Karen Kane, Inc.

Lonnie Kane, president of Karen Kane, Inc., served on the board of directors for the Los Angeles Branch of the Federal Reserve Bank of San Francisco from 1997 to 2003.

When Lonnie Kane launched a specialty clothing line for women in 1979 with his wife Karen, he adhered to a belief embraced at the time by many industries: increasing the workforce meant greater productivity. The paid workforce of their fledgling company headquartered in Los Angeles consisted of Lonnie, who ran the business and served as president, Karen, who designed the clothing line, Karen’s mother, who did the books, and a sample maker. Over the next fifteen years, the Kanes overcame skeptics who said a new business needed more than the $6,000 in personal savings, $5,000 borrowed from relatives, and $10,000 line of credit the pair began with as start-up capital. By the mid-1990s, Karen Kane, Inc. grew into a company of 390 employees with a sales volume of $85 million a year.

But despite this growth, Kane realized the influx of new people had not made a demonstrable improvement in productivity. In fact, there were times when the company resembled a poorly administered bureaucracy says Kane. He points to the inefficient “paper trail” process used to determine product costs. “Paper was shuffled from department to department,” says Kane. “Often it would take a week or more to complete—meaning a critical loss of time and potential sales revenue. Sometimes key documents were missing.” Kane realized he was working from an outdated economic model, one that was out of sync with the realities of globalization and the technology-driven “new economy” ushered in by the 1990s.

At a trade show, Kane discovered a software program that could automate the process for compiling product costs. He purchased the program in 1997 at a cost in excess of $100,000 and initiated the company’s transition to a new approach to business and productivity, incorporating technology and retooled business processes. The software’s real-time tracking features enabled employees to verify the status of a cost sheet at any time. Documents flowed smoothly from one department to the next in much less time. Products reached the stores more quickly, rather than getting mired down by misplaced paperwork.

A few years later the company purchased another software program to streamline business processes—this time across international boundaries. The program automated the coordination of production with the company’s factory in China, where half of its goods are produced. Employees in Los Angeles and China were trained in the new system, which greatly improved production tracking. “With the automated process, we do not run late very often any more,” says Kane. “In a business where retail clients cancel costly contracts if items do not arrive on time, the new software means higher profits in the long term.”

Where Kane once focused on a philosophy of hiring more workers to increase productivity, today he believes “a key to productivity is in the consolidation of tasks.” A consequence of consolidating tasks, of course, is fewer jobs. “You’re not going to sweeten this by political correctness,” he says. At Karen Kane, Inc., this was evident back in the mid-1980s, before the big productivity push, when the company purchased a $350,000 automated cutting machine that reduced the number of human cutters from eight to one to operate the automated machine. But there is another side to this equation. Kane recognized that employees who demonstrated flexibility and were willing to learn new tasks, including mastering software systems, deserved to be paid well. Kane switched to an incentive-based pay approach for his employees, offering a more attractive package to those who stayed on. “Incentive pay was the biggest part of what we did to increase productivity,” says Kane. Rather than annual raises, employees now receive increases based on exceeding production targets. “The minute employees saw they didn’t have to wait for a raise, we achieved our goals.” Employees who were unable to adapt to the new system left the company. The annual paycheck of employees who remained increased on average by 24 percent.

Today the company employs some 170 people and ships between $65 and $76 million annually in products to major department stories. Where Karen once designed all of the clothes on her own, she now also supervises a group of five designers and a support staff of 35.

Talking about the future, Kane says he senses a trend toward standardization in the retail clothing business may be on the horizon. This could mean department stores would be less inclined to order the innovative apparel produced at Karen Kane, Inc. That time hasn’t arrived, but it is a concern. Still, Kane finds satisfaction in knowing the company increased productivity and efficiency over the last several years, contributing to its ability to face new challenges. While the changes have not been easy to implement, he believes they have come without sacrificing the creativity that is the essence of Karen Kane, Inc.