Gauging Employment at Honeywell
Case written by Herbert Sherman
Honeywell is a diverse differentiated industrial conglomerate with segments such as transportation systems, performance materials & technologies, aerospace and automation & control solutions yet they are best known by the average consumer for their thermostats. According to the 2013 Fortune 500 list Honeywell ranked 78th position out of all US companies with a revenue of $39 billion. [2]
In 1999, Honeywell merged with Allied Signal and Pittway but encountered problems when they realized that each company possessed their own unique corporate culture. During the next several years, Honeywell found itself addressing new challenges while trying to absorb its acquisitions. For example, environmental-related business liabilities had never been addressed and now required real attention while managers were disinvesting in research and development because their divisions showed higher profits – new product development ceased. Honeywell also experienced high turnover in upper management having 3 different CEOs in four years. [1]
Honeywell’s main focus in the past decade has been resolving these issues by first implementing their “One Honeywell” culture. This strategy increased overseas sales by 10% while also helping them become more aware and responsive to their environmental responsibilities. Investments in new products and services increased while their turnover rate started to decrease with employees filling more than 85% of the vacancies in top-level positions. Just as Honeywell turned the corner in 2008, the US entered a recession and Honeywell’s orders were being cancelled or postponed. No new orders were being placed and sales were decreasing. As a result, direct costs of production were decreasing because the company simply did not need to purchase raw materials to make new products. [1]
In the manufacturing industry, the cost of people covers more than 30% of the total expenses and most firms responded to the recession by restructuring their workforce by firing thousands of employees. Cutting costs for production was not an option because a loss of customers is a major risk for the company therefore; the only option left was cutting costs through employees. Honeywell knew though that even the worst recessions are not permanent and that they usually last about 12-18 months; they wanted to be prepared when the economy started to heal.
With its new culture in place Honeywell took a different approach than their competitors. They projected the possible impact of economic recovery on their business noting that they would have to rehire many of the employees they would lay off during the recession. Given this projection they then followed a different method of restructuring and let their workers take temporarily unpaid leaves of absences: furloughs. Honeywell also knew that furloughs would harm the morale and the loyalty of its employees. Even the employees who stayed would be distracted, thinking that their own jobs might be at stake. In order to benefit from furloughs, Honeywell limited their use by implementing more diligent performance reviews and avoiding hiring for new positions.
Honeywell CEO David Cote believed that most of his managers still overestimated their savings and underestimated how disruptive layoffs would be given that the average employee received six months’ worth of severance pay – Honeywell could only start saving money 6 months after the firm laid off an employee. However, the value of the employees’ contributions was intangible; they might be losing their most skilled employees. The results for keeping their valuable employees have bounced back quicker than their competitors after the recession and their business was increasing at a higher pace. [1]
Questions:
- How does the use of HR forecasting reflect Honeywell’s strategy and culture?
- What options did Honeywell use to overcome the projected labor surplus during the recession? Other available options?
- How might job analysis and job design minimize the impact of furloughs on organizational performance and productivity? How does hoteling fit into this scenario?