What is it that Southwest Airlines does that drives their successful strategy?

The airlines industry is one of the best industries to analyze in terms of strategy, ethics, and organization because every company in the airline industry relies on the transportation market alone for revenue as compared to other industries that diversify products and services or enter new markets to increase profits. In the airline industry, each company must outperform its competition through the maximization of profits using the same set of criteria, which rarely changes over time. These criteria may include choice of airplane, types of passenger meals, availability and style of seating preferences, customer service, and flight routes. Based on these circumstances, the airline industry is a red ocean, but Southwest Airlines has proven historically that through organizational innovation, a blue ocean can be achieved through competitive advantage. More recently, Southwest Airlines defied expectations once more and disrupted the airline industry through a technological innovation by implementing the Boeing 737–500 into their fleet (Raynor, 2011). The Boeing 737–500’s cost efficiency became the backbone of the organization’s strategy, ethics, and business platform. This paper will analyze Southwest Airlines’ strategy, ethics, and business platform as a distributive innovator through organizational structure and technological implementation.

Strategy

Strategy is similar to a red ocean strategy in that it pertains to the competition within an established industry or group. Strategy is used to push a company above and beyond its competition by creating an action plan to maximize profitability (Capella University (Ed.), 2013). The strategic action plan a company choses is what distinguishes them from their competitors. The differences themselves are the components of strategy, and it is what a company chooses to do differently that will make them better (Capella University (Ed.), 2013).

Identifying Strategy

Moving from an administrative business to a competitive company requires strategy. Identifying the company’s strategy within the business, market, and industry allows the company to innovate and advance. An effective strategy should be composed of objective, scope, and advantage (Collis and Rukstad, 2008). These three elements can be elaborated on and defined according to the company, and the company will distinguish itself and set itself apart according to how they identify the strategy and take action on it. Beyond identifying the current state of the organization and its place within the business, market, and industry, the forward-looking element called advantage, is crucial to the company’s success over its competition. The advantage element works backwards to the other elements and supports them and reshapes them. For instance, by implementing a distributive innovation, the company’s objective can be changed to align with the innovation and employees can better understand their role in helping to reach the company’s objective (Collis and Rukstad, 2008).

Southwest Airlines

Southwest Airlines has historically been successful through organizational innovation consisting of a well-structured and consistent strategy (Raynor, 2011). Southwest Airlines acquired AirTran in 2011 for $1 billion as a strategic advantage move to maximize profitability (Díaz, 2012). The strategic outlook for Southwest Airlines changed with this acquisition and therefore the objective, scope, and advantage elements need to be re-identified in relation to the strategic move. Specifically, Southwest Airlines is considering how to utilize AirTran to maximize profitability by evaluating all their routes and redesigning their flight plans (Díaz, 2012). The process of change and transition will impact their objective and scope so that they are realigned with their new advantage strategy.

Operational Effectiveness

Strategy and operational effectiveness are very similar in that they address the differences in performance that a company can implement to gain the advantage over the competition (Porter, 1996). If compared as a timeline, strategy could be considered to be a long-term preservation of the company’s value while operational effectiveness includes the short-term activities that build a company’s value. By utilizing inputs in a more efficient way, companies can gain the advantage through operational effectiveness. For example, product defects can be reduced or products can be developed faster and of a higher quality (Porter, 1996). The most impacting aspect of operational effectiveness is that constant improvement must be maintained in order to achieve superior profitability (Porter, 1996). However, competitors can diffuse the actions of operational effectiveness through imitation, which increases the difficulty in innovating on a continuous basis. Under the circumstances of imitation that diminishes value, strategy can be utilized to support the long-term sustainability and growth of a company. To this degree, operational effectiveness and strategy work together to gain the advantage and to maximize profitability over both the short-term and long-term.

Southwest Airlines

Southwest Airlines is unique because its strategy and utilization of operational effectiveness is very similar if not completely the same indicators of the company’s intentions and ambitions within the industry and market. The blending of strategy and utilization of operational effectiveness introduces a new concept of competitive strategy. The different activities chosen to differentiate a company from its competitors in competitive strategy will deliver a company-specific set of value (Porter, 1996). Southwest Airlines’ long-term strategy is to tailor-make a unique set of short-term activities that will maintain its reputation to deliver low-cost, convenient service to its customers. A couple of these activities include the limitation of flights to short distances and to fly only between midsize cities and secondary airports in large cities (Porter, 1996). Southwest Airlines has managed to implement organizational innovations and technological innovations on a continuous basis while maintaining its stake in the market. Their competitive advantage strategy exists both in a red ocean because it competes within the same industry and market as its competition and in a blue ocean because it disrupts the industry and market through innovation.

Ethics

Ethics plays an important role in the long-term strategic goals for modern companies because sustainability must include a triple bottom line of economic sustainability, societal sustainability, and environmental sustainability (Edgeman and Eskildsen, 2012). The triple bottom line of sustainability represents the minimum standards that a company must follow based on the creation of regulatory requirements. These minimum standards are meant to force companies to consider their economic positions with regards to the impact their actions are having on the economy, the natural environment, and society (Edgeman and Eskildsen, 2012).

Viral Innovation

By considering the impact of the company on the economy, natural environment, and society, business can be impacted because the products and services offered might need to be changed to meet regulatory requirements, which can weigh heavily on the potential profitability of the company as well as the operational choices and strategic choices that must also conform to regulatory requirements. Regulatory requirements can inhibit the business itself because changes might need to be made for product specifications or production methods in order to meet external standards. These changes could impact the corporate mission, which will in turn impact the overall strategy of the company. In order to meet the standards set by regulation while maintaining a competitive advantage, viral innovations can be developed, which refers to the alignment of enterprise-wide disruptive innovations and human capital (Edgeman and Eskildsen, 2012). Human capital in this context refers to the human need to sustain itself in relation to the economy, natural environment, and society. Viral innovation can be taken as a positive opportunity or negative challenge. Companies have an important role to play pertaining to human capital by creating new products and services including the creation of jobs, contribution towards society through technological advancements, improvements in the economy, and contributions towards global problems like ending social and environmental issues such as diseases and renewable energy (Sullivan and Mackenzie (Eds.), 2006).

Impact on Company Earnings

Companies have the choice to mold and shape their products, services, and business platform to fit human capital regulatory requirements or they can also shift their products, services, and business platform to address human capital needs. Companies that shift their strategy to address human capital needs by developing responses to the issues of economic sustainability, natural environment sustainability, and social sustainability have the potential to outperform those that choose not to address human capital directly (Sullivan and Mackenzie (Eds.), 2006). The triple-bottom line issues are therefore a major driver of earnings for companies (Sullivan and Mackenzie (Eds.), 2006).

Southwest Airlines

Southwest Airlines was honored with the Loan Star Award in 1999, which is an award that recognizes exemplary corporate ethics that are related to customers, stockholders, employees, and the media (PR Newswire, March 4, 1999). They were recognized based on a long engagement in dealing with constituencies in a straightforward, honest, and fun way (PR Newswire, March 4, 1999). Their business ethic benefits the integrity of the airline industry by showing a good example on how to conduct business. In the three years leading up to the Lone Star Award, Southwest Airlines was rated by the Airlines Quality Rating system conducted by the W. Frank Barton School of Business as the top performer in terms of quality service (Sartain, 1998). Additionally, they were ranked by Money Magazine as number one in safety and customer service (Sartain, 1998). Finally, the Department of Transportation had ranked them for seven consecutive years as the best in customer satisfaction for all major U.S. airlines (Sartain, 1998). These awards show the commitment of Southwest Airlines towards contributions of a high ethical standard in society. Southwest Airlines’ organizational strategies are interwoven with their high ethical standards. The commitment to delivering high value customer service has a benefit to society as well as a benefit to their reputation, which might be the answer to why Southwest Airlines has been successful over such a long period of time.

Conclusion

The airline industry has risks that are much greater than other industries because of its vulnerability to the global economic system, political upheavals, terrorist activity, wars, and public health (Clark, 2010). Operations in the airline industry are continuously pressed because of incredibly thin margins, rising costs, and a very high demand for exemplary customer service (Clark, 2010). The airline industry has become highly competitive due to the high risk circumstances afflicting the business, which creates the additional challenge to overcome the demand for low cost, further supported by the introduction of the online travel industry. One of Southwest Airlines main drivers for its success is low-cost, but the opportunity to find low-cost carriers based on the online travel industry might negatively impact their low-cost strategy. The ability and range of access for customers to find low-cost flights is pushing all airline companies to align their strategies with the low-cost driver. Southwest Airlines however is an company that has build its reputation on sustainability over a long- period of time, deeming itself as untouchable. The company’s most recent innovations include the mass introduction of 737–500 cost efficient airplanes and the acquisition of AirTran that indicate the perseverance to sustain itself through the next challenges facing the airline industry. One of the most compelling indicators of Southwest Airline’s perseverance is evident through another factor hitting companies across all industries, which is social media. As of June 2010, Southwest Airlines built a Twitter account with over 1 million followers (Clark, 2010). The emergence of social media reflects the clarity of Southwest Airlines’ high standards in conducting business and supports their customer expectations to be different, to become the maverick, and to lead the airline industry (Clark, 2010).

References

Capella University (Ed.). (2013). Crafting and executing strategy: Text and readings (19th ed.). New York, NY: McGraw-Hill.

Clark, P. (2010). Stormy Skies: Airlines in Crisis. Farnham, Surrey, GBR: Ashgate Publishing Ltd.

Collis, D. J., & Rukstad, M. G. (2008). Can you say what your strategy is?. Harvard Business Review, 86(4), 82–90.

Díaz, A. (2012). Southwest Airlines expected to add AirTran flights to Puerto Rico. Caribbean Business, 40(37), 7.

Edgeman, R. L., & Eskildsen, J. K. (2012). Viral innovation: Integration via sustainability & enterprise excellence. Journal of Innovation and Business Best Practices, 2012, 1–13.

Porter, M. E. (1996). What is strategy?. Harvard Business Review, 74(6), 61–78.

Raynor, M. E. (2011). Disruptive innovation: The Southwest Airlines case revisited. Strategy And Leadership, 39(4), 31–34.

Sartain, L. (1998). ‘Why and how Southwest Airlines uses consultants’. Journal of Management Consulting, 10(2), 12–17.

Sullivan, R., & Mackenzie, C. (Eds.). (2006). Responsible Investment. Sheffield, South Yorkshire, GBR: Greenleaf Publishing.

PR Newswire. (March 4, 1999) ‘Texas public relations association honors Southwest Airlines with ‘Lone Star Award’. The Free Library. Retrieved August 11, 2014 from http://www.thefreelibrary.com/Texas Public Relations Association Honors Southwest Airlines With…-a054006226

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