Building a World-Class HR Organization at Sonoco - Case Study Example

Running Head: CASE ANALYSIS OF SONOCO COMPANY (A) Case Analysis Of Sonoco Products Company (A Building a World HR Organization (Abridged) XXXX The George Washington University HOL 6705/Strategic Human Resource Development XXX March 7, 2012 1. Introduction Sonoco is an established, 100 years old successful global business organization in the area of industrial and consumer packaging (Thomas and Groysberg, 2010). Its major clients are Nestle, Kraft, Gillette and Proctor and Gamble. It was founded in 1899 in Hartsville, South Carolina. With business spread across 385 facilities in 32 countries, it has mainly relied on acquisition as its growth strategy. While it has enjoyed unstinted growth, the financial crisis of 1997-98 has resulted in 6% fall in its sales from $2.7 billion to $2.5 billion between 1995 and 1999. Though it has managed to garner 14% increase in net income through cutting expenses, the loss in shareholders’ value has become a major concern. The company is faced with challenges of reducing cost through restructuring and evolving new business model. As a result, Cindy Hartley was appointed as Senior Vice President of HR by CEO, Harris DeLoach so as to bring about necessary changes within the organization. It is believed that new business model would enhance organizational capabilities in terms of human resource and provide it with flexible approach to meet the challenges of time. 2. Environmental analysis Sonoco’s traditional model of business is faced with huge challenges of competitive business due to rapid globalization and advancing technology. The overcapacity within the industry has forced businesses to consolidate and diversify to regions like South East Asia, specifically China and India where low production cost helps to maintain leverage. Initially, industrial packaging had accounted for 55% of its revenue but now the trend seems to have reversed. Consumer packaging now represents 70% of industrial revenue and operates within the broader framework of global business environment. Branding and market segmentation have also become very important aspects which have redefined the role of packaging within the new business imperatives. Retail packaging has become vital part of marketing of goods. This has further escalated financial burden as creative inputs in design require new technology that would equip organizations with hi-tech tools of designing. Most importantly, Sonoco has realized that in the dynamic business environment, people centric policies have become central to business goals and must be developed to compete in the highly competitive business environment. 3. Problem identification The major problem of Sonoco is that its HR strategies are not aligned with the business goals and objectives. Though it has centralized HR policy but each of the Divisions of Sonoco works independently in decentralized manner vis-à-vis HR imperatives that are broadly defined to suit the needs and requirements of HR manager of the divisions. Divisions have their separate mechanisms of rating performance, budget, leadership initiative and training programs. The wide discrepancy in the varying models of HR strategies across the firm significantly impacts its overall performance and productive outcome. There is distinct lack of coordinated effort and effective communication to synchronize the HR strategies with the wider organizational objectives. Individual goals are not in line with that of organization. Indeed, the lack of shared goals becomes major deterrent in achieving higher productivity. Moreover, the lack of standard appraisal system led to indiscriminate compensation system that did not reflect individual performance. It was either viewed as entitlements or was based on the vested interests of the divisional managers. The overall HR strategies actually reflected the conservative family based organizational culture that was based on strong ethics and teamwork. As such, the under performers were not pulled up for low performance but reaped the rewards of other people’s work. At the same time, HR system was blamed for HR related problems by the divisional managers who viewed HR responsibilities just as a means to address the legal problems and identify and resolve workplace conflicts. The organization was also not prepared for change and did not provide its workforce with a constant learning environment. The learning environment encourages training and development for personal and professional growth of the workers. Consequently, it equips the employees with necessary skills and knowledge to anticipate changes in the external environment and help incorporate them within the organizational culture for maintaining competitive advantage. Thus, it shows that Sonoco’s HR strategy was neither streamlined nor dynamic to incorporate environmental changes and failed to meet the goals and objectives of the organization. The problems of Sonoco can be summarized as below: Main problem Secondary problems HR strategies are not aligned with the business goals and objectives Complex hierarchy of job description Decentralized functioning of divisions Conservative organizational culture based on family values Compensation viewed as entitlement rather than as performance Performance reviews not aligned with fiscal year Lack of learning environment for employees Ineffective communication across the organization Lack of proper succession plan or opportunities for professional growth for workforce 4. Solution Cindy Hartley proposed two restructure programs to resolve the dilemma of HR related conflicts across the various divisions of Sonoco and to reduce the overall functional costs of the firm. She was explicit in her objectives and used performance based compensation as major initiative to encourage workers to improve their performance. She was also most emphatic in her mission to develop a strong pool of human capital through training and development. Taylor (2008) believes that exploiting human competencies for organizational gain is critical element of competitive advantage, especially in the fast transforming business dynamics. As such, Hartley looked at human resource as potential to be tapped for improving organizational performance. She introduced reforms that were aligned with the wider objectives of organizations and delivered organizational goals more efficiently. A performance based compensation system was evolved that worked on standard appraisal system rather than on the whims of divisional managers. A committee comprising of divisional HR heads was formed that evaluated the performance and broadly ensured that the appraisal met the predefined parameters of the organization’s core business strategy. Most importantly, she redesigned new model of HR system that was less cumbersome but more effective due to well defined description of duties and expectations of the job hierarchy. The two options were designed to improve performance and provide the company with more opportunities to exploit new avenues of growth. The first option proposed centralized model with four main centers of expertise where the divisions’ HR issues would be looked after by field staff on a regular basis. The model was expected to considerably reduce the functional costs and improve efficiency through effective communication across the organization. The major disadvantage was individual business’ needs were no more the priority and failed to align the business objectives with that of department and divisions across the organization. HR field staff did not have access to the information of other divisions that hugely impacted their evaluation process as they were unable to gauge the requirements of individual divisions’ business needs. As result, the model could delay resolution of conflicts and also undermine the authority of divisional managers and adversely impact their morale. The second option highlighted hybrid model where divisional managers retained their authority vis-à-vis staffing, succession planning, compensation etc. and were accountable to the GMs. This ensured that HR strategic goals of the division were aligned to organizational objectives. At the same time, it also encouraged prompt resolution of workplace conflicts and compensation that was based on effective appraisal system. It was less biased and used performance metric to disburse compensation. While the reduction of functional cost is relatively less than the centralized model, but it promotes labor friendly policies and significantly contributes to shared goals and collective decisions for enhancing organizational productivity and individual performance. Hybrid model of business would be more appropriate for Sonoco because it amalgamates traditional values with modern ideology of work. It streamlines the individual goals with that of the organization by developing more effective appraisal system and evolves common goals to improve performance. Furthermore, it is envisaged that it would be hugely profitable in the long run. 5. Action plan The action plan of Sonoco would implement hybrid model in two steps. In the first step, corporate HR department would organize awareness and training programs to acquaint the workforce of the various changes that organization would be undergoing. This would help develop understanding and reduce resistance to change. The second step would be focused on delineating duties of field staff, divisional managers, GM and other administrating and operation staff with clearly defined goals. The accountability of action would be emphasized and pilot running of second step for one year would help identify bottlenecks and strength of the programs which could be easily addressed. A strong feedback system would be introduced so that corrective measures could be timely implemented. It would also help to set benchmark in the performance that would be constantly redefined to suit the demands of the changing times. 6. Conclusion Strategic planning is critical to the success of the organization as it helps the them to adopt creative approach and incorporate environmental changes. Consequently it becomes important for organizations to become proactive participants of change. The hybrid model of business caters to the changing business dynamics and therefore would greatly facilitate Sonoco in meeting the transforming values of competitive business. It would help retain its competitive advantage in the industry. (words: 1516) Reference Taylor, S. (2008). People Resourcing, 4th edition. London: CIPD. Thomas, David and Groysberg, Boris. (March 2010). Sonoco Products Company (A): Building a World Class HR Organization (Abridged). HBS. Read More