and incentives are issues that need to be addressed if the

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company is to continue its growth and remain competitive. Although adding more structure,

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standardizing workflows, and improving employee satisfaction and communication may initially

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cost EU Design financial resources and ultimately limit employee independence, the tradeoffs
are necessary for the company to efficiently conduct business.

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A solution for EU Design is to transition from an informal to a formal management style
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with a balanced scorecard to enable the company to focus on both high-level and low-level
strategic measures in addition to traditional financial measures. The balanced scorecard will
break down EU Design’s strategic vision into specific, actionable steps and measure the health of
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the company in four perspectives: Learning & Growth, Internal Business Processes, Customer,
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and Financial. EU Design should also reorganize and define its organizational structure,
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streamlining workflows and communication among its employees in New York and Hong Kong.
Lastly, the company needs to develop formal training programs for employees, focusing on sales
and aligning the incentive system with the corporate strategy of increasing sales.
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Professional Management: Balanced Scorecard

The balanced scorecard is a strategic management system that will allow EU Design to
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transition to a formal management structure, enabling the company to measure and take specific
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steps to achieving the overarching vision and strategy in each of the four business perspectives:
Learning & Growth, Internal Business Processes, Customer, and Financial. However, in order to
consistently measure and monitor performance, EU Design needs a management control system
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that aggregates the information and data to provide an accurate view of the company’s
performance. Implementing the measures from the top down will give subordinates a clear
understanding of EU Design’s goals and their responsibilities, while broadening Berardi’s
perspective. This iterative process will consistently realign and provide clear direction for the
company’s future. EU Design needs to integrate its internal and external measures to have a
balanced understanding of the company’s performance, while defining employees’ goals with a

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 William Mathews
6/12/19
formal organizational structure. The company’s strategic objectives within each of the four
perspectives and corresponding performance measures will enable EU Design to monitor and
implement strategy with a formal management structure. An example of balanced scorecard that
EU Design might use is below:
Perspective Strategic Objectives Measures
Financial  Increase Profitability and  Annual Revenue Growth
Revenue  Profit Ratio
 Reduce Costs  Return on Assets
 Increase Revenue in Targeted
Markets
Customer  Increase Awareness as  # of Orders from Current
Industry Leader Customers
 Improve Customer Experience  # of Orders from New Customers
 Increase Customers  Customer Surveys

Internal Business  Improve Internal Efficiency  Ratio of Actual Delivery Times to

 Improve Product / Service Scheduled

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Processes

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Offerings  Ratio of On-time Deliveries
 # of New Products Offered

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Learning &  Increase Expertise  # of Training Opportunities
Optimize Technology Offered

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Growth 
Improve Communication # of Employees Attending Courses
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 Total Budget for Technology and
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Equipment

Learning & Growth: This perspective looks at the company’s overall corporate culture,
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technology systems used, and employee training opportunities. EU Design simply does not seem
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to have the infrastructure and opportunities laid out to ensure the business is staying ahead of the
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competition for the foreseeable future. The company operates on archaic business systems that
do not allow information to be easily accessed and monitored by employees. Furthermore, the
opportunities for employee growth and sales training seem to be inadequate coupled with
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employees being over worked. Berardi needs to understand the value this perspective highlights
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is the groundwork for the remaining perspectives and achieving the company’s vision and
strategy. The company should invest in management information technology systems that enable
easy access to important information in New York and Hong Kong. EU Design may also
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consider investing in a customer relationship management software like Salesforce to log and
track customer acquisition and experience since the company is highly dependent upon customer
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relations. Once EU Design has detailed strategic objectives with corresponding measures, the
company will be able to understand which investments in technology and its employees are
necessary.
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Internal Business Processes: This perspective looks at how smoothly the business is
running and overall efficiency of operations. EU Design needs immediate improvement in this
area. The company is known to be a quality supplier; however, its quality control processes
bottleneck other operations. Furthermore, lack of communication and trust between the New
York and Hong Kong offices compounds the inefficiency and has led to competition over

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 William Mathews
6/12/19
resources and lack of teamwork. The cause of this internal problem is the lack of standardized
workflows, job descriptions and responsibilities in the company. The restructuring needs to
clearly outline employee job descriptions, allocate resources, and organize activities efficiently to
address the strategic objectives.
Customer: Customer perspective focuses on the people who buy the products and
customer satisfaction is a strong forward-looking indicator of success. EU Design operates in an
industry where customer profiles are highly eccentric and not necessarily focused on cost, but
more on the reputation and high quality of the product. However, with the company’s growth, the
new customers preferences have shifted towards cheaper prices. The company maintains a good
reputation with its customers, but as market dynamics and preferences change EU Design must
be ahead of the game. It is essential that employees are properly trained to maintain strong and
trusting customer relationships, while having the ability to deliver on-time, be competitive, and
track current and prospective customers. EU design needs to maintain a high-touch
communication style and even provide surveys to gather meaningful information the company

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can use to improve upon.

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Financial: The financial perspective should not be neglected as increasing profitability,

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sales, understanding how efficient assets are, and financing optimization are imperative to the

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sustainability of a company. Currently, EU Design does not have a centralized manager focusing
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on the finances of the business. The company should consider hiring a CFO to monitor and
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report key financial statistics and reports. EU Design employees must be able to make and
increase sales to customers in order to increase sales. A large portion of EU Design’s revenues
are generated from a small number of customers, presenting substantial business risk.
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Understanding how the company is being less efficient and the need for employees to make sales
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will allow the company to grow.

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Organizational Structure
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EU Design’s loose and informal corporate structure need to be reorganized, pinpointing

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internal operation inadequacies for optimal efficiency. Formal procedures and best-practices need
to be established and documented. This will allow employees to understand their roles and
coordinate efforts in an organized fashion. This will also allow management to keep abreast the
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working environment and focus on achieving and monitoring strategic objectives. Since fashion
trends change rapidly, EU Design must be able operate with significant agility to recognize
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trends and react accordingly. The establishment of clear goals and procedures is necessary to
successfully operate in this competitive environment.
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The current organizational structure also indicates a lack of divisional managers for
employees to report to. For example, Berardi is the CEO but is functioning as an account
manager, sales representative, and manager for all departments. He should not be acting in this
capacity, but rather be focusing on executing the vision and strategy of EU Design and
coordinating efforts down to divisional managers. As the business continues to grow, an efficient

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 William Mathews
6/12/19
division of operations must be constructed with communication going up and down the chain of
command.
EU Design needs to immediately standardize and improve communication between
employees and the two offices in New York and Hong Kong. Without clear procedures of who to
talk to or report important client or supplier information, important data and instructions may be
lost in the chaos. This is highly inefficient and must be addressed as the company has operations
in locations that are located on the opposite side of the world. Regular meetings, video
conferences, and chain-of-command procedures should be implemented to ensure all employees
have the correct and same information. Effective communication will considerably enable the
company to become more efficient and assist the company achieve its goals.

Employee Incentives
The incentive system in place at EU Design does not appropriately align Berardi’s goal

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for increasing sales nor is the system objective in the way employees’ performance is rewarded.

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To encourage the employees to be sales oriented, a commission system could be introduced.

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Although the company already offers training courses and classes, the employees must have

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enough time in their work schedule and understand that sales education is available for them to
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take advantage of the commission system. Once client-facing employees gain more expertise in
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sales along with increased motivation to generate new sales, sales figures ought to improve in-
line with Berardi’s goal.
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A new incentive system must include an objective and formal evaluation method that is
communicated and understood by the employees. Currently many of the rewards are based on
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Berardi’s perception of performance and do not clearly outline activities which are to be
rewarded. Since Berardi does not have in-person or direct communication with all the
employees, the reward for an employee may not appropriately assess performance. If employees
feel that above-standard performance may not be rewarded or be overlooked, this decreases
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motivation for employee performance. A new incentive system should include clear performance
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metrics and benchmarks, which are communicated to the employees. This will dictate
employees’ job functions and motivate behavior in-line with EU Design’s strategic objectives.
With the new incentive system, a new method for communication and feedback is also created.
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The company can conduct reviews to inform employees how they are currently performing and
provide opportunities to assist employees achieve their goals and for management to learn of
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obstacles that may be hindering employees’ success.

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Conclusion
EU Design’s impressive growth and profitability are indicative of the demand for the
products and services; however, the company’s future is highly dependent on their ability to
operate efficiently and competitively respond to market conditions. If Berardi does not
implement a cohesive performance management system or is unwilling to tradeoff the informal

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 William Mathews
6/12/19
management style for one with structure and systems to guide corporate strategy, the company
will likely see a decline in customer satisfaction or lose market share to more efficient players in
the supply chain. A possible alternative the proposed solution outlined in this paper could be for
Berardi to higher an experienced salesforce either in addition to or replacing existing employees.
This process would be extremely time consuming and expensive for the company. This
alternative still fails to address the need for efficiency in its operations and does not provide a
method for measuring the health of the critical components of the business. A second alternative
is for EU Design to design an activity-based costing system to identify which activities the
company performs for production of its products and services by customer to assist in identifying
areas for cost reduction and efficiencies. This solution requires a significant amount of time and
resources, while still failing to bring about swift change and consistent systems to manage the
company’s growth strategy. However, the activity-based costing system may be beneficial in the
future if EU Design is able to transition to a mid-sized company. Ultimately, EU Design needs to
implement a balanced scorecard to break down its vision and strategy to create strategic objects
with corresponding measures to manage the company’s goals, while clearly structuring and

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incentivizing stakeholders to grow into a mid-sized company.

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