Sonoco Products Company Sonoco Products Company The case • Sonoco Products Company, a 100-year old manufacturing company • Through the 1980s and 1990s Sonoco grew freely • However, at the time of Asian crisis stock price do hit its eight year low Sonoco Products Company The case • At the moment , in order to unlock profit Sonoco is perusing a strategy to responsive to customer needs while being solution oriented rather than Product oriented. Sonoco Products Company The case • Sonoco needs to restructure its HRM functions in service of the new strategy. • Cindy Hartley , since 1995, then the new Vice president HRM had reengineered the Compensation management, Performance management, development and succession planning to instill the cross consistency in these functions. Sonoco Products Company The case • In 2000, the CEO Harris DeLoach tasks Hartley with formulating and implementing at least two potential new HR structures that could achieve three ambitious Goals. – Implementation of the talent development process – Even distribution of talent across the company’s large and small divisions – all while reducing the cost of structure by 20% or $2.8 million Questions to pursue in light of the information presented in the Sonoco case • What was happening to the packaging industry at the time of the case? How will these changes impact Sonoco’s strategy? • What are Sonoco’s current strengths in terms of its culture and people? What are the company’s major weaknesses? • What were Cindy Hartley’s objectives for changes at Sonoco? • How successful were the HR changes at Sonoco? Was the sequence of changes the right one? • What is the right HR structure for Sonoco – centralization or hybrid? Why? Evaluate different options (pros and cons). • Will changes be sustained? What should Cindy Hartley attend to next? Industry trends 1/3 • The packaging industry was a highly competitive industry. Commodity packaging was under strong price competition and showed signs of overcapacity, but substantial opportunities lay in targeted, value-enhancing packaging solutions. Industry trends 2/3 • Amid consolidation trends, Sonoco had grown through acquisitions. Rather than offering discrete products, the higher-margin portion of the packaging business was moving towards offering end-to-end packaging solutions that provided differentiated brand-enhancing packaging products through a single customer point of contact. Industry trends 3/3 • Industry-wide, the trend was toward offering customers a one-stop shop. Sonoco’s giant customers were reducing their number of suppliers, and increasing their partnership reliance with those suppliers they retained. Providing solutions rather than just supplies offered the potential of higher margins and earnings growth. Industry trends Vs demands • In this environment, processes that are customer-focused, fast and nimble, integrated across business units and locations, and that represent a high value-added component will constitute a competitive advantage. Industry trends Vs demands • What is the most important factor of production to the packaging manufacturer? • Profits =Revenues - Cost Conceptual background and Theory • HR alignment with the corporate strategy – High performance work Systems (HPWS) requires three important elements • Workplace opportunities for employees participation in decision making • HR practices that support and enhance workers skills • The incentive for employees to participate HR alignment with the corporate strategy & HPWS HR alignment with the corporate strategy & HPWS Conceptual background and Theory • Research found that that clusters of HR practices have large effects on productivity. • HPWS were associated with significantly lower turnover rates, greater employee productivity (sales per employee), and measures of financial corporate performance. For example, Huselid found that “a one-standard-deviation increase in such practices is associated with a relative 7.05 percent decrease in turnover and, on a per employee basis, $27,044 more in sales and $18,641 and $3,814 more in market value and profits, respectively.” Cascade of strategic HR metrics Congruence model organizations Congruence model for SONOCO • Hartley must align the important HR processes with the formal organization, people and culture of Sonoco. • Processes are then designed, implemented and assessed for alignment with the critical tasks. • Needed adjustments should be made and outcomes should be continually accessed. Congruence model for SONOCO • HR executives see themselves as being most successful at administrative rather than strategic tasks. Critical Tasks : – Delivering comprehensive packaging solutions to customers – quickly; – responding flexibly to customer demands and needs; and – increasing the effectiveness and efficiency of deployed human resource assets. • Given these critical tasks, what people assets does Sonoco currently bring to bear on this challenge? People • SONOCO holds a surprising number of long-tenure employees. • There is a question about “C” players hired during the fast growth era • teamwork orientation • hard-edged business acumen. • Operational practices are also highly productive • employees are proud of their high quality products Culture • • • • • Friendly practicality Down-to-earth style History of success leading to shared pride Founder’s family still on board Group of ordinary people doing extraordinary things How is the company organized? • Sonoco has a divisional, multi-business structure: – Industrial 11,000 employees; 55% of revenue – Consumer businesses (6,000 employees; 45% of revenue). • Within these divisions, businesses range in size from single plants with 60 employees to multi-location businesses with employees numbering in the hundreds. How is the company organized? • Individual businesses followed their own locallydeveloped practices. • Aggressive growth through acquisitions in the 1990s further reinforced the complexity of this organization • While setting high business performance targets, line management felt little responsibility • Incentives bore little relation to performance goals. How is the company organized? • HR processes were idiosyncratic to each business and were in fact “non-cooperatively competitive” across the company. • Enormous complexity and granularity to Sonoco’s operations: 285 operating units in 32 countries serving customers in 85 countries. Comparison of 1995 Vs 2000 In 1995: • The HR system was reactive and non-strategic. • HR resources were haphazardly distributed There was little centralized coordination of policy. • HR was a back-room process that focused on transactions and compliance. • On the whole, HR lacked influence on business decisions. Comparison of 1995 Vs 2000 In 2000 • A consistency of policy and line managers’ nominal responsibility for the process. • Compensation was simplified from 18 pay grades to five wide salary bands. Tying pay to performance as defined by individual work • formulation of six business objectives and core competencies that emphasized assessment and self-evaluation. • HR Council • The change process and buy-in by line management • HR is still located in the several businesses, Hartley’s Choice • Option 1: A centralized HR function with most services being delivered by one of four main offices. • Option 2: A hybrid organization in which divisions would be locally staffed with HR Centralized • More cost savings. Rather than keeping HR staff in each business and location, the centralization of services enables the more efficient utilization of staff where needed. • More values and culture consistency. A centers-of-excellence approach will make sure that best practices are spread through the company. • More strategic alignment. Since the centers of excellence would operate at the strategic level, there would be more consistency across businesses and more ability to drive key initiatives. Hybrid • More ability to get things done. With HR reps still in the divisions, they can have standardized roles and responsibilities for talent management, succession planning, etc. • More influence in each business. Sonoco’s line managers are accustomed to having local HR reps available to them, and this fosters the development of personal relationships between line and HR. • More accommodation of regional and business complexity. Sonoco’s line managers are also accustomed to some discretion in responding to the local business environment. Again, business managers will be more likely to accept this structure.
