Southwest Airlines Corporations

Southwest Airlines Corporations In year of 2006, Southwest Airlines celebrated its 34th consecutive year of profitability. While other airlines paces of profitability appear to be stagnant; Southwest Airlines was announced as one of the most admired corporations by Fortune 500 Magazine (Southwest 2006). Southwests success is deeply related to the new strategies that other airlines dont even dare to consider. The corporate culture and strategic philosophy stands out, making Southwest the leader in the whole airline industry. Southwest Airlines strategy can be described as â€Å"short-haul, low-fare, high-frequency, and point-to-point carrier (Fortune Magazine 2006)†. A lot of people consider that the marketing strategy that Southwest Airlines currently using is the low cost provider strategy. Low cost provider strategy is a strategy which is committed to driving down the cost through its value chain system (Broydrick 1995)†. This strategy allows companies to compete aggressively on price earning high pr ofit margins than rivals. But the low cost provider strategy is not the cure-all prescription for all the problems. If the quality of a product or service is not guaranteed, the low cost provider strategy is not likely to work. From a macro perspective, it seems that Southwest Airlines is using the low cost provider strategy to stand out among all other airlines. Rather, it is using the best cost provider strategy because from a competitive positioning standpoint, best cost strategies are a â€Å"hybrid, balancing a strategic emphasis on low cost against a strategic emphasis on differentiation (supervalue) (Entrepreneur 1995).† In order to analyze the factors which contributed to the success of Southwest Airline Corporation more efficiently, we can use the McKinsey 7-S Model. In Peter and Watermans masterpiece â€Å"In Search of Excellence†, the book summarized that in order for a corporation to be successful; there are factors which it must acquire. The reason why that they are considering the success in this way was because that successful corporations they picked from the top list of the Fortune Magazine all possessed seven criterion. That is the famous McKinsey 7-S framework that Southwest Airline based its strategies on, which guarantees that â€Å"any intelligent approach to eventual success of organizing had to encompass (Peters and Waterman, 1982)†. The McKinsey framework includes eight attributes: 1) A Bias for Action. This attribute is based on the principle of â€Å"can do, let try.† This means that the principle favors experimentation. Southwest often goes out of its way to â€Å"amuse, surprise and entertain† its passengers (Peters and Waterman, 1982).† 2) Close to the Customer. This implies that the closeness to customers are expressed as an attitude concentrating on â€Å"valued clients† rather than valued employees of Southwest Airlines treat the customers as â€Å"valued clients† rather than â€Å"valued wallets.† They care about the customers not only just for one trip, but their futures as well. Moreover, the letters from customers are answered personally rather than using a standardized formula. Southwests CEO Kelleher actively supported that because he declared that there are three advantages which could be drawn from the service. First, it is the employee performance. Kelleher considers it the best way to value its employees. Second, the inputs from the letters which are authentically wrote indicates the real deficiencies that Southwest might encounter. Third, there is no worry about the letters because if cu stomers are willing to spend time on writing it, there is a great possibility that their concern shown on the letters are true and realistic. Southwest rarely uses survey questions to test its customers to test customer satisfaction. Because most surveys are made up of multiple choices from scales such as from 1 to 10, or from excellent to bad. It is hard from customers to think that the corporation belongs to which category. The difference between scales 5 and 7 might be real close which confuse the customers (Dauble 2005). As a result, some customers filled up the answers in guessing way that they dont even know what they are doing. They just want to get over with it. 3) Autonomy and Entrepreneurship. This indicates that in the whole corporation, every employee is a leader. They are respected just like any top managers. Everyone is welcome to submit new ideas or weakness of the corporation, and it has no hierarchy. Moreover, their will be competition within the corporation, but not suppression. Every competition is conducted in friendly manners. Unlike other corporations that the CEOs rarely allows themselves to meet the employees, the employees of Southwest can have lunch with Kelleher any day at any time (Marcial 2005). All the departments often shower free ice creams, pizza and other good stuffs to celebrate for each other when an assignment gets well done. Some employees from different departments in other corporations dont even know each other. All they do is doing their own work. Therefore, once there is a problem, it is extremely difficult for departments to work as a whole to solve the problem because they hardly know each other. This will wastes a lot of time, have the possibility of leading the corporation into the wrong direction, and intensifies the relationship of managers between departments in the situation that when they are unable to reach consensus (Lynch 2005). Furthermore, Southwest welcomes failures as well as successes because it firmly believes that failure is the mother of success. When a failure appears, it means that the success is coming down the road. 4) Productivity through People. This strategy implies that there is no existence of personality tests. Sense of humor and an outgoing attitude is a must. At Southwest, communications are frequent and concerns of old people and young people are treated by old employees and young employees with outgoing attitudes and personalities. In this way, the negative effects and misunderstandings due to generation ga ps can be avoided. 5) Hand-on, Value-Driven. At Southwest, there is a policy that in every quarter, the top managers and executives must spend one day experiencing the jobs of their employees. By working on positions such as ticket agents, baggage handlers, or janitors, people from the top level will have an authentic feel of whats going on and where are difficulties and deficiencies (Bunz 1998). 6) Stick to the Knitting. This theory indicates that corporations should never expand too fast just because their financial results in the short run show success. Southwest will not expand recently because it follows the strategy and every move it makes is conducted in an extremely careful way. Southwest understands that if â€Å"hot meat appears, your eating it fast strategy probably will burn your mouth (McNerney 1996)†. 7) Simple Form and Lean Staff. This strategy means that â€Å"keeping an organizational staff lean simplifies channels of communication in an organization (Peters and Waterman, 1982).† The reason of this is because that the more layers a hierarch has in a corporation, the longer it makes to make a decision which could result in wasting time and resources. At Southwest, it is not the janitors clean up the airlines. Rather, flight attendants and top managers are people who do the cleanings. In this way, Southwest can save both money and time. Moreover, Southwest is always loyal to its employees as they are to the Southwest. Southwest uses the â€Å"always hire and rarely fire† principle when dealing with human resources (Peters and Waterman, 1982).† It never fires its employees just because of external factors such as the stagnant of economy or internal factors such as financial loss. 8) Simultaneous loose-tight properties. This means that the corporation has both a centralized and decentralized system which de-emphasizes hierarchy. Southwest has a democratic style of corporation culture with autonomy and a tight control of finance by the CEO to make sure that money and resources are not wasted. Besides the above-mentioned eight crucial strategies that successful corporations must acquire, Southwest has two more strategies that other successful corporations do not possess. One is the University of People, and the other one is its CEO Kelleher (BusinessWeek 2005). University of People is a program established by Southwest for training new emplo yees. The trainees treat rookies just like the way they treat customers with great respect. Southwest firmly believes that the way it treats its employees will be an indicator of standards and positive motivation for employees to treat customers in same manners in the way which they are treated, or even better. As the CEO of Southwest, Kelleher is a successful executive with great responsibilities. He is also looked upon as a person with great sense of humor. An employee described that â€Å"wherever Mr. Kelleher goes, you will always hear sounds of laughs and feel an atmosphere of harmony (Gavinderajan 2002).† The successful corporation structure and philosophy of centralized and decentralized differentiation of the â€Å"Short-Haul† strategy brings a change, as well as a revolution of corporate structure innovations from old styles to the new ones. The â€Å"Short-Haul† strategy is very successful currently. Southwest is successful not only because of the â€Å"Short-Hauls† strategy. Southwests corporate strategy in areas of human resources, financial control, employee motivation and promotion, frequent communications between different levels, and the hardness for other airlines to duplicate are also factors which go with the â€Å"Short-Haul† strategy, differentiating Southwest from the rest of airlines, and therefore ensuring the success of such great achievement. However, huge problems are likely to take place in the long run. Just like Darwins Theory â€Å"survival of the fittest† indicates that every element is on its way of evolving, being unchanged will eventually be discarded by time and success in the long run. It is true that Kellehers â€Å"Short-Haul† strategy is extremely successful at present, but it will never guarantee that depending solely on this strategy will still be succes sful in the future. Looking into the history of the human kind, and look at ourselves now, how is it different from the past and the present? If all human beings have not evolved, if the science in every field has not changed, will we still have the same outlooks as what we are having now? I dont think so. Without the evolving of human kind and the improvements in scientific field, we will be no different compared with the primary humans in the early stages. Dont even mention about watching television, taking shower, surfing on the internet, flying in the airplane, or even having delicious meals. Without changes and improvements, we will still be in the primary forests where once we belonged, eating raw meat like barbarians and sharing room with animals. There is no government, business entity or element which is able to stay unchanged forever. During the medieval period, the Roman Empire was the most powerful nation in the entire world. But it collapsed. The British once said that â€Å"the sun will never set on Great Britain†! It also collapsed. China invented three of the four ancient miracles, the method of printing, compass and gunpowder more than 3,000 years ago. It was also the center of power and civilization during the Tang Dynasty which lasted for more than 800 years. China also paved the way for the first international business that never had happened between the east and the west. When Marco Polo traveled to China during the peak of its prosperity, he was shocked and thrilled to see that difference between the east and the west. When the European were sharing rooms with animals, China already had palaces made out of gold, even the miracle of Great Wall which is the only manmade mark that can be seen from space. The dynasty also collapsed. From all the examples that I mentioned above, you can clearly see t hat every nation has its ups and downs. Forever power never exists. This is exactly the same as business. I will be astonished if you can tell me a business entity which has lasted for 500 years. Many people believe that Wal-Mart is unstoppable, and unfortunately, they are absolutely wrong. Decades ago, Sears was the â€Å"Wal-Mart† at that time. Look at Sears now, how different it is between the past and present. Who can guarantee decades later, there will be no corporations replacing Wal-Mart? If Kelleher has the same concerns as I do, it is possible that he will be worried about Southwest in the future. What if the â€Å"Short-Haul† strategy stopped working? What if an underdog suddenly comes out, making Southwest stand on the border of failure? The situation for Southwest in the future is not as optimistic as it seems. However, it does not mean that Southwest is meant to be a failure. All roads lead to Rome, and whenever there is a will, there is a way. Kelleher can still use the â€Å"Short-Haul† strategy to succeed. But the strategy must be converted from a micro-perspective to a macro-perspective. In order for a company to be successful in the long run, it must expand. Kelleher said that Southwest has not made any decision to expand at present. But it does not mean that Southwest will never expand. As a business entity, corporations must expand globally to obtain more profits. Look at Wal-Mart, how many stores does it own worldwide? Need I say more? This also reminds me of an old saying which has it that â€Å"the largest fish in the river is never a big fish in the ocean†. If Southwest is satisfied just because of current profits and competitive advantages it has in the short run, it will not be Southwest anymore. I think that Southwest is on its way of planning its expansions, but with a very careful and conscientious attitude. It wants to make sure that the new strategy will work when the decision of expanding is made. There might be countless strategies for Kelleher to come up with. I know one strategy which I consider the best strategy because using this new strategy, Southwest can be very successful in the long run. It can also save time and resources. So what is this so-called strategy? I consider it the most successful not because of my arbitrary standing point of â€Å"pride and prejudice.† Rather, I recognized its importance and advantages because I have done a lot of research to make sure that this approach makes sense. The strategy I am using now is one strategy from the masterpiece called â€Å"The Art of War†, written by the greatest military strategist ever in history more than 3,000 years ago. The authors name is Sun Zi. What is so great and amazing about this book is that it has listed all the strategies which can be applied and used in all scientific fields, such as military, business, geometry and all other natural sciences. Japan is renowned for its management which almost cracked down the American automobile industry, and every top manager in Japan always makes sure they the book ‘The Art of War† lays on his desk. India is renowned for its financial system which also takes some strategies fr om â€Å"The Art of War†. United States Department of Defense and its military also adopted the strategies from the masterpiece of â€Å"The Art of War†, and manipulate them from a military science standing point (The Spread and popularity of the Art of War). In order to implement these strategies appropriately, one requirement must be met. The prerequisite is that the user must have a good understanding of military science built on the views that can be related and flexibly applied and manipulated from a perspective which solves problems based on methods of essence indirectly related from all other sciences. Knowledge is similar to a big family in that every element from every field mutually supports each other. For instance, when in process of establishing a military strategy, the person responsible for it must have good understandings of sciences such as geology, meteorology, physics, chemistry and even languages as well. In order for the strategy to operate well to the fullest extent of its capacity, the central strategist must have a good command of what geological area is the enemy in; what weapons has the enemy obtained; is it possible to use the scientific competitive advantage from a military perspective; what will the weather be like when the battle takes place; what mathematical calculation is needed for the army to defeat the enemy in a timely, resource-saving and casualty-reducing standpoint; after invading the area, what language and culture pattern that the enemy uses and has, etc. For geography, it is crucial for the strategist to decide which altitudes in the region would likely to be an advantage when fighting the battle. For weapons, the strategist must know whether the wea pons invented through the methods and formulas of physics and chemistry is a helping factor, and the basic laws and functions of the scientific principles in which the weapons are made based on knowledge of physics and chemistry. For meteorology, the strategist must have a good command of whats the weather would be like when the battle takes places because fighting on a sunny day and rainy day will have different results which could be the factors leading to either the victory or failure of the battle. For mathematics, the strategist must be pretty clear that why way is actually the nearest way offering competitive advantage for his troops. For linguistics, people who speak the enemys language and understand their cultural patterns will be a good indicator to lead the way. Ignorance of these necessary elements that eventually leads to failures is countless. In the Korean War, both sides have tried everything to keep control of the highest geographic positions; the first Russian space shuttle to the moon would provide Russia with a competitive technological advantage on weapons based on the same laws of sciences that were applied to the shuttle; the shuttle never comes back because the Russian scientists ignor ed one hundredth of a decimal point, and it resulted in deaths of all its excellent astronauts; the lost of the space shuttle which the government had supported financially, the time Russian scientists had devoted themselves to, and suspicions of scientific laws; all the hard work, the money and resources was wasted, and the laws of science were meant to be retested; the American troops in Iraq resulted in more casualties as expected because the strategist ignored the power of language, and hiring locals who hate Americans as translators who intentionally led Americans to opposite and wrong directions which resulted in lost of many lives which can possibly be saved if language and cultural pattern were considered. Finally, the reason that George Bush still could not find Bin Laden is because that he has no idea of the Iraqi landforms. If he knew that well, Bin Laden should already be caught and Saddam Hussein will not be the scapegoat. The strategy that Southwest Airlines should use in order to continue its success is also based on the â€Å"Short-Haul† strategy. The difference is that the strategy must be inter-converted. Southwest can try its best to duplicate its â€Å"Short-Haul† strategy globally. For instance, it can do exactly the same business with the same strategy once again. But this time, Southwest has to do it in every part of the world. For instance, Southwest can expand its business in France, Germany, Australia, Russia, China, Japan, Poland, Greece, etc. All Southwest has to do is doing â€Å"Short-Haul† business in all the countries. Once the â€Å"Short-Haul† strategy has spread to almost all the nations with economic prosperity, Southwest can start its â€Å"Long-Haul† strategy. Its global network will be linked like the solid structure of an atom, from Russia to Germany, Germany to France, France to Australia, Australia to China, and China to Switzerland, etc. By doing this, Southwest will have an extremely solid structure of global airline network that is likely to be very durable. The structure is similar to that of an atom. The structure of an atom can be described as one of the most solid structure among all other solid elements. This strategy adopted from â€Å"The Art of War† is based on the theory of strategic transformation, especially from a micro-perspective to a macro-perspective (Chapter IV, Art of War). By duplicating its successful strategy of â€Å"Short-Haul†, Southwest will have the capabilities of accumulating more strengths little by little. When Southwest considers it the right time to transform the â€Å"Short-Hauls† strategy to â€Å"Long-Hauls†, it can connect its business in every corner of the world. Each business in a certain place can be regard as a dot; there will an enormous amount of dots that Southwest has worked on. Therefore, connections of all the dots will change the network s imilar to that of an atom. Atom is said to have the toughest element structure on earth. One atom does not mean anything; two atoms only make a molecule. But through countless chemical reactions of nuclear fissions, millions and billions of atoms will have the energy as powerful as that of the atomic bomb. This strategy is also flexible. When Southwest considers itself too hard to manage all its subdivisions, it can back up its structures to original format, transforming from a macro-perspective to a micro-perspective. It can also change some parts to macro and other parts to micro. Whenever it is needed, Southwest is capable of interchanging its structure into different forms that best fits can be calculated according to different situations. The huge advantage of this strategic has three crucial characteristics: First, all Southwest has to do to force other airlines out of business just by doing a slight shift. Once the headquarter take the move, every connections of the network over the world can either do the same as a whole or a slightly different according to its own situation. The reason that Southwest is able to do this is because it possesses both a centralized and decentralized structure which can choose the best outfits. Second, once the network is complete, it will be very durable. It can last for a very last period until the strategies made by other airlines are superior. As I mentioned above, every element is on the way of changing so that there is no forever monopoly. But when Southwest has the ability to applied the â€Å"Long-Hauls† strategy, it will already have obtained the role as the leader in the industry. It will then be extremely difficult for other airlines to innovate new ideas expecting to replace the Southwest because under that situation, Southwest have the power to make sure that other airlines do not have chances. I dont mean that there is no possibility another innovation of internal structure of corporations. But the probability is not likely because at that time, Southwest will have the possibility with a confidence interval of at least 90%. Finally, I will be thrilled and stunned if other corporations are able to come up with better strategies under such a suppressed atmosphere. In order for other airlines to jump out from the â€Å"vicious cycle†, they must have the ability to obtain two important factors, which are financial resources and time. The network at least will take Southwest ten years to complete with financing of trillions of dollars. It is not likely for other airlines to come up with trillions of dollars at once, and even Wal-Mart does not know if it possesses the ability. Moreover, there is another requirement of more importance. That i s the time. The most valuable thing in the entire world is time. There is no opportunity cost for time because time is always moving on and it is eternal. It can never stop. As a result, do those airlines have time to do it? How long do they need in order to come up with a better strategy, replacing that of the Southwests? Therefore, the possibility is extremely slight. Southwest has this advantage. It is only a matter of time! Its about how long Southwest can last! Bibliographies â€Å"Americas Most Admired Companies 2006†, Wall Street Journal, available @ http://money.cnn.com/magazines/fortune/mostadmired/snapshots/1253.html Dauble, Jennifer, â€Å"Top Fifty Companies to Watch, October 31, 2005†. Wall Street Journal, available @ http://www.dowjones.com/Pressroom/PressReleases/Other/US/2005.html._ Marcial, Gene, â€Å"Southwest Airlines Wings North†, November 7, 2005. BusinessWeek, available @ http://www.businessweek.com/magazine/content/05_45/b3958118.htm Lynch, Pat â€Å"Southwest Airlines†, Online Blogs From Google, April 5, 2005. Available @ http://finance.google.com/finance?q=luvhl=en â€Å"Southwest Fact Sheet†, March 28, 2006. Southwest Airlines Corporation, available @ http://www.southwest.com/about_swa/press/factsheet.html Bunz Ulla, â€Å"Learning Excellence, Southwest Airlines approach†, Volume 8, 1998. Available @ http://bunz.comm.fsu.edu/southwest.pdf Peter, TJ. And Waterman, R.H. (1982), In Search of Excellence: Lessons from Americas Best Run Companies, Harper Row, New York, NY. McNerney, D.J. (1996), â€Å"Employee motivation: creating a motivated workforce†, HR Focus, Vol.73 No.8, pp.1, 4-6. Gavinderajan Vijay, â€Å"Southwest Airline Corporation†, 2002, no. 20012. Trip Tracy, March 2006. â€Å"Best Practices Case Study: Best Perks, Southwest Airlines†, available @ http://vault.com/nr/newsmain.jsp?nr_page=3ch_id=402article_id=19258