Redesigning the Company at Donna Karan

Facing a challenge is one thing. Meeting it head-on is another. In 1997, New York City-based Donna Karan International experienced disappointing profits. As a young, fast-growing company, it had not always built its organization in the most profitable, efficient manner. Executives were forced to reevaluate the company’s core operating groups’ functions and relationships. Its new three-year strategic plan included a major downsizing driven by the reduction of the number of divisions from 13 to six. Donna Karan also streamlined the company’s senior management structure and made each of the six divisions fully integrated operating units.

Below, HR vice president Christina Nichols discusses how her department is helping employees impact efficiency, cost savings—and raise company morale.

What factors drove the recent downsizing and restructuring at Donna Karan International Inc.?
We’re a very young company that has experienced tremendous rapid growth. When you grow very quickly, you don’t always grow in the most profitable and efficient manner. So we made a difficult decision: to stop, evaluate what we’ve done and readjust where necessary.

Which employees were the most impacted and why?
It’s interesting. I’ve been with the company for almost six years and have been through a few other “downsizing” efforts. Typically there had been a target percentage to be cut in each division. This time around, however, the downsizing was driven by actual restructuring within divisions in an effort to impact efficiency and cost savings.

Another significant impact on the restructuring was our entrance into strategic alliances with other companies. This included the licensing of the company’s beauty business to The Estee Lauder Companies Inc., DKNYjeanswear and activewear products to Liz Claiborne and DKNY Kids to Espirit de Corp. The employees impacted were from all levels of our population.

What were the HR implications?
The restructuring process was draining to say the least! We were working with John Idol, our new CEO, trying to determine what the new structure would look like, trying to compile all the pertinent information for those employees who would be affected, coordinating outplacement services, and trying to coach management through the process. In the end, we managed to pull together as a team to make it happen successfully.

The aftermath of the restructuring process brings with it many new challenges. The employee population is dealing with the shock of losing co-workers, the stress of handling more responsibilities and the uncertainty of their own job security. Responding to these concerns is difficult.

Unfortunately, companies can’t offer anyone job security and yet, it’s one of the most important issues to employees. I believe that deep down people knew this restructuring had to happen in order for the company to prosper, but that doesn’t make it any easier to deal with the day-to-day issues. With the restructuring several months behind us, people are beginning to settle into their new roles and to re-emerge as strong teams.

What has HR learned in the process?
When we went through the restructuring process, we eliminated many jobs because of the decision to license various products. This was a fairly new direction for the company. Forming strategic partnerships with the licensees has been an insightful process. You need to become the expert on the licensee’s business so you can best educate the Donna Karan employees who will transition over [to working with them.] It’s difficult to ensure that employees who transition to the licensee maintain the same level of compensation and benefits. It’s a tough process because it doesn’t end once the employees move over to the licensee’s [work environment]. The role we play in this process already has evolved from working within the existing framework and facilitating the process to championing what’s best for the employees.

Have you developed new programs, incentives or work processes to ensure more teamwork and productivity?
A few months ago the company created several task forces to address our key business issues and to foster stronger teamwork between divisions. We currently have task forces for: human resources; strategic/business planning; creative planning; quality; and manufacturing/sourcing. The task forces have specific agendas and periodically present update reports. They’ve been successful in fostering teamwork.

The Strategic Planning task force has created the company’s first formal strategic business plan. Each division now is responsible for creating its own mission statement, goals and initiatives that will ensure support of and contribution to the company’s strategic plan.

The Human Resources task force has been in the process of creating a corporate values statement. The preliminary work was done in the task force. Divisional meetings were conducted later to review feedback and to ensure people had a sense of ownership over the values. We haven’t formally rolled out the values statement yet, but it’s already starting to have an impact.

Which jobs have required additional training?
The immediate training needs associated with restructuring revolved around management. Before we actually went through the organizational changes, we conducted some brief sessions with the management teams to coach them on how to manage through the change. Frequently, the aftermath can be more difficult to manage than the actual restructure.

How has HR addressed morale?
We began face-to-face meetings with our CEO. That way, our employees can get to know him better and vice versa. We also began conducting regular update meetings with all our division heads.

Can you describe the corporate culture at Donna Karan International Inc.?
Its corporate culture is difficult to characterize. It’s demanding, rigorous and challenging. It’s also entrepreneurial, creative, rewarding, exciting and energetic. It’s an intense and committed environment. The people who work here put in 200 percent of themselves everyday! In a word, it’s passionate.

What has been one of your most recent innovations within Human Resources?
I would say it has been the creation of the team I work with in human resources. This is the most talented group of people I have ever had the fortune of working with ¼ and I’m a believer that you’re only as good as your team.

With all the changes in the company, from the arrival of our new CEO to the restructure, the goals and focus of the human resources department have radically shifted to remain aligned with the company’s direction. We’ve positioned ourselves as strategic business partners with the divisions in the company. We’ve evolved from putting out fires and creating policy to well-rounded business partners.