Binding Performance Management System Changes and Organisational Culture - Sonoco - Essay Example

? Sonoco Case Study: Binding Performance Management System Changes and Organisational Culture Established in 1899, Southern Novelty Company (Sonoco) transformed from being a textile manufacturing firm into a consumer and industrial packaging company. Sonoco enjoyed continued growth until the end of the 1990s, when stock prices and revenues started to drop. Some of the external challenges were the Asian financial crisis and the rise of outsourcing in China and India. CEO Harris DeLoach challenged the senior vice president of Human Resources, Cindy Hartley, to restructure HR and to decrease HR costs by 20%, while improving the role of HR in strategically supporting the General Managers’ (GMs) business objectives. The packaging industry has become increasingly lucrative, but local and international competition intensified. By the late 1990s, the global sales of the industry reached $400 billion, with the U.S. making up $115 billion, followed by Asia and Western Europe. Consumer packaging accounted for 70% of sales, followed by industrial packaging revenues at 30%. The influence of packaging on marketing products cannot be undermined. For traditional retailers, packaging is seen as more influential than advertising in affecting purchasing decisions and customer loyalty. The industry trends are increased corporate consolidation, market segmentation of domestic consumer packaging markets, and vertical integration of packaging business models. The challenges for Sonoco come from its ability to respond to external threats and opportunities by managing its internal weaknesses and strengths. The opportunities are one-stop packaging business models with high flexibility and customisation levels, the continued demand for market-oriented packaging, especially for consumer markets, availability of global talent, and becoming more receptive to diversity and environmental issues at national and international levels. The threats to Sonoco are consolidation in the packaging industry which results to steep competition, outsourcing practices, and the outward flow of investments. The weaknesses of the company are falling stock prices, paternalism that stunts HR structure changes, and poor relationship between HR and business/company strategies. The strengths of Sonoco are its dedication to excellence, strong brand name, team orientation, high employee retention rate, and high ethical climate. Hence, the primary challenge for Sonoco is using its strengths to reduce its weaknesses, and to ultimately handle the opportunities and threats in the packaging industry. The main tasks of Hartley are as follows: 1) to reduce HR cost by 20%; 2) to improve the linkage between HR functions and business strategies; and 3) to standardise HR systems and functions. Overall, Hartley is in charge of transforming the HR structure and organisational culture. Hartley’s total approach included professionalising the HR system and making it more business-oriented. She designed policies that shaped compensation, performance management, employee development, and succession planning. In order to support these policies, she created an advisory HR council that was comprised of divisional HR heads and key individuals from corporate HR. She also formed an advisory team of divisional GMs to help attain high buy in. This study discusses the theoretical framework of the main concepts and issues of the case. Performance management (PM) is a critical aspect of Sonoco’s HR change efforts because it is linked with its organisational issues of compensation, employee development, and succession planning. The vision of the PM system must be distinct, clear, and compelling. This vision can be connected further to the corporate vision, so that management levels and personnel understand how PM affects the overall direction of the company. Hendry et al. (2006) stressed the link between company vision and HR functions (51). Greer and Virick (2008) asserted that diversity management is connected to successful succession planning. Furthermore, PM changes must be motivating to involved stakeholders. Empowerment is critical, especially in collective societies and organisations. Nevertheless, Randolph (2000: 94) noted the difficulties in changing perceptions regarding empowerment. Moreover, performance management must include firm-specific variables that should influence the design and implementation of its performance management system. These variables must ensure that PM supports business strategy (Hendry et al., 2006: 59). While performance management develops employees through the assessment of current performance and the planning for performance improvement, employee development should be based on systematic selection and recruitment strategies that are related to attracting and recruiting the right people who can fit the team-oriented and excellence-geared organisational culture of Sonoco. Han and Han (2009) found a correlation between hiring perceptions and retention. Furthermore, emotional intelligence must be included in assessing and developing employees. Blank (2008) stressed the significance of selecting employees based on emotional intelligence competencies. She reviewed the literature on emotional intelligence (EI or EQ) that correlates EI with individual employee performance and group performance (Blank, 2008: 79). Apart from selection and recruitment strategies, organisational views of HR functions must not be overlooked because they impact the implementation of HR change efforts. Guest (1987) discussed four views of HR functions that are relevant to the case study. These views are: 1) professional model; 2) production model; 3) paternalistic welfare model; and 4) human resource model. The professional model has HR departments with highly professional HR specialists (Guest, 1987: 509). This model displays high competence in selection, training, pay and industrial relations, and personnel management (Guest, 1987: 509). The line management highly respects the HR department (Guest, 1987: 509). In the production model, HR is seen as highly integrated with production functions (Guest, 1987: 508). HR is painstaking and expertly handled (Guest, 1987: 508). For the paternalist welfare model, HR is viewed as sensitive to customers, which affects the company’s selection and training processes (Guest, 1987: 508). Senior management is concerned with the development of the staff and responsive to clients and communities (Guest, 1987: 508). The human resource model focuses more on people development through having a strong ethic for the individual (Guest, 1987: 508). This model emphasises talent maximisation and integrations of policies and practices to produce highly involved and high-performing employees (Guest, 1987: 508). For Sonoco, the model is paternalistic, which is being shifted to a mixture of production and human resource function models. The strengths of Hartley’s approach are the professionalisation and business orientation of her proposed organisational restructuring and PM system that aligned her goals with the tasks provided to her and the external concerns of the company for greater competitiveness. First, she professionalised HR functions by generating a sophisticated HR system with comprehensive HR policies. HR sophistication focused on restructuring the company. To support the restructuring plans, Hartley designated three priorities that set the direction of HR actions, and which aimed to support corporate strategies. Huselid (1995), Sahoo, Das, and Sundaray (2011), Wright, Dunford and Snell (2001: 704), Walker, Bernerth and Tocher (2009), Lee, Lee and Wu (2010), Newman and Lyon (2009), Rehman (2012) and Liu et al. (2007) showed that when jobs, cultures, and employees are aligned during the recruitment and development processes, job satisfaction and retention can be achieved, which are important in developing the right people, who are committed to the organisation, including organisational changes. Hartley aimed to develop people, as well as underperformers, so that the competitiveness of the workforce will drive the competitiveness of the company. Second, Hartley made HR more business-oriented by aligning PM system changes and policies, empowerment principles and organisational business objectives. She created an advisory council and advisory team of GMs to help implement the HR plan. She did not neglect the role of consultation and participatory processes in improving buy in and the quality of action plans (Guthrie, 2011; Hendry et al., 2006). Talented employees are particularly retained through these practices, which can fuel high productivity and innovation in the firm (Guthrie, 2011: 181). Despite these strengths, Hartley’s approach lacked responsiveness to the distinctive, paternalistic culture of Sonoco, which affected the implementation of talent management and incentive plans. Her approach did not include realistic transition and cultural changes. With a paternalistic view of HR, compensation and feedback are closely tied to performance management practices (Ulrich, 2008: 17). GMs, as well as direct supervisors, can directly shape individual and team performances, but with proper motivational strategies, which in this case, include their need to defend their employees and to bond with them (Nohria et al., 2008: 4). They cannot provide honest feedback because they value social relations over realistic performance development practices. Aside from compensation, HRM must relate performance measures to feedback goals (Carson, 2006: 400) that emphasize motivation (Locke and Latham, 2004; Nohria, Groysberg and Lee: 3). The GMs, however, are not comfortable with the new system. Hartley might have also lacked a communications strategy plan to “sell” the PM system to both GMs and employees. Selling the new PM system includes changing how people see PM, as well as HR in general: its processes, principles and outcomes. In the case of Sonoco, GMs avoided evaluating underperformers because of the collectivistic culture. Harmony within the group became more important than individual and organisational development. Furthermore, there is a difference between empowerment policies and reaping the target outcomes of empowerment. Hartley empowered HR divisional members and GMs, but they had difficulties in applying company-wide changes in actual PM practices because of the absence of real cultural changes. Thus, literature shows that PM systems and changing them can affect several individual and organisational variables, although the interactions among cultural variables and intended effects are complex. The main recommendation is to produce a five-year action plan for organisational cultural changes toward a hybrid model, where a communications strategy is included, as well transition stages. The hybrid structure has the advantages of being more flexible and customised to the actual business model than the centralised model, although it has the weaknesses of lower cost reduction effects and a flatter HR organisational structure that Sonoco is not accustomed to. This essay asserts that PM changes, goals and outcomes that are clearly communicated to all individuals can reduce the negative effects of the hybrid model. Formal orientations must be provided, where HR staff delivers them in customised forms to GMs and employees, so that they are prepared for the transition toward a more professional HR structure. GMs, in light of the new PM systems, must be clear in explaining what they anticipate from their employees, and how the performances of the latter will be assessed and rewarded henceforth, hereby launching the cultural change process. Randolph (2000:94) stressed that changing perceptions and interactions are key to empowerment processes. These perceptions and attitudes cannot be changed if the perception of HR remains paternalistic. HR must be seen as a professional and employee-centred unit, so that employees and GMs trust their policies and practices as truly benefiting them individually and collectively (Wall and 2005). Moreover, HRM should select and train HR people who will perform and interpret the results of feedback measures (Carson, 2006: 400). Learning from initial implementation can help develop the effectiveness of these tools in developing people (Carson, 2006: 400). Professionalising the approach to feedback through marketing the objectivity and effectiveness of PM policies, instruments, and practices will improve employee perceptions that these are reliable and unbiased sources of information for self growth. This way, they will not feel that their GMs are personally attacking them, but evaluating their performances per se. Transition stages consist of incremental shifts to professional and human resource functions of HR, where empowerment is slowly established and leveraged for HR functions. Randolph (2000:94) synthesised his case studies and personal experience to construct the process of achieving the culture of empowerment and they are: sharing information freely and truthfully; improving autonomy through boundaries that are expanded throughout time; and removing hierarchies and replacing them with self-managing teams (100). These retention strategies can empower GMs in their job roles and responsibilities, where they can tap HR for the right resources and technologies. Ulrich (2008) argued that being an employee champion does not relate to bias for employee needs and goals only, but more on integrating HR strategies and employee wellbeing. He recommended lessening demands, increasing resources and turning demands into useful resources, and Sonoco can do this through a five-year plan with ample resources for transition and communication, instead of implementing all changes within one year only. The impacts of the recommendations are mostly on Hartley, the GMs and divisional HR, although other employees are included, so that lasting cultural changes are made. First, Hartley should understand that for collectivistic organisations, changes cannot be done in a year. They must be spread out, so that people are slowly prepared for the changes. Cost reductions can still be attained and even possibly boosted, if the people fully understand and embrace the restructuring and PM system changes. Second, GMs and divisional HR will be directly affected. Divisional HR will be in charge of PM at first, until the GMs are comfortable with the idea of using professional PM and feedback systems. Two years will be provided for the adjustment period. GMs will also have a direct role in changing organisational culture, wherein professionalised HR is connected to PM policies and practices. They are responsible in eventually providing objective feedback that will connect performance ratings with performance goals. In addition, divisional HR will mirror the actual business model, in order to gain more business insight and to better align HR and business objectives. They will be in charge of linking GMs to the Centers of Excellence, and they will train field HR representatives to customise their approaches and practices to the respective talent management, succession planning, and formal coaching needs of each division. Employees tend to flourish in organisations that have PM systems, which focus on learning, training, and skill development (Pfeffer, 2009; Pfeffer and Veiga, 1999; Siders, George and Dharwadkar, 2011). Hartley and other HR managers must be aware of how PM can somewhat differ in priority and nature for each division. Thus, these recommendations seek to enhance flexibility and effectiveness of HR functions. The learning activities on this module and the skills set that I have acquired contributed to my ability to provide solutions to the case because of the knowledge on the components of HR success and my development of analysis and critical thinking skills. From the learning activities of the module, I learned the role of HR in driving corporate success. After reading numerous articles, I understand that HRM systems, policies, and practices can boost company performance. Improved company performance, in turn, indicates HR success. By knowing that through recruitment, selection, and retention strategies, HR can develop engaged and creative employee, I recognised the salient connection between HR functions and organisational performance. Furthermore, the module honed my analysis and critical thinking skills. I effectively made connections among HR literature, Sonoco’s challenges and my recommendations. I learned too from Paauwe (2009) and Guest (1987, 2011), who warned that HRM must be cautious in measuring the connection between HRM strategies and individual and organisational performances. HR cannot solve organisational problems per se, and in Sonoco’s case, Hartley must consider organisational culture too. Bibliography Blank, I., (2008) Selecting Employees Based on Emotional Intelligence Competencies: Reap the Rewards and Minimize the Risk, Employee Relations Law Journal, 34(3), 77-85. Carson, M., (2006) Saying it Like It Isn’t: The Pros and Cons of 360-Degree Feedback, Business Horizons, 49, 395-402. Greer, C.R. and Virick, M., (2008) Diverse Succession Planning: Lessons from the Industry Leaders, Human Resource Management, 47(2), 351-367. 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