Building a World-Class HR Organization - Sonoco Products Company - Case Study Example

Sonoco Products Company (A): Building a World-Class HR Organization Name Course Name and Code Instructor’s Name Date Introduction In the advent of globalization many organizations across the globe were compelled to change their business strategies in order to conform to the new trends in the world market. HR management practices had to be integrated moving a way from the traditional way of doing business while defining new roles that could sustain the organization’s business activities (Moulden, 2007). Sonoco Product Company is one among many companies across the world that was highly affected by globalization coupled with new changes that the packaging industry was experiencing. Owing to this fact Sonoco opted to change its business strategy to become a world-class HR organization. This paper is focused on analyzing the changes in the packaging industry; impacts of the changes on Sonoco business strategy; identifying the objectives for implementing change at the company; determining the success of change; the sequence of change implementation; the appropriate organizational structure; and change sustainability at the company. Situation Analysis The packaging industry was booming while also undergoing rapt changes that were initiated by increased customer demand and globalization. The industry earned substantial revenues from consumer packaging. Metal and glass packaging were being supplemented by durable and cost-effective plastics particularly in foods and cosmetics industries (Kotelnikov, 2001). By late 1990s globalization took centre stage across different industries resenting new opportunities and challenges; for instance, most heavy manufacturing firms were relocating from their home countries where cost of labour was high to countries with low labour costs. In this regard, the US manufacturing firms moved to China and India and capitalized on overseas investment. The packaging industry was growing at a tremendous rate, between 1998 and 2000 the market share of the five biggest packaging firms in the US had integrated from 40% to 60%. The market dynamics were evident, for example, consumer market segmentation was real and products were geared towards satisfying distinct customer preferences especially in food and beverage industry. Packaging had largely used for wooing and retaining customers and thus it was regarded to be more influential than advertising (Kotelnikov, 2001). Owing to this fact, it was essential for packaging firms to be highly equipped with necessary expertise and technologies to innovate and produce packaging materials that conform to market demands for them to maintain their market positions. Following the above observation, packaging firms invested heavily in sophisticated equipments for them to aptly handle random changes in product designs. The one-stop-shop concept was now becoming the norm within the industry and most packaging manufacturing firms consolidated their stables of suppliers (Levitt, 2003). It was established that having fewer suppliers, the manufacturing company shortened the initial-packaging-concept-to-market-delivery cycle. Impacts of the changes in packaging Industry to Sonoco’s Strategy The traditional and potential customers of Sonoco were companies like Procter & Gamble and Nestle. Sonoco originally operated to satisfy the needs of their major customers; however, with regard to changing trends in the industry, Sonoco had to re-strategize its business operations to focus more on the end consumer while also keeping in mind their major customers (Ulrich & Lake, 2004). In this regard, Sonoco had to not only understand what their main customers wanted but also instead produce packaging materials that the consuming public wanted (Novo, 2008). Consequently, because of the new dynamics in the industry, it was essential for Sonoco to employ coordinated marketing strategy where a single point of contact within the company would coordinate the business needs of the company’s major customers (Melcrum, 2006). In order to attain the aforementioned goals, Sonoco’s organizational structure was to be restructured to conform to that that necessitates central coordination of business operations (James, 2000). For instance the original company’s structure was highly decentralized with soloed HR functions that were not in line with company’s processes and services from business to business. In essence, the structure aligned HR with divisions, making it to be more tactical than strategic; the divisional HR managers primarily focused on day-to-day employee relations issues rather than the core business functions (Melcrum, 2008). Additionally, the large and major divisions of the company had their own HR functions, separate systems, budgets, performance-management processes, and leadership and training programs. The divisions were at liberty to create whichever type of HR functions they deemed right (Novo, 2008). Occasionally, this resulted into non-cooperative competition especially among the major and larger company divisions. Further, Sonoco’s corporate HR was only regarded as a watchdog to solve legal and employee relations problems (James, 2000). The complexity and inconsistencies of the company’s corporate structure hindered the company to pursue its business operations strategically. In the same line of argument, the benefits and compensations planning were reported to a different VP rather than the benefits and compensation administration. Communication within the company and among divisions was virtually not there. The company had no reporting structure thus it was difficult for it to accomplish the core HR practices (CIPD, 2002). Across the company, compensation and benefits were regarded as entitlement rather than costs in need of control. Consequently, the business goals and individual objectives were not linked at any point. The clear employee performance was difficult to determine given the fact that employee performance review were conducted on employees’ anniversary dates rather than the start of the company’s fiscal year (HRZone, 2007). Consequently, the company’s merit-increase process was always mechanistic which never reflected Sonoco’s actual performance. The company division managers manipulated employee performance ratings in order to demand for salary increases for their staff. As earlier mentioned, employee performance never reflected the actual performance; with regard to this, determination of an employee with consistent good results was hard and difficult. Additionally, good performing employees lost their jobs despite their excellent performance due to poor evaluation methods (HRZone, 2007). The company lacked employee development programs, although they asked employees about their career aspirations there were no action plans to facilitate the latter. For Sonoco Company to acquire competitive advantage and maintain its market position, it was relevant for it to change its HR practices to be more business oriented. Objectives for Change When Hartley was hired by Sonoco as the Vice President (VP) of the company she evaluated and analyzed the company and found out the above-mentioned setbacks. With regard to these, she had to come up with a formula to build a more workable structure at the company. This structure was aimed at improving the ability of the company to grow while also maintaining its market share within the industry. In accordance with this view, she came up with the following objectives that would align the company with its core businesses (Lawson, 2003). Building a professional and business oriented HR group with the company was vital; leadership development within any company is always essential as shortage of suitable candidates for key jobs can significantly affect the company’s ability to grow. Coming with strategies that anchor the Company’s growth, lower operational costs, improve productivity while enhancing working capital management and cash flow is critical for HR (Ashridge, 2008). Owing to these facts, Hartley identified three key priorities that were to be implemented to align Sonoco’s HR functions with its business objectives. First, the mechanical and arbitrary compensation and performance-management were to be linked in a consistent manner while making sure that they accurately depict employees’ contribution to performance (Ashridge, 2008). This could be achieved through performance planning and feedback that can be attained through: Organizational core competencies: identification of four competencies required of all employees and leadership competencies for top leaders. In addition, annual reviews would align competencies with business objectives (Ulrich & Lake, 2004). Performance management: integrated performance planning and feedback system with a strong employee component based on objectives and on the core leadership competencies (Galbraith, 2001). Streamlined training to reinforce key concepts and introduce changes to simplify the process, including a user-friendly online performance-management form. 3600Reviews: feedback on performance from supervisors, direct reports, peers, and customers, based on core/leadership competencies and conducted online for employees worldwide (Howard, 2007). Secondly, it was necessary for the company to create an employee development process that is aimed at refining employees’ skills and knowledge and identifying and developing deficient skills. This would be attained through identification and selection of tomorrow’s leaders by accomplishing the following activities: Career Development and planning: this will involve both individual career planning that entails opportunities for feedback on career aspirations and Organization reviews which involves companywide annual reviews, utilizing performance-management career plans, to identify top performers and potential leaders. Annual reviews of companywide bench strength by executive committee. Lastly, Hartley observed that the company must have succession plans for it to identify and prepare future leaders; for instance she established the company’s newly promoted employees were unable to accomplish their tasks due to lack of relevant skills and preparedness. These priorities depended on each other and hence they were essential in linking Sonoco’s people, values, and the company’s business objectives (CSRwire, 2007). To attain this vital objective the company will have to initiate leadership development process and employing a comprehensive compensation program. For the development process Sonoco will initiate the following: Learn by doing: structuring development on the job: this involves development on the job: on-the-job learning experiences to accelerate development, including participation in ad-hoc, standing, natural, or cross-divisional teams. Online performance learning (OPAL): this is an online resource to create annual personal-development plans from 3600 and performance-management feedback (Ulrich, et al., 2003). Centres for Excellence for learning: this involves companywide training opportunities aligned with business strategies. Sales and marketing training that includes both basic and advanced training will accelerate top-line growth; and Team skill development, which facilitates teamwork and productivity initiatives (CSRwire, 2007). Rewards and Recognition: compensation that rewards performance, facilitate career movement, and links to growth objectives (Olian & Rynes, 2006). Broad banding will ensure worldwide compensation zones to allow maximum flexibility in awarding compensation. Continental shares; this will allow stock options for all employees thus creating a sense of ownership, heighten awareness of critical business issues, and align employee and shareholder interests (Ulrich, et al., 2003). Global workforce diversity: the pursuit of a more diverse workforce for instance valuing differences and improving work life through family-friendly policies with flexible work schedules. Success of HR Changes at Sonoco Hartley strategies at Sonoco Company paid off; she encouraged collaboration, systematic and hands-on type of management. The changes she intended to implement were a success; for instance divisional HR managers started to actively participate in all company’s corporate decisions. The new performance-management system to drive consistency and align HR systems with the key business objectives was introduced in 1990. The system was designed as a cycle that fundamentally started with setting company goals, defining earning targets, and while defining individual performance levels. For instance, in one company division, each plant manager would have a set of metrics such as plant profits, machine downtime, quality, customer returns, and safety (Ulrich, 2003). Consequently, another division’s metrics would be to emphasize on scrap reduction and machine throughput to enhance productivity while reducing production costs. These sets of metrics were linked directly to the overall divisional financial and business objectives. The cyclical system also highlighted individual employees’ development needs that were fed into the career development plan. Consequently, by mid 1997, there was successful implementation of a shared system of performance management for salaried employees across the company. Linking of the Compensation system with the performance management system was a success and it necessitated the review of the company’s 18 salary grades and replacing them with five wider salary bands. Further, this system enhanced managerial flexibility particularly in differentiating employees and a warding merit increases (CBSR, 2003). Consequently, linking the two systems compelled managers to know employees’ performance first hand before making decision rather in order to make fair decision with regard to merit awards and enabled managers to explain these decisions to employees. Furthermore, integrated system focused on the value added by an individual, given the fact that salary variations within the company was considered normal and desirable, employees increased their performance (CBSR, 2003). The main aim, of the linked system was to reward individual employee contribution while adhering to market guidelines. Changing the company’s approach to leadership development and succession planning was a fundamental action; this was achieved through acceptance by divisional senior managers. New leadership development system was essential as it encourage on both job leadership development and formal training and education that turned around Sonoco’s leadership development and succession plan (Schein, 2001). The new leadership development system had six core leadership competencies including customer satisfaction through excellence, communication, teamwork, strategic integration, technical/professional skills and knowledge, and coaching/mentoring. Assessing manager’s competencies is a significant duty to ensure increased productivity within any company. Given this truth, Sonoco’s manager competencies were successfully assessed through performance management, 360-degree feedback, and succession planning (Skinner, 2002). Succession planning was set to take place annually at executive committee level where candidate for key jobs would be assessed. The sequence of changes The sequence and timeline of HR innovations at Sonoco was the right one. For instance Hartley started by meeting the HR council that was composed of HR heads of various divisions together with persons from the Corporate HR. This meeting was essential as it ensured that the new initiatives were in line with strategic business goals and the new culture that the company wanted to foster. The introduction and implementation of the new performance-management system was just in time and helped the company to drive consistence and alignment (Grant, 2008a). The formulation of a development process and leadership guidelines came at the right time; the cyclical performance management system was able to establish individual employees’ development needs. With regard to this it was necessary to have a leadership development program in place. Implementation of the companywide task forces on diversity issues; it was important to sensitize employees from different company divisions to embrace diversity and use it to their advantage (Grant, 2008a). The introduction and implementation of salary-band compensation program in January 1997, this system helped the company replace its 18 salary grades with five wider salary bands that enhanced managerial flexibility particularly in differentiating employees and awarding merit increase. The implementation of training in performance management was followed by succession planning action steps and candidate pool analysis. Four-step leadership development system was introduced that fostered both on-the-job training and formal training and education that helped in equipping employees with relevant leadership skills and knowledge. The inauguration of the integrated system for all HR processes, including 3600 systems and succession planning/organization reviews helped the company to methodically assess candidates for key jobs. The linking of HR strategic process to Sonoco’s people, culture and values in support of the business objectives helped employees to be inclined towards improved performance. Appropriate HR Structure for Sonoco There are two organizational structures that were proposed by Hartley for the company: the centralized and hybrid systems. In this regard, each system will be discussed independently in order to choose the right organizational system (Lockwood, 2004). Centralized System In this system, HR services would be handled by four centres of expertise where divisions would be managed by a pared-down field staff. Under this system the field HR representatives are on call to serve organizational needs. Additionally each representative would cover 10 to 15 plants and consult one-on-one with line managers with regard to plant-level HR issues. Accordingly, the responsibility for the designing of strategic programs and initiatives that support the business needs are situated in the Centres of Excellence where business unit leaders would contact those people directly with their needs. Advantages Low operational costs since costs of driving administrative together with other improvement processes have been significantly reduced. Faster decision-making; less people have to be consulted before making the overall company decision. Disadvantages The structure exposes the firm to suffer the negative consequences several layers of bureaucracy. The General Managers are neither supported nor directly linked and thus they do not participate in planning. Field reps are highly overworked. Hybrid System Under this structure company’s divisions would retain some direct staffing powers, succession planning, personnel programs, compensation and benefits. The system is also organized in two sectors: consumer and industrial in order to monitor the organization of the company as a whole. Consequently, each sector would be assigned a VP of HR who would be supported by director of employee relations and a director of compensation and organizational development. These three individuals would be tasked with sectoral planning while interacting regularly with GMs; they will also have fast hand information, which is essential in anticipating HR support needs (Mees & Bonham, 2004). Consequently, they would link GMs within the sector to the centres of excellence. This structure also has field HR reps that would be tasked with providing proactive business-related support (Melcrum, 2006). Advantages HR functions are decentralized thus giving divisions opportunity to make autonomous HR decision that are essential for the growth and development of the company. The presence of the HR VP, director of employee relations and a director of compensation and organizational development make it easier for sectoral panning, HR support needs detection, while linking the GMs within each sector to the centres of excellence. The field HR reps provide proactive business-related support to the company. Disadvantages The structure is expensive as compared to the centralized structure Decision-making is slow The most appropriate organizational structure for Sonoco is the Hybrid structure given the above description and advantages. Changes Sustainability The changes are sustainable given the fact that all change fundamentals were successfully implemented. For instance the performance management, development, diversity, compensation, succession planning, IT systems, 3600 appraisal and communication were rightly implemented and successfully working. The division managers had already accepted the new systems thus the new changes would easily be accepted by junior employees (Blake, 2006). The next Change Initiative Talent management across the company was being managed by divisional GMs and HR managers who at times avoided dealing with underperforming employees. The company needs to implement a talent management program that will strategically improve the skills and talents of employees rather than avoiding them (Blake, 2006). Consequently, employee talent development encourages the latter in engagement, which is vital to high performance in the workplace. Further, talent management and employee development increases the ability of any organization to retain potential employees. 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Ulrich, D. O. and Lake, D. 2004. Organizational Capability: Competing from the Inside Out. New York: John Wiley and Sons. Ulrich, D. O., Brockbank, J.W., & Yeung, A. 2008. Beyond Belief: A Benchmark for Human Resources. Human Resource Management, vol. 28, no. 3, pp. 311-335. www.bchydro.com/forum/wpcontent/uploads/2008/11/Switched%20on%20to%20Energy.pdf Read More