(Mt) – MGMT 371 USCC Packaging Industry Experienced Dynamic Changes Case Study

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For the exclusive use of J. Sion, 2021. IN1175 Wildfire Entertainment: Organizational Structure Archetypes 07/2015-6139 This case was written by Charles Galunic, Professor of Organisational Behaviour and the AVIVA Chair in Leadership #038; Responsibility, and Warren Tierney, Research Associate OB Area, both at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The case is loosely based on the mobile gaming industry. Wildfire Entertainment is a fictitious company. The structural features and changes discussed here are not meant to capture the history and experiences of any particular firm but rather to convey the formal structural options and challenges faced by many firms as they grow. It has benefited from the advice and insights of INSEAD Professors: Jose-Luis Alvarez, Noah Askin, Henrik Bresman, Martin Gargiulo, Frederic Godart, Michael Jarrett and Mark Mortensen. Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu. Copyright © 2015 INSEAD COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER. This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. In 2006, two students with technical university training won a mobile game development competition. It had never been so easy to use computer code to make so many people happy, so why not start a company to do so? Following a series of investments, their company was renamed Wildfire Entertainment, with its base in Amsterdam. Its focus was to offer consumers unique and novel stories via its games. By 2009, Wildfire Entertainment had developed over 50 games, but none of them really took off. It was also working on animated (short) films and learning apps (for preschoolers and primary school kids). The company came close to shutting down when the first version of “Squealers”, a puzzle game for the iPhone, was released. Squealers became one of the top games in the thriving mobile phone application market (it has since been downloaded over 1 billion times), with paid downloads accounting for roughly a quarter of total downloads, making it a top-selling game. Wildfire Entertainment had a record-breaking year in 2012. Revenue doubled, with an EBIT margin of 50%, headcount more than doubled, and new offices and a New Business Ventures unit were set up. 2010 €7 Total Revenues (millions) 2011 2012 €80 €150 2013 €160 The Mobile Phone Application Industry In the late 1990s, Nokia had launched the very successful “Snake”, an app preinstalled on all mobile devices manufactured by Nokia, which quickly became one of the most-played video games (over 350 million devices worldwide). This helped propel Nokia to the forefront of the mobile phone industry. Since then, smartphones had become more like computers than phones, thereby enhancing the capacity of designers to create all sorts of games and video apps that could be readily accessed via most mobile phone devices through increasingly efficient online platforms (App Store, Google Play, etc.). As a result, a flourishing industry grew up. As of 2012, the Apple iOS apps market alone housed over 600,000 smartphone apps, with over 30 billion downloads to date. Similarly, the Android OS market gave access to hundreds of thousands of additional apps, with some 3 million downloads per day from its online platform. It had become a major marketplace, not least for entertaining games. The Early Days Wildfire Entertainment was, like its founders, an informal, exciting place to work. Priding themselves on a blend of free spirit, camaraderie and trust in the workplace, the founders wanted to keep things simple. The core structure was formed of project teams, with several in operation at any point in time. Copyright © INSEAD 1 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. In the early years, the organization employed 40 people, all housed in the same building, on the same floor, with the same coffee area, and in easy reach of places to eat in the neighbourhood. They wanted to do one thing: build great software products, with a focus on games but also on animations and learning apps. If any anxiety existed in the workplace, it sprang from concerns about how well the products would do in the marketplace. There was no good reason to establish elaborate formal routines, formal job descriptions or regular work hours. The founding members made all the decisions, while the other employees focused on implementing their ideas. Often this led to cool products, some based on a whim. The structure was informal and fluid. The sense of intimacy inspired employees to be focused, committed and hardworking. Conversations between the employees were quick and generally productive. If someone had a problem or issue, or needed to coordinate with another task underway, they simply walked across the office area and spoke to the person they needed to talk to, who was easy enough to identify. If the issue could not be resolved, the problem moved up one level (there were only two levels). It was resolved quickly, with the founders providing effective real-time coordination of the inputs and outputs of the company. The culture was “healthy”, with shared assumptions about responsiveness, collaboration and a strong work ethic, without having to be written down in booklet form. Taken together, these made Wildfire Entertainment responsive and effective at completing objectives quickly and relatively cheaply. Similarly, the company could bring new apps to the market without delay. Meanwhile, the mobile apps development landscape was being reshaped like few other industries in history. By 2011, smartphone and tablet shipments exceeded those of desktop and notebook computers combined. Users were clearly shifting from browsing on computers to surfing on their smartphones and using all sorts of apps. Wildfire Entertainment was perfectly positioned to reap the benefits from the smartphone’s capacity to entertain. Games could become more colourful and sophisticated, and the diversity of projects grew. However, as the number of projects increased, employees were required to work on more projects at once, substantially increasing the complexity of each individual job and reducing the time available to answer their colleagues’ questions. Suddenly, coding a cool game was not enough; testing had to be done on more devices and platforms, software support had to be considered, payment and distribution systems needed to be evolved and scaled up. Consequently, the organization was forced to continuously hire more employees as the workload became overwhelming. The lack of formularized routines began to push up costs substantially, and, more critically, slow down decision-making. Without any guidelines (and with the founders being so busy), employees would react to whatever crisis the organization happened to face that day. Time dedicated each month to ‘fire-fighting’ was increasing—the planning capability was weak and there was a lack of prioritization. Although its initial success had propelled the company to prominence and visibility, the cracks on the surface were becoming deeper. No one took the time to create proactive routines or schedules to ensure that predetermined objectives would be completed. Even simple tasks became difficult to accomplish. The old informal relationships became less efficient as a basis for coordination and tensions began to rise. People who could not withstand the chaos left the company; others got frustrated because no career paths were emerging. There was still the Copyright © INSEAD 2 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. two-level structure—very flat, but no longer able to cope with the complexity of the work or the “adult” desire for a career roadmap. Investors became worried as the environment at Wildfire transformed from entrepreneurial to chaotic. The founding members agreed that Wildfire needed to address both long-term planning issues and immediate operational issues. It was clear that mechanisms of accountability and sustainability needed to be implemented and standardized. The strategic context was also changing. Distributors of their products were now sophisticated organizations—this required a higher level of sophistication and professionalism in how Wildfire operated. Seeking to resolve these issues the company hired Elizabeth Rankin. Functional Structure Elizabeth Rankin (an INSEAD MBA) had 10 years of consulting experience. While never managing a large company, she did have a good feel for companies of various sizes through her consulting work. It did not take long for Elizabeth to realize that the elements which had originally brought Wildfire Entertainment success (flexible, free-flowing job conditions) were now contributing to its downfall. Something needed to change. Elizabeth was conscious that changing the structure at Wildfire would be extremely difficult as she lacked the specialized technological skills to give her legitimacy among its (mostly) technical people. Still, understanding strategy and interpersonal relations were the hallmarks of her business acumen, and the company’s owners and investors realized that these were essential to propel the company forward. She was given their full support. The first serious design she chose to implement was to create a hierarchical, functional system (see Figure 1). This required careful consideration of the job units themselves: What were the fundamental tasks people were performing? What was the basic work? This meant: (1) considering various technical roles within an over-arching operations unit (storyline development, animation specialists, and mainstream software development engineers) (2) creating a few “R#038;D” type jobs (so that forward-looking work could be accomplished without being bogged down by active, client-facing work) (3) crafting core support functions (such as Finance/Accounting and Marketing). Job descriptions and layers were created, each function having a head manager and then a variety of roles and levels within which people could be developed and promoted through. This design brought much greater clarity to the work and deepened the expertise within each unit, which effectively operated as a team. Suddenly the work was no longer split amongst various “projects” but could be carefully planned and coordinated across these functional units, with greater efficiency. The focus was immediately palpable—things got done faster, people had task clarity and yet felt connected to the whole, motivation improved, accountability was established and reporting manageable. While this structure worked well for a few years, cracks started to appear in the system. Copyright © INSEAD 3 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. The main symptom of deeper problems was speed: the company was slowing down in generating cool products. First, sub-groups had proliferated within each function (for exle, the software development team divided into personal computer and mobile phone devices, and then into personal computer, mobile phone, and tablet devices). Layering increased: from two levels in the golden era, the company now had seven, and it was still a modest-sized company. The deepening expertise within each function came at a price—no one saw the bigger business/product picture. Nor was the system producing enough “general managers” as opposed to simply functional specialists. More time seemed to be spent on taking care of the routines within one’s function than thinking holistically about the business and what customers really wanted. Delays became the norm as even moderately important decisions had to be cascaded up the organizational chart to the senior management committee, resolved at this level (where backlogs formed), and then cascaded down to the appropriate level. Worst of all, reporting increased to the point where people thought that they were doing “management” if they were fulfilling their “reporting” duties – no one realizing that these were not the same thing. Teams that had naturally worked together became increasingly polarized. In the beginning, story writers and software developers had worked side-by-side on specific projects in an active, real-time way. This was no longer the case. The culture of “collaboration” and “responsiveness” was being eroded, and morale was slipping. Basically, the company was simply not giving enough focus to specific product-market categories (pre-teen games, ado/adult games, animations, learning tools). Once again the strategic context was shifting. These product-market areas had developed their own distinct consumer niche or culture, product scope and, in some cases, technologies (such as for animation work). The pure functional structure, while it had brought clarity early on, could no longer cope. Matrix Structure As the company continued to expand and the different product markets developed, Elizabeth (now into her third year) thought it was time for another restructuring. Wildfire Entertainment needed to have dedicated teams for each of the main products. Specifically, production teams (which already existed) would be given more definition freedom, and voice. First and foremost, each would have a dedicated product team leader who would report directly to Elizabeth. The resulting production teams co-existed with the larger functional teams. That is, these individuals would report to both the functional heads from which they emerged and to the product team leaders (i.e., a matrix). The idea was to get the best of both worlds: an integrated holistic view of each major product line (which should bring more speed) without losing the efficiency (i.e., non-redundancy) and technical depth of a functional organization. Elizabeth felt that the product markets still overlapped enough to make dedicated resources unnecessary beyond this “simple” structure. The matrix worked well enough in the first year, but then problems began to surface. One was “soft” in nature, having to do with how well the matrix structure was implemented. As the company grew, Elizabeth had less and less time to “referee” the matrix structure. Because resources were shared (integrated budgets were still the norm), disagreements and confusion emerged: Who has the final say over product features? Who controls distribution and rights Copyright © INSEAD 4 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. management? Should the product leaders be allowed to tell engineers what their priorities should be? How much of the software development budget can a specific product team access? Since there was too little consensus and compromise amongst the axes of the matrix structure to resolve these issues, politics were emerging as team members lower down sensed the confusion amongst their (competing) bosses. All product teams wanted the most experienced software developer exclusively working on their project. The engineering person on the product team would try to commit to the product team’s engineering plans, but had no authority to change the engineering team’s schedule. Truth became loose and operations slippery and confusing. A second problem emerged from the matrix, this one having to do with the logic of the formal structure given the continued evolution of the various product market segments within which Wildfire operated. The circumstances of the major product-market streams (gaming, animation, learning tools) were different enough that the trade-off in favour of an integrated organization (over a divisionalized structure) was no longer obvious. Animators wanted to expand their offerings into longer length productions and series development, and the learning tools people wanted to explore special partnerships with schools, providing products (and now services) that would mimic the school curriculum and timing. Monetization could also change, as some institutional users preferred a subscription price “all-you-can-eat” arrangement, rather than an ad-based or pay-per-download model. The reality was that while all products were “digital” and benefited from core commonalities, these businesses were growing apart. Moreover, Elizabeth could see that the core talent of the company was more varied than ever before (especially between animation and the other areas), which meant potential differences in how to source, develop and compensate individuals. Divisional Structure Although the trade-offs were more complex, Elizabeth had to decide whether to take a further step and move towards a divisional structure, now that the company was into the hundreds of employees, with more to come. She considered three broad divisions: Game Development, Animation #038; Movie Development, and Learning Tools. The move, she thought, would be partly motivated by the continued success of the company but particularly by the substantial (yet unique) opportunities in each of these marketplaces. At the same time, she considered retaining a fourth division, Administration, to include utility functions that serviced the other three businesses (Finance, HR, IT, Legal). Elizabeth noted: “I believe people do their best work when accountability is razor sharp, coordination is fluid, and there are few layers between the senior leaders and the people who make things happen behind their desks and on your screens. In a sense, I’m trying to return a large and growing company to its roots, so that the core operating teams have a bit of that feel of the golden days, the start-up days. I will also have more time to worry about larger strategic issues, not least possible acquisitions.” Copyright © INSEAD 5 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. “Of course, I do have worries. As my shareholders and our CFO constantly remind me, a divisional structure will have a lot more redundancies – it will be more expensive.” Elizabeth knew that restructuring work is never complete. She had seen more than one company adopt a decentralized, divisionalized structure, and then hit a wall once the growth party was over. Convergence in markets and technologies frequently occurs and areas of fervent technological invention and innovation may give way to a “dominant design” technology (commoditization) that requires greater focus on efficiencies, sharing and integration. She knew she had to keep an eye on the silo mentality that divisional structures encourage: “This is a big challenge and puzzle for me: how do I reap the benefits of autonomy but avoid the sort of silo mentality that will prevent me from capturing efficiencies and integration opportunities when they appear?” Beyond the Archetypes Her experience as a consultant had taught her that firms go through cycles of centralization (as technologies, operations, and/or customers converged) and decentralization (through disruptive and novel business models and/or technologies). She understood that structures are not forever but must evolve to fit the times, that every company must find a custom-built solution. The key was to let the strategic context and reality guide these changes: “I have seen personalities drive these changes, just wanting to do something ‘different’ because they had to justify their appointment…not a good recipe for organization design.” She also knew that she had to look into futuristic structures like “the network organization” or “holacracy”, while realizing that these really had a lot to do with the informal, cultural underpinnings of the firm, a sphere that required constant attention. Copyright © INSEAD 6 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. Figure 1: Functional Structure Founders #038; Office of CEO Administration Marketing #038; Distribution Personnel Legal Controlling Storyline Operations R#038;D Animation Software Engineering Figure 2: Matrix Structure CEO Product Lines Administration Marketing #038; Distribution Operations R#038;D Product Team 1 Product Team 2 Product Team 3 Product Team 4 Copyright © INSEAD 7 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. Figure 3: Divisional Structure Founders #038; Office of CEO Administration Controlling Division 2 Animation #038; Movie Division 1 Gaming Operations Marketing #038; Distribution Software Development Copyright © INSEAD Operations Marketing #038; Distribution Personnel Legal Division 3 Learning Tools Software Development Operations Marketing #038; Distribution Software Development 8 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. 9-410-082 MARCH 11, 2010 DAVID A. THOMAS BORIS GROYSBERG Son noco Prroductss Comp pany (A A): Buillding a World dClaass HR Organ nization n (Abrid dged) p of human h resou urces (HR) at Sonoco—a 100-year-old 1 g global Cindy Hartley, senior vice president ging—was meeting m with her h five-memb ber reorganizzation provider of industtrial and conssumer packag f in Augu ust 2000. The company’s new n CEO, Harris DeLoach h, had asked Hartley H to pro opose task force altern native restructturings of HR R that would reduce r the fun nction’s costss by 20%, or $2.8 $ million. Th he uninterrup pted growth and financial success s that Sonoco S had en njoyed since the t early 19800s had ended d by the late 1990s. Like other o packagiing companiees, Sonoco was w highly lev veraged due to t the fixed costs of its many m plants. Any A slight shiift in volume,, like the drop p in U.S. man nufacturing ex xports wing the 1997 7–1998 Asian financial crissis, had a sev vere impact. Sales S fell 6% between 1995 and follow 1999, from $2.7 billlion to $2.5 billion; b the co ompany man naged to increease net incom me by 14% during d p by red ducing expensses. But declin ning top-line sales caused d the stock prrice to significcantly that period trail th he S#038;P 500 between 1995 and a 2000, gen nerating heav vy pressure to o restore shareeholder valuee. Co ontrolling com mpanywide costs to sup pport a new business mo odel was a prime agend da for DeLoach. Sonoco’ss new busineess model was w aimed at generating top-line t grow wth and reiniing in mpetitive. Th he consumer-p packaging diivision would d have to reto ool to overaall costs to bee globally com meet large custom mers’ needs fo or rapid chan nges in pack kaging, and the t company’’s growth strrategy d for cross-divisional coop peration to deevise nimble solutions forr such custom mers. The strrategy called also called c for retthinking the structure of certain comp pany function ns, including g HR. Under HR’s existin ng structure, each generall manager (GM M) managed talent within n his or her division; d talen nt was not viiewed as a corporate resou urce. Sin nce her arriv val five yeaars earlier, Hartley H had introduced a series of new policiees for perforrmance man nagement, co ompensation, developmen nt, and succcession plann ning. Her cu urrent projecct, which she and the task force were now wrapping g up, was to respond r to DeeLoach’s challlenge by deevising two allternative org ganizational structures s forr HR that would cost less and support three ambittious objectives: (1) to incrrease GMs’ acccountability for talent maanagement; (22) to distributte HR talentt and supportt more evenly y across the co ompany’s div visions and make m HR systems and proccesses consisstent; and (3)) to optimizee HR’s ability y to provide customized, strategic sup pport to the GMs’ busin nesses. In DeL Loach’s wordss, “You can have h the best strategy in th he world, butt if you don’tt have effectiive execution n by people, itt’s going to faail.” ______________________ __________________________________________________________________________________________________ Professo ors David A. Thom mas and Boris Groy ysberg, and Globall Research Group Senior S Researcher Cate C Reavis preparred the original veersion of this casee, “Sonoco Productts Company (A): Building B a World-C Class HR Organizattion,” HBS No. 4055-009. Professors David D A. Thomas an nd Boris Groysbeerg prepared this abridged a version with w the assistancee of writer Ann Go oodsell. HBS cases are developed so olely as the basis for f class discussiion. Cases are not in ntended to serve ass endorsements, so ources of primary data, d or illustrationss of effective or inefffective managemeent. Copyrig ght © 2010 Presiden nt and Fellows of Harvard H College. To T order copies or request permission n to reproduce matterials, call 1-800-545-7685, write Haarvard Business Scchool Publishing, Bo oston, MA 02163, or o go to www.hbsp p.harvard.edu/educators. This publicaation may not be digitized, photoco opied, or otherwise reproduced, posteed, or transmitted, without w the permisssion of Harvard Bu usiness School. This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. 410-082 Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) Hartley opened the task force’s final meeting by summarizing the two schemes for the members to debate one final time. Shortly she would present both options to DeLoach and the executive committee. DeLoach had also asked her to explain which option she and the task force favored and why. A Profile of Sonoco in 2000 Founded as the Southern Novelty Company in 1899 in Hartsville, South Carolina, Sonoco gradually branched out from manufacturing a textile-industry product line into consumer and industrial packaging. Growth occurred mainly via acquisitions; in the 1990s alone, the company made over 60 acquisitions worldwide. Though North America accounted for approximately 80% of sales, Sonoco’s 17,300 employees operated 285 facilities in 32 countries. Sonoco’s 10 businesses occupied two segments: industrial packaging and consumer packaging. The industrial segment, which served the textile, paper, and film industries, generated 55% of company revenue and employed 11,000 people. The consumer-packaging segment’s 6,000 employees produced packaging for food and consumer products and high-density film. Customers included Gillette, Kraft, Nestle, and Procter #038; Gamble. Sonoco’s culture was family-friendly, paternalistic, collaborative, ethical, and team-oriented. “We don’t look for that single superhero,” explained a longtime employee. “Sonoco is made up of a group of ordinary people doing extraordinary things.” Many employees spent their entire careers at the company. In 2000 over 60% of the executive committee had been with the company at least 20 years. Roughly 2,000 Sonoco employees were based in Hartsville, a town of approximately 31,000. But Sonoco was not a sleepy small-town company when it came to business practices. “We have ended up as a leader in most of the businesses we have been in,” one executive pointed out. But its tight-knit culture generated reluctance to hold underperformers accountable. As long as the company performed well financially, changing this feature of the culture was not a pressing need: “You could ride with the little bit of extra cost of a C player not pulling their weight,” one manager said. By the late 1990s, however, a falling stock price and new competitive challenges made it clear that certain aspects of Sonoco’s culture and structure would have to change. The Packaging Industry In the late 1990s roughly 100,000 packaging companies generated annual worldwide sales of approximately $400 billion.1 The United States accounted for $115 billion of this total, closely followed by Asia and Western Europe.2 Consumer packaging represented 70% of industrywide production revenues, and industrial packaging 30%. Paper and board still accounted for 34% of revenue, but durable and cost-effective plastic was supplanting metal and glass in the food and cosmetic industries.3 By the late 1990s globalization presented new competitive challenges and growth opportunities: heavy manufacturing was moving from the United States to countries like China and India, where labor was cheap, and many U.S. firms were investing heavily overseas. 1 Ian Hamilton-Fazey, “Wrapped Up with Printing,” The Financial Times, May 18, 2000. 2 Mary Ann Falkman, “Getting the Wrap on Labeling,” Packaging Digest, May 1, 2000. 3 Ian Hamilton-Fazey, “Wrapped Up with Printing,” The Financial Times, May 18, 2000; Kathryn Stratton, “Consumers Call for Packaging to Deliver Safer Food, Safer Environment,” Food Engineering, October 1, 1998; Nancy Brumback, “Packaging Needs Are Changing as Boomers Age,” Supermarket News, August 16, 1999. 2 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) 410-082 Meanwhile, U.S. overcapacity led to consolidation. Between 1998 and 2000, the market share of the five biggest packaging companies in North America increased from 40% to 60%.4 Domestic consumer markets were becoming increasingly segmented as products were tailored to the preferences of distinct consumer groups, especially in the food and beverage industry. Instead of one or two versions of a product, seven or eight were becoming the norm.5 Packaging’s role in branding was also winning more attention. In traditional retail, packaging was widely viewed as more influential than advertising in wooing and retaining consumers. The onus was on packaging companies to be equipped to change on a dime. “The winners in this race will be those who have the ability to speed development through the use of new or emerging technologies and/or application of innovative tools,” one industry observer noted.6 Many packaging companies invested in sophisticated equipment able to handle abrupt changes in product design.7 Meanwhile the one-stop-shop concept was proving attractive to manufacturing firms, many of which consolidated their stables of suppliers. Hershey, for exle, which earlier had relied on hundreds of packaging suppliers, met 80% of its packaging needs via only 20 suppliers by the end of the 1990s. Having fewer suppliers enabled the company to significantly shorten the initial-packagingconcept-to- market-delivery cycle.8 In response to these trends, Sonoco’s strategy was becoming more attentive to the solutionsoriented needs of the end consumer by the late 1990s. “We realized it was not only important to understand what Procter #038; Gamble wanted, but what the consuming public wanted and was attracted to,” said one executive. Sonoco also began pursuing a more coordinated marketing approach whereby a single point of contact within the company would coordinate all the business needs of large customers like Procter #038; Gamble and Nestlé. Hartley’s Findings and Innovations When Sonoco hired Cindy Hartley as VP of HR in 1995, she found a highly decentralized and siloed HR function, inconsistent in its processes and services from business to business. (See Exhibit 1 for HR’s 1995 organizational structure.) Divisional HR managers reported solid-line to general managers of the businesses and dotted-line to corporate HR. This structure aligned HR with the divisions, one former GM said, but its role was more tactical than strategic; divisional HR managers focused on day-to-day employee-relations issues. “Business managers at the time believed HR was strictly a back-room operation,” a longtime executive said. By the mid-1990s the largest divisions had their own HR functions, with separate systems, budgets, performance-management processes, and leadership and training programs. “The divisions were left to create whatever type of HR function they wanted,” one corporate HR executive recalled. “We constantly had this non-cooperative competition among the big, siloed divisions.” One GM described a resulting compensation fiasco: “One division would announce their general annual salary 4 “Smurfit Pushing for More Acquisitions to Become Dominant Force in Packaging,” Irish Times, March 1, 2000. 5 “Consuming passions,” Packaging Magazine, June 3, 1999. 6 Jennifer Billings, “What the ‘Experts Say,’” Food #038; Drug Packaging, November 1, 1999. 7 Kathryn Stratton, “Consumers Call for Packaging to Deliver Safer Food, Safer Environment,” Food Engineering, October 1, 1998. 8 Ibid. 3 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. 410-082 Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) increase in January, while we would wait until June. If they happened to come out with a 4% increase and we were thinking more like a 3% increase, we would be put in a real dilemma. Some of our plants were co-located, and our people interacted with one another. What would this do to morale?” Corporate HR was viewed primarily as a watchdog to head off legal and employee-relations problems. The staff’s complex structure also prevented it from acting strategically. Benefits-andcompensation planning reported to a different VP than benefits-and-compensation administration. The director of the former would devise new policies and hand them off to the administrative group; communication on overall direction was scant. Compensation was centralized in name only; divisional GMs enjoyed vast latitude in how they compensated their people. “General managers in the businesses would often tell the compensation department, ‘I want to do something different from a compensation standpoint,’ said the VP of employee and labor relations. “And because of the reporting structure, there was not much HR could do but meet their wishes.” Compensation and benefits were viewed as entitlements rather than costs in need of control or tools to drive behavior. Nor were business goals and individual objectives linked. Performance reviews were conducted on employees’ anniversary dates rather than the start of the company’s fiscal year, when annual budgets and strategies were developed. Sonoco’s merit-increase process was mechanistic, unreflective of actual performance. Most employees were paid at or near the midpoint for all individuals and jobs in their salary grade. According to several Sonoco managers, division managers often manipulated performance ratings to wangle salary increases for their staff. Evaluations rarely reflected performance accurately; termination of an employee who had received consistently good performance ratings was thus difficult. A former employee-relations manager recalled asking a GM how he proposed to tell an employee he was being terminated despite excellent performance evaluations. “You guys are in HR,” the GM replied. “You need to help me figure that out.” More seriously, succession planning was pro forma; employees were asked about their career aspirations, but action plans were never developed. “Nobody’s managing my career” and “Nobody’s telling me what I ought to do next” were common complaints. Priorities for a Business-Oriented HR Function Upon arriving in 1995, Hartley’s mandate was to build a more professional, business-oriented HR group. Leadership development was a high priority; the shortage of suitable candidates for key jobs could hobble the company’s ability to grow. HR also needed to develop the sophistication to support the company’s growth strategy, drive down costs, improve productivity, and enhance workingcapital management and cash flow. Hartley promptly identified three priorities: (1) The mechanical and arbitrary compensation and performance-management systems needed to be linked and made consistent and more accurately reflective of employees’ contributions to performance. (2) The company needed to create an employee-development process to refine employees’ skills and to identify and develop deficient skills. (3) Succession planning to identify and prepare the next generation of leaders was urgent: a number of newly promoted managers were failing due to lack of preparedness. “We wanted to see Sonoco with a fully integrated process where everything was connected and, in turn, was intuitive,” said Rick Maloney, whom Hartley named as Sonoco’s first director of organizational development in 1995. “It was critical that it be obvious to people that performance management, development, and succession planning all fed off of one another, were mutually inclusive, and were linked with Sonoco’s people, values, culture, and business objectives.” (See Exhibit 2 for a timeline of Hartley’s HR initiatives.) Clearly, Hartley was hired to be a change maker. Colleagues described her as a collaborative, systematic, hands-on manager. Early on she appointed an advisory HR council, comprising 4 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) 410-082 divisional HR heads and key individuals from corporate HR, to advise her and ensure that new initiatives supported strategic business goals and the culture Sonoco wanted to foster. Hartley spent the first few months pursuing buy-in about the changes she was contemplating. Several divisional HR heads resisted her initiatives, dubious that they would boost Sonoco’s performance. Buy-in grew as it became apparent that divisional HR would actively participate in all decisions. “The more they saw that they would be able to tweak the things we discussed, the more comfortable they got,” Hartley said. The council tackled performance management and compensation first. “Performance management and compensation were HR fundamentals that we could design and introduce across the entire company fairly quickly,” Hartley explained. Actions to Align HR Systems with Business Objectives A new performance-management system was introduced in early 1996. To drive consistency and alignment, the new system was designed as a cycle that began with companywide goal setting and earnings targets and cascaded down to the level of individual performance. Supervisors and employees initially agreed on what was to be measured and how. In one division, each plant manager would have a set of metrics like plant profit, machine downtime, quality, customer returns, and safety. Another division’s metrics might emphasize scrap reduction and machine throughput to drive productivity and cost reduction. Both sets of metrics were linked directly to overall divisional financial and business objectives. The cyclical system in turn highlighted individual employees’ development needs and fed into creation of a career-development plan. By mid-1997, a shared system of performance management for salaried employees had been implemented throughout the company. “Until you systematize something to ensure that it is done and done correctly,” one seasoned executive noted, “you will never get compliance.” The compensation system was linked in turn to the new performance-management system. Sonoco’s 18 salary grades were replaced with five wider salary bands to enhance managerial flexibility in differentiating among employees and awarding merit increases. The new plan called for managers to know an employee’s contributions first-hand, to make fair decisions on merit awards, and to explain those decisions to their employees. Because the system would focus on the value added by the individual, considerable variation within salary bands was considered normal and desirable. The primary goal was to reward individual contributions while adhering to market guidelines. As the explanatory brochure put it, “Pay should be considered a business decision at Sonoco.” Acceptance by divisional senior management would be critical to changing the company’s approach to leadership development and succession planning; Hartley formed an advisory team of divisional GMs to ensure that they had a voice. The team soon endorsed a new four-step leadership-development system. Roughly 70% of development would take place on the job, in the form of job changes and short-term assignments; the rest would consist of formal training and education. Six core leadership competencies were pinpointed: customer satisfaction through excellence, communication, teamwork, strategic integration, technical/professional skills and knowledge, and coaching/mentoring. Assessment of a manager’s competencies flowed from three sources: the performance-management system, 360-degree feedback, and succession planning. Newly introduced 360-degree reviews occurred every 24 months. Succession planning took place annually at the executive-committee level, and Hartley methodically assessed candidates for key jobs to pinpoint actions needed to speed readiness or address organizational issues. 5 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. 410-082 Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) Doing More with Less By mid-2000, most fundamentals were in place. Hartley had overhauled performance management, development, diversity, compensation, succession planning, IT systems, 360º appraisal and communication, but plenty of work remained. (See Exhibit 3 for an outline of talent-management processes integrated with business objectives.) Talent management was still largely controlled by divisional GMs and HR managers, some of whom avoided dealing with underperformers. And though the basic compensation system had been overhauled, incentive plans were not yet fully aligned with new company strategies. The restructuring of HR, though undertaken mainly to reduce costs, also represented an opportunity to extend companywide accountability for talent. At the task force’s final meeting before her presentation to the executive committee, Hartley summarized the two structural-reorganization proposals (see Exhibit 4 for graphic representations of the two proposals). Option 1 was a centralized model. Most HR services would be handled by four centers of expertise; the divisions would be served by a pared-down field staff. This structure would reduce the costs of driving administrative and other process improvements. But restricted opportunities to align directly with individual businesses’ needs and interests would make other objectives more elusive. Would business managers enjoy the same level of HR service? Would centralization lead HR to forget who the customer was? Would HR become just another corporate call center? Option 2 was a hybrid structure in which the divisions would retain some direct involvement in staffing, succession planning, personnel programs, compensation, and benefits. The main advantage of this plan was that it would leave intact a divisional HR presence on which GMs could rely. New group HR managers would provide a strategic link between corporate HR functions and the businesses. The central question was whether changes could be effectively driven across the company with this model. Which functions would be owned by corporate, and which by the divisions? Hartley then followed up with some observations about how the alternative structures would actually operate: The administrative back-room functions and the Centers of Excellence operate identically in both structures. The key differences lie in how the link to the businesses is structured and what services are provided. Also, the projected cost savings are $3.1 million for the centralized approach and $2.7 million for the hybrid structure. Under the centralized structure, field HR reps are “on call” to serve the needs of the businesses. Each rep covers 10 to 15 plants and consults one-on-one with line managers about plant-level HR issues. Responsibility for the design of strategic programs and initiatives that support overall business needs resides in the Centers of Excellence; business-unit leaders contact those people directly with their needs. Since not much support is provided directly to the GMs, this structure costs less. Under the hybrid model, HR is organized into two sectors—consumer and industrial— mirroring the organization of the company as a whole. Each sector is assigned a VP of HR, supported by a director of employee relations and a director of compensation and organizational development. Since these three individuals participate in sectoral planning and interact regularly with the GMs, they have first-hand knowledge of the businesses and can anticipate needs for HR support. They also link the GMs within the sector to the Centers of Excellence. Each sector also has field HR reps, who provide more proactive business-related 6 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) 410-082 support, including talent management, succession planning, and formal coaching than in the centralized model. As soon as Hartley concluded her observations on the two options, the task-force members erupted in informal and occasionally heated back-and-forth about the relative merits of the two plans. Shortly after this meeting Hartley would present her recommendation to the executive committee. To make its decision, DeLoach and the members of the executive committee would have to ponder several questions: • Which option would best suit a changing industry in which “only the flexible survive”? • Which option would better ensure that the right people were in the right positions? • Which option would better help the company meet its financial target of providing annual double-digit returns for its shareholders? • Which option best embodied Sonoco’s time-honored principle that “people build businesses”? 7 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. 410-082 Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) Exhibit 1 HR Organizational Chart, Sonoco Products Company, 1995 Vice President, Human Resources Staff VP, Employee #038; Labor Relations Manager, Employee Relations Division HR Manager Manager, College Recruiting Division HR Manager Manager, Training #038; Systems Division HR Manager Director, Compensation #038; Benefits Planning Vice President, Administration Director, Benefits Administration #038; Payroll Division HR Manager Division HR Manager Manager, Benefits Planning Division HR Manager Manager, Compensation Division HR Manager Division HR Manager— Canada Source: Sonoco. Exhibit 2 Timeline of HR Innovations, 1996–1998 Date Action 1996 January First meeting of the HR Council, composed of the HR heads of various divisions and some individuals from corporate HR February Letter from Hartley to the Executive Committee urging standardization of the performance-management system March Presentation of new performance-management system to employees April Initial formulation of a development process and leadership guidelines July Implementation of corporatewide task force on diversity issues 1997 January Implementation of salary-band compensation program August Implementation of training in performance management Fall Succession-planning action steps and candidate-pool analysis November Initial audit of new performance-management system December Second stage of leadership development 1998 Inauguration of integrated system for all HR processes, including 360º systems and successionplanning/organization reviews January Selection of new electronic 360º process February Message from Hartley to employees linking HR strategic process to Sonoco’s people, culture, and values in support of business objectives Source: Sonoco. 8 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) Exhibit 3 I. Linking HR Processes with People, Culture, Values, and Business Objectives PERFORMANCE PLANNING AND FEEDBACK Practice 1: Organizational Core Competencies Identification of four core competencies required of all employees and of leadership competencies for top leaders. Annual review to align competencies with business objectives. Practice 2: Performance Management An integrated performance-planning and feedback system with a strong employeedevelopment component, based on objectives and on the core/leadership competencies. Streamlined training to reinforce key concepts and introduce changes to simplify the process, including a userfriendly online performance-management form. Practice 3: 360° Reviews Feedback on performance from supervisors, direct reports, peers, and customers, based on core/leadership competencies and conducted online for employees worldwide. II. 410-082 IDENTIFICATION AND SELECTION OF TOMORROW’S LEADERS Practice 4: Career Development and Planning Individual Career Planning: Opportunities for feedback on career aspirations. Organization Reviews: Annual companywide reviews, utilizing performance-management career plans, to identify top performers and potential leaders. Annual reviews of companywide bench strength by the executive committee. III. THE DEVELOPMENT PROCESS Practice 5: Learn by Doing: Structuring Development on the Job Development on the job: On-the-job learning experiences to accelerate development, including participation in ad-hoc, standing, natural, or crossdivisional teams. Online performance and learning (OPAL): An online resource to create annual personal-development plans from 360° and performance-management feedback. Practice 6: Centers of Excellence for Learning Companywide training opportunities aligned with business strategies. Sales and marketing training: Basic and advanced training to accelerate top-line growth. Team skill development: Training to facilitate teamwork and productivity initiatives. Practice 7: Rewards and Recognition Compensation that rewards performance, facilitates career movement, and links to growth objectives. Broad banding: Wide compensation zones to permit maximum flexibility in awarding compensation. Centennial Shares: Stock options for all employees to create a sense of ownership, heighten awareness of critical business issues, and align employee and shareholder interests. IV. COMPENSATION Practice 8: Global Workforce Diversity Pursuit of a more diverse workforce. Focus on valuing differences and improving work life via family-friendly policies and more flexible work schedules. Semiannual review. Inclusion of a diversity-competency metric in the management committee’s 360° reviews. Source: Sonoco. 9 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021. For the exclusive use of J. Sion, 2021. 410-082 Sonoco Products Company (A): Building a World-Class HR Organization (Abridged) Organizational Restructuring Options: Centralized (top) and Hybrid (bottom) Exhibit 4 VP, Human Resources Administrative Payroll HRIS Benefits Center Benefits Relocation EE Relations Field Reps #038; Complex Reps Compensation Employee relations Communications/HR program implementation HR consulting Organizational Development Benefit plan design Compensation design Performance management HR Administration Recruiting Field #038; Staff Services Centers of Expertise Employee development #038; training Succession planning HR systems development/Six Sigma Employee-relations programs Policies/practices design Legal compliance Design of division-specific initiatives Benefits administration Payroll HRIS #038; database management Relocation Recruiting HR administration Compensation HRIS Benefits communications Personnel programs VP, Human Resources Administrative Payroll Benefits Center Relocation Centers of Expertise HRIS Recruiting Salary Administration Benefits administration Payroll HRIS #038; database management Relocation Salary administration Recruiting Benefits EE Relations Compensation Organizational Development Benefit plan design Compensation design Performance management Employee development #038; training Succession planning HR systems development/Six Sigma Employee-relations programs Divisions IPD/Paper Crellin CPD Flexibles HDFP Prot. Packaging Packaging Svcs. Baker 65 plants 45 plants 12 plants Employee relations Communications/HR program implementation HR consulting Staffing/succession planning Design of division-specific initiatives HR administration Compensation HRIS Benefits communication Personnel programs Policies/practices design Legal compliance Source: Sonoco. 10 This document is authorized for use only by Jaime Sion in MGMT 371-1 taught by Santosh Nandi, University of South Carolina at Aiken from Jan 2021 to May 2021.

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