Business Analysis Part III
MGT/521
February 13, 2012
Abstract
Making the right choice when looking for a company to invest in can be difficult. Much of the change is due to the evolving business environments – more global competition, declining economy, faster technological change, and pressure to preserve the natural environment (Nickels, McHugh, & McHugh, 2010). In today’s economy it is important to look at many aspects of a company and see how they handle the economic trends and market change. By looking into the company’s strategic and tactical goals, investors can make informed decisions on whether to invest in the company or not. The investor also will get an inside look to the company’s longevity on a global scale.
Business Analysis Part III
The next segment in conducting a business analysis is reviewing strategic initiatives of a Fortune 500 company facing the recent economic trends and adapting to changing markets. A major part of the United States’ business success is due to an economic and social climate. Global economics and global politics also have a major influence on businesses in the United States (Nickels, McHugh, & McHugh, 2010). The recession of 2008 and the ever changing trends have had a major impact both at home and abroad. The last two weeks I began looking at Honeywell International and will conclude this three part series with looking at how the company is weathering the recession as well as adapting changing markets and the tactics used to do so.
Economic Trends
In 2006, the mortgage crises gripped the nation as well as the economic downturn around the world (Isidore, 2012). The labor market was drastically reduced in 2008 by cutting 1.2 million jobs in the first 10 months. Honeywell International was affected like most companies and knew that it needed to weather the storm. However, Dave Cote, CEO of Honeywell wasn’t too concerned. “Analysts came to us in 2008, worried that this big recession was coming, and asked what we planned to do differently. My reaction was, ‘Not that much.’” says Dave Cote (Kahn, 2012).
Besides the mortgage crises and reduced labor force, another trend was the dependence on fossil fuels and the rising oil prices. This too had an impact on energy costs because it takes oil to operate power plants that run our electricity as well as fuel vehicles whether on the ground, in the sea, or in the air. Cote saw this trend affecting global markets and as a result has the company concentrating their efforts in technologies involving conservation or generating energy. The company currently is helping cities integrate renewable and reduce fossil fuel dependence. They also are in cooperation with universities for teaching sustainable green technology. One has to believe that Honeywell's ability focus on current technology and energy issues is exactly what Cote meant when he said “not that much.”
Strategies and Tactics Adapting to Changing Markets
A major key to success is remaining flexible enough to adapt to changing times (Nickels, McHugh, & McHugh, 2010). When Cote arrived as CEO of Honeywell in 2002, he saw the company as a dysfunctional family from Allied Signal’s recent acquisition of Honeywell and the recent recession of 2001. This was evident when key employees’ left as well as new business and product development were in hiatus, and the company as a whole had low morale. He saw that there was a need to concentrate on three strategies. The first strategy was to integrate both Honeywell and Allied Signal as “One Honeywell.” Employees were no longer allowed to call themselves “Honeywell Blue” for Allied Signal employees or “Honeywell Red” for pre-acquired Honeywell employees. Cote wanted to create a new mindset at the company, “One Honeywell” (Kahn, 2012). To do this, he utilized his executive team and outlined 12 Behaviors, which include actions leading to growth, customer focus, leadership, results, and globalization. Later in the analysis I will discuss how this was used to measure employees.
The second strategy became known as the Five Initiatives: growth, productivity, cash, people, and enablers (Kahn, 2012). These are the tools that Honeywell uses to standardize and drive improvement of all business processes, from supply-chain management to research and development (R&D). This recently has been done with developing a laboratory with a university to teach, test, and study green technology. Honeywell announced on November 3, 2011, that they have collaborated with the University of British Columbia with a living laboratory for researchers to teach, test, and study the long-term impact of sustainable practices and technologies (Honeywell International, The Leader in Diversified Technology and Manufacturing, 2012). This center was built utilizing LEED (Leadership in Energy and Environmental Design) certification standards and is a benchmark for advance green buildings. The facility powers itself and another neighboring building by using renewable and waste energy and provides water collected from rainwater that is treated onsite.
Another tactic that Honeywell is doing is helping communities to use clean energy such as wind and solar. On February 2, 2012, Honeywell announced a two year pilot program with Hawaiian Electric Company to temporary reduce the need for electricity – critical to maintaining grid reliability as Hawaii reduces fossil fuel dependence (Honeywell International, The Leader in Diversified Technology and Manufacturing, 2012). Honeywell has experience with managing demand response and energy efficiency programs and can empower smart energy users from this program.
The third strategy is positioning the company in good industries such as energy and avionics. This means the company has engaged in more than 60 acquisitions and 44 divestures since 2002 (Kahn, 2012). Honeywell has also expanded into international markets by providing retrofits and upgrades to improve safety and efficiency while extending the life of several proven platforms in the aerospace industry. This in turn has brought an increase in sales that are up from 45 percent in 2005 (Kahn, 2012). As a result of the increase of sales, the company now has a growing number of researchers located in the developing countries. This creates a round the clock global research and development cycle that helps the company grow and give it longevity in the markets.
Human Resource Management
Today the job of human resource management has taken on an increased role in the firm since qualified employees are much scarcer, which makes recruiting and retaining people more important and more difficult (Nickels, McHugh, & McHugh, 2010). As noted earlier, low morale within Honeywell was one of the causes of mass exodus of top employees. The company still needed to tighten its belt during the last recession. The company cut approximately 6,000 employees, compared with about 31,000 layoffs in 2001-’02, but saved approximately $200 million by imposing across the board one- and two-week furloughs without pay and a freeze on merit raises (Kahn, 2012).
The other approach that has played for the company is that the organizational chart is more of a matrix design. This being said, the company has a common supply chain and engineering workforce between commercial and defense businesses. The flexibility allows the company quickly to adapt and increase collaboration to support the growing commercial business and at the same time meet the changing demands and needs of the military.
As noted earlier, Honeywell measures employees through the five initiatives. The company set up an appraisal system to measure how well employees from factory workers to top execs, pursue the Behaviors and meet the Initiatives on an ongoing basis (Kahn, 2012). Through the appraisal system, merit raises, and promotions are obtained. Conclusion
Who would have thought that a company that started off making damper flappers for coal furnaces in 1885 would be a global leader in energy and avionics, a megatrend according to analysts (Yahoo! Finance - Business Finance, Stock Market, Quotes, News, 2012). Based on the analysis over the past three weeks by conducting a SWOT analysis, understanding the company’s financial statements, and seeing how the company has weathered economic trends, I feel Honeywell is a company worth investing in. Honeywell is a stable company compared to other companies in the same industry and has a competitive advantage over them. This is evident from their net earnings, current ratio, and the fact that they use less than 50% of its annual net earnings for capital expenditures. One Morgan Stanley analyst says “Honeywell is an underrated company, possibly because some of its products are esoteric and hard to understand” (Kahn, 2012). I think this is true. Honeywell products are not well known like its competitor, GE. Thermostats, carpet fibers, oil filters, turbine engines, and bomb components are not products the general consumer gives consideration to, like household appliances and light bulbs commonly known to be offered by GE. However, the products Honeywell continues to develop have an impact on many industries. Cote says, “The Company will be bigger and more profitable, generating even more cash. Honeywell has positioned itself squarely in the middle of the world’s biggest trends” (Kahn, 2012). Honeywell’s strength through a recession that has crippled many corporations shows evidence that they are in it for the long haul and will continue to evolve as new technologies emerge.

References
CNN Money. (2012, January). Fortune 500. Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2011/full_list/
Honeywell International, The Leader in Diversified Technology and Manufacturing. (2012, February). Honeywell. Retrieved from http://honeywell.com/Pages/Home.aspx
Isidore, C. (2012, February). It's official: Recession since Dec. '07. Retrieved from http://money.cnn.com/2008/12/01/news/economy/recession/index.htm
Kahn, S. (2012, January). Man on a Mission. Retrieved from http://www.nysemagazine.com/honeywell
Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding Business (9th ed.). New York, NY: McGraw-Hill/Irwin.
Yahoo! Finance - Business Finance, Stock Market, Quotes, News. (2012, January). Retrieved from http://finance.yahoo.com