Case Study Analysis: Sonoco Products Company - Essay Example

? Case Study Analysis: Sonoco Products Company This paper provides an analysis of Sonoco Product Company: Building a World-Class Human Resource Organization. In this analysis, the challenges that face Sonoco Products Company to restructure its corporate strategy (for example, Human Resource, structure and products) are outlined. The new strategies are mainly focused on improving the company’s annual growth, and retaining its competitive strength in the ever changing global industrial and consumer packaging industry. Cindy Hartley is the senior Vice President of the company’s Human Resource department, and since 1995-when she joined this company-she realized that its Human Resources (HR) function was broken. She was, therefore, determined to restructure Human Resources, and align their processes to the company’s business objectives. While in the process of rejuvenating Human Resources, Harris DeLoach in 2000 was appointed as Sonoco Product Company’s new Chief Executive Officer (CEO). Just like Ms. Hartley, DeLoach also became concerned with Sonoco’s diminishing returns, which he associated with poor management of Human Resources. As part of changing Sonoco’s overall business strategy, Mr. DeLoach called for the need to rejuvenate HR. He, therefore, called upon Ms. Hartley and her team to provide two alternative Human Resource structures, which would reduce HR’s cost by $2.8 million or 20 percent. Additionally, the new HR structures were also expected to: (1) ensure top-level accountability for talent upgrading and management, (2) provide a more balanced distribution of HR support and talent, and (3) pave the way for improving Sonoco’s overall business strategy that is usually aimed at working across division lines to sell and market business ideas to a single large customer. This article employs 7S Model of Organizational alignment to explore and analyze the opportunities or issues associated with the company and the CEO’s request, and analyze the alternatives and recommendations that influenced Senior VP’s (HR) actions to achieve HR goals and Sonoco’s overall financial goals. Introduction Sonoco Products Company was founded by Major James Coker in 1899 in Hartville, South Carolina. The company’s original name was Southern Novelty Company until 1923, after which it was rebranded to Sonoco, a name that represents the first two letters from its original name (Dun & Bradstreet, 1995 p1980). This company produced paper cone used for holding yarn in the textile industry as its original product. Paper cones that were used in the late 1800s’ and early 1900s’ textile industry were unique, since they were made from wood. Sonoco did not event paper cones; however, its employees invented an automated process for producing these cones. This new invention significantly improved Sonoco’s competitive strength and market share in this industry, and after a short period of production, it soon became the chief producer of cones in the United States (Dun & Bradstreet, 1995 p1980). This company is also credited for creating Ultraseal used in Crisco shortening cans, and the use of Plastic “T-shirt” grocery sack (Dun & Bradstreet, 1995 p1980). Sonoco’s viable business strategies and well management of Human Resources made it one of the world’s leading packaging companies by the year 2000. By 200, its annual revenue income reached $2.6 million through the production and sales of industrial and consumer packaging, with over 17,300 employees working in 32 countries across its 285 operations (David, 1991 p879). This company serves customers in over 85 nations with a wide variety of consumer and industrial packaging solutions. Other than is packaging operations, Sonoco also produces its own Paperboard, which makes it consume about two million tons of recycled paper annually (Randhawa, 2007 P155). For several years since this company was established, it has focused on continued growth characterized by diverse product lines and new operations in different regions of the world. However, as the company changed and grew, the packaging industry and the environment around it also transformed. Additionally, as the United States enjoyed economic growth in the early 2000s, the packaging industry also enjoyed high annual returns. The ever changing business environment also made Sonoco more vulnerable to changes in the global economy (Alkhafaji, 2003 p134). In order to survive and maintain its competition in the packaging industry, Sonoco’s packaging business began to focus on improving productivity for cost reduction, production of a wide array of products, creation of the company’s Website, formulation and implementation of new strategies to meet customer needs, and the incorporation of the entire packaging industry for e-commerce individual packaging (Dess et al, 2009 p265). This paper, therefore, provides a review of Sonoco’s situational analysis, examines the relevancy of the planned change, and proposes a plan of action. Situational Analysis Due to the ever changing global economy, Sonoco has realized the need to change its business strategies and operations. With the new technological advancement and the dependency of customer needs on cultures, the company’s past strategic plans can never allow it to survive continuous financial growth and success. To prove this, the company’s stock has fallen to an eight-year low (Randhawa, 2007 P155). Its debt is also high due to continued acquisition and operation of several plants. Sonoco’s internal composition and structure are also facing a challenge. Its operations are decentralized to a point where it is unable to implement some of its long-term strategic initiatives. For example, the company’s Human Resources function was so ineffective such that it was perceived as an administrative support function (Talwar, 2006 p202). Moreover, the company had a challenge of keeping pace with the ever fast changing technological advancements and diversity issues. For example, the company has to implement e-commerce as the modern source of trade, and use flexible packaging as the latest technique of the time. Finally, globalization and changes in the customer’s desires and needs are also major challenges to the company. Consumer packaging industry is becoming more segmented, and products have to be supplied to all segments. This has made packaging and distribution of the products more demanding (Pearce & Robinson, 2005 p12). These challenges among other challenges have called for Sonoco to review its business strategy. These changes are majorly aimed at ensuring that the company maintains its survival and profitability in the ever transforming business environment. The company needs to major on its strengths, improve its weaknesses, recognize prevailing opportunities, and plan to eliminate awaiting threats (Stahl & Grigsby, 1992 p465). For example, the company’s main focus in the case study is to eliminate external forces (energy crisis, environmental destruction, and climate change), evaluate customers’ desires and needs, analyze global market environment, analyze packaging industry and evaluate its competitors, so as to ensure that they are aligned in accordance to its business strategy. The company should have also considered analyzing its internal environment: human resources, mission, structure, processes and technology before making any strategic change. Identification of Issues Any company willing to improve its business performance and effectiveness must always ensure that it has a high degree of fit among all the 7Ss. Therefore, the following challenges or issues have been identified as the possible issues Sonoco Company should address so as to initiate or continue transformational changes at its premises. Changing company’s policies and practices. Expanding product lines. Improving packaging industry. Globalization. E-commerce. Company culture. Stagnant business strategy. Incorporating role of HR Management deficiencies. State of economy. Increasing the competition. Adopting new technology. Fulfill customers’ needs and desires. Staffing Before Cindy Hartley became the Senior VP of Human Resources in Sonoco, a lot of neglect on staffs marked the human resource department. The management lacked leadership training and development. This in turn, became detrimental to Sonoco’s leadership development plans, and the organization’s performance in the market (Robbins & Judge, 2008 p67). After Cindy Hartley’s introduction of compensation and performance management systems, leadership development gained a lot in terms of professionalism. The system impacted succession planning positively in that the best staffs were allocated tasks within the organization, which they could deliver their best. Sonoco benefitted from Hartley’s skills of bringing the company on the verge of talent and leadership promotion (Cummings & Worley, 2008 p58). Strategy Strategy refers to an organization’s plans to help it achieve its set goals and objectives. In the case study, key strategies may include cost containment, introduction of a new product, adoption of new technology, or a combination of all these. Over the years of its operations, Sonoco’s strategy was product driven, but due to changes in the economy, social trends, packaging industry, work force and environment, the company realized the need to adopt solutions oriented approach. This company, therefore, needs to review its ability to survive in a changing industry, the business environment it operates in, its differentiation in relation to its key rivals, the products it distributes, and the relevancy of its products to the ever changing environment and cultures (Dess et al, 2009 p265). Sonoco Company embraced the need to pursue top-line growth, which includes new products and services, market growth, and geographical expansion through joint ventures and acquisitions, which acts as backups for the already existing businesses. In addition, the company has also realized the need to embrace globalization and different cultures. They have included diversity into all features of the business including employees, products consumers and suppliers. From the case study, it is evident that Sonoco Product Company has continuously evaluated its strategies and operations, and that is why it has maintained its competition in the dynamic packaging industry. Systems It is true to say that nowadays, technological advancements are highly applicable. Systems are essential, and they ensure efficiency in company processes. Finances, management, compensation, performance management, business and most importantly customer satisfaction are categories of systems (Kandula, 2006 p268). Sonoco as a company was on the forefront reformulating systems, which are capable of maintaining its competitiveness in the market, through increasing productivity and achieving goals. Before Cindy Hartley became the Senior VP of Human Resources in Sonoco, system management did not meet its goals. Hartley brought change in the human resource systems through linking performance management, succession planning, and compensation with the business strategy. Hartley intended the performance management system to be systemized in order to ensure compliance from different angles of the organization. Through Hartley, performance management system merged the overall organization goals and basic individual objectives (Berger & Berger, 2000 p508). Structure Structure provides a framework in which an organization’s business activities are coordinated (Joyce & Woods, 2001 p322). Structure, thus determines an organization’s success, and how effectively it implements its strategies. Within the organization, factors such as environmental uncertainties, technology, products, and size directly influence its structure. In its early stages of operation, Sonoco experienced challenges in its corporate structure: functional, divisional and centralized. However, these were inevitable since the company was trying to realign its structure with the ever dynamic business environment. Centralized structure bared the company’s departments from making independent strategic plans; they were, therefore, incapable of achieving their long-term plans (Alkhafaji, 2003 p134). This structure, however, provided economies of scale when pulling key administrative functions together. With the decentralized structure, the company experienced challenges making the departments independent, and it also required increased costs due to duplication of efforts (Mathis & Jackson, 2010 p465). It is, therefore, evident from the case study that Sonoco still requires a combination of structure, which will enable it to provide more synergies between different departments so as to use resources for greater customer service and cost effectiveness. In addition, constant reviewing of structure from divisional levels is also recommendable. Shared Values Sonoco’s values are centralized around culture, people and values. Some of the company’s culture includes safety, respect and integrity (Thompson & Martin, 2010 p506). In early 2000s, there was a decrease in personal accountability and responsibility in the company. This was associated with a short fall in financial goals, but Ms. Hartley’s and Mr. DeLoach’s new strategies fixed this situation. Skills Product diversity, visionary leaders, brand value, culture, flexibility and product diversification are some of the Sonoco’s strengths over the past years. The company introduced a new compensation and performance management system, which enhanced its commitment to improving employees’ skills. This company is also planning to improve employees’ commitment on satisfying customers through six core competence that include teamwork, strategic integration, communication, professional/technical skills, mentoring/coaching and communication (Wood, 2009 p55). Evaluation of Alternatives The period from late 1990s up to early 2000 saw Sonoco as a company go through extensive development and prosperity. However, the company also experienced challenges from issues such as the economy, external environment, globalization and not limited to the whole industry. Sonoco’s resilience in the industry came as a result of the management capitalizing on solely on business strategy (Pederson, 2007 p419). Sonoco Company had its strategy spelt in terms of establishing coherent relationship with staff and customers, quality production, efficient capital management, top-line development and widening its catchment areas. Sonoco’s strategy execution was through reducing costs, hiring goal oriented individuals to perform the relevant job tasks and formulate an efficient and effective operating structure (Hoovers Inc, 2003 p764). Cindy Hartley, the Senior VP of Human Resources, together with the team of Human Resource Council, came up with ideas, which would help cut costs incurred by the Human Resource Department. The developed options are in divisions of two, and these options went hand in hand in ensuring the achievement of Mr. Deloach’s intention of cutting down Human Resource’s expenditure by almost 20% or approximately $2.8 Million. The first of the two options was coming up with a centralized Human Resource department with four centers. Of the four centers, one had the goal of handling the major services, and the divisions would be served by a number of field staffs. According to the developers of this mentioned structure, it was beneficial since it reduced costs related to process improvements and administration. Implementing this structure would in turn make more finances available, which would be channeled to support other activities (Thomas et al, 2007 p9). This first option was capable of saving about $3.1 million, which was $0.3 million more than what Mr. Deloach intended to be saved. However, this particular structure had its short comings, first limiting opportunities required to meet other, different goals of the company. The second shortcoming is in terms of Human Resource department being incapable of swift implementation of pertinent changes in the organization. The third shortcoming of this structure is the lack of flexibility, and taking into consideration large organizations coordination between individual divisions becomes difficult (Thomas et al, 2007 p12). The second of the two options entailed a structure in which the organization’s divisions had direct contact with issues of compensation, staffing, succession planning, benefits and personnel programs. The structure better known as the hybrid, called for executing the strategy in two fronts, firstly through the corporate and secondly through the field staffs. The corporate carried out tasks such as developing and implementing strategy and human resources planning. The field staffs were charged with looking after issues in the divisions such as consultation services and development of initiatives (Thomas et al, 2007 p15). Eventually, this proposed structure managed to save about $2.7 million contrary to Mr. Deloach’s $2.8 million. The preference of this structure was due to the fact that general managers were exposed to typical divisional Human Resources management, which they could exploit through looking for external assistance. These general managers at the divisional level were important since there presence resulted in bringing together the whole organization and all the functions of corporate Human Resource functions. The preference of this structure was also as a result of its flexibility and swiftness. This structure was efficient in responding to the changing environment, and its direct application to strategies at the divisional level. Although this structure proved to be helpful, it had a shortcoming in terms of implementing changes in the different divisions in the organization. It became apparent that, through this structure, there would be multiple allocation of resource if there would be a lack of duty specification. It was also evident that lack of coordination between the divisional managers could result in the structure collapsing (Thomas et al, 2007 p20). Recommendations After taking a critical analysis on the presented case and the available two options, the second option proves to be convenient enough to handle this case. Application of the second option better known as the hybrid structure will benefit large organizations with complex structures. These organizations are characterized by innovations and employment of advanced technology in processes. These organizations should also apply the hybrid structure since they thrive in dynamic environments characterized with changing customer preferences regarding services and products, regular changes on government policies regarding business operations and changing of business strategy by competitors. Sonoco as a company categorically falls under the organizations that should apply the hybrid structure. It is evident that the hybrid system is a one on one match to Sonoco’s strategy (Thomas et al, 2007 p2). Sonoco’s strategy is highly defined by flexibility and swiftness in embracing changes that come from the external environment. Sonoco’s strategy is further defined by the hybrid structure because individuals with the best skills, which match up a particular task, are allocated in that mentioned task. Looking at the bigger picture, Sonoco will achieve its goals and objectives through the application of the hybrid structure in the remote divisions. Applying the hybrid system in Sonoco’s long term plans will result in the company making a gradual increase in its finances as time passes, this is through taking advantage of economies of scale (Cummings & Worley, 2008 p51). The hybrid system will ensure improved productivity in Sonoco through putting the best individuals to perform the right tasks. The above will additionally lead to reduction of wastes, employee satisfaction and reduction on the turn over rate. The two functions under the hybrid structure, which are the corporate and the field staff, work interchangeably and in the long run attention and guidance are channeled to the areas where they are highly required. The field human resource staffs take advantage of knowledge and experience provided by the corporate staff. Through the hybrid structure, focused human resource processes, becomes fruitful in the organization. Sonoco as a Company stands to benefit in terms of improving operations, reducing costs and satisfying both staffs and customers all as a result of the hybrid processes. References Alkhafaji A. F. Strategic management: formulation, implementation, and control in a dynamic environment. London: Routledge, 2003. David F. R. Strategic management. Indiana: Merrill, 1991. Dess G. G. et. al. Strategic Management: Creating Competitive Advantages. 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