Sonoco Products Company (A) faced a significant obstacle in its Human Resources (HR) department. The negative effects of decentralization and the transition to a divisional structure in the 1980s resulted in HR being perceived solely as an administrative tool. Its importance as a driver of cost and productivity was overlooked.
Multiple HR functions exist in each department, each with their own systems, budgets, and performance management. This has led to non-cooperative competition among divisions and a loss of morale and motivation among many employees. Moreover, the complex staff structures in many departments have resulted in manipulation of performance measurements to increase salaries or eliminate certain employees within individual departments.
In a new environment of uncertainty and increasing challenges from competitors and demanding customers, the decentralized HR function at Sonoco failed to add value. There was also a lack of alignment between employees and the company’s values. By the end of 2000, Sonoco had to choose between implementing a centralized HR function or a hybrid structure where divisions would have more involvement in staffing, succession planning, personnel programs, compensation, and benefits.
Sonoco is a diverse organization with business units operating in various markets, divided into consumer and industrial sectors. The company aims to maximize the synergies between these units. In order to effectively manage human resources, Sonoco is implementing a new approach called Shared Services. This hybrid structure combines the strengths of both centralized and decentralized structures, allowing Sonoco to successfully overcome the challenges posed by a demanding end consumer and a rapidly evolving industry.
The control system, which includes bureaucratic procedures, needed to be strict to ensure the company operated smoothly. This means that the HR function must play a crucial role in giving the business a strategic competitive advantage. It is important to align Sonoco’s strategy and value proposition with its HR structure. The structure should reflect the organization of the company. Additionally, HR management policies and processes in Sonoco need to be constantly reviewed and evaluated due to the ever-changing internal and external environmental factors.
Managers cannot solely base their decision on cost savings and efficiency when it comes to centralizing processes. This is because each business unit has unique requirements. Sonoco is a company operating in various regions and a flexible industry. A hybrid structure creates a relationship between both the decentralization of the organization and HR management. Therefore, an organization that is both allied and diversified, operating across different value chains but with resources that can be shared, should have a hybrid HR structure.
