Back in the boom years, the world’s best-known fashion brand prepared for tough times by knitting together a prescient risk-sharing RPO deal.
By Jay Whitehead
It’s no surprise that Dietmar Knoess, the HR Director of 10,000 employee apparel and accessories giant Hugo Boss, is well dressed. But for anyone who knows the dog-eat-dog fashion world, here is a shocking fact: The staff at the company’s Metzingen, Germany headquarters is freundlich (friendly), glucklich (happy), even lustig (jolly).
I experienced the €1.7 billion company’s stunningly upbeat culture during one of Knoess’ Silicon Valley-style company executive campus tours. (Tour highlights: The finance compound, nicknamed “Fort Knox,” the red brick is called “Moulin Rouge,” the tower next to the roundabout is known as “Piccadilly,” the old Headquarters high-rise is “The Vatican,” and the lucky few get shown the shimmering aisles of the Hugo Boss Headquarters VIP Store, where celebrities known in the fields of sports, music and film shop in private.)
The staff was in particularly fine form on that cold March morning tour. Despite snow and below-freezing temperatures, the sidewalks connecting the complex’s modern buildings teemed with dozens of employees, average age 33, all seemingly involved in intense on-the-move meetings. But as they passed, none was too busy (or cold) to forget to lock eyes with Knoess and his guests and shout out a cheery guten Tag or wie geht’s. When asked about his enthusiastic colleagues, Knoess states it plainly: “Our goal is to have the highest staff loyalty in the business. The Hugo Boss brand is all about one thing—employee retention.”
And as it turns out, team happiness at Hugo Boss is by design. Over the past two decades, the world’s best-known fashion brand has stitched together a remarkable set of facilities, employee services and benefits to deliver maximum retention incentives for their full-time staff. Back in October 2006, to protect the company from the seasonal and cyclical ups and downs of the apparel business, the €1.7 Billion global powerhouse entered into an innovative end-to-end RPO deal with Access HR, now called Kelly Outsourcing & Consulting Group, or OCG. The deal helped Hugo Boss in 2007’s good economy with low recruiting cost-per-hire and high seasonal worker quality to support its full-time employee base and fast-paced growth. And because of its risk-sharing features, the Kelly OCG contract delivers high returns for both Hugo Boss and Kelly in 2008 and 2009’s dismal economic conditions.
But RPO success in both rosy and rugged conditions for Hugo Boss was as much a result of dedicated partnership as it was a shrewd look into the crystal ball. At the contract’s start, there were challenges. And they weren’t small. To understand them, we need to roll back the clock.
How Hugo Boss’ HR Director Discovered RPO
Hugo Boss’ RPO journey started in June of 2006, when HR Director Dietmar Knoess joined the company armed with one simple belief: The only thing certain about Hugo Boss’ future is that things will change. “I came with a reputation for embracing change. That makes me an unusual HR person, not normal,” smiles Knoess, a veteran of several years in HR leadership at Wella (now a Procter & Gamble brand), at international IT integrator Systemhouse and in big retail.
At the time, Hugo Boss was experiencing a boom, and needed to hire 1,000 temporary and 300 permanent workers, all to start in the first weeks of 2007. Knoess knew that thriving in fashion, like in retail and packaged goods, was a matter of managing up and down cycles and seasons. “In my first 100 days,” Knoess recalls, “I saw a need for rapid temporary and permanent hiring along with a need to stay focused on the most important jobs in HR. Did I want more FTEs in recruiting or should I outsource? In recruiting, unlike some other HR functions, an external provider can deliver much higher output faster and at lower cost than we can internally, and they can scale down faster as well. In our HQ facilities, I now manage 3,000 people with 25 HR FTEs, a very competitive number. As for the provider decision, Access (now Kelly OCG) was the most flexible competitor, and they did a refined requirement match. They are an integrated team, speedy to get people here onsite. They did the job in two months when there was a three-month requirement.”
When Claus-Peter Sommer, then CEO of Access, met Knoess in October of 2006, he remembers that the Hugo Boss HR director had an “unusually high sense of urgency” about selecting the best provider and getting the contract underway. Knoess agrees, saying his choice to outsource recruitment on a large scale was a speed decision. “I had to decide whether to invest in recruiters or invest in the people themselves,” said Knoess, “and the provider option was perfect, since the variable expense and flexibility characteristics fit our business model quite well.” After Knoess selected Sommer’s team—which was subsequently bought by Kelly OGC—Sommer recalls that “the deal was set in a couple of days, and we actually started on the first of December to get an outsourcing program together.”
Sommer acknowledges that Knoess’ demand for speed created some short-term pain. “We had many late-night sessions to match requirements with delivery,” he remembers. “And we had to switch a manager in order to get someone who was more accustomed to the high volume and speed. While we had some challenges (in the first days of the Hugo Boss assignment), we had either seen the same challenges with our other clients or have used what we learned to improve service elsewhere.”
In his previous roles, Knoess learned that HR must avoid being an obstacle to rapid evolution and that it must be a change agent. “I enabled business leaders to adapt their systems and cost structures rapidly. And I understood their businesses at a fundamental profit and loss level,” he recalls. “I’m an unusual HR person because I want to be part of the solution rather than pointing out problems. Packaged goods, retail, IT, and fashion all have a high degree of continuous change in organizational structure and economics. In these fast-moving businesses, HR has to be an enabler of change. There is a premium on getting things done, people moved, cost structures re-sized, in a short period of time.”
End-to-End Scope, Flexible Model
Kelly OCG’s RPO assignment at Hugo Boss is a classic example of end-to-end scope. For temporary workers, the annual hiring of 1,400 total seasonal people is 100 percent outsourced. Hugo Boss departments access Kelly directly. Kelly then recruits the workers and writes their seasonal employment agreements, transfers all employee data over to Hugo Boss for its SAP payroll program, and even delivers post-employment services. Once the workers complete their contracts, they often go onto another contract at Hugo Boss, or are hired on permanently.
For non-management permanent workers, which total 250 to 400 per year, Kelly is called directly by Hugo Boss HR managers and completes the hiring process, stopping just short of making the offers and entering the initial payroll data. (Hugo Boss’s internal HR managers’ recruiting functions are focussing on “core” positions such as designers.) To fill the Hugo Boss contract’s requirements, Kelly maintains between three and 10 full-time on-site recruiters at Hugo Boss’ sites, supported by offsite support in Cologne. (Sommers has since left Kelly OGC, and Operations Manager Simone Dötsch now manages the deal.)
To ensure future workers, Kelly manages a screened talent pool of 3,000 to 5,000 active candidates, plus an intern and student hiring program. To ensure transparency and accuracy in billing and payroll, Kelly provides a periodic formal audit. Dötsch reported 480 fills in the first three quarters of 2009 and is in negotiations for 2010 with a revised pricing and delivery proposal. Volumes, of course, dropped considerably during the downturn.
During boom times, Hugo Boss benefited from Kelly’s ability to deploy rapidly. Yet in challinging years, arguably the Kelly contract delivers even better returns for the fashion mega-brand. Kelly’s flexible pricing model allows Hugo Boss to pay on requisition and successful hire, and for temporary worker, by successful hire only. Kelly calls this arrangement a “co-sourcing” or “collaboration” relationship rather than one of a vendor and customer. “It has significant risk-sharing characteristics on both sides, which aligns Hugo Boss with Kelly in a unique way,” says Sommer. “This pricing, which came out of our learning in ‘lean management’ techniques, delivers [Kelly] high client retention and helps clients such as Hugo Boss manage their cost risks.”
Many of the recruiting management innovations Kelly OCG is now delivering at Hugo Boss were made in America, where Kelly is headquartered. As one of the only truly global RPO providers, Kelly now operates in 50 countries with 2,600 branches, each with local market expertise. The company’s U.S.-born candidate sourcing methodology, technology, and ‘lean’ techniques are among the world’s most sophisticated, and are now deployed to serve European customers. Sommer’s Access organization, from its roots in Germany, added the flexible fee structure featured at Hugo Boss, which hangs on the backbone of a customer lead manager and client-facing technology. While Kelly’s offerings are not the RPO market’s lowest-priced, customers including Hugo Boss credit Kelly OCG with unique flexibility benefits. Hugo Boss’ Dietmar Knoess seems to most appreciate the Kelly’s ability to deliver benefits in good times and bad. “There are always economic downturns,” he acknowledges. “I didn’t know that 2009’s financial crisis was going to happen, but the (Kelly OCG) contract has helped us handle it.”
As we wrapped up our meeting with the fashionably fast-moving Knoess, he brought the conversation full circle, back to the brand. “Remember,” he says with emphasis, “Hugo Boss is arguably the most valuable brand in the fashion industry, certainly in the men’s fashion business, where our €1.7 Billion wholesale business delivers a retail impact of approximately €3.6 Billion. Our people, both temporary and permanent, keep the promise of our brand. And if we didn’t manage the risks of economic cycles well, we would be unable to keep our promises to our brand’s most valuable asset, our people.”
Two Surprises and Seven Big Lessons
According to Hugo Boss’ HR Director Dietmar Knoess, the company learned interesting lessons from its RPO journey, including both benefits and challenges he had not anticipated.
The Unexpected Benefit of RPO: “We did the deal when we had fast growth, and we knew the deal’s would have large benefits during an economic downturn. The crisis has proved it was the right decision. The benefit wasn’t unexpected, but the size and depth of the downturn certainly was.”
The Unexpected Challenges of RPO: “At the beginning, we had to make sure we had a cultural fit. We had some very rapid learning in the beginning. In order to survive the rapid learning, the outsourcing provider has to be very quick to adapt. The provider has to be very quick to learn, open-minded and culturally very close to its client. At the beginning, we learned that with its existing managers, the provider could never meet the speed. So we had to change the on-site recruiters and program manager to meet Hugo Boss’s challenging requirements.”
The Seven Big RPO Lessons:
1. Be a part of the solution rather than the problem.
2. Listen to your internal customer. Quite a few HR people come with their own preferences, but it’s really about what the business needs. Most of those HR so-called “needs” are nice-to-have, not need-to-have. For example, why should we have a “competency model?” Because it’s cool? Business leaders will ask “why the heck do we need that?”
3. Understand your internal customer. Apply serious experience and training. For example, I went to the Harvard Business School and St. Gallen Business School, and I was the only HR person in the class, so I trained as a business leader rather than as an HR person. I studied finance, sales, distribution, operations, those are the languages of my internal customers.
4. Be an entrepreneur. Your best decisions are those that are entrepreneurial. In my case, the easiest decision would have been to hire a couple internal recruiters, but going with RPO was the entrepreneurially correct decision.
5. Once you’ve convinced your customers that you’re a business partner, it’s easy to reflect the culture in your decisions.
6. Don’t take yourself too seriously.
7. Just do it. (But don’t fail.)
Hugo Boss Models RPO
