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Birkenstock Braces To Fight the Competition

August 1, 1994
Related Topics: Growth, Featured Article
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If you think geography, Arizona is a state. If you think feet, Arizona makes your toes curl. "It's what everyone thinks of when they think of Birkenstock," says Mary Pischke, human resources manager at Novato, California-based Birkenstock Footprint Sandals, Inc. The two-strapped sandals have been called everything from Jerusalem cruisers to tree huggers and shoes for granola eaters, says Pischke, who used to be among the city-slicker name callers. That is, until she was hired by the company a few years ago.

She still remembers the day of her job interview. During a fortuitous stroll nearby the company, she passed a shoe store that displayed Birkenstock's paddle-shaped sandals. She peered into the window and thought to herself, "Oh, God, who would ever wear those?" The next day, she was hired. Then Pischke was introduced to Margot Fraser, the founder and CEO, and learned the philosophy behind the shoes: health, comfort and function before fashion and style. Today, Pischke owns 27 pairs of Birkenstocks. She even wears a pair of bronze lame' Birks to punctuate a classy silk suit for business calls in the city. "Coming from high-tech computer leasing and banking, it was a real stretch," she says.

But stretching and learning is what the company is all about. "We can't rely on what has worked for us before," says Fraser. "As the marketplace changes, we need to be flexible enough to change with it." Unlike other growing companies that are massive as elephants or fast-paced like gazelles, Birkenstock is a smaller company with 130 employees. It has grown slowly and steadily since it was incorporated in 1971. Because Fraser's earlier background was in fashion design, not business, the company's values embody a mixture of heart and sole. Nestled among the gentle-rolling hills of Marin county-23 miles east of the Pacific Ocean-the company embraces kindness, integrity and respect for the earth as an integral part of the day-to-day business environment. Its mission statement reads: "Birkenstock's purpose is to share with the American people our heartfelt belief that comfortable, healthy footwear is important to everyone because it can contribute to happiness and well-being. Through our distribution of high-quality Birkenstock footwear, we strive to create positive, harmonious relationships with employees, customers and vendors, emphasizing honesty and integrity in all that we do. Within our company, our goal is to provide an atmosphere that stimulates growth and creativity among employees and rewards and encourages their contributions."

If it sounds a bit too touchy-feely, consider Birkenstock's business success over the years. After inching along for two decades, the company's sales, reputation and authority in the shoe industry have become the envy of earlier naysayers. You know, the ones who said, "No one will ever buy those ugly things." Although it took the company until 1988 to reap sales revenues of $8 million, Birkenstock's sales revenues for 1992 were reported at $50 million. The sales target for 1995 is $100 million, according to Mary Jones, vice president of administration and the company's first-hired employee. "But now, there's a lot of competition. We've been a leader for a long time, and we'd like to stay there," she says.

"Birkenstock meets competition by expanding its product line, increasing the skills of employees and ensuring the success of its first national sales team."

So did Birkenstock create or ride the wave of the comfort-shoe market in America? It did a little of both, says Bill Boettge, executive director of the Columbia, Maryland-based National Shoe Retailers Association. "At first, it created a cult. As more people saw [the sandals] and liked them, others got on the bandwagon. Fashion designers like Perry Ellis have even shown them on the runways," he says. The comfort-shoe market, Boettge adds, also grew out of or simultaneously with the athletic-shoe market. Many consumers, he explains, buy athletic shoes but don't even wear them for the sport for which they were designed. Moreover, in 1993, the majority of shoes purchased by men and women were in the comfort or casual-oriented footwear category-82% for men and 66% for women. "We have a lifestyle that's changed dramatically over a 10-year period, and I don't see a trend away from leisure living," he says.

Jones says that Birkenstock is prepared to face the increasing market and competition of such name brands as Naot, Josef Seibel, Mephisto and Teva. Growth in the '90s means expanding the product line, increasing the skills set of its employees and ensuring the success of its first national sales team after the company laid off about 14 employees in the distribution center. Thus, HR has been challenged not only to manage product growth, customer service and a new sales team, but to ensure that the philosophy and values of the company remain intact. "I really believe that from the early days-when we sat and talked about where we wanted to go-the values important to us then are still important to us now," says Jones.

It all began with a pain in the foot.
Back in 1966, Fraser first discovered the orthopedic Birkenstocks while visiting her native Germany. Amazed that her feet felt considerably better after several months, she began ordering several pairs at a time. She recommended them to friends and sold them to Northern California health-food stores, hole-in-the-wall retailers and outdoor fairs. Several years later, she expanded her informal business to a San Rafael, California, warehouse. By 1971, on a handshake, Fraser incorporated and became the sole U.S. distributor of Birkenstock products. That status has its pros and cons. "You're not totally in charge of your destiny," Fraser says. Although the Birkenstock family has been producing footwear products for more than 200 years, Germans and Americans have different business traditions and consumer tastes. Also, inventory can be delayed, as it was during the dismantling of the Berlin Wall in 1989. In the past, Fraser has been the principal liaison with the German counterpart, spending many of her visits discussing product development. Initially, she only sold a few styles. But as she developed a savvy for American tastes and needs, she began to import a greater variety and even influenced the design of sandals manufactured specifically for the American consumer. For example, the taupe, suede Arizona was developed for distribution in the United States and now is quite popular in Europe, says Fraser. Today, the U.S. distributor sells more than 80 style and color combinations for people of all ages, including children and senior citizens.

The first stage of growth defined the market and created a niche.
During the company's earliest days, there was no HR department, except for Jones helping to manage the small operation and Fraser being "a loving person," says Pischke. The working environment was still homey and informal. It wasn't uncommon to find four to eight people doing all the packing, shipping and answering the phones. "It was run like a family operation then," she says. Among its earliest devotees were consumers who were willing to take a chance on something new and different. Quite often, the sandals would turn up at Carole King concerts, sawdust festivals or transcendental meditation centers. But the predominant buyers, she says, were middle-class women in their 30s who wanted comfort and could afford the higher price point. (Birkenstocks today are priced between $50 to $190.) Men wore them too, but their numbers have increased more recently. She describes the archetypical Birkie as someone who is self confident, function-oriented and unswayed by trendy fashion statements.

As the sandals gained popularity, Fraser began to learn more about running a successful business. In the early '80s, the company expanded and moved to its first facility in Novato. That move set the stage for entering the retailing market-establishing Birkenstock-licensed stores, listing with catalog companies and working with other independent outlets. Still, Jones was the only person handling basic administration and payroll functions. But from the beginning, she and Fraser had eagerly enlisted the help of consultants for everything from marketing, legal advice, accounting, management and training. "We've had a myriad of people coming through here with new ways of doing things," says Pischke.

By 1989, Birkenstock had hired 80 employees. Three of them were full-time customer-service representatives who served the growing number of department-store accounts such as R.H. Macy, Inc. and Nordstrom, Inc. A year later, the Birkenstock family had grown to 100. It faced a major growth spurt-not unlike the stage of adolescence when the hormones are popping and the parent figure must establish stronger rules and policies, on the one hand, and also begin to let go. "We started out very small...with two people. But somewhere, somehow, I had to change and let people take on more and delegate. Sometimes it was difficult because of my personality. I'm introverted and introspective. And I realized that I had to voice more of my ideas," says Fraser.

At that point, Fraser and Jones also realized that they needed to hire an HR manager. Jones had been spending 16-hour days overseeing finances, operations and all HR-related functions. Hiring was decentralized, salaries were out of whack, and the company was facing a high turnover because of some poor hires. Like many smaller growing companies, Birkenstock had hit a complexity point. It needed to focus, not just do things when there was time. Enter Pischke, who had previous HR experience in payroll, recruitment, training and customer-service management. "The crying needs were for someone to take HR functions under one wing and centralize them and provide some consistency and controls. For the first year, that was the mad rush," Pischke recalls. "When I joined, the employee handbook was only four pages." Today, Pischke manages three other HR staffpeople whose functions are divided into payroll and pensions; health and safety and benefits; recruitment and employee relations.

New recruits need skills and people values.
When Birkenstock was first established, it wasn't difficult to find employees who shared Fraser's feel-good business vision. The social and cultural milieu of that period had spawned a whole generation of self-actualizing youth. This first generation of Birkenstock employees were people "who wanted a familial, low-key, nurturing environment," says Pischke. Many of them were jacks-of-all-trades, but few had any specific skills that would become vital in the decades to follow. Today, there are about a dozen of the original cadre of employees who provide a necessary bridge between the company's long-standing people vision and today's market demands. "We're looking for individuals with a non-profit mentality in a for-profit world," she says. Now, HR screens candidates for specific skills: marketing, advertising, sales, public relations and traffic inventory. However, in order to cradle these skills in the company's corporate environment, Pischke has helped to institutionalize interview procedures, orientation and training and performance evaluation standards.

Teamwork plays a major part in the interview process, she says. The more empowered an employee becomes, the easier it will be to ride the wave of change. It may take more time, but "we see so many payoffs later on." HR begins the process by developing a job description. Depending on the level and skill of the position, an interviewing team may consist of three to 12 individuals. The smaller teams usually interview candidates for entry-level positions in the distribution center. But for positions such as the national sales director-now occupied by Tim Black-HR set up an interview team of 12 staffpeople. That included two representatives from HR, Fraser, several department directors and representatives from the sales, accounting and credit departments. "Before we hire, we look for a fit. That's very important," says Jones. "Today's market makes maintaining our culture real tough."

Even before the interviews, the selected team meets to determine their questions. Once the interviews are completed, they reconvene to discuss the candidates' responses. If anyone has any questions or reservations, they're raised at that time. Then a decision is made to hire, not hire or interview further. "Decisions are made by consensus," says Pischke. She initiated the team process for two reasons. The company was hiring at rocket speed, and HR was "taking the hit" for some unsuccessful hires. "I thought, 'I don't like this. I need buy-in. How can I get it?' So I started to involve more people."

So far, the hiring process has worked. Once they're on board, HR also ensures that employees are brought into the company's fold. During their first day of work, all new employees are given a basic two-hour orientation on the company's philosophy, goals, policies and procedures. The orientation is led by Daniela Zazzeron in HR, who is in charge of recruitment and who serves as the company's liaison to employee candidates. Then, the new employees are given a one-hour presentation on benefits and health and safety before being led on a tour of the facility. After meeting fellow employees, the new recruit is introduced to his or her immediate manager. "We also point out the various bulletin boards and information centers to encourage involvement," says Pischke.

In terms of reviews, Birkenstock's approach toward performance planning and evaluation is collaborative. Although the company always had a review system, only recently did a task force update the process. After a nine-member group met for two months and gathered feedback from fellow employees, they made several suggestions for improvement such as upward appraisals, on-time reviews, simpler forms and recognition of departmental goals.

Now, reviews are conducted three times a year. Supervisors and employees fill out the same form before they meet, rating themselves and each other. Some of the performance factors for employees include:

  • Customer service:
    Thinks and acts in support of the customer, internal or external. Meets customer needs in the most effective way possible, by providing timely response and resolution of customer problems
  • Team spirit:
    Provides support and help to others, recognizes contribution of others and actively tries to resolve differences. Fosters a cohesive, supportive work environment by contributing to team goals and sharing information, ideas and solutions. Encourages positive, harmonious relationships among co-workers
  • Continuous improvement:
    Seeks new and better ways to perform job; aspires to higher levels of performance. Shows willingness to change and supports/encourages others to be innovative
  • Accountability:
    Accepts responsibility and ownership for own actions. Exemplifies honesty, integrity and ethics
  • Safety/Health:
    Adheres to safety policies, safe working conditions and promotes health and welfare.

Management is rated in four main areas: performance management; delegation/accessibility; coaching/guiding; and team building. By allowing supervisors and employees to evaluate each other at the same time, reviews aren't dreaded as they are in many other workplaces, says Jones. Managers like the process, too. "Once they come to an agreement, that's it," she says.

The company faces its first layoffs.
In spite of its strides in human resources development, Birkenstock didn't escape its own set of problems. At the end of 1992, there were 170 employees. But a combination of factors forced management and HR to make some hard decisions in 1993, according to Pischke. It was the most difficult year the company had ever faced. Projected sales were higher than what the company actually sold. Also, there was too much inventory. Add to that a fragile economy and a series of natural disasters that seemed to sweep the country all at once. "If you have a major flood in the Midwest, that stops sandal sales. It really does. People can barely afford to buy sandals, much less find the store in a flood," says Pischke.

Management knew that the company would have to undergo some reorganization. Continued growth, they learned, did not preclude some downsizing. Not all of the reasons were negative, however. The changes also were spurred by fierce competition and the increasing accessibility and popularity of comfort shoes. Earlier this year, economic forecasters also predicted that department stores were making a comeback in their sales revenues. Birkenstock's strategy of stepping up distribution in both department stores and independent retailers was placing even greater demand on the company's work force.

Hence, in mid-'93, management and HR held several meetings to assess the current jobs, job descriptions, required skills sets and productivity of various departments. The most identifiable department in which to streamline was the distribution center. During some parts of the year, the department hummed. Other times, employees were basically twiddling their thumbs. "We knew if we could flex the work force, it would save us in the end," says Pischke.

Once the decision was made to cut back to a core staff in the distribution center, human resources determined how many would be laid off. It was an arduous, but well-handled situation, she says. Six months before the layoff in October 1993, all of the employees were informed that the company was struggling to meet its goals. Three months later, employees were prepared for the possibility of the layoff. By the time the actual cuts were determined, Pischke had four days to announce the layoffs, organize management teams to reassure the remaining employees and provide unemployment and counseling services for the departing workers. "We brought in representatives from the Employment Development Department (EDD), a temporary-service agency and an employee-assistance program counselor." Approximately 14 employees were laid off from the distribution center, and they received severance packages based on their tenure with the organization. Most have found other jobs, Pischke says.

During this same period, the company also had decided to keep its temporary work force to a minimum. Contingents had been used since the '80s. But now, the company needed to cut those numbers back as well. One of the innovative ways in which Birkenstock managed the cutbacks was through the Help Program. Pischke describes it as an in-house contingent program to contain costs. The most apparent need, of course, was in the distribution center. Employees throughout the company were asked to volunteer four hours a week in a department other than their own. "We had more than 40 volunteers who helped in shipping and receiving. They came from advertising, marketing, customer service and even HR," she says.

The Help Program-although a one-time effort-not only forged the camaraderie between the departments, it gave the organization more flexibility during fluctuating seasons. "Now we know we can go back and use internal help if we need to," says Pischke.

In spite of the layoffs in the distribution center, Birkenstock continued to grow in other departments. The process of restructuring the sales department was prompted by the need to focus more on customer service nationwide. Once Black was hired as national sales director, the company formulated a strategy to build stronger partnerships with the retailers. The sales department decided that:

  • The national accounts department would oversee national, mail-order and specialty-store accounts
  • Sales representatives would be based in their respective territories. (For the first time, Birkenstock placed sales reps in 17 regions throughout the nation. Many of the new hires were natives of the respective areas.)

By placing sales representatives in the field, Birkenstock retailers now are expected to receive more one-on-one attention. They will receive help in assessing their inventory, promoting the merchandise and training the store's employees on properly selling Birkenstock products.

Birkenstock's advertising strategy mirrors the sales strategy. There are no single national TV advertising campaigns. Most ads are tailored to the needs and tastes of each region. For example, sandals can be advertised year round in Florida. But during the winter months in the Midwest or Northeast, Birkenstock shoes are more popular, and the ads must reflect those distinctions, says Pischke. The new sales team, therefore, is critical to keeping the company in touch with its customers nationwide, she adds.

Birkenstock strives to maintain its corporate values.
Soon after last year's layoff and sales restructuring, the company newsletter, Birki footnotes, featured a column about change. It said that the company's transition period is about linking the old way with the new. Somewhat like "a swinging rope bridge that crosses a land gorge." Crossing that bridge causes a bit of anxiety for most. And how much one resists or hesitates before crossing the bridge will be different for everyone, depending on how difficult the passage is perceived, the column said. Whether a growing company is large or small, change is constant. But for smaller companies such as Birkenstock, facing a land gorge is threatening.

"The challenge is to achieve balance. In a small company, it's much easier to operate informally. Most companies in growth mode try to protect and cherish the culture where people understand they're significant," says Jim Spoor, national president of the Bethesda, Maryland-based Council of Growing Companies. "They like the feeling of smallness, that I matter." That sensibility would be shared by most U.S. workers. Spoor says that by the end of the decade, 85% of the American work force will work for companies with less than 100 employees.

For the most part, Fraser says that she welcomes the organization's recent changes. She describes them as exhilarating, but understandably scary. But once a learner, always a learner, and that's precisely how she views Birkenstock. She describes a learning organization as:

  • Being open to finding new ways to solve problems
  • Evaluating new ideas by their impact on the whole company.

"Sharpening our skills is one way to remain flexible," Fraser says. In that context, the human resources department has charted this year's training and education courses to include such topics as quality, productivity and innovation. The reason is to ensure that all employees have a chance to contribute ideas and solutions, improve their efficiency and communication, reward creativity and value those committed to making a difference.

Pischke says that employees also are encouraged to join one of Birkenstock's task forces or teams. They address areas such as cultural diversity, health and safety, special events and investment. One of the most active teams, she says, is the Green Team. Established five years ago, it focuses on raising the environmental consciousness and practices of the employees at the workplace and as members of the Novato community. "We recycle as much as possible," she says. Last year, the company recycled a heaping nine tons of mixed paper, 143 pounds of glass and 135 pounds of aluminum. And on Earth Day, the Green Team purchased indoor plants for everyone with a little spade that says, "Be aware of your world." Taking that message to heart, about 40 employees-including Pischke-also tend their vegetables and flowers in the Birki Garden.

But cucumbers and marigolds aren't the only benefits sprouting up at Birkenstock. Last spring, the company announced a new Alternative Work Arrangement policy. Barring any business limitations, department time constraints or labor laws, employees are offered a variety of work options. Again, they are intended to be kind to workers and the environment. Flextime is offered to those who have special needs or want to avoid rush-hour traffic. A compressed work week is available for those who want to work 10 hours a day, four days a week and gain an extra day off every week. This plan, HR reasons, helps reduce traffic congestion and driving expenses. A reduced work time also is offered for those seeking part-time employment who have a new non-work interest or need such as a newborn or college classes. And finally, some employees can take advantage of a flex-place option by working part or all of their work hours at an alternative worksite, usually at home. "We're very proud to offer this progressive policy," says Jones, known by her colleagues as the company's cultural guardian. "It's really great. People are experimenting with what works."

In terms of the future, Fraser says she expects the company to continue growing at a steady pace. She believes there aren't any mass markets-only multiple-niche markets-so the sandals are expected to continue attracting millions of new consumers. "There's more men, kids and elders. Today's [seniors] are healthier and have more money. They're active and travel. That's a good thing," she says. Also, she learned a lesson during Birkenstock's rapid growth in 1991 and 1992. "It brought some problems. We hired more people than could be assimilated into the Birkenstock family," she says. When you proceed with balance, fit happens.

Personnel Journal, August 1994, Vol.73, No. 8, pp. 68-75.

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