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Introduction of Sonoco Sonoco, a multi-billion-dollar-provider of consumer packaging, industrial products, protective packaging and packaging supply chain services, was founded on May 10th, 1899 in Hartsville, South Carolina with the initial name of Southern Novelty Company. In 1923, it was changed to Sonoco Products Company, using the first two letters from each word of its original name (“History – Sonoco”, 2012). In 2000, Sonoco had 17,300 employees working in 285 facilities across 32 countries. Sonoco businesses are divided into two main categories: industrial packaging (55% of revenue) and consumer packaging with total revenues of $2.6 billion. This allocation mainly came from the financial crisis in late 1990s, when the company faced a 6% deduction in revenue and decided to shift the product from textile to packaging. The company found another way to survive the crisis and even enjoyed an uninterrupted growth via acquisition, an effective way to capture the market, increase the revenue and reduce the competition. However, the change in consumers‟ demand (external factor) and globalized operation (internal factor) has forced the company to adjust the strategy and working structure to maintain competitive edges. These measurements, in their turns, have pushed the strategic HR approaches to reduce cost by 20%, equivalent to $2.8 million, yet to increase efficiency. Since 1995 until 2000, the new senior vice president of HR, Cindy Hartley, has implemented several practices. In 2000, she received a mission from the new CEO, Harris De Loach, to achieve that cost reduction. The purposes of this paper are to review the HR structure of Sonoco, analyze disadvantages in HRM policies and practices, evaluate current practices and recommend the most suitable HR structure, based on relevant HRM frameworks. 2. HRM policies and practices before 1995 Shortly after her coming in 1995, Cindy Hartley has identified a number of HR problems inside Sonoco. The previous structure and practices revealed a lot of limitation. In the case of Sonoco, the 10-C-model drawn by Price in 1997 could be a
good measurable instrument to assess the status of HR function (Kandula, 2004). The model is illustrated as follows:
Figure 1: Alan Price’s 10-C-model 2.1. Comprehensiveness Comprehensiveness implies that the HRM strategy includes all aspects of people management. However at Sonoco, HRM policies scattered since “the largest divisions had their own HR functions, with separate systems, budgets, performancemanagement processes, leadership and training program” (Case study), while HRM strategy was not seriously considered by general managers (GM) who preferred it to be more tactical. Naturally each GM tried to push the development according to his/her desire, thus the company swelled out and could not move into one common direction. By forming this structure, Sonoco management was against the agreed theories about the consistence of HR policies, horizontal integration across divisions and coherent systems of HR practices (Guest, 1987). 2|Page
2.2. Credibility An organization may reach the creditability when its HR practices is able to create trust between low level staffs and top management, as well as to encourage employees‟ belief in HRM strategies. In the case of Sonoco, the trust was created and staffs of a division may understand HR practices being applied in their particular division, but not in others, and obviously not in the entire company. As a consequence, the link between business strategies, including HRM ones, and individual development was lost. Price (1997) advised top managers to be sincere, honest and consistent. Above all, managers should convey open messages to employees and revise their HR policies to gain understanding. 2.3. Communication For effective communication, objectives of organization and that of HRM must be understood and accepted by all employees; open culture with no barriers (Price, 1997). But the communication at Sonoco contained a number of problems. For example, the implementation of the compensation system was only a dialogue between GM and HR staffs, not widely publicized. Even in such discussions, there was mostly one-way communication from GM to HR managers, since “there was not much HR could do but meet GM‟s wishes” (Case study). Beardwell et al (2004) recommended that the development of social cultural, communication and empathetic knowledge will be a priority. Sonoco must break the silo situation; create a mechanism for smooth flows of non-barrier communication and encourage openness. 2.4. Cost effectiveness To be cost effective, the reward and promotion system must be fair. To Sonoco management, however, “compensation and benefits were viewed as entitlements rather than costs in need of control or tools to drive behavior (Case study). In HR aspect, this scheme failed to serve the purpose of reward management which contributes to appropriate organizational cultures, underpinning core values and increasing the commitment and motivation of employees (Armstrong and Murlis, 2007). From accounting angle, it decreased the cost control and caused a disorder in financial management. From owners‟ perspective, expenses to human capital should generate revenues in business, rather than serving managers‟ casual purposes.
2.5. Creativity Creativity implies that company competitive advantages must stem from its unique HR strategies (Price, 1997). HR practices at Sonoco was actually unique, but in negative side, because they did not promote inter-divisional interaction. Due to the localized management, staffs in one division competed with workmates in that division; did not care about their counterparts in others and might not follow new ways of thinking. This invisible barrier must be eliminated, so that Sonoco may utilize staffs‟ capabilities of creation by providing them with diversified outlook and mutual relationships, then combining to innovative business ideas. 2.6. Coherence At Sonoco, HRM activities and initiatives failed form a meaningful whole. The HR policies were highly inconsistent; in fact they dispersed over divisions. The same situation occurred with initiatives which only served internal demand of each GM, such as salary raise or performance appraisal on anniversary date. Both of them are not connected with company strategies. Price (1997) argued that strategies and actions must be consistent with each other, while coherence addresses the internal balance and integration of the people management system. It is recommended that Sonoco should downsize HRM systems at divisional level and apply a common one for the entire company. 2.7. Competence Price (1997) required HRM strategy to be crafted in such a way that organization became competent to achieve its objectives with the support of individual competencies. At Sonoco, individual competencies and talent development depended on GM‟s decision within divisional level, yet GM did not either consider talent to be corporate resource or plan for their subordinates‟ development careers. Nordhaug and Gronhaug (1994) stated that top managers must assume main responsibilities for the management of competence base and to signal this to the rest of the organization, for the sake of the important relationship between corporate strategy and the competence base of the organization.
2.8. Control Apparently Sonoco lost its control over HR implementation to their GM. While HRM policies and practices must ensure that performance of HR is consistent with business objectives, division managers often manipulated performance ratings to wangle salary increases for their staff, thus evaluations rarely reflected performance accurately. But because HR managers reported solid-line to GM and dotted-line to corporate HR, company was unable to be timely and fully aware of the situation. A centralized structure with separated HR function is recommended to avoid such agency problems and enhance the control. 2.9. Change The above internal problems, in combination with external difficulties, have raised a quest for changing. Price (1997) stated that the basic premise of HRM strategy must be that continuous improvement and development is essential for survival. Succession planning was pro forma proved that in deep thinking, company leaders hesitated to change, even their positions or ways of doing works. They should learn that change can free HRM responsibilities from GM who are often under the utmost pressure to achieve short-term targets; consequently, longer-term initiatives are the first to be put aside (deJong et al. 1999, in McGuire et al. 2008). 2.10. Commitment The last C stresses upon that employee are to be motivated to achieve organizational goals (Price, 1997). Yet the root of Sonoco HR problems was that “nor the business goals and individual objectives linked” (Case study). Staffs‟ performance would not reflect their actual competence and thus did not considerably contribute into the company performance, but complains such as “Nobody‟s managing my career or telling me what I ought to do next”. The commitment policy must be propagandized by top management, who must be committed firstly to staffs, and then procedures will be implemented by extensively trained HR specialists. In summary, HRM functions at Sonoco failed to perform in correct manner, with GM swayed at divisional level while corporate HR only acted as a watchdog and a follower. This arbitrary management style certainly made Sonoco to suffer a strong hit in the downturn time. 5|Page
3. HRM policies during 1995-2000 Sonoco enjoyed an improvement in HR system after Hartley‟s joining in 1995. The change was positive thanks to correct identification of problems, prioritization of measures and proper approach. New performance-management system with stronger employee development component and compensation system with direction to performance reward are prioritized in the first phase. This breakthrough can solve Sonoco‟s problems from the root since rewards schemes attempt to generate a motivated workforce which is committed and loyal to the organization (Beardwell et al, 2004). Besides, it is a good choice for sustainable development because performance management is a forwarding system, and performance appraisal not only reviews an individual‟s performance and progress in a job, but also assesses the potential for future improvement (Manasa, 2009). A number of tactical measures have gained positive results. In payment, broadbanded pay structure enhanced managerial flexibility and autonomy in differentiating among employees and awarding merit increases. Armstrong (2002) argued that pay structures are needed to provide a logically-designed framework within which equitable, fair and consistent reward policies can be implemented. Employers need to exercise control over both sides of the wage/effort bargain to the greatest possible extent and in this light reward management attempts to enlarge the area of managerial control (Beardwell et al, 2004). In performance appraisal, a 360-degree review is applied every 24 months. This technique reflected changes in what organizations expect of their employees, increasing emphasis on performance measurement, changing management concepts and more receptive attitudes (Ward, 1997). Moreover, it eliminated subjective monoappraisal done by GM, thus maintain fairness and trust from employees who were being evaluated. The comprehensive views from 4 angles (supervisors, subordinates, peers and customers) will reveal more staffs‟ strengths and weaknesses, which may not be recognized by only supervisors. In talent management, though most of the works were still under GM‟s control, but Sonoco managed to apply succession planning. Though Kesler (2002) noticed that 6|Page
succession-planning often produces little change, effective talent-planning amounts to making choices today for the purpose of changing the outcome tomorrow. From employees‟ viewpoint, their confidence and motivation would increase if being aware that they have the chance to climb up the career ladder and their effort is recognized in a proper manner. In addition, employees‟ leadership development has been carried out in various form of on-the-job and off-the-job training. In other words, they were granted larger empowerment in forms of control of work, job autonomy, teamwork and payment system linking with performance (Honold, 1997). Some other important aspects, have not yet fully implemented, such as incentive plans or talent management. However, Hartley‟s buy-in approach worked effectively since it increased the involvement of divisional HR, as well as brought aspiration to related parties in making the job successful. 4. Choice of new HRM structure Both of Hartley‟s alternatives are improvements in structure, which may considerably change the traditional working style at Sonoco. The major difference lies in the involvement of HR personnel in the jobs previously handled by GM. Therefore, they serve the purpose of control over HR functions in divisions. The brief comparison between 2 proposals is as follows:
Centralized model Description HR administration, recruitment, personnel programs, compensation, payroll and relocation are centralized - Cost saving of $3.1 million (above Pros target $2.8 million) - More controls over divisional level Hybrid model Some HR consultation, personnel programs, succession planning and compensation are decentralized - Better planning at divisional level - Higher flexibility for change - Effective connection between company objectives and HR functions - Maintain HR presence GM are relying on - More HR personnel required - Cost savings of $2.7 million (below target of $2.8 million)
- HR will not assume proactive actions. - Difficult change management - Difficult in analyzing the training demands - Higher employees‟ dissatisfactory
It can be recognized that advantages of the former solution are disadvantages of the latter one vice versa. The centralized would be more suitable for short term amelioration, since it can help Sonoco to reduce more than CEO DeLoach‟s expected 20% cut. However, it implies potential dangers for future operation in longer term. In addition, it is not flexible and not suitable for a major change in structure which is crucial in difficult and challenging market. An additional minus is the restriction of opportunities to directly align individual businesses‟ needs and demands, which would make other objectives more elusive. The hybrid model, on the contrary, sounds not attractive as it fails to meet the requirement of expense deduction and may lead to redundancy due to a large number of HR personnel being involved, implying additional expenses. However, the difference in budget is not big ($100,000 - less than 5%), while the potential for longer term is much better than the former model. The firm also earns higher flexibility and can adapt to the change of market easier. From GM‟s viewpoints, their influence on HR functions are kept, which will decrease the fear of losing power on HR field. Meanwhile, their reliance on HR functions would maintain and will increase their level of confidence at work. More crucially, Sonoco operates in 32 countries with different sets of cultural dimensions (Hofstede, 2010). The hybrid structure, with its decentralization, will be able to help the company to be flexible in applying HR activities which are suitable for each territory and to avoid cultural conflicts. In conclusion, in balancing pros and cons, the hybrid model promises better outcome rather than the centralized structure. Obviously, there would be risks when applying either of these proposals, but given DeLoach‟s desire to best use of employees, the appropriate choice seems to be the hybrid model. 5. Summary and reflection HRM is different from and far more complex than asset management, though many corporate leaders regard their employees as property or capital. The psychological issue is always unpredictable. In attempts to decode the human reaction and propose suitable solutions to deal with it, in approximately one century there are a large number of HRM philosophies, theories, practices, models, concepts and tools to be applied. Most of them are helpful, but the key is what, when and how proper ones will be used in a particular context. This is the purpose of this HRM module. 8|Page
In my personal view, the HRM module, at first, stresses the importance of managing people which I have to do when running a business of my own or working for a firm. Unlike financial management, inventory management etc., in HRM I should not rely on machine or outsourcing but to act flexibly on my own, especially when dealing with skillful and knowledgeable employees. However, thanks to HRM module, I will know how to choose and apply best HR models on their organizations. HRM will help me to identify potential strengths and weaknesses of staffs. A variety HR tools can provide a comprehensive understanding about people‟s capabilities and desires etc. in order to provide them with suitable environments, and through this, fully exploit their contributions. Moreover, to have best use of staffs, I will know how apply development methods to increase their productivity. An organization is more a community than a group of separated persons. Through researching organizational behavior (OB), I can be aware of relations and interactions among all staffs. OB is not only for providing necessary skills training, but also for allocating people in teams in order to achieve their synergy, or 1+1>2. Compensation and reward management, in connection with performance
management, help me to comprehend the working motivation and know how to promote it for the benefit of both employees and organization. Finally, as “the world is flat” (Friedman, 2007), I would be more successful if I can take full advantage of the cultural diversity by applying knowledge obtained from the HRM module.
REFERENCES Armstrong, M. (2002) Employee Reward. 3rd ed. London: CIPD. Armstrong, M. and Murlis, H. (2007) Reward Management: A Handbook of Remuneration Strategy and Practice. 5th ed. London: Kogan Page. Beardwell, I., Holden, L. and Claydon, T. (2004) HRM: a contemporary approach. 4th ed. Harlow: FT/Prentice Hall. Friedman, T.L. (2007) The World is flat 3.0: A brief history of the Twenty-first Century. New York: Picador. Guest, D. (1987) „Human resource management and industrial relations‟, Journal of Management Studies, 24(5), pp.503–521. Hofstede, G. (2010) National Culture and Organizational Culture [online]. [Accessed 20 September 2012]. Available at: < http://geert-hofstede.com>. Honold, L. (1997) A review of the literature on employee empowerment, Empowerment in Organisations, 5(4), pp.202–212. Kandula, S.R. (2004) Human Resource Management in Practice: With 300 Models, Techniques and Tools. India: Prentice-Hall of India. Kesler, G.C. (2002) Why the Leadership Bench Never Gets Deeper: Ten Insights About Executive Talent Development. HR Planning Society Journal, 25(1), pp.32-44. Manasa, K.V.L and Reddy, N. (2009) Role of Training in Improving Performance. The IUP Journal of Soft Skills. 3(3), pp.72-80. McGuire, D., Stoner, L. and Mylona, S. (2008) The Role of Line Managers as Human Resource Agents in Fostering Organisational Change in the Public Sector. Journal of Change Management, 8(1), pp.73–84. Nordhaug, O. and Gronhaug, K. (1994) Competences as resources in firms. International Journal of Human Resource Management, 5(1), pp.89-106. Sonoco (2012) About us [online]. South Carolina: Sonoco. [Accessed 01 August 2012]. Available at: < http://www.sonoco.com/aboutus.aspx>. Ward, P. (1997) 360-degree Feedback. London: CIPD House.
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