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Sonoco 1 Running head: Sonoco Products Company

Case Study Analysis Sonoco Products Company (A): Building a World-Class HR Organization

Joycelyn Jones McDaniel College

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Sonoco 2 Abstract This 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 Sonoco Products 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 global packaging industry. In 1995, Cindy Hartley, Senior VP, Human Resources, came to Sonoco and found the Human Resources (HR) function broken. She soon began working on a plan to rejuvenate HR and link HR processes to Sonocos business objectives. As Ms. Hartley was well on her way, Harris DeLoach became the newly appointed Chief Executive Officer (CEO) in 2000. Mr. DeLoach soon recognized concerns with HR as well as overall business strategy in light of the changes to the industry, Sonocos diminishing returns, etc. Consequently, he instructed Cindy Hartley, Senior VP, Human Resources to among other things devise two alternative HR structures that would reduce HRs cost by 20%, or $2.8 million. Other pressing reasons for the request include the 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 companys 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 situational analysis, explore the issues and/or opportunities related to the company and the CEOs request, evaluate the alternatives and recommendations for course of action for the Senior VP, Human Resources to meet its financial goals and HR meet goals.

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Sonoco 3 Introduction Sonoco Products Company, a global packaging company, began in 1899 in Hartsville, South Carolina. Founded by Major James Coker with $6,000 of initial capital, Sonocos original name until 1923 was the Southern Novelty Company, and the new name of Sonoco uses the first two letters from each word of its original name ("Mission statement - Sonoco," 2009). Its original product was a paper cone used to hold yarn in the textile industry. Since most of the textile cones of that time were wooden, paper cones were unique. Although Sonoco did not invent the paper 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 the leading producer of cones in the United States. During its history, Sonoco also adds to its credits the use of the plastic T-shirt grocery sack common in supermarkets and retail stores and the creation of Ultraseal, a closure system for Crisco shortening cans that eliminated the need for a can opener (International Directory of Company Histories, Vol. 8 St. James Press, 1994). By 2000, 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, with 17,300 employees across 285 operations in 32 countries, serving customers in 85 nations with a wide 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 own paperboard, consuming almost two million tons of recovered paper annually. Over the years, Sonoco Products Company continued to grow with new operations around the world, 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 and industry around it. While the United States was enjoying economic growth during the late

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Sonoco 4 1990s/early 2000s, so was the packaging industry. During this time, Sonocos position began to change. The company was becoming increasingly more susceptible to changes in the world economy. The packaging business began to focus on the following: y y y y y y 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 to remain competitive. In this case analysis, this writer will review the state of Sonoco in years approaching the new millennium (situational analysis), utilize the 7-S Model of organizational alignment as appropriate to examine Sonocos need for planned change (identification of issues), examine proposed options (evaluation of alternatives), and propose plan of action (recommendation). Situational Analysis Upon 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 a precarious situation. Its stock price fell to an eight-year low. Sonocos debt was high because of the acquisition and continued operations of several plants while many manufacturing plants were moving overseas because of cheaper labor. North America accounted for approximately 80% of the companys sales; however, competitors were operating on a more global basis. The internal structure and composition of the company were facing challenges as well. Sonocos operations were decentralized to the point that it was unable to support some of the more far reaching 4|Page

Sonoco 5 strategic initiatives of the company. Specifically, its human resources function was ineffective and viewed as just an administrative support function. Additionally, Sonoco had to face the growing challenges of fast changing technology, and diversity matters. For example, it now had to contend with flexible packaging that was the new technique of this time and the mounting use of ecommerce as a source of trade. Lastly, globalization as well as the wants and desire of its consumers were challenging. Products had to serve all segments, which made the strategy for the packaging and distribution of them more demanding. These variables as well as others propelled Sonoco to revisit its business strategy. Sonoco realized the need for transformational change to ensure its sustainability in a continuously evolving environment. Specifically, Sonoco needed to conduct a SWOT analysis to assess and build on its strengths, improve its weaknesses, identify the available opportunities, and strategically plan to eliminate pending threats. Particularly, Sonocos focus was to evaluate external forces (i.e. climate change, environmental destruction, energy crisis, etc.), global marketplace, packaging industry, demands of its customers and especially its competitors to ensure alignment, if necessary, with its business strategy. Furthermore, Sonoco needed to analyze itself internally -- mission, culture, structure, human resources, technology and processes prior to considering any change. To this end, this analysis utilizes the 7-S Model to analyze Sonocos situation. This tool provides a structure with which to consider the company as a whole, so that the organizations problems may be diagnosed and a strategy may be developed and implemented.

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Sonoco 6 Identification of Issues In order for a company to be effective, it must have a high degree of fit or alignment among all the seven Ss. Thus, this writer identifies the following issues/challenges as possible reasons to initiate or continue transformational change initiatives at Sonoco: y y y y y y y y Stagnant business strategy Growing packaging industry Saturation of market, increased competition Environmental concerns State of economy Globalization E-commerce Expanding product lines y y y y y y y y Diverse, sophisticated and demanding consumers New and/or improved technology Age of differentiation, brand value, changing image Company culture Evolving role of Human Resources Ineffective organizational structure Management deficiencies Changing policies and/or practices

The 7-S Model propels companies to pay attention to systems thinking, which involves looking at 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. Strategy Strategy is an organizations means to help management achieve its objectives. Key strategies can include the introduction of new products or services, cost containment, or a combination of these and others. During most of its existence, Sonocos 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 the business it was in, the products it supplied, its differentiation relative to its competitors, its ability to sustain in a changing industry, and the applicability of product solutions to multiple situations. To this end, Sonoco was pursing top-line growth on two fronts: organically, which includes market growth, new products and services, and geographic expansion and through acquisitions

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Sonoco 7 and joint ventures that complement existing businesses and meet the changing needs of the markets it serves ("Strategy for Growth," n.d.). Additionally, Sonoco recognized the need to embrace the growing global marketplace and its people. They incorporated diversity into all aspects 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 the new marketplace. Thus, the corporate mission statement which -- Sonoco intends to be the lowcost global leader in providing customer-preferred packaging solutions to selected value-added segments, 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 continuously diagnosing itself to stay competitive. As a result, they were able to react to and minimize any potential damage. The relatively quick move to rethink and revise its strategy at a critical time in the companys history attests to this point. Structure Closely related to strategy is structure. Structure is the framework in which the activities of the organizations members are coordinated. Structure affects how successfully a company can implement its strategy. The organizations size, technology, environmental uncertainty and even products/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 an organizations structure to ensure its alignment with the current business environment. Thus, Sonoco reviewed its structure to ensure that it too would aid the organization in meeting its overall goals. With a centralized structure, Sonocos support departments, especially Human

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Sonoco 8 Resources were not able to be strategic in focus and therefore provided little support in the way of long-term plans for the divisions (Robbins & Judge, 2008, p. 235). However, this structure provided economies of scale when centralizing core administrative functions. As for the decentralized structure, the company experienced problems with departments/divisions becoming their own entities and not tied to the bigger picture. Additionally, this structure probably represented increased cost due to duplication of efforts. Based on many aspects of Sonocos business environment, this writer believes that Sonoco is in need of a combination structure that will allow it to create more synergies between business units to leverage resources for greater cost effectiveness and customer service. Additionally once the overall 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 job perspective is important. Interventions such as continuous quality improvement, teambuilding, and job enrichment are relevant options to improve processes, productivity, and morale during structure transition. Systems Society is indeed becoming increasing more technological and systems driven. Thus, company systems, the activities involved in the daily operation of business, also need attention. These systems include business, management, performance management, financial, compensation, and even customer satisfaction. For that reason, Sonoco attempted to restructure its processes/systems in order to more efficiently maintain its market share, increase productivity, and maintain safety goals. Prior to Cindy Hartleys arrival, Sonocos fragmented HR system was unable to operate strategically. From a Human Resources perspective, Cindy Hartley had three main priorities:

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Sonoco 9 1. Changing compensation and performance management systems to eliminate arbitrary nature and more accurately reflect the employees contribution to the companys 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 Sonocos performance management, compensation, and succession planning systems must complement its business strategy. Therefore, she began to implement change. A performance management system is effective if it: y y y y y Reflects the organizations 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 Hartleys 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 get compliance (Levitt, n.d., p. 9). This interwoven system connected business goals and individual objectives instead of subjective measures of the past, which managers manipulated to get higher pay raises for their employees. As for the new compensation system broadbanding system, it complemented the new performance management system. Broadbanding reduces salary categories to manage career growth and deliver pay. According to Byars and Rue (2008), broadbanding works especially well in companies that are fast moving and undergoing persistent change because it provides less formal structure and allows the company to react quicker. This system supports the business strategy focused on 9|Page

Sonoco 10 developing and maintaining the most skilled workforce to meet the companys goals. However, this system places more emphasis on the person not the job, which may be contrary to Sonocos culture of team-orientation. In addition, there is no mention of any incentive awards to encourage teamwork. Although individual accomplishments are good, Sonocos environment is one 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 useful and balance out the compensation portfolio. These incentives involve employees in a common effort to improve organization performance (Byars & Rue, 2008, p. 283). Staffing With a companys strategy, structure, and systems defined, the companys human resources are what 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 its people accountable and develop them, especially the leadership. Sonoco realized this fragmentation led to ineffective succession planning and leadership development that only harmed the company. Hence, the implementation of the new performance management and compensation systems, the increased focus on leadership development, and most importantly the succession planning process. It is not only important to have the right people with the right skills now, but to sustain the companys position into the future; Sonoco has to develop its talent pool and leaders going forward. Additionally, Sonoco took advantage of the concept of incorporating diversity into its business. It appreciated the diversity of its workforce, its suppliers as well as its customers.

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Sonoco 11 Skills Skills refer to what a company and its personnel do best. Over the years, Sonocos strengths were its strong market position, brand value, product diversification, flexibility, culture and visionary leaders. The new performance management and compensation systems further reinforce Sonocos commitment to enhancing employees skills to serve the organization. Sonoco based expectations for all employees on satisfying customers through six core competencies: excellence, communication, teamwork, technical/professional skills and knowledge, strategic integration, and coaching/mentoring (Thomas, Groysberg, & Reavis, n.d., p.97). Shared Values The anchor of all the 7s is shared values. These values are evident in all actions taken by the company. Sonocos value revolves around people, culture and values. Sonocos culture has always played a role in its success. Safety, integrity and respect for the individual are hallmarks of its culture ("Strategy for Growth," n.d.). Unfortunately, over the years, there was a diminished sense of personal responsibility and accountability that linked into the company. Thus, some financial goals fell short, but some of Mr. DeLoachs and Ms. Hartleys new strategies turned this around.

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Sonoco 12 Evaluation of Alternatives Sonoco experienced growth and prosperity as well as a decline in a few key results during the late 1990s/early 2000. As described previously, there were a myriad of challenges to include globalization, the industry, economy, and environment to name a few. However, Sonocos business strategy was solid. Built on people, capital effectiveness, productivity and quality improvement, top-line growth and establishing stretch targets, Sonocos strategy would endure turbulent 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 carry out 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. DeLoachs original charge that was to devise two alternative HR structures that would reduce HRs cost by 20%, or $2.8 million. The first option was a centralized HR function in which one of four centers of expertise would handle the majority of services, and a trimmed down field staff would serve the divisions. The advantages to this structure would be the decreasing costs associated with driving administrative and other types of process improvements. These economies of scale would free up money and resources 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 the organization is difficult especially in large companies. This could result in greater customer service issues and employee dissatisfaction. Additionally, HR may not readily have its finger on

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Sonoco 13 the pulse of the organization to be proactive about needed changes, actions. However, more importantly, this option only results in a $3.1 million cost savings, which is above the cost savings of $2.8 requested by the CEO. The second option was more of a hybrid organization in which the divisions would have some direct involvement with staffing, succession planning, personnel programs, compensation, and benefits. The strategy development, HR planning, and its implementation responsibilities would are 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, perform consulting services. The main advantage to this structure was that it left a form of divisional HR management intact on which general managers could still call for help. These new group HR managers would be able to provide the strategic link between corporate HR functions and the businesses (Cummings & Worley, 2008, p. 321). It would be flexible enough to respond quickly to environmental changes, and be able to participate in divisional level strategies. Lastly, the projected cost savings would be $2.7 million for the hybrid structure, which is in line with the CEOs directive of a $2.8 million dollars cut in costs. The main disadvantage to this option stemmed from a concern over whether changes could be easily driven across the company with this new structure. This structure may result in some duplication of resources if delineation of duties is not specifically outlined and understood. Logistically, it does not readily support the sharing of knowledge between HR practitioners because some of them are working in one division and the others are working in other divisions. Recommendation Based 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

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Sonoco 14 technology and dynamic environments (i.e. dynamic competitors, continually changing products preferences by customers, changing government regulations affecting its business, etc.) typically fair better with a hybrid structure. This option aligns perfectly with Sonocos flexible strategy to meet the changing demands of its industry and consumers. Besides, this structure allows for the right people with the right skills to be where they are most beneficial to the company. This way they 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. Consolidating administrative functions where feasible to result in economies of scale will save more. Having the appropriate systems in place to get the right people in place and up to speed will improve productivity, increase employee satisfaction, reduce waste, and decrease turnover which will result in increased profits on an ongoing basis. With this structure in place, more attention could be given where needed. For example, while the corporate function worked on high level initiatives, the field HR staff could provide insight or suggestions on how to make this best work for the division (with corporates guidance, if necessary). This would result in HR being proactive to the business needs. The HR field manager 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 would place 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.

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Sonoco 15 References Byars, 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/companyhistories/Sonoco-Products-Company-Company Kotelnikov, 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.html Levitt, 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=R06 10J&ml_action=get-article&print=true Mission statement - Sonoco. (2009). Retrieved February 1, 2009, from http://www.sonoco.com/sonoco/Home/About+Us/cor_mission_statement.htm Robbins, 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

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Sonoco 16 Sonoco 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 SouthWestern.

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Sonoco 17 Appendix 1

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