Evaluation of Sonoco Products Company’s Human Resources Company Since its inception in 1899, Sonoco Products was a company that could be described as constantly growing and thriving. Throughout most of the twentieth century, the company enjoyed uninterrupted growth and financial success. Most of its success could be attributed to the company’s ability to adapt to new packaging materials and technologies as they were developed.
However, during the late 1990s, like many other manufacturing and packaging companies, Sonoco’s profitability was threatened by the fact that its operating costs were significantly higher than those of companies overseas, particularly Asian companies. Because of this decline in income, Sonoco knew that it had to make sweeping changes to help lower costs, improve employee productivity, and make provisions for future success. One of the ways that new CEO Harris DeLoach knew he could cut costs was by restructuring the human resources department.
He then instructed Cindy Hartley, his senior vice president of human resources, to create a new, restructured HR organization that would not only cut costs but would also accomplish three objectives. Her three objectives were to create a system of consistent HR policies and procedures, increase general managers’ accountability for employee development and retention, and to provide customized support for each branch of the business. Additionally, it was clear that Sonoco had communication issues that the revised setup would improve.
As previously mentioned, during the mid to late 1990s, the biggest issue facing Sonoco Products was the need to reduce its operating costs in order to maintain its desired profit margin. The majority of this report will be on Sonoco’s efforts to restructure their human resources systems as a means of cost-cutting. However, that restructuring was only a small component in the cost-lowering process. At noted in Exhibit 1-A of “Sonoco Products Company (A): Building a World-Class HR Organization,” Sonoco was able to reduce the cost of the goods sold in 1998 and 1999, which allowed them to keep the same profit margin.
How was the company able to accomplish this task? The biggest way that Sonoco was able to lower its costs was to consolidate or close many of its plants. Sonoco had to modernize the way that it did business. Simply put, the company had to keep up with an industry whose clients expected it to become more centralized and more able to handle all of its needs. Groysberg, Reavis and Thomas note that Hershey used to have hundreds of companies handle its packaging needs, but, by the end of the 1990s, just twenty companies handled 80% of its needs1.
In order to keep up with foreign companies with lower costs, packaging companies could no longer have hundreds of specialty plants; they had to consolidate and become “one-stop shops. ” As noted in the trade publication Pulp & Paper in June 2000, Sonoco shut down a wood yard in South Carolina. That plant’s sole purpose was to deliver a product to Georgia Power. Just a year and a half earlier, in October 1998, Sonoco shut down two paper mills, one in Amsterdam, N. Y. and another in Terreborne, Quebec. In August of 1999, they consolidated two Orlando, FL area plants that both manufactured what was essentially the same product.
By reducing the number of plants it was running, Sonoco was able to lower its costs and still not sacrifice many jobs. As noted in the articles mentioned above, many of the plant closings simply meant that employees were relocated and not terminated. The results of all of these changes were higher dividends for stockholders in 1998 and 1999, lower operating costs, and a steady level of revenue. It is hard to find much fault in Sonoco’s decision-making processes, as the end result was that it did indeed cut costs and simultaneously modernized its business to complete with companies overseas.
In 1995, Sonoco tasked Cindy Hartley with completely restructuring its HR department, with her focus being on cost-cutting, increasing uniformity, and improving employee performance. Upon her hiring at Sonoco in 1995, Cindy Hartley was immediately confronted by the fact that Sonoco’s current HR system was far from systematic. In fact, she made it one of her top priorities to immediately develop a set of consistent practices that each branch manager would be required to follow.
The company’s previous way of dealing with pay raises is a perfect example of just how messy the company’s HR structure was in 1995. Instead of having a company-wide time in which all employees were provided feedback and given raises, each branch manager decided when this process would take place. The result of this practice meant that employees in different parts of the company (paper, industrial, consumer products, etc. ) received different raises at different times, all as a means for their individual manager to raise his branch’s salaries and increase morale.
Because of this practice, employee raises, normally a source increased morale for the entire company, created jealousy between groups of employees, as different divisions (who received different raises) of the company often worked under the same roof. So how did Hartley address these problems? Her first step was to create an HR council made up of HR division heads and key corporate employees. Together, this council developed a performance management system for each and every manager to complete with each of his employees.
The performance management system was a set of six business objectives and competencies to help managers tangibly judge how their employees were performing. These objectives included developing personal work objectives, measuring employee’s actual production, writing a yearly summary, and conducting yearly reviews. By creating this performance management system, Hartley immediately removed much of the ambiguity in the evaluation process that had plagued Sonoco for so many years. Employees were judged both on their actual, physical productivity and their other skills, like communication skills.
As Richard Oyen explained, the new system ensured that each employee was being compensated for his contribution to Sonoco’s ability to remain competitive in the market. Because the system was instituted company-wide, much of the resentment that had been present between the divisions in the company immediately disappeared. Additionally, because Hartley mandated that evaluations would now take place at the end of Sonoco’s fiscal year, managers would have a much easier time judging past performance (in terms of both production and cost cutting) because of their access to end of year fiscal reports.
The managers would also be able to easily create the upcoming year’s competencies and expectations based on the company’s budget for the new year. The new system immediately fixed some of the inconsistent HR practices that the company had dealt with for so many years by creating explicitly defined steps and timeframes that managers had to follow when evaluating their employees. While most of the procedures that Hartley mandated were certainly very obvious steps to improvement, the procedures certainly made an immediate positive impact. As for her second objective, creating manager accountability for employee development, Hartley and her HR ommittee also addressed this issue in the personal management system that they created. The plan for development of employees was two-fold: improving yearly evaluations and a placing a higher emphasis on leadership training and education. First, because an employee used to be judged on a simple 1-5 scale, many managers found it difficult to justify low ratings of employee performance; there simply were not enough metrics or evaluation criteria on which to judge an individual employee. As described by company employee Jim Bowen, most employees were simply given a rating of 4; consequently, all employees’ performance appeared to be the same.
Because of the fact that most employees were not accurately evaluated, it made identifying consistently low achieving employees a difficult process. When an employee was actually identified as a consistent low achiever, HR and managers struggled to find written justification for terminating an employee. As Jason Colquitt discusses in a chapter about trust and justice, employees value both interpersonal and informational justice – they want to be treated fairly and want the justification for the decisions that affect their wellbeing.
The second part of the employee development problem dealt with long-time employees who were promoted to leadership roles. Managers often noted how recently promoted employees would struggle to adapt and thrive in their new positions. Employees also felt that their career development was being neglected. As noted on page seven of the case study, employees often questioned who was managing their career and who was helping them achieve advancement. Hartley’s performance plan attempted to fix both of these issues.
As discussed previously, one of the most important features in the plan was a fixed system of evaluation that judged employees on their performance in many different areas. Also included in the new performance system were sections for individual career development and personal development. In each of these sections, which are fully detailed in Exhibit 8 of the case study, employees were responsible, along with their managers, for tracking and recording their own progress. Not only did this system help employees consider what goals they wanted to achieve, but the plan also promoted communication between managers and employees.
Along with actually formulating and discussing career objectives, Hartley placed more responsibility on managers to identify and train future leaders. Managers were also evaluated using three separate approaches, in hopes of truly holding them accountable for their employees’ performance and development. Their performance was judged through the use of the performance management system as well as the use of 360-degree feedback. Hartley felt that 360-degree feedback would be beneficial to manager improvement, as it would provide managers with evaluations from both supervisors and subordinates alike.
The supervisors were also evaluated on how well they began to prepare their successors. While Hartley’s use of 360-degree feedback was new to Sonoco, the use of this method was becoming more and more common, as Steven Ginsberg noted in an article in the Los Angeles Times. To assist managers in their efforts of succession planning, Hartley implemented a system in which employees were trained for future positions. This training system called for employees to get 70% of their training from on-site activities and the other 30% from off-site training and education.
While the studies in the textbook would disagree with the notion that increased training and education has a highly positive correlation to employee performance, Hartley’s initiatives will most likely have at least some positive impact on employees’ performance in their new position. If nothing else, employee morale and normative commitment should improve with the knowledge that the company is investing resources into their personal development. Furthermore, the plan that Hartley created and implemented follows the same logic that Bakar and Tabassi promote in their paper about human resources.
They argue that high-level managers must know that the training process must begin with the recognition of training needs through job analysis, performance assessment, and organizational analysis. It appears that Hartley agreed with their opinion and followed this procedure in her attempts to fix Sonoco’s problems. A quote from a Ford Motor Company executive discussing the restructuring of that company further illustrates the importance of employee performance and development. We’re doing a lot of restructuring to meet changing customer demand. We are retaining and leveraging talent to deliver the plan, so you have to make sure you have the right people in the right jobs. ”
Finally, Hartley’s third goal was to ensure that her new system provided customized, strategic support to each division and each branch of the company. As soon as she was hired, Cindy Hartley worked vigorously to create a harmonic restructuring of the entire human resources department. After five years of thorough research of the ompany’s internal and external environments, Hartley designed and presented two options for Sonoco’s restructuring effort: a centralized organizational structure and a hybrid organizational model. Given the Sonoco’s belief that “the people build the business,” the hybrid organizational model would better benefit Sonoco in its pursuit of providing customized, strategic support to each of its divisions. Under the both the hybrid and centralized organizational models, human resources would be divided into three branches. For both models, the first two branches are identical.
The first branch would handle the administrative tasks, like those associated with payroll and benefits. The second branch would be responsible for handling the company’s centers of excellence, which focus on employee training, as well as handling the company’s implementation of Hartley’s performance management system. The difference between the two models is in the third branch. If the centralized model were adopted, the third branch would consist of a single large group of field representatives, with each representative being responsible for the individual needs of ten to fifteen individual plants.
This approach’s biggest flaw is that, while the representatives could probably provide adequate service to each of their branches, it seems unlikely that they could really provide “customized, strategic support,” as each representative would be responsible for too many plants and would be unable to focus on individual plant needs. However, in the hybrid level, there would be a few people who remained at the business level. These people would be assigned to a specific division, which would seem to help them become more of an expert of that division and more able to provide truly customized support.
Although selecting the hybrid option (instead of the centralized) saves a bit less money, the extra spending will directly help the HR department accomplish its goal of providing customized, strategic support to each of its branches. It is apparent that Cindy Hartley undertook quite a project when she was tasked with restructuring the entire human resources department of Sonoco company. While she was able to fix many of the problems that the company had dealt with for many years prior to her arrival, she still had more work to do.
She still had to get the company’s employees to further buy into her efforts and she certainly had to make revisions to the plan when she got back the first set of results from her performance management system. She still needed to provide more motivation for managers to accurately assess their employees, despite the new clarity in procedure that she created. It is needless to say that as a company grows, its HR department must grow and adapt along with it.
