Forecasting Method

Please read case below and answer the question.

(Honeywell is a diverse, differentiated, industrial conglomerate with segments such as transportation systems, performance materials and technologies, aerospace, and automation and control solutions; yet the company is best known for its thermostats. According to the 2013 Fortune 500 list, Honeywell ranked 78th out of all US companies, with a revenue of $39 billion.

In 1999, Honeywell merged with AlliedSignal and Pittway but encountered problems when they realized that each company possessed its 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 three different CEOs in 4 years.(1)

Honeywell’s main focus in the past decade has been on resolving these issues by first implementing their “One Honeywell” culture. This strategy increased overseas sales by 10% while also helping the company become more aware of and responsive to its environmental responsibilities. Investments in new products and services increased while turnover 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 United States 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. (2)

In the manufacturing industry, the cost of people covers more than 30% of 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 that even the worst recessions usually last about 12 to 18 months, but the company wanted to be prepared when the economy started to heal.

With its new culture in place, Honeywell took a different approach than its competitors did. Honeywell projected the possible impact of economic recovery on its business, noting that it would have to rehire many of the employees it would lay off during the recession. Given this projection, Honeywell then followed a different method of restructuring and let its workers take furloughs, that is, temporary unpaid leaves of absence. Honeywell also knew that furloughs would harm the morale and loyalty of its employees. Even the employees who stayed would be distracted, thinking that their own jobs might be at stake. 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 the savings from layoffs and underestimated how disruptive layoffs would be, given that the average employee received 6 months’ worth of severance pay. This meant that Honeywell would not start saving money until 6 months after the firm laid off an employee. However, the value of the employees’ contributions was intangible since the firm might be losing its most skilled employees. The results of keeping the valuable employees were that Honeywell bounced back quicker than its competitors did after the recession, and its business increased at a quicker pace.(3)


Which quantitative or qualitative manpower forecasting method do you believe Honeywell used to decide to move forward with furloughs rather than layoffs? Explain.

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