Honeywell

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    Management
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    Assignment
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    Masters
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Honeywell Strategic Analysis

Executive Summary

Honeywell is a leading technology and manufacturing firm. The company was founded in 1906 and has grown to become a global brand, currently operating in more than 70 countries. Despite the many years of success, Honeywell faces growing competition and many other problems that it needs to address to ensure its success. This report will begin by analyzing the position of Honeywell using PESTEL, Porter’s Five Forces Model, SWOT and TOWS, stakeholder analysis and VRIO analysis. It will also discuss its core competencies and the differentiation strategies of the company. The report will also address the strategic alliance that might benefit the firm and recommend whether or not the company should go global and other problems that the firm needs to address to ensure competitiveness.

Table of Contents

Executive Summary 2

Introduction 4

PESTEL Analysis 5

Political 5

Economic 5

Socio-cultural 5

Technological 6

Environmental 6

SWOT Analysis 6

TOWS Analysis 7

Porter’s Five Forces Model 9

Competitive Rivalry 9

Supplier Power 9

Buyer Power 9

Barriers to New Entry 10

Threat of Substitution 10

Stakeholder analysis and stakeholder mapping 10

Resources, Capability and Competencies 11

Resources 11

Capabilities 12

VRIO Analysis 13

Core Competencies 14

Differentiation Strategy 15

Strategic alliances that may benefit your organization 15

Going Global 16

Major Problems that Honeywell Should Address 16

Conclusion & Recommendations 17

References 19

Introduction

Honeywell International Inc. commonly known as Honeywell is an American leading manufacturing and technology firm. The history of the firm dates back to more than 110 years ago in 1906 by Mark C. Honeywell (Honeywell 2014). Since then, Honeywell has grown to become a global technology and manufacturing brand. The company’s primary areas of business include invention of technologies that are geared towards addressing the challenges facing the world today, in areas like safety, energy and security. At present, Honeywell is a leading supplier of industrial, home and office control systems and is also a leading defense contractor (Stevens, 2007). The company’s product portfolio include turboprop engines, landing and flight safety systems, friction materials, consumer car products, automation and control system, polymers for electronics, as well as heating and ventilation systems among others. The company is a major employer not only in the U.S. but globally as it currently employs more than 129,000 people, about 22,000 of which are engineers and scientists (Jargosch and Jurich, 2014). Honeywell is worth US$ 38 Billion and is one of the most profitable technology and manufacturing firms having posted net income of $4.768 billion in 2015. The company’s headquarters is based in Morris Plains, New Jersey and is among the Fortune 100 Company having ranked 74th in 2014. The firm currently operates in about 1,250 sites in more than 70 nations across the globe. This report will begin by analyzing the position of Honeywell using PESTEL, Porter’s Five Forces Model, SWOT and TOWS, stakeholder analysis and VRIO analysis. It will also discuss the four generic building blocks of competitive advantage as they related to the firm; discuss its core competencies and the differentiation strategies of the company. The report will also address the strategic alliance that might benefit the firm and recommend whether or not the company should go global and other problems that the firm needs to address to ensure competitiveness.

PESTEL Analysis

Political

Honeywell being a multinational company has to deal with different political systems in the countries where it operates. Although some countries present favorable political environment for doing business, others are just difficult to operate in because of difficult political condition. For instance, whereas the government policies and interventions in the U.S. is minimal and promotes Honeywell business growth and survival, the Chinese government policies over foreign businesses is tight, thereby posing a challenge to Honeywell (Honeywell 2014). The differences in tax laws in different countries also affect the operations of Honeywell in different countries. Although political stability is important for Honeywell operations, the company is not guaranteed of political stability in some of the countries, where it operates.

Economic

The constant fluctuation in the currency exchange rates and interest rates is impacting the operations of Honeywell in a big way. The productivity and profitability of Honeywell is also affected by the government spending, as well as inflation and deflation in different countries. For instance, the recent economic crisis and the subsequent recession that hit most of the countries where Honeywell operates greatly affected the company’s productivity and profitability. Additionally, the rise in the prices of input that Honeywell use in the manufacture of its products also affects the firm’s profitability in countries where it operates.

Socio-cultural

The success of Honeywell is affected by social and cultural environment in which it operates. Honeywell being a multinational company has encountered numerous cultural challenges (Jargosch and Jurich, 2014). The challenges emanate from the fact that different countries have different cultures in regards to how business is conducted, such as the number of working hours, manager’s appointment procedures, employee’s policies and the type of products allowed for production.

Technological

Honeywell is known for being a leader in technology and innovation. Nevertheless, its technological advancement rates vary from one country to another where Honeywell has invested in accordance with the amount of available resources. However, in all the countries, Honeywell has ensured that it keeps up with the pace of technological advancements to ensure that it meets the needs of its customers (Honeywell 2014).

Environmental

The operations of Honeywell are affected by the environmental laws in different countries that require companies to minimize their carbon footprint. As such, the firm has been forced to invest in additional R&D in order to abide by the environment laws in different countries, which in turn affect it, profitability.

Legal

Since Honeywell operates in more than 70 countries, it must comply with the laws of these countries to operate. As such, Honeywell has been incorporating compliance into all its aspects of business. However, it is critical that Honeywell maintain high compliances level to ensure that it operates without interference both domestically and internationally.

SWOT Analysis

Strengths

  • Diversified product portfolio

  • Strong brand reputation

  • Strong leadership

  • Diversified workforce

  • Adoption of cutting edge technology

  • Adoption of six-sigma technology

  • Wide global presence, such as China

Weaknesses

  • Environmental violations

  • Highly geared

  • Conglomerate structure limits growth

  • Alleged tax evasion affects company image

  • Past involvement of the firm in weapon manufacturing has affected the brand image of the firm

Opportunities

  • Continued expansion in global market

  • Growth through new acquisitions in emerging economies, such as in BRICS countries

  • Growing turbocharged engine segment in the US (Honeywell 2014).

Weaknesses

  • Overdependence on few suppliers (Spiderbook, 2015)

  • Environmental regulation policies

  • Economic recession and currency devaluation

  • Rising cost of war materials

  • Cash flow problems

TOWS Analysis

Exteternal

Opportunities

  • Continued expansion in global market

  • Growth through new acquisitions in emerging economies, such as in BRICS countries

  • Growing turbocharged engine segment in the US.

  • Overdependence on few suppliers (Spiderbook, 2015)

  • Environmental regulation policies

  • Economic recession and currency devaluation

  • Rising cost of war materials

  • Cash flow problems

Strenths

  • Diversified product portfolio

  • Strong brand reputation

  • Strong leadership

  • Diversified workforce

  • Adoption of cutting edge technology

  • Adoption of six-sigma technology

  • Wide global presence, such as China

Strategies to adopt to maximise the opportunities

  • Introduce more product offerings

  • Seek new acquisitions

  • Expand to more markets

Strategies to strength to guard against threats

  • Enhance brand reputation

  • Diversify product portfolio more by introducing new products

  • Seek more suppliers

  • Invest in more R&D so as to ensure environmental compliance by minimizing pollution

Weakensses

  • Environmental violations

  • Highly geared

  • Conglomerate structure limits growth

  • Alleged tax evasion affects company image

  • Past involvement of the firm in weapon manufacturing has affected the brand image of the firm

Opportunity strategies to overcome weaknesses

  • Improve brabd reputation

  • Become more innovative

  • Ensure comliance with tax filing requirements

Deal with weakssnes not to expose company to threats

  • Invest in sustainable environment initiatives and technologies and engage in more CSR programs.

  • Ensure compliance with environmental laws

Porter’s Five Forces Model

Competitive Rivalry

Competitive rivalry is low to medium. The majority of the market share is controlled by few firms. The major rivals that control the largest market share include General Electric, ABB Ltds, Emerson Electric, Rolls Royce, and Johnsons Controls.

Supplier Power

The supplier power in the industry is medium. Most of the materials used by Honeywell in the manufacture of its products are unfinished and thus is held to commodity pricing (Stevens, 2007). Because the firm has a variety of plants across the globe and strong R&D efforts, Honeywell should ensure that it maintains good relations with labor relations because of the increasing supply power.

Buyer Power

Buyer power is medium to high. The buyers in some of the segments have high concentration. However, a significant proportion of the products in the industry are bought by little number of buyers, which gives them more bargaining powers (Jargosch and Jurich, 2014). However, the fact that the number of buyers are increasing in the emerging market, such as China is decreasing this leverage. The prevailing economic conditions have also greatly increased the bargaining powers of buyers in the industry as customers with cash recognize that they are privileged.

Barriers to New Entry

Barriers to new entrants are high. Honeywell has over a century of experience in the industry that is characterized by high research and development in many segments and has been able to do business in several sub-segments from which it has acquired experience that can take new entrants many years to replicate. The existing firms also enjoy large economies of scale and brand reputation that creates entry barriers to new entrants (Honeywell 2014).

Threat of Substitution

The threat of substitution is low. There are few or no substitute products in other industries. Nevertheless, technology firms in the industry experience a threat from outsourcing in the sense that they are agile to establish potentially disruptive technologies. Nonetheless, industrial firms are better placed to quickly identify such companies and acquire them so as to get their technological prowess.

Stakeholder analysis and stakeholder mapping

Understanding and addressing the needs of stakeholders is critical to the success of a firm. A stakeholder is any person, group or corporation with an interest in a company or affected by the policies and practices of a company. Honeywell has a number of stakeholders that have an interest or affected by the actions of the company. The first key stakeholder is the investors. Honeywell has many stakeholders that expect it to maximize their return through high profitability. Employees are the other key stakeholders that expect the firm to better their welfare through competitive reward, as well as ensuring their safety and good health (Stevens, 2007). Suppliers are the other important stakeholders for the firm. Although Honeywell depends on few suppliers, these suppliers play a key role in ensuring that the firm has the raw materials it needs to ensure success. Other key stakeholders of Honeywell are the customers and the government.

Stakeholder Prioritized

Recommended a

Investors

High (2 days)

Maximize returns and keep them informed

Suppliers

High (2 days)

Pay promptly

Employees

High (2 days)

Offer attractive pay and reward, safety and health

Customers

Medium (3 weeks)

Provide quality products and maintain company viability

Government

Medium (3 weeks)

Pay taxes promptly

Resources, Capability and Competencies

Resources

Technology is a key resource for Honeywell. To maintain a competitive advantage over rivals, Honeywell ensures that it keeps up with the latest technology so as to ensure that customers are provided with quality products and services. The firm does not just adopt the latest technologies, but also maintains leadership in terms of technological development (NCR Corporation 2015).

Strong leadership and human resource is another key resource for the company. Honeywell is currently managed by David M. «Dave» Cote, formerly of GE, and has a wealth of experience that he has brought to the company (Honeywell 2014). Additionally, the company has some of the best talents in the market including engineers and scientists, which it uses to gain a competitive edge over competitors because they are unmatched. Honeywell also has a number of intangible resources, including strong brand reputation, copyrights, patents and trademarks.

Capabilities

The first notable capability of Honeywell is that it has managerial brilliance. The company is currently lead by a highly charismatic, democratic and transformational leader, David M. «Dave» Cote who is the current president and CEO. David M. «Dave» Cote formerly worked for GE and has brought an innovative culture into the company (Honeywell 2015). The Emotional Intelligence of the CEO allows him to communicate and establish a good working relationship with the staff and motivating them to bring out their best.

The other capability of Honeywell is in its human resource development. Cote is committed to creating a top-notch talent in the company by offering training and education to his employees (Honeywell 2015). This has enabled the firm to not only promote development in business knowledge, but also the workforce, functional skills and growth it behaviors, such as decisive thinking.

The other key capability is in the organizational structure. Honeywell has moved from a highly centralized bureaucratic organizational structure to a decentralized structure by breaking business units into segments (Honeywell 2015). This has promoted cross-business integration, thereby making the company easy to manage, thus resulting in improved performance.

Honeywell also has a key capability in its innovative culture. The company has kept in lead in terms of technological innovation to ensure that it keeps ahead of its competitors. The company promotes an innovative culture by creative an environment that allows employees to come up with innovative ideas. Accordingly, this has seen Honeywell become a leader in innovation and technological development, which has given it a competitive edge over rivals in the industry (NCR Corporation 2015). Other capabilities of the firm include diversified product, and excellent customer service.

VRIO Analysis

Barney and Hesterly (2005) define VRIO framework as an effective tool for assessing the internal environment of a company. VRIO denotes four questions that a company must ask regarding its resources and capability to understand its competitive potential. The questions include value, rarity, imitability and organization. Honeywell adopts high technology in the production which is a valuable resource to the firm. The fact that Honeywell has a strong financial strength as can be seen with its profitability is unquestionably valuable (Ajmera, 2015). Regarding rarity, the fact that Honeywell has been in business for more than a century is very rare as very few of its competitors have been in business for that long. The firm’s financial resources are also very rare since very few of its rivals are capable of exploiting this highly matured, capital intensive and competitive business. Regarding imitability, the management skills brought by its current CEO David M. «Dave» Cote is inimitable. Besides, Honeywell is organized to leverage its strong brand present and financial strength considering its lead in market base, strong brand presence and reputation.

Core Competencies

The success of Honeywell has been based on its ability to exploit its core competencies to its advantage. Honeywell’s competency is seen in many areas. Firstly, the company’s competency is in its excellent training center. The firm has a training center that it uses to develop the skills of its workforce. Since Cote took over as the CEO, the company has invested heavily on its workforce to enable them acquire skill require to ensure innovation and production of quality products for its customers. The second core competency of Honeywell is in its innovative culture (Honeywell 2014). The firm promotes an innovative culture in its employees by not only encouraging its engineers and scientists to be innovative, but also creative a conducive environment for them to come up with ideas and exploit their talents. Accordingly, this has enabled the company to become a leader in innovation and technological development in the industry. Additionally, Honeywell uses its capability in R&D to ensure production of some of the best industrial products in the world.

The other core competency of Honeywell is the fact that the technology and manufacturing company enjoys a strong brand image and reputation (Honeywell 2015). Although the firm suffered reputation damage in the past following its alleged involvement in tax evasion and environmental violations, the firm has since rebuilt its corporate image by engaging in corporate social responsibility (CSR) initiatives and ensuring improved quality of products and compliance with laws.

Honeywell also has a competency with regards to its tax strategies. The company applies corporate profit accounting strategies to keep its tax liability down. The firm has a large pool of lawyers in its tax department that ensures that the company is accordingly advised and that the firm reduces its tax liability (NCR Corporation 2015). This competence has seen the company maintain its tax liability lower than its rivals, such as GE.

Differentiation Strategy

According to Michael Porter, differentiation is one of the generic strategies that a firm to help gain a competitive advantage in an industry (Porter 2008, p. 23). Honeywell has adopted a number of differentiation strategies in its product portfolio to help give it an edge over its rivals. The firm’s differentiation strategy is seen in its sensors and switches. The company recently rolled out the so-called Honeywell Sensing and Control, which is a Nanopower Series consisting of magnetic sensors, which is intended to replace the reed switches that are used by its competitors in the industry (Roos, 2014). The anisotropic magnetoresistive (AMR) sensor ICs that the company has introduced has high sensitivity capability and use low power for battery-operated devices. Differentiating sensors and switches in this manner is expected to give the firm a competitive edge over its rivals in the industry. Honeywell also differentiate itself from rivals through new technology differentiation and service differentiation.

Strategic alliances that may benefit your organization

Honeywell has a huge opportunity to enhance its brand portfolio through strategic alliance. So far, the company has done exceptionally well in striking alliances with many companies that has not only helped increase its brand presence and market share, but also enhanced its image (Gomes-Casseres 1996, p. 43). Some of the alliances that Honeywell has entered in the recent past include forming alliance with Microsoft, IBM, ASM, Dell, Krohne, LSIS, PAS, SAP and VMware (Honeywell 2016). However, the firm still has many opportunities in BRICS countries such as India, China, Brazil and South Africa. Therefore, Honeywell should consider expanding its market reach to these markets by forming alliances with technology companies in these countries. In South Africa, for example, Honeywell can consider forming alliance with Gijima, which is a reputed technology company. In Brazil, it can consider striking alliance with IT companies, such as Apdata among others. Forming alliances with these firms will help increase the company’s market share and expand its reach, which is critical for its competitiveness (Gomes-Casseres 1996, p. 43).

Going Global

Globalization and technological has opened up market opportunities in the global market. Presently, companies face still competition in their domestic markets. As such, one of the ways to achieve an edge over rivals is going global. For Honeywell to remain competitive, it has no option by to increase its market reach by going more global. The company already operates in more than 70 countries (Honeywell 2014). However, this is not enough considering that its main competitors, such as General Electric operates in more than 125 countries. Therefore, Honeywell should consider increasing its market reach by expanding to more foreign nations. In particular, the firm should focus its expansion to the emerging markets, such as China, India, Brazil, South Africa, Singapore and Malaysia. These countries are experiencing faster economic growth and growing middle class consumers that offer great market opportunity for Honeywell (Thompson and Martin 2005, p. 45).

Major Problems that Honeywell Should Address

From the analysis, it emerged that Honeywell has a number of problems that it needs to address to ensure growth and competitiveness. The first major problem identified its overreliance on few suppliers (Spiderbook, 2015). Dependence on few suppliers is not good for the company since it gives suppliers greater power when it comes to price bargaining powers. The second problem is the fact that the firm has few distribution stores. Honeywell was founded more than a century but has only 1250 sites. This is quite less compared to its rivals, such as GE that has a lot of distribution network and presence. The third problem is less investment in marketing and promotion (NCR Corporation 2015). The company has not invested adequately in marketing and promotion of its products to the consumers. Other problems that the company needs to address include ensuring compliance with environment and tax laws that had painted its image in bad light in the past.

Conclusion & Recommendations

Honeywell is a leading technology and manufacturing firm with operations in more than 70 nations across the globe. However, for the company to gain a competitive advantage, it must ensure that the issues facing the company are addressed. Firstly, to ensure competitiveness, Honeywell should avoid overdependence on few suppliers. Instead, the company should consider contracting more suppliers to help give it a greater bargaining power (Honeywell 2014). Secondly, the firm should consider increasing its distribution network even to African countries, as this would not only make its products easily accessible to consumers, but also increase its market share. Thirdly, the company should increase its investment in marketing and promotion to help enhance its brand awareness and persuade more consumers to buy its products. Additionally, the firm needs to focus on rebuilding its reputation that had been damaged by its alleged involvement in environment violation and tax evasion. Some of the strategies to employ in rebuilding its corporate image include engaging in CSR initiatives, ensuring compliance with the laws and maintaining high quality product and service provision.

References

Ajmera, A 2015, Honeywell profit beats estimates as cost controls pay off, viewed 30 April 2016 http://www.reuters.com/article/us-honeywell-results-idUSKCN0PR15D20150717

Barney, J. B., & Hesterly, W. S 2005, Strategic management and competitive advantage: concepts. Pearson/Prentice Hall, London.

Gomes-Casseres, B 1996, The alliance revolution: The new shape of business rivalry. Harvard University Press, Boston.

Honeywell 2014, Honeywell outlines global growth strategy and introduces 2018 targets at its annual investor conference, viewed 26 April 2016 http://www.honeywell.com/newsroom/pressreleases/2014/03/honeywell-outlines-global-growth-strategy-and-introduces-2018-targets-at-its-annual-investor-conference

Honeywell 2015, Honeywell UniSim competency suite increases both console and field operator capabilities, viewed 26 April 2016 https://www.honeywellprocess.com/en-US/news-and-events/Pages/pr02102015-honeywell-unisim-competency-suite-increases-both-console-and-field-operator-capabilities.aspx

Honeywell 2016, Partnerships and alliances, viewed 26 April 2016 https://www.honeywellprocess.com/en-US/about-us/partnerships-and-alliances/Pages/strategic-and-technology-partnerships.aspx

Jargosch, R. E., Jurich, J 2014, Honeywell international Inc patent landscape analysis. IPGenix LLC, London.

NCR Corporation 2015, Honeywell forms global strategic alliance with NCR corporation, viewed 26 April 2016 http://www.ncr.com/news/news-releases/retail/honeywell-forms-global-strategic-alliance-with-ncr-corporation

Porter, M. E 2008, Competitive strategy: Techniques for analyzing industries and competitors. Simon and Schuster, New York, NY.

Roos, G 2014, Honeywell delivers product differentiation, viewed 26 April 2016 http://electronicspurchasingstrategies.com/2014/05/21/honeywell-delivers-product-differentiation/

Spiderbook 2015, Honeywell suppliers, viewed 26 April 2016 http://spiderbook.com/honeywell-suppliers.html

Stevens, D. R 2007, Strategy for Honeywell in the automation solutions industry for pulp and paper, viewed 26 April 2016 http://summit.sfu.ca/item/8206

Thompson, J. L., & Martin, F 2005, Strategic management: awareness and change. Cengage Learning EMEA, Mason, OH.