Business Strategies in the Packaging Industry: Making Human Resources a Partner in Crime
The one trillion US dollar packaging industry has been facing many challenges for several years. For example, trends such as sustainability, changing consumer behaviour and the ubiquitous digitalization are currently occupying the packaging industry intensively and require it to continuously adapt its strategies to regional differences. These challenges can also be seen as opportunities for those companies that are able to think along those lines, innovate and act fast enough. However, since the packaging industry is very global, especially concerning its supply chains, it is almost impossible for companies to work with a uniform strategy that applies to all sections of the supply chain and suppliers .
Now, in addition to these already existing challenges, Covid-19 and thus completely unexpected new exogenous factors have been added: border closures, different regulations for handling the virus depending on the country and the general uncertainty due to the unknown duration of these restrictions. This affects not only the current situation of the packaging industry causing new challenges but also has an impact on the known pre-Covid-19 long-term challenges, such as sustainability, circularity or shift towards ecommerce. Carefully designed strategies must now be reconsidered and ways and means must be found to counter the effects of the pandemic on the economy, both on the short and long run.
Change - now or never
It is therefore particularly important for companies to prepare for several scenarios and thus to focus on different strategies instead of “the one” and to be as flexible as possible. To have a clear vision and a mission is important, but to provide it with the necessary adjustments to the respective markets and countries is key. Targets are moving faster than they ever did before.
The different markets and geographies build a challenging matrix where demands and supply vary significantly. There won´t be any steady forecasting any longer, hence adjustability is the name of the game. The challenges usually addressed in multi-year roadmaps must now be tackled simultaneously and in the shortest possible time; moreover, with an unknown variable called Covid-19.
The challenge of sustainability will continue to shape the sector also after Covid-19. However, it is likely that old strategies may no longer be valid, as consumer perceptions are likely to change, and the definition of sustainability will follow. Plastic will probably not remain the “bad guy” anymore but an important possibility to protect goods and food if used correctly and in a circular manner. It is also to be expected that consumer purchasing behaviour will continue to focus more on e-commerce after the pandemic is under control than ever before. Therefore, it is also possible that a competitive advantage besides sustainability could arise for companies that succeed in providing their products with surfaces that ensure the shortest possible survival time of a virus or more likely generally give consumers a feeling of safety . Sometimes it requires external factors as a catalyst to transfer challenges into opportunities and initiate the change.
While maybe many organisations are aware that they are facing these challenges, the questions remain how to realise respective strategies, how to make sure solutions aren’t temporary but properly implemented and lasting, and how to secure being ahead of competition against ongoing cost pressure.
The key to this is very likely to be found in the people within an organisation and its culture. Business processes might be relatively easy to change and to adapt to the changes. But we all know, people aren’t. Therefore, in the current phase of the challenges posed by Covid-19, companies will have to focus more on exploring and developing their people capabilities and talents. Often there is a considerable amount of unused potential lying dormant within the company. To sharpen the companies' view on this can not only help to reduce costs and risks but also to increase employee motivation and loyalty .
However, to unlock the full potential of people capabilities, organisations must change the positioning of their human resource department to become an impactful strategic partner to the CEO. And now is the time to do so.
It is crucial that human resources is not only involved in the design and execution of the strategies but above all in the lasting implementation and thus represents one of the decisive factors in ensuring the sustainable development of the company.
This may not seem new at first glance, but this dual function of the HR department is still rarely represented in the corporate landscape. As a result, while many companies are aware of the benefits and necessity of talent management and an appropriate strategy that fits their business, they fail to implement it. Even if management, human resources and employees deal with the topic of talent management, it often fails because decision makers often lack the knowledge and experience to judge what powerful talent management looks like and how to measure success in this field and therefore can´t drive the change as urgently needed.
You can't predict the future, but you can prepare for it.
The unexpected challenges resulting from Covid-19 have now put organizations and processes to the test within a very short time. Companies with a well-functioning talent management system and where people are aligned with the corporate strategy or developed according to the strategy are less susceptible to disruptive external factors.
Organizations such as Twitter, Facebook or Alphabet are certainly to be seen as both pioneers and exceptions. Their concepts due to the nature of their business can’t, of course, be applied to the hundred-year-old manufacturing company in mechanical engineering. However, their agility could inspire the industry and one could think “How would I build our business if I had to do it all over again?”.
One probably came to the conclusion that it is in particular their people and their abilities to adapt, to change, to innovate and to persist, are the recipe for a crisis proof organisation. The future oriented development of talents leads to a stronger foundation and significantly more flexibility and business continuity especially in times of crisis.
However, if the heart of the matter is that the costs are often attributed to the human resources department (competence models, coaching, talent pipeline, high potential program etc.), but the saved opportunity costs and an increase in performance are not attributed to human resources, then one of the most important divisions in an organisation will remain a cost centre with all the well-known side-effects. It requires a well-established focus on HR Analytics and Controlling to measure successful acquisitions through HR due diligence and management audits, low turnover, high potential employee identification, long-term development of managers, uncovering and proper placement of hidden talents etc. Only then can human resources showcase their full strategic contribution to the overall business performance and results. But still people drive the change and no tool or data can be the same enabler for change as motivated influencer within your organisation.
To get this done, it is often advisable to obtain objective support from outside: sparring by external consulting firms, for example. These can help to bring clarity in the approach as well as in the development and implementation of such strategies. It is essential to involve the management levels and to support them in this transformation process at the same time, but also in the human resources departments themselves. Of course, some challenges need to be mastered in this respect. These range from providing the necessary resources to a stringent evaluation process. This last part of the process is particularly important, because only then can strategic development issues or cultural patterns be captured and optimized for future adjustments.
Securing M&A investments
Eventually, there is no alternative for the success of a company and especially for mastering crises and challenges, than to have human resources and management working closely together, acting as true business partners and above all, reserving a seat for human resources at the table, where strategy is made. By the way, how many human resources experts sit in your board of directors again?
This applies all the more to the packaging industry, which is still quite fragmented and traditionally very active in M&A activities independent of the companies being private-equity or family owned. Especially during the acquisition phase, it is crucial that management and human resource work closely together and develop and implement strategies together. In this area, it is the integration of the possibly very different cultures that are essential for the further success of a company. To increase the success of a M&A process, a HR due diligence is ideally carried out to be able to include all expected and unexpected challenges and risks in the valuation.
Human resources can do much more than just implement processes: human resources exploit its full potential as a sparring partner to the CEO, as valuable part of the management team, as a co-developer of innovative strategies and as a decisive factor for the optimization of both strategic and cultural processes in a company. All of this is possible, but unfortunately, there are still many companies that do not claim this added value for themselves at it’s full extent. To change this, it is vital to acknowledge that human resources is often a hidden gamechanger put in the wrong position where it cannot develop its full value for the company. Worst case scenario, but unfortunately the most common one, is a half-hearted implementation and following stagnation in change mode without embracing the potential of a successful implementation. Eventually, this leads to frustration with everyone involved: the ones who want the change, and those who don´t. As a result, human resources will have even less impact on the business strategy than ever before within the organisation.
We all remember the approach from Walmart to enter the European market by acquiring two German companies but heavily failed. Mainly because the cultural differences especially visible in leadership style could not be solved. Same with Daimler and Chrysler, same with Time Warner and AOL, even though two US giants with several similarities on the first view the cultural clash was enormous. The decision makers have not been aware or underestimated the huge risk of cultural and organisational difference and its impact on the business case. Compared (more)successful mergers and Spin-offs such as Exxon & Mobil, Disney & Pixar or Dow & DuPont show that it is possible when being aware of the required hr due diligence and an integration planning.
Despite positive indication from the market, give Amcor & Bemis a few more years to evaluate the acquisition and it´s than probably completed integration.
Even though involving human resources and initiating the change will lead to challenges, costs and stumbling blocks on the path, it is still the more result promising way; especially for the packaging companies and its M&A driven growth plans. The best target company on the market may not be worth buying if the integration into the existing organisation is unlikely to happen.
Therefore, bring human resources into the right position to be a valuable sparring partner in securing your company’s position ahead of your competition.
Quick Check-up: How do you know human resources is a strong strategic partner?
- HR is actively participating in board meetings and it’s expertise is asked for by senior management
- A solid HR Controlling and Analytics team is established and figures are integrated in performance reportings
- HR activities are driven by hard KPIs
- Your performance management process is more than a box-ticking exercise but a true business steering tool
- HR is involved at early stage in M&A processes
- There’s at least one HR expert in your board of directors
What opportunities are arising for you as a company? Do you want to discuss the topic further?
Please reach out to Tobias Becker, Benjamin Renk and Luke Robbins at Mercuri Urval´s office in Düsseldorf. They are experts for the process Technology & Packaging Practice, supporting clients in driving change and filling key positions worldwide.