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Sonoco Products Company HR Structure Dilemma

Table of Contents

  • Synopsis
  • Diagnosis
  • Analysis
  • Evaluation
  • Recommendation
  • Design
  • Implementation
  • Reflective Summary
  • References

Sonoco’s HR Structure Dilemma: The Pros and Cons of Centralised and Hybrid Structures

Synopsis

            The Sonoco Products Company has been undergoing several changes under the initiative of the Human Resource (HR) division. Much of these changes were targeted to mobilise improvement and development of existing HR practices and processes, particularly performance management, rewards, succession planning, and talent management. These developments aim not just to improve the HR system but to re-design it, such that it becomes characteristically responsive to the corporate needs and goals. Supporting a new business model, the HR department is tasked to restructure its function to primarily control costs while at the same time meeting the objectives of increasing talent management accountability, distributing HR talent and support as well as optimising customised and strategic support (University of Wolverhampton Business School (UWBS), 2011). Thus, in evaluating the proposed structures, the main parameters to be used are these four. In lieu of these challenges, current senior vice president of HR, Cindy Hartley, presented two options: the centralised and hybrid structures. Each structure covers the four main parameters at differing levels. These levels will be the basis of solving Sonoco’s HR structure dilemma.

Sonoco Products Company HR Structure Dilemma

Diagnosis

            The packaging industry started its co-existence with the advent of commercialisation across the wide physical barriers of civilisation. Since then, it has played its valuable role in the industrial and commercial supply chains, primarily ensuring the protection of goods during its transport up to prolonging its shelf life (Industrial Council for Packaging and the Environment (INCPEN), 2011; Advisory Committee on Packaging, 2008). As the packaging design evolves, so is its function. Packaging has extended its role to advertising and carried the “role of a silent salesman” (Cage, 1991, p.3). Indeed, with its brand names and product information, introducing a new product in a vast market has become less burdensome. The boom in this industry has led to additional government interventions by regulators (Hisrch, 1991). Such measures are necessary in order to combat any economic failures, health and environmental problems.

The most characteristic feature ever benchmarked by the packaging industry is its technological innovations. INCPEN (1995) proffered competition as the key to the proliferation of innovation among the packaging companies. Amongst the most evident innovation is lightweighting, which substantially decreased the weight of the packaging material yet still contained the same volume of product (INCPEN, 2003). This breakthrough was the industry’s best solution to overpackaging resource issues (Cottica, 1994). Another technology involved in heightening the “performance of the package system” was active packaging, which was inclusive of “subsidiary constituents” (Robertson, 2006 cited in Kerry & Butler, 2008, p.1). Innovations were not just limited to the packaging itself; it also made a significant influence on printing technologies of the marketing industry. There are three known printing technologies that rely heavily on packaging demands — flexographic, offset, and gravure printing (Kipphan, 2001). All of these innovations enabled the packaging industry to grow and contribute to the global economic growth.

The packaging industry became more consumer-oriented at the time of the Sonoco case study. Consumers were maintained only effectively through “an active value chain for packaging,” of which manufacturers, distributors and packaging firms were the key players and highly responsive consumer data systems were involved. (Sand, 2009, p.43). Such measures reflect the rising sensitivity of the packaging industry to “uniform packaging and sensitive products” growing demands.  (Alon, 2005, p.18). The more the commercial and industrial companies choose to diversify, the more segmented they become. The packaging industry was then expected to offer unique and dynamic choices of packaging, thereby answering the segmented demands. In a general perspective, the more diversified the nature of this industry is, the tougher the challenge to minimise the entailed high costs to maintain competitive edge over the competitors.

The trends in the packaging industry’s markets impacted Sonoco’s main strategies to compete: top-line growth and overall costs control (UWBS, 2011). In the company’s history, Sonoco has proved its marketing and innovative capability to support its top-line growth. For instance, Sonoco patented a self-opening system of the plastic sack, which increased its usage efficiency and consequent sales (Gibbs & Dematteis, 2003). For the service component, Sonoco has introduced the two effective options to market packages to customers: offering a detailed list of all products and services; and proffering a customised assembly of packages (Iacobucci, 2001). The first option gives free reign to the customer while the other involves consulting the sales representatives’ expertise. The latest of Sonoco’s customer-oriented moves currently involve the convenient provision of a single contact point for large customers (UWBS, 2011).

Several moves had been pursued to achieve top-line growth. These moves targeted the product and service components of Sonoco. The second strategy of controlling overall costs now needs to be addressed, particularly by function departments. These departments include the HR division. Before presenting the proposed organisational structures that both support important functions and cut costs, it is essential to provide an analysis of the existing HR systems.

Analysis

The existing HR system as a whole is in its incomplete improvement-development phase. This phase started upon Cindy Hartley’s position as Senior Vice President of HR commenced as signaled by the evaluation of her findings. This evaluation led to a series of different innovations within the division and extending on its corporate and department functions. This innovation focused on compensation and performance management, employee development, and succession planning (UWBS, 2011). However, there were still remaining core issues to address when the restructure challenge came up. These issues include talent management and strategy-aligned incentives (UWBS, 2011). Interestingly, HR’s ability to incorporate change to challenges and exploit the opportunity of this challenge was evident. The restructure which primarily addresses cost reduction can also be a channel for incorporating talent management throughout the company (UWBS, 2011). Recognising this, HR did not just limit the restructure parameters to cost but included HR innovations that were not yet carried out. This could be described as hitting two birds with one stone; while the restructure meets the cost reduction needs of the company, the HR division is able to finish what they started by incorporating the lacking HR innovations to the current mission of organisational restructure. Moreover, the effectivity is high considering that the restructure is going to be a company-wide step and that the remaining issue of talent management and strategy-aligned incentives have to be poured throughout the company system. Overall, Cindy Hartley’s objectives for changes extended from cost reduction in her division through restructure to completing all of the necessary HR innovations.

Despite the innovations successfully carried, one may still question the HR and the company’s capability to sustain and add more innovations via the proposed restructure. Yet, there are various acclamations for Sonoco’s HR-related success. Ruch (1984) pegged the company’s proficiency in managing their suggestion system. On the other hand, the corporate safety director lauded the high involvement of the company workforce in formulating the company’s safety processes (Minter & Nighswonger, 2001). In addition to these, Sonoco (2010) had expressed its acknowledgement of the value of employees’ ideas and contributions through challenges and leadership opportunities. Thus, further steps to meet the company’s needs are not impossible at Sonoco.

Evaluation

The preliminary results of the innovations by the HR were recognised within and outside the company. A regular internal survey showed an improvement in the levels of employee satisfaction as well as active engagement (Nohria, Groysberg, & Lee, 2008). After improvements on the succession planning were fully mobilised, “Sonoco estimates that it has the right person ready to step into its job openings 80 to 90 percent of the time” (Fulmer & Conger, 2004, p.72). Judging by the ability of the concerning divisions to respond to Harley’s innovations, the sequence is evidently considered right. She started by diagnosing HR problems in the existing system and acting upon each of them. She pioneered the systematising of the performance management and compensation, which she reasoned as “HR fundamentals that we could design and introduce across the entire company fairly quickly” (UWBS, 2011, pp.4-5). The sequence of innovations was chosen according to its effective speed of percolation within the company. The HR and the company were all expected to have a fast and reliable response to these two HR functions.

Various HR efforts have supported the improvement-development of various HR functions. One includes the use of performance and promotability matrix on its succession planning (Lemons, 2004). The company also utilised a “scorecard to reinforce leadership expectations” (Gandossy & Guarnieri, 2008, p.67). Morse (2008) concretely highlights these efforts’ goals as guides to ensure high employee efficacy on employees’ designated positions. Above all, everyone is cognizant of top management’s commitment to supporting these innovations. One such commitment was evident when Hartley and the vice presidents conducted a meeting to discuss talent management (Galavan, Murray, & Markides, 2008). Employee morale is proved to boost upon recognition that even the remotest, top people of the company allocate time, energy, or resources to participate in the process of making decisions for low to middle level employees.

Recommendation

Design

Since much was established by the HR division, it is prudent to focus on the restructure and the incorporation of the lacking HR innovations in the restructure. Mabey, Salaman, and Storey (1998) acknowledged restructure as a continual process that serves to effectively support the company’s strategic goals. The company has a recognised, unified department that was equipped with such expertise and can partake the general HR fundamentals (Gagnon, 1998). Backtracking the restructure challenge, the parameters to be considered in evaluating the pros and cons of the two proposed structures include controlling costs, increasing talent management accountability, distributing talent and HR support for these talents, and optimising the customised and strategic support to company goals. The evaluation of the organisational structures will predominantly revolve around these four.

The first structure, the centralised model is a relatively familiar model. The transition from the former HR system’s decentralised and inconsistent system to a centralised HR function renders the structure similar to the proposed one. The only exception is that the proposed is much leaner and more ‘centralised’ than the existing structure. This familiarity in itself is the first pro and may not be very visible. The familiarity of the structure enables a rapid acceleration in the organisational learning curve and provides lesser time for adjustment. Being a leaner structure also means sharing service responsibilities. Horan and Vernon (2003) claimed the potential savings in labor costs brought about by sharing services (cited in Paphavatana & Mohiuddin, 2011). Indeed, the centralised structure is projected to amount its cost savings to $3.1 million (UWBS, 2011). The savings are inclusive of labor costs, operational costs, and other administrative costs. However, this may leave too many responsibilities to few people. The capability of the remaining HR workforce to handle even those functions that surpass their expertise is challenged. Moreover, this structure “attempts to develop a standard set of HR practices to be rigidly applied across all sites” (Wright & Snell, 1997, p.15). However, each Sonoco plant has its own unique competitive composition. This composition can make it difficult to apply the centralised structure’s rigid rules. Moreover, Wright and Snell (1997) pointed out that a centralised model may not effectively support a per plant site information-collection system; this system is necessary if the HR division wants to serve the plant sites’ specific needs. Though cost reduction is significantly addressed by this structure, the goals of increasing talent management accountability, distributing talent and HR support as well as optimising customised and strategic support may not be promptly met or met but with difficulty because of the structure’s lesser channels and restrictive nature. Thus, out of the four parameters only one (cost reduction) is met.

The second structure, the hybrid model has a lesser projected cost savings of $2.7 million (UWBS, 2011). While the centralised structure shares service responsibilities, the hybrid retains the per plant site HR division. Responsibility is specified and expertise maintained by the administrative and customised HR units. These particular units are ‘customised’ in the sense that they serve the specific needs and thus provide the most direct support possible. This cuts and saves the time it takes to respond to the needs of each plant site. Moreover, Texas Tech University (2009) describes the hybrid structure as a flexible combination of other organisational structures and is perceived as “being both global and local” (slide 41). It is considered global because it retains its holistic grasp of the whole company. On the other hand, it is local because it fosters a responsive environment providing direct support for each unique business unit. In Lentz’s (1996) words, the “hybrid structure decentralises decision-making to the operating units and centralises administrative functions to corporate staffs” (p.454). Illustrating its implications to Sonoco, one may see how the plant sites are given free reign to decide for its unique customers while the top people decide for administrative matters like cost reduction. Another potential edge for this structure is its innovation differentiation and marketing differentiation (Pertusa-Ortega, 2008). This differentiation ability boosts the capability to address the goals of increasing talent management accountability, distributing talent and HR support for these talents, and optimising the customised and strategic support to company goals. Moreover, the hybrid structure has a higher potential to support and effectively manage transaction-specific assets and an erratic, irregular market (Carter & Ellram, 1998 cited in Toffel, 2004). However, a major constraint may be the “possible build up of administrative overhead” (King, 1999, p.323). This happens when more people are delegated for HR functions to meet the specific needs of each plant site.

Implementation

            Sustainability is the key to evaluating, choosing, and formulating an action plan for the HR restructure. In terms of evaluating and choosing, each structure requires a similar in-depth exploration and scrutiny. However, in implementing and sustaining the transition of restructuring, the hybrid structure may prove to be more viable. The shared services in the centralised model may not withstand its effectivity levels as compared to a ‘customised’ service support of the hybrid structure. Feedback of the concerning employees will be valuable at this stage. The corporate leaders may also review the estimated cost savings required of such HR restructure and take time to reconsider the sustainable benefits of the hybrid structure as to the huge but short-term savings of the centralised structure. The two players of the implementation, the corporate leaders and the business unit employees, must both collaborate to achieve the four goals of cost reduction, talent management and distribution, HR support and optimal strategic support.

Reflective Summary

This case study has illustrated well to me the realistic application of organisational structures in a company’s function. These structures, the hybrid and centralised, offer varying levels of cost savings and support channels. It is important to ensure that a chosen structure is in sync of the function’s nature. In the case of Sonoco, its HR system is diverse, and they serve the company in very dynamic ways. Thus, it is necessary for them to carefully consider each pros and cons the proposed structure offers. These learnings offer insights that may aid me in my future managerial career, particularly decisions that have something to do with channelling talent and expertise support. This study has highlighted the significance and influence of structure in terms of channelling or sharing responsibilities.

References
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