Southwest Airlines Presentation Final 5391

Spring 2006—Southwest Airlines Case Presentation

• Background :

- Founded in 1967 - Love Field in Dallas, TX - 35,000 Employees (strated Flying in 1972) - Nation’s 4th largest airline (59+ cities and 65M Customers) - Only two fares: regular coach and off-peak

• Results and Outcomes:

- Excellent customer service (rated the best for on-time performance, fewest lost bags; fewest customer complaints – 13 years in a row) - Safest airline in the world (never had a fatal accident) - Profitable every year (33 years in a row); only airline in the world

Southwest Airlines Case - 1(Prepared by Professor Barry Macy

Texas Tech University)


Southwest Airlines and Some Other Airlines: - 44th Quarter, 2001 Profit/Loss

Southwest Airlines

American Airlines

U.S. Air

$63.5M$32.4M*

$(748M)

$(1.0 B)

Why?

* Without Federal Aid

Source: B.A. Macy, Successful Strategic Chance, San Francisco, CA: Berrett-Koehler Publishers (forthcoming).

Delta $(1 B)


• Results and Outcomes: (continued) - Highest stock return of any U.S. Publicly traded stock (compounded rate of return of over 21,000%) - $4.5 B in revenue (continuous uninterrupted growth) - Continues to increase market share (not at expense of profitability)•Returned $214M (profit-sharing) to employees (2001-2002)

• 14% of stock held by SWA employees

• Largest Market cap of any U.S. airlines (higher Market cap than all of U.S. Airlines combined)

• Success Factors (per the Company’s behavior):-Employees come 1st

-Customers – 2nd

-Shareholders – 3rd

Southwest Airlines Case - 2


Results (Con’t)

• After 9/11 SWA had no Layoffs and ALLALL employees took a pay cut!!!


• One of “Best 100 Companies” and in the “top 10 – Most Admired” companies to work for: - Unique, off-beat strong/adaptive (HPO) culture! - FUN emphasized! - Family emphasized! - Caring for employees emphasized! - Customers emphasized! - Identify with fellow employees (as internal customers!) - Ten-year Labor agreement! (81% unionized) - Aggressive under-dog spirit!

•Employees “Love” to work there!!

Southwest Airlines Case - 3


•Competitors have: - Same Equipment - Same Locations - Same Route Planning - Same Technologies - Have tried same no-frills, lowest cost model (all have failed - Why???)

Southwest Airlines - 4

(40 % of competitors went bankrupt or ceased operations)


Southwest’s Values, Philosophy, and Spirit

These are three basic values (“the culture”) or philosophical pillars at Southwest Airlines:

Value 1: Work should be fun ...it can be play . . . Enjoy it.

Value 2: Work is important ...don’t spoil with seriousness.

Value 3: People are important...each one makes a different.

Beliefs:•Organizations are transparent• Family and “Hugs”


- Hard-working (94 employees per plane vs.. Americans 160 and United 160 - Industry average of 130; serves 2,500 passengers per employee Vs. United and American average less than 1,000)

- Motivated

- Have FUN - fun place to work

- Treat employees as internal customers

- Employees are comfortable

- Fundamental business philosophy is that employees come first!

- Not a lot of employees!

People at Southwest:


Southwest Airlines

Integrated Low Cost/Differentiation Strategy

Use a single aircraft model(Boeing 737)

Use secondary airports

Fly short routes

15 minute turnaround time

No meals

No reserved seats

No travel agent reservations

Low Cost

Focus on customer satisfactionFocus on customer satisfaction

New flight services for business travelers(phones and faxes)S.W.A.’s Culture, Values, Philosophies & Principles

New flight services for business travelers(phones and faxes)S.W.A.’s Culture, Values, Philosophies & Principles

High level of employee dedicationHigh level of employee dedication

DifferentiationDifferentiation


The “Right” People or the “Right” Organization?

• What are our basic Principles, Philosophies and Core Values?• What do we believe in?

• What policies and practices are consistent with these Values and Philosophies?

•What can we do for the customer better than our competitors?

• Given our capabilities, how can we deliver value (EVA) to customers in a way our competitors cannot easily imitate?

• Senior management “manages” the values and culture of the firm.

A Values-Based Organization View of Strategy

Fundamental Values or Beliefs

Design Management PracticesThat Reflect and Embody

These Values

Use These to Build Core Capabilities

Invent a Strategy That is Consistentwith the Values and Uses the

Talents & Capabilities of People/Organization to Compete in

New and Unusual Ways

Senior Management’s Role


1. Alignment between strategies, goals, culture, core values, structures, systems, processes, and people.

2. Consistency of management and senior management responsible for maintaining the Culture and the Core Values

3. Assets are managed and low variable costs

4. Focus on Human Capital - - unleash their innovation and increase their capabilities

Summary of Southwest Airlines Case - 6


Southwest Airlines Results - 5

KPI INDICATOR S.W.A. INDUSTRY EXEMPLAR ORGANIZATIONS

II. Business/

Financial:1. Continuous Yes – 10+% No 10+% Per Year Uninterrupted per Year Growth

2. Continuous Uninterrupted Yes No Yes Market Share Growth

3. Continuous Mainly Uninterrupted Yes – 29 yrs. No Yes Profitability in a row

4. Rate of Return 21,000% Not even close - Close to (7th Highest – public) below average Top 10

5. Average Hours 11 hrs. 8 hrs. NA in Air per day




II. Business/

Financial:6. Flights per 10.5 4.5 NA Gate

7. Ground Time 15 min. 47 min. NA (70%) (70%)

8. Employees Per Plane 94 130 (some 160) NA

9. Employee Service 2,500 1,000 NA per Passenger

10. Typical Financial Best Average to Best to Measures Below Average Excellent11. Cost Per Mile 5.86 – 1984 15-40% Higher Average of 5% 7.3 – 1998 Reduction/Yr.




III. Employees:

1. They Come 1st Yes No Balanced Scoreboard

2. Motivation Very High Average High to Very High

3. Job Satisfaction Very High (85%) Below Average to High (65-70%) Average (50%)

4. Employment Never had a Very Frequent Rare Security Lay-off Lay-offs

5. Labor 10 years (No 1-3 years None to 5 years Agreement Work Rules)

6. Internal Yes No Yes Customer




III. Employees:

7. Families Caring Questionable Caring

8. Trust and Confidence Yes No Yes

9. Work Fun Not Challenging/ Fun/ Boring Challenging

10. Catastrophe Yes No ? FUND

11. Jobs Multi-skill Narrow Multi-skill

12. Number of Employees Few Lots Few to Average


• Competitors have:

- Same Equipment - Same Locations - Same Route Planning - Same Technologies - Have tried same no-frills, lowest cost model (all have failed - Why???)

2005 Southwest Airlines Case - 12

(40 % of competitors went bankrupt or ceased operations)


• Strategies and Goals: Fly to airports that are under-utilized and close to metropolitan areas

- One type of aircraft (367+ 737’s)

- 80% of customers fly non-stop (no hub necessary - avoids delays and shorter turnaround times; 70% of planes have 15 minute ground times)

- Planes average 11 hours in air (Industry average = 8.0)

- Planes average 10.5 flights per gate (Industry average = 4.5)



• Strategies and Goals: (continued)

• Simplify the operations (no meals, no seat assignments; frequent flyer awards are simple - no mileage)

• Low cost structure - - a competitive advantage - Turnaround time

- Pilot spend more time in air than other airlines ($100,000 wage vs.. Delta’s $200,000)

- Flight attendants and pilots help clean planes, check passengers in at the gate and load bags if needed (people pull together to accomplish the mission and goal)



• People at Southwest: - Hard-working (94 employees per plane vs.. Americans 160 and United 160 - Industry average of 130; serves 2,500 passengers per employee Vs. United and American average less than 1,000)

- Motivated

- Have FUN - fun place to work

- Treat employees as internal customers

- Employees are comfortable

- Fundamental business philosophy is that employees come first!

- Not a lot of employees! (per customer – Best in the Industry)



2005 Southwest’s Values, Philosophy, and Spirit - 17

These are three basic values (“the culture”) or philosophical pillars at Southwest Airlines:

Value 1: Work should be fun ...it can be play . . . Enjoy it.

Value 2: Work is important ...don’t spoil with seriousness.

Value 3: People are important...each one makes a different.

Beliefs:•Organizations are transparent• Family and “Hugs”


• Organization:• Stable working environment (never had a layoff)• People orientated culture (informal egalitarianism)• Equal Opportunity for learning and personal growth• Creativity and innovation encouraged and rewarded• Same caring, concern, respect within the organization as outside (with customers)• Catastrophe fund for employees• Targeted selection utilized• Celebrations (for achievements)• Contests• “Walk a Mile in My Shoes”• Lots of companies say “employees are important” - - however, their behaviors speak louder than words!!• Flat/Lean organization structure (only 4 total levels)



Typical Ten Step Targeted Recruitment and Selection Process - 20

Job Fair

Orientation/Application/Testing

Screening Interviews

Assessment Center (COBRA & Team Decision Exercise)

Final Interviews

Background/Reference Check

Pre-Employment Orientation

Job Preview/Offer

Med/Drug/Prework

Confirm JobOffer

1

2

3 4

5

6

7

8

9

10


• Organization: (continued)• Trust and confidence in employees (No H.R. Dept. - a “People Department”)• Over 200,000 job applications in 1998 (35,000 interviewed and 4,000 hired)• Recruited primary for attitudes and behaviors• 29,000 people are trained each year• Get people excited and enthused - avoid complacency• Key senior leaders are the “trainers”• No tuition reimbursement (no to little outside sponsorship of training)• Two-way communication and feedback• Mutuality in Labor Relations (no work rules in contract)• Everyone receives a “raise” on his/her birthday• Employee Attitude Surveys



• Organization: (continued)

• Pay Practices: Collective Vs. Individual - Profit sharing (all employees over 1 year with company) - Stock ownership - Relatively low Executive pay (little to no pay for performance) - Consistent treatment (raises or freezes) - Low pay at the start and high pay with experience (below market wage for managerial, professional and wage at start) - Pilots and flight attendants paid by the “trip” - Average wage (1992) was $44,305 compared to American’s $45,801 and United’s $54,380• Employees treated like “owners” - share all information (good and bad)



• Organization: (continued)

• Employees encouraged to take responsibility and make decisions

• Management seeks out employee opinions and listens carefully to employees; acts accordingly!

• Monthly meetings for sharing of confidential data

• Competitor information shared

• High level of employee trust

• Effectiveness NOT efficiency

• Effective Senior Leadership

• Effective and Strong Senior Management Team




• Sees it’s mission as creating the maximum amount of wealth possible out of the imagination and skills of it’s employees (rather than maintaining leadership in a particular market with one business model.)

• Assumptions: Good business models are not immortal (only in a slow-spinning world). Business models can be “rendered absolutely useless in a blink of an eye” - every organization must now be “built to change/be redesigned”!


•Don’t commit to one single business model - - commit instead to providing “brood after brood of new business models”!

• Their Characteristics: - Democratic - Open - Experimental (risk taking) - Highly networked - Non-hierarchical - Structures, systems and processes are malleable / adaptive to the business environment - Some use of teams - Speed - Ideas/Imagination - Pattern of rule - busting strategies - Master of innovation platforms/pathways

Summary Southwest Airlines Case - 25


• Other Characteristics - Scale - Effectiveness Vs. Efficiency - Replication - Discipline - Culture - Core Values

• 73% of it’s Revenue from E-Commerce• Importance of Internet• Synthesis of “old” and “new” organization (uses their scale; size; infra-structures, systems, and processes; and operational excellence to crush competitors!)




• Clear, well-defined (NOT blue-sky), and articulated set of Core Values (Widely shared; acts as a foundation for managerial behaviors and practices.)

• Alignment and consistency in the organization’s structures, systems and processes that stem from the Core Values.

• Visionary leaders and senior management responsibilities for maintaining the organization’s culture and Core Values (maintained and made real to employees in terms of managerial behaviors - NOT just “words”)

• Strong and Adaptive Culture

• Hiring (Targeted Selection) for Behavioral “Fit”



• Investment in Human Capital (Employees) - - improving their capabilities

• Widespread information (confidential) sharing (vertically and horizontally)

• Some (NOT a lot) of “work teams” - accountabilities and responsibilities of the teams clearly defined

• Rewards and Recognition

• Consistency in Top Management


1. Alignment between strategies, goals, culture, core values, structures, systems, processes, and people.

2. Consistency of management and senior management responsible for maintaining the Culture and the Core Values

3. Assets are managed and low variable costs

4. Focus on Human Capital - - unleash their innovation and increase their capabilities



Six Attributes of Best Companies:

1. Employee talent and common sense: - Hire for attitude – train them for skill (We are in the customer service business – NOT transportation!)

2. Financial Soundness:- Manage in the “good times” to get ready for the “bad times”- Employees gave back part of their “Sept., 2001” wages (1to32 hrs. max.) = $1.3M salary giveback- Top officers: Gave back 100% of their pay in Sept., 2001- $13.3 Market cap (higher than all U.S. Airlines put together)

3. Use of Corporate Aircraft and Assets- Have 367 – Boeing 737’s

4. Innovativeness: 15-25 Minute turnaround; 30% lower wage rates

5. Financial Soundness (long term investment)- $13.3B – Market cap (larger than combination of all US Airlines)

6. Quality of Management- Transition Plan to others from Kheller


Why is Southwest Successful? (1)

• “NOT” because of:– Only flies 737’s

– Only Small Airports

– Low Ticket Prices

– Quick Turnaround

– Low Cost

– Customer Loyalty

– Efficiency

– Profitable

– Rate of Productivity

All Results/

Outcomes/

Effects/

Symptoms


• Because of its Internal Business Environment and/ or Execution Systems—the Causes:– Culture, Core Values, Philosophies and

Principles (Vision Direction)– Effective Management of its Workplace (Level

5 leadership)– Effective Exemplar Structures, Systems and

Processes (fit between elements of the Execution System)

Why is Southwest Successful? (2)


Why are Firms/Organizations Successful (Using only RBV Theory)?

1. What are the assumptions the organization makes about people and their motivations?2. What are the manager’s beliefs that underpin how they organize and design the work environment?3. What are the organization’s core values, principles, and philosophies (the culture)?4. What are the organization’s expectations about their employees?5. What are the strategies, structures?6. How are their people utilized? How are the organization’s capabilities improved?7. Is it their technologiestechnologies and the physical assets (i.e. equipment, machinery, etc.)8. Why haven’t their competitors been able to imitate them?9. Is it their strategies?10. Is it the right people/excellent human resources?11. Or the right organization (strategies, structure, and leadership?)12. Why is the firm/organization so successful/exhibits exemplar performance?


Why are Firms/Organizations Successful?

1. What are the assumptions the organization makes about people and their motivations?

• High Trust and High Motivation/ Committed Employees

2. What are the manager’s beliefs that underpin how they organize and design the work environment?

• Their Core Values, Philosophies and Principles (Corporate Culture)



3. What are the organization’s core values, principles, andphilosophies (the culture)?

CORE VALUES:• Work should be Fun!...It can be play…Enjoy it• Work is Important …don’t spoil it with seriousness• Our People (Employees) are is important – They come 1st (above Customers and Investors)

PRINCIPLES & PHILOSOPHIES:• No layoffs • Egualitarism (all equal)• Equal opportunities for learning and personal growth• Flat/ lean Org. Structure• Employees has important input-listen to them• High participative work environment • Care, concern, respect within the org. for employees• Catastrophe fund for Employees + Families• Hire and we will train/ Develop/ mentor• Celebrate achievements • Have Employees Contests (award reception/ financial rewards)• “Behave / Act” like the words



4. What are the organization’s expectations about their employees?• Expectation about work performance, communication, coordination, and integration

5. What are the strategies, structures?• Employees are always first –ahead of customers and investors; flat/lean structure (NOW-4 layers: 3 Management and 1 level of Associates

6. How are their people utilized, and organization’s capabilities improved?PEOPLE UTILIZED:

No specific job/ work description; high expectations; multi-skillCOMPANY IMPROVED CAPABILITIES:

Commercially Astute Employees; Org Capabilities –flexibility and adaptability

7. Is it their technologiestechnologies and the physical assets (i.e. equipment, machinery, etc.)• NO!



8. Why haven’t their competitors been able to imitate them?• Corporate Culture (Core values, Philosophies &

Principles)• Level 5 leadership (Effective management and Workforce)9. Is it their strategies?• Yes—Somewhat (people Strategy)10.Is it the right people/excellent human resources?• Yes—Somewhat!11.Or the right organization (strategies, structure, and

leadership?)• Yes—Somewhat!12.Why is the firm/organization so successful/exhibits

exemplar performance?• Corporate Culture!!• Level 5 Management (effective management of

workforce)!!


Alignment of Action levers

Southwest J & J SAS Dell GE ABB Cisco Cypress Airlines

• Values, Culture, and Strategy Alignment• Hiring for Fit•Work & Jobs

• Investing in People

• Widespread Information Sharing

•Shared Leadership & Decision making

• Team Based Systems

• Rewards and Recognition

•Lean & Flat Structure

• Leading / (NOT Managing)

•Vision Direction• Alignment of Structures, Systems & Processes

/ 0

Action Levers

= Excellent = Good = Fair0 = Missing


Alignment of Action levers

Southwest J & J SAS Dell GE ABB Cisco Cypress Airlines

• Organizational Strategies

Enterprise

GBU& SBU

•Business Models

•Core Competencies/ •Operations•Others

•Capabilities

•Organizational

•Technological

•Teams

•Mutuality

•Transformation/ Change process

0

Action Levers

= Excellent = Good = Fair0 = Missing

0

0

0


Future Issues/ Problems for SWA

• Going International

• Merger (Acquisition of another airline)

• Growth:– Internal?– External?– Both?

• Will the Corporate culture change when Herb leaves?

Southwest Airlines Presentation Final 5391

Documents

Transcript of Southwest Airlines Presentation Final 5391