Impact of Outsourcing on Honeywell Company Performance - Case Study Example

Impact of outsourcing on Honeywell company performance: Introduction: Honeywell Company is based in New Jersey and deals with the manufacturing aerospace and control products, it engages in outsourcing of its business and operations in India and china among other countries. According to Mattiuzzi (2002) through outsourcing Honeywell company reduced its technical manpower costs by 75% to 90% and overall labor costs declined by 50%, This paper highlights the impact of outsourcing on the company's performance with reference to dividends paid out, the paper also analyses the trend in labor productivity in the US and finally analyses the relationship between labor productivity in the aerospace industry and dividends paid, the following is an analysis of the trend in dividends paid by the Honeywell Company. Dividends: Honey well company divided payout has increased over the years, this increase can be associated with the increased efforts to increase labor productivity through outsourcing, the following chart shows dividends paid out by the company over the years: data was retrieved from yahoo finance (http://finance.yahoo.com/q/hps=HON&a=00&b=2&c=1970&d=10&e=30&f=2009&g=v&z=66&y=66) From the above chart it is evident that the divided payout level were low for the period 1976 to 1992 with only slight increases, for the period 1992 to 2000 the divided payout amount increased at an increasing rate and for the period 2000 to 2004 dividends remained constant and for the period 2004 to 2008 the divided payout amount increased at an increasing rate, this shows that there has been an increase in the profitability of the company and this has been due to increased efforts top outsource cheap labor in other parts of the world. Industry Productivity and cost: This section discusses the aerospace manufacturing industry labor productivity trends, data was retrieved from BLS (http://data.bls.gov/PDQ/servlet/SurveyOutputServlet) From the above chart it is evident that productivity has increased over the years, labor productivity increased gradually for the period 1987 to 1993 but declined in the period 1993 to 1997. For the period 1997 to 2000 labor productivity increased and this increase in labor productivity can also be associated with outsourcing, this is because aerospace manufacturing companies have increased productivity of labor through outsourcing. Major findings: From the above trends it is evident that the profitability of the Honeywell company has increased over the years, this increase can be attributed to reduced production costs that are realized through outsourcing, it is also evident that labor productivity in the aerospace industry has also gradually increased over the years, their productivity level indicates the labor costs incurred by companies with relation to production, it is therefore evident that through outsourcing companies are able to increase their profitability. Other sources of data: Data on labor productivity and divided yield could also be collected in other ways, the above are secondary sources of data and other primary sources could be used in the collection of data, data can be collected through interview and questionnaires, in order to collect this data a research questionnaire should be prepared or an interview conducted with the company representative where data could be collected and recorded. Primary sources are that best sources of data although they are time consuming and costly compared to secondary sources. Regression analysis: Data variables will include labor productivity and dividends paid out each year for the company, the following table shows the data used: Year labor productivity Honeywell company dividends 1988 87.409 0.51875 1989 87.646 0.45 1990 89.095 0.45 1991 94.098 0.4 1992 96.494 0.25 1993 101.304 0.29 1994 95.564 0.3245 1995 95.652 0.39 1996 99.413 0.45 1997 100 0.52 1998 119.149 0.6 1999 120.8 0.68 2000 103.394 0.752 2001 115.688 0.752 2002 118.649 0.752 2003 119.019 0.752 2004 113.245 0.752 2005 124.959 0.824 2006 117.935 0.908 This section highlights the relationship of costs of labor and profits in the aerospace industry, this section compared the relationship between dividends paid out and labor productivity, the model to be estimated using the regression analysis is as follows: Y = a + bx where y is the dependent variable, x is the independent variable, a is the constant of the model and b is the slope of the model, in this case therefore y represents the dividend value paid out per year and x represents labor productivity, The correlation coefficient of the data is 0.779486, this shows that there is a strong but positive relationship between labor productivity and amount of dividend paid, positive correlation shows that when one variable is increasing then the other variable is also increasing, the following chart shows the estimated model using excel: The above chart shows the line of best fit which is the regression line, from the above chart it is evident that there is a positive relationship between the two variables although the estimation error is relatively high, the estimated model can be stated as follows: y = 0.7163 + 0.0122X the above model states that if we hold all factors constant and labor productivity value (X) is zero then the dividend amount paid out will be 0.7163, the above model also states that if we hold all factors constant and increase the value of labor productivity (X) by one unit then the level of dividend paid out will increase by 0.0122 units. From the above model therefore it is evident that there is a relationship between labor productivity and dividends paid out, the model states that if labor productivity increases then the dividend paid will also increase. The correlation of determination value for this model r squared is 0.6076, this means that labor productivity explains 60.76% of deviations in dividends paid out each year, this analysis therefore shows that labor productivity will influence the profitability of Honeywell company, these results show that the increase in dividends paid out by the company can be associated with increase in productivity of labor which is achieved through outsourcing. Conclusion: The above analysis shows that Honeywell Company has increased its profitability over the years and this has been achieved through reduced labor costs, it is evident that labor productivity in the US has increased over the years, the regression analysis shows the relationship between labor productivity and dividends whereby increasing labor productivity will result into an increase in dividends paid. References: BLS (2009) labor productivity and costs in the US data, retrieved on 30th November, from http://data.bls.gov/PDQ/servlet/SurveyOutputServlet Mattiuzzi, Cici (2002). High Tech Jobs Leaving the Country. Retrieved on September 20, 2006 from http://www.ecs.csus.edu/career/articles/article11.html> Yahoo finance (2009)b Honeywell company dividends, retrieved on 30th November, from http://finance.yahoo.com/q/hps=HON&a=00&b=2&c=1970&d=10&e=30&f=2009&g=v&z=66&y=66 Read More