Case Study — Southwest Airlines

17 Feb

Case Study — Southwest Airlines: Using Human Resources for Competitive Advantage
Summary

A blast from the past, circa 1994: Case Study HR-1A from the Graduate School of Business at Stanford University asks us to review Southwest Airlines’ competitive position in light of actions by United and Continental to directly copy its low-fare model. Southwest’s success bit, and bit hard, into the market share of Continental and United. Now they’re fighting back by aping Southwest, down to the 15-minute gate turnarounds. Could the competition successfully imitate Southwest’s successful human-resources practices too? Ann Rhoades, Vice President of People, needs to make some recommendations to the leadership team. What should she propose?

Challenges

  • Could Continental and United’s new service offerings damage Southwest? What actions should senior management take to offset this threat from a people perspective?
  • “Dying from excessive prosperity”: How does Southwest tamp down possible overconfidence as it grows? How does it continue its so-far-effective people policies and management?
  • What should be done about leadership succession in case legendary CEO-chairman-president Herb Kelleher keels over from one Wild Turkey too many?

Quantitative/Qualitative Analysis

On just about every service measure, Southwest leads.

  • It’s never had a serious accident. It’s won the Triple Crown numerous times for on-time performance, the fewest lost bags and the fewest customer complaints.
  • It’s never had a labor dispute.
  • Its main competitive advantage is its workforce.

It leads on financial measures too.

  • It’s profitable. Revenue continues to grow. Net income up dramatically in 1993 over 1992. Debt is down. Its passenger load factor is strong.

Conclusion: Southwest can afford to invest in fighting off the competition.

And the competition? Weak.

  • Continental just emerged from bankruptcy. It’s yet to turn a profit. Employees aren’t thrilled with the extra duties, and they’re not making their turnaround times. Its leader, Bob Ferguson, is known as a harsh taskmaster. There are other structural issues with Continental Lite too. (And what about the horrid name?)
  • United’s recent employee buyout didn’t even include flight attendants, the face of the airline. The CEO stepped down, and new CEO with no airline experience has been brought in. It’s losing money. Its culture is “the opposite of Southwest.”

Recommendations

Ann should focus on continued enhancement of what already works at Southwest, with an eye to meeting the challenges. Let competitors shoot themselves in foot – given their histories, it’s bound to happen. Broadly, Ann should propose:

  • Keep the culture, while continuing to grow.
  • Keep the culture, even when bigger competitors such as Continental and United try to copy it.
  • Keep the culture, even when leadership changes.

Specifically, Ann could propose these tactics:

Usher in the Underdog Era

Underdog flying

Patrick Owsley's Underdog

  • Immediately include employees in the crusade, which Kelleher has already done with United in his “Commencement of Hostilities” memo. Given the history of trust at Southwest, be candid and complete. Develop a shared vision of the future.
  • As Kelleher says, “Anger can be a great motivator.” Get employees angry, yet keep them focused through communication, training and results metrics.
  • Draw on past history, i.e. the early dark days at Love Field, to refresh and renew the corporate spirit that has driven the company since its earliest days.
  • Identify specific operational and financial goals and metrics associated with the crusade which would be used to judge success and drive reward programs.
  • Develop a program budget for associated training, employee rewards and other incentives detailed below.

Develop Underdog training

  • Create formalized, specialized employee training program for “underdogs.” This could both enhance existing service characteristics while reinforcing the current state-of-siege mentality. Have Herb can don an Underdog costume to kick it off.
  • In attitude-based hiring, introduce an Underdog component. How resourceful are potential employees at developing ways to win even when competition is overwhelming?

Introduce time-limited Underdog rewards

  • Reward specific instances of employees showing the Underdog spirit, such as finding a way to keep peanut costs down or a turnaround shortcut. Rewards could include free flights.
  • Make the competition fun, with plenty of parties to celebrate milestones.
  • Develop a special Underdog bonus program for meeting specified metrics, such as costs per available seat mile, within a certain timeframe.
  • Add a profit-sharing percentage increase if employees meet the goals during the specific Underdog timeframe.

Create a competitive committee, just like the culture committee

  • Stand back and let employees develop ways to combat threats now and in future.
  • Relay data on competitive metrics to team to define progress.

Develop succession strategy for leadership

  • Have Kelleher as Moses handing down The Ten Commandments for Southwest Leadership. It stresses he may not see the Promised Land with them, while casting in stone the values Southwest should live by.
  • Develop succession ladder, with Colleen Barrett identified to succeed Kelleher. She is viewed positively by employees and referred to as the “backbone of the company.”

Non-people tactics Ann could include

  • Look at marketing: 80% fly nonstop. Surface travel is a key Southwest competitor. Develop an anti-driving advertising campaign?
  • Enhance Company Club bonuses for customers as part of the Underdog effort.
  • Clearly communicate competitive issues to shareholders, and enlist their support. The financial investment associated with funding the battle could decrease net income.

Real-world results (as of 2010)

  • Southwest’s reputation for customer service, low cost and on-time arrivals remains intact. It’s been consecutively profitable for 37 years.
  • Colleen Barrett was named president to succeed Kelleher.
  • Continental Lite failed.
  • United Shuttle failed and was folded back into United. A later version, TED, also failed.
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