Case analysis-sonoco-products-company(1)

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Case Analysis of the case "Sonoco Products"

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Case analysis-sonoco-products-company(1)

  1. 1. Sonoco 1Running head: Sonoco Products Company Case Study Analysis Sonoco Products Company (A): Building a World-Class HR Organization Joycelyn Jones McDaniel College
  2. 2. Sonoco 2 AbstractThis is an analysis of the Harvard Business School case study -- Sonoco Products Company (A):Building a World-Class HR Organization. This analysis outlines the challenges of SonocoProducts Company to revise its corporate strategy (i.e. products, structure, Human Resources,etc.) to remain competitive and continue its growth in the volatile, ever-changing globalpackaging industry.In 1995, Cindy Hartley, Senior VP, Human Resources, came to Sonoco and found the HumanResources (HR) function broken. She soon began working on a plan to rejuvenate HR and linkHR processes to Sonoco’s business objectives. As Ms. Hartley was well on her way, HarrisDeLoach became the newly appointed Chief Executive Officer (CEO) in 2000. Mr. DeLoachsoon recognized concerns with HR as well as overall business strategy in light of the changes tothe industry, Sonoco’s diminishing returns, etc. Consequently, he instructed Cindy Hartley,Senior VP, Human Resources to among other things devise two alternative HR structures thatwould reduce HR’s cost by 20%, or $2.8 million. Other pressing reasons for the request includethe following: 1. Ensuring top-level accountability for talent management and upgrading. 2. Providing for a more even distribution of HR talent and support 3. Leading the way in supporting the company’s new growth strategy, which often meant working across division lines to market and sell “solutions” to a single large customer (Thomas, Groysberg, & Reavis, n.d., p. 1).This case analysis utilizes the 7S Model of organizational alignment to perform the situationalanalysis, explore the issues and/or opportunities related to the company and the CEO’s request,evaluate the alternatives and recommendations for course of action for the Senior VP, HumanResources to meet its financial goals and HR meet goals.
  3. 3. Sonoco 3 IntroductionSonoco Products Company, a global packaging company, began in 1899 in Hartsville, SouthCarolina. Founded by Major James Coker with $6,000 of initial capital, Sonoco’s original nameuntil 1923 was the Southern Novelty Company, and the new name of Sonoco uses the first twoletters from each word of its original name ("Mission statement - Sonoco," 2009). Its originalproduct was a paper cone used to hold yarn in the textile industry. Since most of the textilecones of that time were wooden, paper cones were unique. Although Sonoco did not invent thepaper cone, its engineers invented new processes to automate the production of these cones.This automated manufacturing gave Sonoco a competitive advantage, and it soon became theleading producer of cones in the United States. During its history, Sonoco also adds to its creditsthe use of the plastic “T-shirt” grocery sack common in supermarkets and retail stores and thecreation of Ultraseal, a closure system for Crisco shortening cans that eliminated the need for acan opener (International Directory of Company Histories, Vol. 8 St. James Press, 1994). By2000, Sonoco was one of the largest packaging companies in the world. Its revenues reached$2.6 billion through the manufacture and sales of consumer and industrial packaging, with17,300 employees across 285 operations in 32 countries, serving customers in 85 nations with awide array of industrial and consumer packaging solutions (Thomas, Groysberg, & Reavis, n.d.,p. 2). In addition to being a major packaging company, Sonoco produced nearly all of its ownpaperboard, consuming almost two million tons of recovered paper annually.Over the years, Sonoco Products Company continued to grow with new operations around theworld, diversify its product line (i.e. cardboard, aluminum cans, plastic, flexible packaging, etc.)and become remarkably profitable. However, as Sonoco grew and changed, so did the world andindustry around it. While the United States was enjoying economic growth during the late
  4. 4. Sonoco 41990s/early 2000s, so was the packaging industry. During this time, Sonoco’s position began tochange. The company was becoming increasingly more susceptible to changes in the worldeconomy. The packaging business began to focus on the following: • development and implementation of policies and action programs to meet the consumer needs, including development of innovative packaging containers and techniques • production for diversified product types • improvement of productivity for cost reduction • introduction of higher speed computer technology for quality assurance, improvement and labor saving • creation of websites for the entire industry • cooperative efforts of the entire packaging industry for e-commerce individual packaging/logistics (Taylor, 2005)This called for Sonoco to reassess and reinvent itself in the face of the new global marketplace toremain competitive.In this case analysis, this writer will review the state of Sonoco in years approaching the newmillennium (situational analysis), utilize the 7-S Model of organizational alignment asappropriate to examine Sonoco’s need for planned change (identification of issues), examineproposed options (evaluation of alternatives), and propose plan of action (recommendation). Situational AnalysisUpon approach of the new millennium, Sonoco began to recognize a change in its business.After enduring many years of continuous growth and financial success, Sonoco was in aprecarious situation. Its stock price fell to an eight-year low. Sonoco’s debt was high because ofthe acquisition and continued operations of several plants while many manufacturing plants weremoving overseas because of cheaper labor. North America accounted for approximately 80% ofthe company’s sales; however, competitors were operating on a more global basis. The internalstructure and composition of the company were facing challenges as well. Sonoco’s operationswere decentralized to the point that it was unable to support some of the more far reaching
  5. 5. Sonoco 5strategic initiatives of the company. Specifically, its human resources function was ineffectiveand viewed as just an administrative support function. Additionally, Sonoco had to face thegrowing challenges of fast changing technology, and diversity matters. For example, it now hadto contend with flexible packaging that was the new technique of this time and the mounting useof ecommerce as a source of trade. Lastly, globalization as well as the wants and desire of itsconsumers were challenging. Products had to serve all segments, which made the strategy forthe packaging and distribution of them more demanding.These variables as well as others propelled Sonoco to revisit its business strategy. Sonocorealized the need for transformational change to ensure its sustainability in a continuouslyevolving environment. Specifically, Sonoco needed to conduct a SWOT analysis to assess andbuild on its strengths, improve its weaknesses, identify the available opportunities, andstrategically plan to eliminate pending threats. Particularly, Sonoco’s focus was to evaluateexternal forces (i.e. climate change, environmental destruction, energy crisis, etc.), globalmarketplace, packaging industry, demands of its customers and especially its competitors toensure alignment, if necessary, with its business strategy. Furthermore, Sonoco needed toanalyze itself internally -- mission, culture, structure, human resources, technology and processesprior to considering any change. To this end, this analysis utilizes the 7-S Model to analyzeSonoco’s situation. This tool provides a structure with which to consider the company as awhole, so that the organization’s problems may be diagnosed and a strategy may be developedand implemented.
  6. 6. Sonoco 6 Identification of IssuesIn order for a company to be effective, it must have a high degree of fit or alignment among allthe seven Ss. Thus, this writer identifies the following issues/challenges as possible reasons toinitiate or continue transformational change initiatives at Sonoco:• Stagnant business strategy • Diverse, sophisticated and demanding• Growing packaging industry consumers• Saturation of market, increased • New and/or improved technology competition • Age of differentiation, brand value,• Environmental concerns changing image• State of economy • Company culture• Globalization • Evolving role of Human Resources• E-commerce • Ineffective organizational structure• Expanding product lines • Management deficiencies • Changing policies and/or practicesThe 7-S Model propels companies to pay attention to systems thinking, which involves lookingat all seven elements at the same time since they are all interconnected (Kotelnikov, 2001).Therefore, this analysis examines several of the issues above as they relate to the seven Ss.StrategyStrategy is an organization’s means to help management achieve its objectives. Key strategiescan include the introduction of new products or services, cost containment, or a combination ofthese and others. During most of its existence, Sonoco’s strategy was product driven; however,due to changes in the environment, the industry, the economy, the workforce, and societal trends,it was adopting a more solutions oriented approach. Consequently, Sonoco needed to review thebusiness it was in, the products it supplied, its differentiation relative to its competitors, its abilityto sustain in a changing industry, and the applicability of product solutions to multiple situations.
  7. 7. Sonoco 7To this end, Sonoco was pursing top-line growth on two fronts: organically, which includesmarket growth, new products and services, and geographic expansion and through acquisitionsand joint ventures that complement existing businesses and meet the changing needs of themarkets it serves ("Strategy for Growth," n.d.). Additionally, Sonoco recognized the need toembrace the growing global marketplace and its people. They incorporated diversity into allaspects of business including products, suppliers, consumers, and workforce.Sonoco understood that to be the leader or one of them one had to be continuously flexible in thenew marketplace. Thus, the corporate mission statement which -- “Sonoco intends to be the low-cost global leader in providing customer-preferred packaging solutions to selected value-addedsegments, where it expects to be either number one or two in market share” – supports this point("Mission statement - Sonoco," 2009).This writer believes that Sonoco was a company that did its homework, which continuouslydiagnosing itself to stay competitive. As a result, they were able to react to and minimize anypotential damage. The relatively quick move to rethink and revise its strategy at a critical time inthe company’s history attests to this point.StructureClosely related to strategy is structure. Structure is the framework in which the activities of theorganization’s members are coordinated. Structure affects how successfully a company canimplement its strategy. The organization’s size, technology, environmental uncertainty and evenproducts/business significantly affect its structure.Sonoco experienced a few iterations of corporate structure – centralized, divisional, functional,etc. – in the past. However, key to any strategic business plan is the reassessment of anorganization’s structure to ensure its alignment with the current business environment. Thus,
  8. 8. Sonoco 8Sonoco reviewed its structure to ensure that it too would aid the organization in meeting itsoverall goals. With a centralized structure, Sonoco’s support departments, especially HumanResources were not able to be strategic in focus and therefore provided little support in the wayof long-term plans for the divisions (Robbins & Judge, 2008, p. 235). However, this structureprovided economies of scale when centralizing core administrative functions. As for thedecentralized structure, the company experienced problems with departments/divisionsbecoming their own entities and not tied to the bigger picture. Additionally, this structureprobably represented increased cost due to duplication of efforts.Based on many aspects of Sonoco’s business environment, this writer believes that Sonoco is inneed of a combination structure that will allow it to create more synergies between business unitsto leverage resources for greater cost effectiveness and customer service. Additionally once theoverall business structure is in place, reviewing structure on a micro level would be a benefit.Consequently, reviewing structure from a divisional, departmental, and even individual jobperspective is important. Interventions such as continuous quality improvement, teambuilding,and job enrichment are relevant options to improve processes, productivity, and morale duringstructure transition.SystemsSociety is indeed becoming increasing more technological and systems driven. Thus, companysystems, the activities involved in the daily operation of business, also need attention. Thesesystems include business, management, performance management, financial, compensation, andeven customer satisfaction. For that reason, Sonoco attempted to restructure itsprocesses/systems in order to more efficiently maintain its market share, increase productivity,and maintain safety goals.
  9. 9. Sonoco 9Prior to Cindy Hartley’s arrival, Sonoco’s fragmented HR system was unable to operatestrategically. From a Human Resources perspective, Cindy Hartley had three main priorities: 1. Changing compensation and performance management systems to eliminate arbitrary nature and more accurately reflect the employee’s contribution to the company’s performance. 2. Creating an employee development process to refine employees’ skills and identify/develop lacking skills. 3. Building a succession-planning process to identify the next generation of leaders. (Thomas, Groysberg, & Reavis, n.d., p. 7)Ms. Hartley understood that Sonoco’s performance management, compensation, and successionplanning systems must complement its business strategy. Therefore, she began to implementchange.A performance management system is effective if it: • Reflects the organization’s culture and values • Has senior management actively involved • Focuses on the most important performance/business measures • Links to an organizational compensation and rewards system • Includes employee coaching, feedback and development (Werner, 2006, p. 391)Cindy Hartley’s performance management did include these aspects. According to Hartley,“Until you systematize something to ensure that it is done and done correctly, you will never getcompliance” (Levitt, n.d., p. 9). This interwoven system connected business goals and individual objectives instead ofsubjective measures of the past, which managers manipulated to get higher pay raises for theiremployees.As for the new compensation system – broadbanding system, it complemented the newperformance management system. Broadbanding reduces salary categories to manage careergrowth and deliver pay.
  10. 10. Sonoco 10According to Byars and Rue (2008), broadbanding works especially well in companies that arefast moving and undergoing persistent change because it provides less formal structure andallows the company to react quicker. This system supports the business strategy focused ondeveloping and maintaining the most skilled workforce to meet the company’s goals. However,this system places more emphasis on the person not the job, which may be contrary to Sonoco’sculture of team-orientation. In addition, there is no mention of any incentive awards toencourage teamwork. Although individual accomplishments are good, Sonoco’s environment isone such that teamwork will be necessary to meet the challenging demands that it faces.Furthermore, this competency is part of the new performance management process.Subsequently, team or group incentives (i.e. profit sharing, gain sharing, etc.) could prove usefuland balance out the compensation portfolio. These incentives involve employees in a commoneffort to improve organization performance (Byars & Rue, 2008, p. 283).StaffingWith a company’s strategy, structure, and systems defined, the company’s human resources arewhat hold it all together. It includes details on how a company trains, socializes, integrates,motivates, and manages the careers of its human resources.Sonoco needs to get a tighter control over this component. Over the years, it failed to hold itspeople accountable and develop them, especially the leadership. Sonoco realized thisfragmentation led to ineffective succession planning and leadership development that onlyharmed the company. Hence, the implementation of the new performance management andcompensation systems, the increased focus on leadership development, and most importantly thesuccession planning process. It is not only important to have the right people with the right skillsnow, but to sustain the company’s position into the future; Sonoco has to develop its talent pool
  11. 11. Sonoco 11and leaders going forward. Additionally, Sonoco took advantage of the concept of incorporatingdiversity into its business. It appreciated the diversity of its workforce, its suppliers as well as itscustomers.SkillsSkills refer to what a company and its personnel do best. Over the years, Sonoco’s strengthswere its strong market position, brand value, product diversification, flexibility, culture andvisionary leaders. The new performance management and compensation systems furtherreinforce Sonoco’s commitment to enhancing employees’ skills to serve the organization.Sonoco based expectations for all employees on satisfying customers through six corecompetencies: excellence, communication, teamwork, technical/professional skills andknowledge, strategic integration, and coaching/mentoring (Thomas, Groysberg, & Reavis, n.d.,p.97).Shared ValuesThe anchor of all the 7s is shared values. These values are evident in all actions taken by thecompany. Sonoco’s value revolves around people, culture and values. Sonoco’s culture hasalways played a role in its success. Safety, integrity and respect for the individual are hallmarksof its culture ("Strategy for Growth," n.d.). Unfortunately, over the years, there was adiminished sense of personal responsibility and accountability that linked into the company.Thus, some financial goals fell short, but some of Mr. DeLoach’s and Ms. Hartley’s newstrategies turned this around.
  12. 12. Sonoco 6 Evaluation of AlternativesSonoco experienced growth and prosperity as well as a decline in a few key results during thelate 1990s/early 2000. As described previously, there were a myriad of challenges to includeglobalization, the industry, economy, and environment to name a few. However, Sonoco’sbusiness strategy was solid. Built on people, capital effectiveness, productivity and qualityimprovement, top-line growth and establishing stretch targets, Sonoco’s strategy would endureturbulent times ("Sonoco Products Company (SON)," n.d.). Its basic strategy was to reduce cost,develop a more efficient operating structure and put the right people into the right jobs to carryout its strategy.With this in mind, Senior VP Human Resources, Cindy Hartley along with an HR Council,comprised of HR management, formulated two options in response to Mr. DeLoach’s originalcharge that was to devise two alternative HR structures that would reduce HR’s cost by 20%, or$2.8 million.The first option was a centralized HR function in which one of four centers of expertise wouldhandle the majority of services, and a trimmed down field staff would serve the divisions. Theadvantages to this structure would be the decreasing costs associated with driving administrativeand other types of process improvements. These economies of scale would free up money andresources for other purpose. Thus, this structure would be less expensive.On the contrary, it would be difficult to achieve some of the other objectives with this structure,since there would be less opportunity align with individual business needs and interests.Typically, the view of this structure is that it is inflexible and coordination from throughout theorganization is difficult especially in large companies. This could result in greater customerservice issues and employee dissatisfaction. Additionally, HR may not readily have its finger on
  13. 13. Sonoco 7the pulse of the organization to be proactive about needed changes, actions. However, moreimportantly, this option only results in a $3.1 million cost savings, which is above the costsavings of $2.8 requested by the CEO.The second option was more of a hybrid organization in which the divisions would have somedirect involvement with staffing, succession planning, personnel programs, compensation, andbenefits. The strategy development, HR planning, and its implementation responsibilities wouldare the responsibility of Corporate (the specialists - thinkers and designers) while the field staff(the doers) would handle divisional level issues, assist in rolling out initiatives, performconsulting services. The main advantage to this structure was that it left a form of divisional HRmanagement intact on which general managers could still call for help. These new group HRmanagers would be able to provide the strategic link between corporate HR functions and thebusinesses (Cummings & Worley, 2008, p. 321). It would be flexible enough to respond quicklyto environmental changes, and be able to participate in divisional level strategies. Lastly, theprojected cost savings would be $2.7 million for the hybrid structure, which is in line with theCEO’s directive of a $2.8 million dollars cut in costs.The main disadvantage to this option stemmed from a concern over whether changes could beeasily driven across the company with this new structure. This structure may result in someduplication of resources if delineation of duties is not specifically outlined and understood.Logistically, it does not readily support the sharing of knowledge between HR practitionersbecause some of them are working in one division and the others are working in other divisions. RecommendationBased on the specifics of the case and the research conducted, this writer would choose option 2– the hybrid structure. Research suggests that large, complex organizations with advanced
  14. 14. Sonoco 8technology and dynamic environments (i.e. dynamic competitors, continually changing productspreferences by customers, changing government regulations affecting its business, etc.) typicallyfair better with a hybrid structure. This option aligns perfectly with Sonoco’s flexible strategy tomeet the changing demands of its industry and consumers. Besides, this structure allows for theright people with the right skills to be where they are most beneficial to the company. This waythey get the development and attention that they need to produce the results that Sonoco wants.As far as meeting its financial targets, this option would over time fair better. Consolidatingadministrative functions where feasible to result in economies of scale will save more. Havingthe appropriate systems in place to get the right people in place and up to speed will improveproductivity, increase employee satisfaction, reduce waste, and decrease turnover which willresult in increased profits on an ongoing basis.With this structure in place, more attention could be given where needed. For example, whilethe “corporate” function worked on high level initiatives, the field HR staff could provide insightor suggestions on how to make this best work for the division (with corporate’s guidance, ifnecessary). This would result in HR being proactive to the business needs. The HR fieldmanager could also observe and communicate what compensation plans may work best since he/she would have firsthand knowledge of operation and the staff. Lastly, this structure wouldplace the critical HR processes into the “meat” of the organizations where they should work best.Ultimately, these actions will result in improved operations and cost reductions for Sonoco.
  15. 15. Sonoco 9 ReferencesByars, L. L., & Rue, L. W. (2008). Human Resource Management (Ninth ed.). Boston, MA: McGraw-Hill.Cummings, T. G., & Worley, C. G. (2008). Organization Development & Change (9th ed.). Mason, OH: South-Western Cengage Learning.International Directory of Company Histories, Vol. 8 St. James Press. (1994). Sonoco Products Company. Retrieved February 1, 2009, from http://www.fundinguniverse.com/company- histories/Sonoco-Products-Company-CompanyKotelnikov, V. (2001). 7-S Model A Managerial Tool for Analyzing and Improving Organizations. In Corporate Leader Business Architect. Retrieved February 12, 2009, from http://www.1000ventures.combusiness_guide/mgmt_inex_7s.htmlLevitt, T. (n.d.). What Business are you in?: Classic Advice from Theodore Levitt. In Harvard Business Review. Retrieved January 17, 2009, from http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp? articleID=R0610J&ml_action=get-article&print=trueMission statement - Sonoco. (2009). Retrieved February 1, 2009, from http://www.sonoco.com/sonoco/Home/About+Us/cor_mission_statement.htmRobbins, S. P., & Judge, T. A. (2008). Essentials of Organizational Behavior (Ninth ed.). Upper Saddle River, NJ: Pearson Prentice Hall.Sharma, S. (n.d.). Organizational Development-A Basic Research Report. In Organizational Development-A Basic Research Report. Retrieved January 16, 2009, from http://www.bpoindia.org/research/organizational-development-research-report.shtml
  16. 16. Sonoco 10Sonoco Products Company (SON). (n.d.). In Wikinvest.com. Retrieved February 1, 2009, from http://www.wikinvest.com/stock/Sonoco_Products_Company_(SON)Strategy for Growth. (n.d.). In 2000 Annual Report. Retrieved February 1, 2009.Taylor, B. (2005, June). Long-range vision: started more than 100 years ago, Sonoco has risen to packaging and recycling prominence in the Southeast. In Manufacturing Industry. Retrieved February 1, 2009.Thomas, D., Groysberg, B., & Reavis, C. (n.d.). Sonoco Products Company (A): Building a World-Class HR Organization [Review of Harvard Business School]. 1-25.Werner, J. M. (2006). Human Resource Development (4th ed.). Mason, OH: Thomson South- Western.
  17. 17. Sonoco 11Appendix 1

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