Title: Successful Strategic Implementation Within Southwest Airline Executive Summary
Though formulating strategies of businesses in contemporary market is critical, it is more significant to concentrate on the implementation process. The globalization and market-oriented economy appear to deepen the influence in international business context. Therefore, to ensure that businesses remain their competitive advantages and strategic capabilities, strategic implementation plays an indispensible role.
Southwest Airline is an airline industrial player headquartered in US. It created a miracle of continuously reflecting profitable years since the establishment in 1970s. In the meantime, the period of the company's initial establishment was a moment deeply suffering from negative macro-environmental impacts such as economic downturn and airline industrial deregulation. From the very beginning of the establishment, Southwest Airline has created its long-term strategy on low cost strategies. Southwest Airline is not the sole player that appear to concentrate on such strategies among its competitors. However, from past to present, the company is still capitalizing on the strengths of the low cost strategy to reach profitability in market. Its long-term thrive is perceived to closely relating to the successful strategic implementations.
This paper aims to predominantly evaluate the strategies implementation within Southwest Airline using McKinsey's 7S model. The primary strategies that have been adhered to the company is outlined in the first place, followed by a construction of brief SWOT analysis to outline the major characteristics of the situation. At the end of the report, recent issues reflecting the company's strengths of crisis management and the future directions of its strategic development is addressed.
Table of Contents
1.0 Background Information
2.0 The Strategy Implementation Phase (1800)
3.0 SWOT Analysis
4.0 McKinsey 7S Model
4.1 Strategy
4.2 Structure
4.3 Systems
4.4 Staff
4.5 Style
4.6 Skills
4.7 Shared Values
5.0 Recent Issues
6.0 Conclusions (200)
7.0 Future Recommendation
References
1.0 Background Information
Southwest airline was initially established in 1971. The first flight was from Dallas to Houston and San Antonio. In this flight, there was very simple meal distributed to the customers without any further augmented services. The way Southwest Airline does business had been doubted by many of the industrial players perceiving their business philosophy as informal. The rapid expansion of the company has effectively combated the criticism and concerns from the public. Southwest Airline soon became the leading industrial player in US market by the end of 10th century. The company has created many records that appear to be memorable in US airline industry. The major characteristics of its operation is that its net profit margin appears to grow in rapid manner with less exposure to the risks from debts. The accountability and creditability of the company is also breaking record in domestic market. After the 911 attack in 2001, almost all airline industrial players in US have been struggling except Southwest Airline. In 2005, the escalating price trend of fuel costs has resulted in $10 billion loss for the entire US airline market. Under such influence, some major players in the industry have applied for bankruptcy. However, Southwest Airline still thrive for the continuous 33rd year reflecting positive net profit growth. The core value of Southwest Airline is to provide cost-effective, simple but concentrated airline service to the market.
2.0 The Strategy Implementation Phase (1800)
Southwest Airline was established during the period when US airline industry suffered from economic downturn. Almost all players in the industry appeared to struggle with industrial deterioration during that period. However, Southwest Airline has become an exception, reflected from its continuous achievements in profitability and strong strategic management approach.
A. Low-cost Structure
Low-cost structure has been a traditional strength of Southwest Airline. Due to the fact that most flight route are short-distance domestic routes within Southwest Airline, the company pays considerable attentions on cost structure optimization to support its profitable operations. There were no formal meals and first-class cabins developed and even the boarding card have been using recyclable material such as plastic instead of paper. Southwest Airline also use single-carrier strategy to minimize the operating costs.
B. Fuel Hedging
After the deregulation of airline industry in US in 1978, airline profitability and survival depended on controlling costs. In spite of labor being the leading costs, fuel costs is the secondary highest cost components, which if could be controlled properly, could facilitate management to more accurately estimate budgets and forecast earnings (Carter, Rogers & Simkin, 2005). Continuous execution on fuel hedging strategy has been a competitive advantage of Southwest Airline in maintaining and sustaining its low cost position. The data listed are partially drawn from Annual Report (2000) from Southwest Airline.
C. Automated Outbound Message (AOM)
Active practice in retaining customers and delivering customer satisfaction is also a strong focus under Southwest Airline. AOM strategy was settled in recent years aiming at proactively delivering customized automated voice, text and email message to Southwest customers when there has been a change in alteration of their services and giving Southwest customers the option to connect to customer representative or rebook online in case of their alteration of services (Annual Report, 2012).
3.0 SWOT Analysis
SWOT analysis is conducted here to gain a brief overview of the internal and external environmental characteristics faced by Southwest Airline. The elements of strengths and weakness are defined as internal situation while those of opportunities and threats link to the external situation.
4. Stable development policy that rejects
4.0 McKinsey 7S Model
McKinsey 7S Model
McKinsey 7S model is an important framework for evaluating the success of organizations. It is considered that such model is highly applicable in analyzing Southwest Airline's case. In McKinsey 7s model, there are six components contributing to the core element of shared values, which are structure, system, style, staff, skills and strategy. Structure refers to the way managers collectively behave with respect to use of time, attention and symbolic actions. System stands for capabilities possessed by the organization as a whole as distinct from the individuals. Some companies perform extraordinary feats with ordinary people. The component of style represents the processes and procedures through which things get done from daily operations. Staff stands for the organization chart and accompanying baggage that reflects who reports to whom and how tasks are both divided up and integrated. In addition, the people in the organization considered in terms of corporate demographics not individual personalities make up the skills component. At last, it is perceived that strategy stands for a coherent set of actions aimed at gaining a sustainable advantage over competition.
4.1 Strategy
A coherent set of actions aimed at gaining a sustainable advantage over competition has been reached by Southwest Airline. The positioning of the company is very special. It specifically look at the short-term flight route. Southwest airline has chosen low cost strategy as the differentiation tactic. As a result, it cuts off the service of meals, adopts recyclable plastic boarding card, rapid take-off which collectively constitute to the low airfare. In addition, the cost advantages is also reflected from non-allocation of seats, efficiency of reusing materials and provision of general flight cabin design and seating. The statistical evidence retrieved from the annual report of the company (Southwest Airline Annual Report, 2005) best reveal its advantages. Comparing with other industrial players, Southwest Airline flight works for an average of 12 hours. Comparing with the competitors, the average for flight working hours among the rest of industrial players is only 9 hours indicating an extra 40% advantage. Comparing the frequency of boarding gate, an average flight use it for 10.5 times on average and surprisingly the rest of the industrial players have barely reached half of it. Further, the
adjustment time between landing and re-take off is 15 minutes for Southwest Airline, while that figure of the rest of the players appear to be 35 minutes. Time is money for the consumers especially in fast paced social life in contemporary society. We believe that many business group consumers would prefer Southwest Airline rather than other industrial players even much superior services could be enjoyed. Moreover, the average working hours for pilot is 70 hours in Southwest Airline. Comparing such figure with the rest of the players, it has 20 hours advantage over them. At last, Southwest Airline only use one type of aircraft while the rest of industrial players use multiple types. Apparently, higher efficiency equals to low cost.
4.2 Structure
The successful execution of strategy cannot be separated with the support from suitable organizational structure matching the strategic direction. In Southwest Airline, there is strict prohibition of bureaucracy and elimination of complexity in administrative functions. It keeps a refined and simplified organizational structure and pays substantial attentions on details. The decision-making mechanism in the company is also efficient. The sophisticated titles and assistant roles have been largely eliminated in the company. Moreover, the human resource management functions as a democratic system of people's department showing caring and loves for the employees, which significantly improved the employee commitment, engagement and loyalty.
4.3 Systems
The process and procedures through which things get done from daily operations is dependable on the system design. In Southwest Airline, the average time taken between landing and takeoff of flight is 15 minutes. The procedures of Southwest's flight follows a sequential manner: the cabin crew change shifts; 137 passengers get off the plane; 137 passengers get on the plane; ladders get loaded to unload 97 luggage; 123 pieces of luggage get loaded to the cabin; the fuel get filled up for 4500 pounds; people disappear; flight take off again. In the company's recruitment process, the attitudes element plays a very important role as the company believe the ultimate value from candidates matter the most, where professional expertise could be built through training and education. In the meantime, the advertising of recruitment pays attention to outline the specific benefits and characteristics of the company and the company has been very sensitive on the recommendation from the employees and peer competitors. Southwest airline does not adopt total quality management or reorganization approach. It spent more time on efficiency management than making decisions on what specific management approach should be adopted.
4.4 Staff
The people in the organization is considered in terms of corporate demographics not individual personalities. The candidates recruited by Southwest airline usually have great sense of human as the company believes that under competitive and stressful environment due to dynamic environmental change, humor could facilitate to retain the creativity, improve efficiency, keep psychological wellbeing and release pressures. While selecting candidates, the company has been strengthening focus on selecting those candidates showing caring on others and
extroversion and selflessness. During the training process, Southwest airline pays considerable attentions to educate employees on perceiving things from others' standing point and angles. It also encourage information sharing and motivation for learning. The motivation of innovativeness, allowance for turnover, encouragement of mutual respects and priority of employees' wellbeing are the general culture in the workplace under Southwest airline. Such soft HRM approach is evidently effective in 21st century in motivating and engaging employees. In response to the soft HRM approach, Southwest Airline pays considerable attentions on goal and interest alignment between individual and organizations. It use love, caring and sense of belongingness to retain the talented staff. Even during the economic crisis, the employment rate in the company still maintains status quo.
4.5 Style
Style refers to the way managers collectively behave with respect to use of time, attention and symbolic actions. The wide selection is to pursue those leaders who show caring and accountability. The reason that Southwest Airline's staff have been constantly providing legendary service quality is that their leaders have in-depth understanding of the nature of services. People is one of the most significant element in marketing 7P mix theory. Such important fifth P is in great importance due to the fact that increasing emerging service organizations essentially requires high level of interactions between customers and the service organizations. Services appear to be produced and consumed at the same time and aspects of the consumers' experience are altered to meet the individual demands of the party consuming it (Goi, 2009). It should be noted that people strategy if applied appropriately, could alter customer preference as customers deal with people they like (Rafig & Ahmed, 1995). People strategy plays critical role in service marketing mix due to the fact that people are the transactional interface between the company and its customers. People underpin the customer relationship between the company and the customers (Bitner, 1990). Southwest Airline's staff are fully aware of what mutual trust plays in service delivery.
The management also place employees as priority while the customers are placed as secondary. The management have stick to their own principles and foster changes from the internal environment. Their image of role models best convince the employees how to share and undertake responsibilities. Some other characteristics of the style element of the company still include rapid actions, attentions on details, considering working as fun, respects, caring and trusts towards employees.
4.6 Skills
At last, skills refers to the capabilities possessed by the organization as a whole as distinct from the individuals. Companies could perform extraordinary feats with ordinary people. During the recruitment process, Southwest Airline insist that there is no mandatory requirement of MBA certificate. What it really cares is whether the employee would be willing to conduct critical thinking, open communications, information sharing and are motivated for learning. The company appeals for the enthusiasms of learning to master the most advanced technology and it encourage no fears for failure as a source of creating innovativeness and creativity.
4.7 Shared Values
At last, shared values could be considered as those ideas of what is right and desirable in corporate or in individual behavior which are typical of the organization and common to most of its members. Some characteristics are unique in Southwest Airline. In the first place, the high return is related to the organizational development and employees' contribution. In the second place, low cost is the most important decision making criteria in corporate management and operations. In the third place, the company has been focusing on the concept of family, where support, protection, acceptance and love is widely distributed among human resource. In the fourth place, humors play a significant role in innovation and work enthusiasms. In the fifth place, encouragement of inputting love during the work makes the services considerate. In the sixth place, people lack of diligence and hard work would be deemed as unsuitable for Southwest Airline. Further, the company advocates personalization for employees to reflect their genuine personal identity and individual characteristics so that gifts could be effectively released. The company also view customers and other company related resource as their own belongings so that they would pay extra due care and treasure them. In the seventh place, delivery of legendarily fine service is believed to retain and acquire satisfied clients for re-purchasing behaviors. In the ninth place, Southwest Airline adhere the principle of equality, where whoever comes first should be served in priority. At last, providing assistance to people is a spirit and sphere in the organizational cultural setting. It believes that during the process you deliver helps to people, both parties would feel satisfied and joyful.
We therefore identify four key factors in human resource leading Southwest Airline to succeed. Firstly, employees truly love and look forward for their job. Secondly, they do not care for making extra contributions than others. Thirdly, they are willing to contribute everything and purely devote themselves in exchange for success. Eventually, strong sense of belongingness would motivate employees to work for the company and regarding it as a big family. (Effective SHRM is my focus showing the reason why strategic implementation in Southwest Airline is so smooth)
Emotionally detached to the Stagnation, maintaining 5.0 Recent Issues
Two recent issues occurred is concentrating on the labor strike and safety concerns of Southwest Airline. We believe that these two issues are the most common case that are not ultimately avoidable by airline industrial players. Given the organizational culture showing extra care and concerns on the employees' wellbeing, it is reasonable that it may constitute to financial problems. Jim Parker, the CEO of Southwest Airlines says:
'Our goal is to keep productivity high, keep the business model in place. I go to Herb (now chairman of the board) before the union negotiations, then I put as much money on the table as I can, right at the start. There is not always harmony, but we know our employees at Southwest have realistic expectations. I would say there are different degrees of harmony. Most labor disputes are not really about money. There is something else –respect. It comes down to personal contact between the company and its employees' (Gittell, 2003)
The labor strike only continues for six days in the company's history and when a union attempted to make outrageous demands, the Southeast management didn’t respond. Instead, other unions who partner with Southwest sent the message that they were not prepared to stand by and let one union ruin what they had all worked so hard to build. On the other hand, Southwest Airline responded to the safety issue with humble attitudes and concerns and adequate support and cooperation with FFA. Just like what Jim Parker has stated, there will not be perpetual harmony. The reaction and ability to handle the crisis in Southwest was proven just to be strong.
6.0 Conclusions (200)
After our evaluation, it is perceived that the implementation of strategies within Southwest Airline is overall remarkale, effective and efficient. One thing does make us impressive is the contribution from its strategic human resource management which has been leaning to a management style intrapreneurial approach. It is believed that remaining the ability of strategy implementation and settling new strategic development goals would ultimately facilitate the corporate to sustainabley thrive in airline industry.
7.0 Future Recommendation
A. Remaining the current operational strategies and market penetration
B. Expand current services into other cities where there are no services from Southwest Airline
to form intra-continental coverage. (Use aggressive expansion supported by low cost advantages to gather more market shares)
C. Keep enhancing and optimizing customer loyalty program such as frequent flyers points accumulation to acquire new customers and compete for more market shares.
References
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Annual Report (2012), Southwest Airline, retrieved 5th Oct, 2013, < http://southwest.investor https://www.doczj.com/doc/bc8054771.html,/company-reports>.
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