Sonoco Company

Running head: Organizational change

Sonoco Company

McDaniel College

Lydia Radford

February 14, 2009

2Organizational Change

ABSTRACT

Southern Novelty Company (Sonoco) was founded in 1899 by Major James Coker. Originally

known for manufacturing paper packaging products, Sonoco grew as the packaging industry

expanded. The packaging industry has gone through several phases of metamorphosis including

the use of metal, plastic and finally flexible packaging. Globalization also became a major factor

in how business was conducted in the industry. Competition is the industry was stiff and Sonoco

felt the need for a reorganization to remain competitive. Cindy Hartley the newly hired VP of

HR and a team of managers must present a proposal to the executive board. Hartley and her

team developed two proposals one that favors a centralized HR department and the other that

supports a hybrid approach.



Southern Novelty Company, later changed to Sonoco, was founded in 1899 by Major

James Lide Coker. The company was first known for the manufacturing of paper shaped cones

used to hold yarn. Sonoco did not invent the paper cone, but engineers figured out a way to

automate the production of the paper cones. This automated manufacturing gave Sonoco a

competitive advantage and they soon became the leading producer of cones in the United States.

The Southern Novelty Company continued to add to its product line and rapidly establishing new

operational plants around the world. Through acquisitions and product expansion, Sonoco

became the eighth largest packaging company in the world. By 1998 Sonoco had nearly 17,500

employees in 33 countries serving customers in more than 85 nations with a wide array of

industrial and consumer packaging solutions.

The concept of packaging was derived from the notion of preserving or storing foods.

The oldest form of packaging included the use of paper. Treated mulberry bark was used by the

Chinese to wrap foods as early as the First or Second century B.C. Early paper was made from

flax fibers and later old linen rags. It wasn't until 1867 that paper originating from wood pulp

was developed. The development of flaked cereals advanced the use of paperboard cartons.

Made from base materials (limestone, soda, sand and silica), which were in plentiful supply, all

ingredients were simply melted together and molded while hot. Since that early discovery, the

mixing process and the ingredients have changed very little, but the molding techniques have

progressed dramatically. Feeding off of pottery, glass became a mainstay in packaging. The use

of metal and aluminum emerged in the 1970s created an opportunity for growth in the packaging

industry. Collapsible, soft metal tubes, today known as "flexible packaging," were first used for

artists’ paints in 1841. Toothpaste was invented in the 1890s and started to appear in collapsible


metal tubes. But food products really did not make use of this packaging form until the 1960s.

Later, aluminum was changed to plastic for such food items as sandwich pastes, cake icings and

pudding toppings. As the world began focusing on the environmental issues and. plastic replaced

aluminum during the 1980s.

Advancing technology and labor cost prompted globalization in the packaging industry in

the 1990s. The Internet and e-commerce allows consumer to develop business relationships

throughout the world. This offered consumers the option to deal with any manufacturer that

could best meet their needs. The packaging industry produced sales around $400 billion annually

and Sonoco became globalized and launched an aggressive plan to maintain their market share of

the industry. The overseas markets did well but competition in the United States was

challenging. Consumers began demanding specific packaging and Sonoco expanded their

product line to maintain their share of the packaging industry.

Strategy

Sonoco has maintained their position as a leader and strong competitor in the pack ageing

industry. This is due in part to their commitment to quality customer service, safety, and their

attention to environmental concerns. Sonoco formed a committee that recommends and

establishes policies that are interwoven into the organizations long and short term strategy and

initiatives. The company has partnered with a local high school by helping fund an international

Bachelorette program for high school students. They also encourage their employees to

volunteer at the school. Sonoco offers several scholarships for students to attend Clemson

University. Environmentally Sonoco has made a commitment to use natural resources

efficiently. They also monitor the amount of pollutants emitted into the air. The company takes


a strong position on the safety of their employees. They believe that every accident is

preventable and this philosophy is spread throughout every plant.

Structure

Sonoco has a divisional structure. Divisional general managers had a major voice

regarding compensation, hiring and training. Divisional managers had autonomy over merit

increases and HR had no control over the compensation and reward process. Employee

performance was not associated with compensation and because of the friendly family oriented

environment, low performance was exhibited by some employees. Implementing a pay for

performance system would curtail salaries and reward employees who are performing. “To do

this right requires a significant effort to establish standards and objectives and then to measure

performance against them” (Ding cited in Perry, 2008, pg. 36) A pay for performance system

will help managers determine what a person’s job and how well they are doing it. Companies

could also reward employees at intervals other that merit pay increases. Employees sometimes

forget about the merit award increase because it takes so long (Perry, 2008).

A concept called “broadbanding” would also increase productivity and motivate

employee. Broadbanding is the grouping of multiple jobs into large salary bands (Byars, 2008).

As employees learn new skills they are given a reward or small pay increment. This method

encourages employees to acquire new skills but also improve productivity. It also promotes

lateral movement within the company and allows more control over salary progression.

Sonoco established a friendly family-oriented company. When employees came to work

they felt secure. While this environment is great from a social perspective, the company is a

profit center. This level of comfort did not serve as motivation for employees to excel and as a


result they developed lackadaisical work ethics. Many of the employees at Sonoco had 20-30

years of experience with the company and were approaching retirement age. It is also important

for the company to groom others to take over some of the leadership position in the company.

Succession planning is the process of linking organizational goals to HR. The process

involves identifying employees who will be targeted for training and mentoring them for key

positions in the company. Some factors to consider are: work history, job performance over a

period of time, education and training, and the willingness to take on new projects and offer new

ideas. The interest and goals of the employees would also be considered along with ability to

work with others and embrace the organizational mission and strategy (Werner, 2008). The HR

professional must link the personal assessment with the company’s goals, track progress of the

goals with the help of managers. HR professionals should also monitor goals and trends of the

industry to make sure the company’s future leaders are on the right track. Sonoco has a large

population of older workers and a succession plan should be put in place before these people

retire. Older workers can pass on their knowledge, work ethics and company loyalty to younger

workers. According to the US Bureau of Labor Statistics, more than 25 percent of the workforce

will reach retirement by 2010, resulting in a worker shortage of 10 million people. Some of these

workers may need to continue working because of the economy but Sonoco must put measure in

place to make sure that knowledge base does not walk out of the door.

Low performing employees must be motivated to produce. Maslow’s hierarchy of needs

states that if people first satisfy their psychological needs, they can then focus on safety, love,

and esteem and self-actualization fulfillment. A similar method called McClelland’s Theory of

Needs was introduced by David McClelland. McClelland identifies the need for achievement,

need for power and the need for affiliation as motivators that are directly linked to the workplace


(Robbins, 2008). These programs not only lead to extrinsic rewards but also intrinsic satisfaction

for employees. Although changes were taking place at Sonoco, employees still need to feel as

like part of the company. The change team must ensure that all EEO regulations are being

upheld and feedback should come from the HR department. Programs should also be put in place

for people of different ethnicities, genders, age and educational levels.

Systems

As mentioned above when Cindy Hartley arrived at Sonoco there were no uniform

performance management systems in place. Hartley and her team developed a performance

management system that linked performance to compensation. The best way to get your

employees attention is to start affecting their pay. Using this program provided incentive for low

or subpar performing employees to increase their productivity. The comfort level perpetuated by

the established culture of Sonoco did not serve as motivation to excel and as a result some

employees developed terrible work habits.

Giving employees a cost of living (COLA) raise will not serve as motivation or lead to

increases productivity. Cost of living adjustments gave employees a feeling of entitlement.

Implementing a good pay for performance plan requires the establishment of standards and

measures. Managers and employees should sit down and discuss the plan making sure that the

goals are measureable and realistic (Cummings, 2008). It would even be beneficial to allow

employees a greater role in the establishment of their ratable objectives. A proven technique

would be to use the SMART template to ensure fairness. SMART is an acronym meaning Simple

Measurable Aligned (with the strategic goals of the company) Realistic and Timely. Objectives

based on this concept would ensure that the employee had a clear knowledge of company


expectations. It’s equally important to develop a monitoring tool so that employees and

managers can track the employee’s progress or lack thereof. Managers and employees would

then use the monitoring tool for performance evaluations.

Staffing

Cindy Hartley joined Sonoco in 1995 as the Vice President of HR for Sonoco however

many of the traditional HR functions were not executed from the HR department. The HR

department performed basic functions such as benefit planning and employee relations but

personnel decisions were being made at the divisional level. Each division handled training,

performance management and budgets. This system allowed disparity and competition between

the divisions. Hartley’s recommendation included moving some of these tasks back to the HR

department creating a more centralized structure. The first step was to change the culture by

establishing respect for the HR department and this needed to start with the managers. Managers

were not accustomed to answering to anyone regarding performance evaluations and

compensation so this would be a major change for them. It is essential to gain support from

executives and top management before a change of this magnitude can be successfully

accomplished. More importantly, it may be difficult for managers to “buy-in” to the change

because they are not a part of the initial problem (Chernotskaya, 2009). Change takes time to

achieve. According to Hritz, “it starts with individuals, then have to commit to the change in

order for the team to commit” (Hritz, 2008, pg. 32).

Skills

One important component of Sonoco’s philosophy is care and regard for their employees.

Sonoco has established a strong family environment giving them a high level of employee


attrition. They can now increase productivity by the implementation of a pay for performance

plan. It is also crucial to design employee development and succession programs. If these

programs are not instituted the knowledge of the aging workforce at Sonoco will be lost.

Another attribute is that members of the executive board have extensive experience in the

packaging industry and are now committed to employee development. Because of the skilled

professional employed at Sonoco they have been able to reach into the global markets and

capture a large share of the industries market through partnerships and acquisition.

Shared Values

Some of the core values at Sonoco are solution driven customer satisfaction,

environmental preservation and safety for employees. Customers can expect superior quality

products and integrity from Sonoco employees and management. Their commitment to

environmental awareness is communicated to all levels in the organization from top management

to employees. Finally, their loyalty to employees for a safe, fair and friendly work environment

are hallmarks of this organization.

Style

Sonoco exhibited a decentralized organizational structure. As previously mentioned,

many of the performance and compensation functions were managed from the divisional level.

At one point product diversity and the desire for profit took over the management of the

company.


Recommendations

Centralization

The centralized structure could cost lese because most of the support from corporate

would be via telephone and or the internet. The majority of the work should be mandated at the

corporate level including compensation structure, benefits, etc. There would be little or no

variance in compensation because the values would be set at the corporate level. Often

corporations are not aware of the needs of the divisions and people at the subordinate levels. The

compensation cost values would be predictable based on the staffing levels for each division.

Compensation would be granted at the administrative level rather than at the divisional level

where employees perform. This does not allow for true succession planning because in this

model the planning is performed at the senior management level.

Hybrid

This method is more costly initially but can have long term benefits. The rewards for

productivity tied to valued performance could lead to a decrease in realized profits; however the

resultant gains in the encouragement for thinking outside the box would ensure that the company

would keep pace with market demands for versatility. Divisional managers would have more

input into the business needs i.e.: staffing, performance management, etc. Succession planning

could be better accomplished at the divisional level because managers can see the day to day

function of the employee. This plan would better serve the needs for a pay for performance

program. The family oriented culture could be maintained and employee development can be

established. Employees may be motivated to work better for Sonoco knowing that the

organization is looking out for their best interest.


REFERENCES

Byars, L. (2008) Human resources management. New York, NY.: McGraw-Hill Irwin.

Cummings, T. & Worley, C. (2009) Organizational development & change. Mason. Ohio: South Western Cengage.

Chernivitskaya, D. (Jan 2009) Big plans, Training & Development, 63,1,66-69.

Perry, P. (July 2008) Pay for performance. Industrial Distribution, 97,7,35-37

Robbins, S. & Judge, T. (2008) Essential of organizational behavior. Upper Saddle River, NJ: Pearson Prentice Hall.

Werner, J. (2006) Human resources development. Mason, Ohio: Thomson-South-Western

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Sonoco Company