David Cote Talks About Recession and Economic Downturns In The New Case Study "Honeywell and the Great Recession"
September 14, 2015
This month, Harvard Business School published a new case study “Honeywell and the Great Recession” that explores employer tradeoffs when a downturn hits. The case puts students in the shoes of Honeywell Chairman and CEO Dave Cote and his leadership team and asks them to consider the choices they would have made in the face of the extreme uncertainty surrounding future business conditions in the fall of 2008. It explores the tradeoffs between two forms of employee cost reduction - mass layoffs or furloughs and examines the long-term orientation that Cote and his team brought to managing their company during the Great Recession.
Cote explains that he chose furloughs over layoffs based on the logic that economic recessions don’t last forever. Cote had used targeted layoffs for permanent changes to Honeywell’s product portfolio after becoming CEO in 2002, divesting businesses that did not meet his requirement that each Honeywell business be in a “great position in a good industry.” The benefits of using layoffs to manage costs during a recession didn’t make economic sense to him.
“I’ve been a leader during three recessions and I’ve never heard a management team talk about how the choices they make during a downturn will affect performance during a recovery,” said Cote. “There will be a recovery and we need to be prepared for it.”
Cote also emphasized how Honeywell continued its process of “seed planting”—investing in R&D programs and other projects needed to prepare for a recovery. He explained that during the recession suppliers would also be laying off workers, which limited their capacity to respond once the recession ended. Honeywell made arrangements to be “first in line” to be able to quickly respond to a pickup in customer demand. The study highlights that companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow do well after a recession.