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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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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 Sonoco’s 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, Sonoco’s diminishing returns, etc. Consequently, he instructed Cindy Hartley,

Senior VP, Human Resources to among other things devise two alternative HR structures that

would reduce HR’s 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 support3. Leading the way in supporting the company’s 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 CEO’s 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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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, Sonoco’s 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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1990s/early 2000s, so was the packaging industry. During this time, Sonoco’s 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:

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 Sonoco’s 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. Sonoco’s 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 company’s sales; however, competitors were operating on a more global basis. The internal

structure and composition of the company were facing challenges as well. Sonoco’s operations

were decentralized to the point that it was unable to support some of the more far reaching

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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, Sonoco’s 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

Sonoco’s situation. This tool provides a structure with which to consider the company as a

whole, so that the organization’s problems may be diagnosed and a strategy may be developed

and implemented.

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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:

Stagnant business strategy Growing packaging industry Saturation of market, increased

competition Environmental concerns State of economy Globalization E-commerce Expanding product lines

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 organization’s 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, Sonoco’s 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.

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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

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 low-

cost 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 company’s history attests to this point.

Structure

Closely related to strategy is structure. Structure is the framework in which the activities of the

organization’s members are coordinated. Structure affects how successfully a company can

implement its strategy. The organization’s 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

organization’s structure to ensure its alignment with the current business environment. Thus,

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Sonoco reviewed its structure to ensure that it too would aid the organization in meeting its

overall goals. With a centralized structure, Sonoco’s support departments, especially Human

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 Sonoco’s 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.

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Prior to Cindy Hartley’s arrival, Sonoco’s fragmented HR system was unable to operate

strategically. From a Human Resources perspective, Cindy Hartley had three main priorities:

1. Changing compensation and performance management systems to eliminate arbitrary nature and more accurately reflect the employee’s contribution to the company’s 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 Sonoco’s 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:

Reflects the organization’s 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 Hartley’s 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.

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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

developing and maintaining the most skilled workforce to meet the company’s goals. However,

this system places more emphasis on the person not the job, which may be contrary to Sonoco’s

culture of team-orientation. In addition, there is no mention of any incentive awards to

encourage teamwork. Although individual accomplishments are good, Sonoco’s 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 company’s strategy, structure, and systems defined, the company’s 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 company’s position into the future; Sonoco has to develop its talent pool

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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.

Skills

Skills refer to what a company and its personnel do best. Over the years, Sonoco’s strengths

were its strong market position, brand value, product diversification, flexibility, culture and

visionary leaders. The new performance management and compensation systems further

reinforce Sonoco’s 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. Sonoco’s value revolves around people, culture and values. Sonoco’s 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. DeLoach’s and Ms. Hartley’s new strategies turned

this around.

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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, Sonoco’s

business strategy was solid. Built on people, capital effectiveness, productivity and quality

improvement, top-line growth and establishing stretch targets, Sonoco’s 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. DeLoach’s original

charge that was to devise two alternative HR structures that would reduce HR’s 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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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

CEO’s 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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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 Sonoco’s 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 corporate’s 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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References

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McGraw-Hill.

Cummings, T. G., & Worley, C. G. (2008). Organization Development & Change (9th ed.).

Mason, OH: South-Western Cengage Learning.

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Company. Retrieved February 1, 2009, from http://www.fundinguniverse.com/company-

histories/Sonoco-Products-Company-Company

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Appendix 1