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SOUTHWEST

AIRLINES
STRATEGIC MANAGEMENT
SECTION F GROUP 13
SOUTHWESTS STRATEGY

Cost Quality Service High Utilization


Leadership On-time Departures Productive
Low fares Focus on Customer employees
Point to point routes Service Highest aircraft
utilization
No interline Low turnaround time
connections Focus on
Disincentive to travel underutilized
agents airports
POINTS OF DIFFERENTIATION
Point of differentiation Southwest Other airlines
People High Productivity of Lower productivity
employees Average Aircraft turnaround
Aircraft turnaround time of 15 time of 35 minutes
minutes

Utilization Higher utilization Lower utilization


average of 11 hours in air daily Average of 8 hours in air daily

Routes Point to Point ensures Central hub increases cost


cheaper and faster travel

Customer Service Additional focus on Lower than Southwest


customer service by
employees

Pilot Cost Lower cost per flight hour Higher cost per flight hour -
$100,000 for 70 hours $200,000 for 50 hours
MCKINSEY 7S FRAMEWORK FOR SOUTHWEST AIRLINES
Dynamic Leadership
Service Oriented
Committed

Style
Customer Friendly Horizontal
Efficient and Fast Lean
Skills Structure
Team work Shared Values
Multi-functional -Speed
-Cost Focus
- Team player
Low cost niche strategy -Fun Profit Sharing
Strategy Systems
Frequent flights Low Cost boarding,
Point to Point transit reservations, luggage
system Staff Standardized fleet -
Concentrates on Boeing 737 aircraft
underutilized airports
High employee productivity
Youthful
Customer focused
HOW DO THESE ELEMENTS REINFORCE EACH OTHER

Shared Strategy Structure Systems Style Staff Skills


Values
Shared - Low Cost, Horizontal, Standardi Dynamism Youthful Efficient, Team
Values Frequent Lean zed fleet work
Strategy Speed and - Lean Standardi Service Efficient Efficient and
cost focus zed fleet Oriented Fast
Structure Speed Low Cost - Fleet Service Productive Team Work
Systems Team Low Cost, Lean - Service Employee Multi-
Player Point transit Oriented Productivity functional
Style Horizontal Fleet - Productive Customer frie
Staff Fun Frequency Lean Profit Dynamic - Fast, customer
Sharing Leader friendly
Skills Speed Underutilized Both Fleet Committed Customer f -
HOW DOES ONE CHOOSE THE UNIQUE ACTIVITY
SET TO DEFINE AND STRENGTHEN ONES
STRATEGY?
One needs to create a Business level Strategy, Based upon that Strategy ,unique activities can be chosen.

The Strategy creation part (intended strategy)


Who is the
I. One needs to position themselves, which depends upon the target set of customers. Example, customer?
customers of Southwest Airlines were price and convenience sensitive travelers.
II. Where to compete in terms of geography . Example, Southwest Airlines chose to compete in where to How to
midsize cities and secondary airport in large cities. compete? compete?

III. How to compete in terms of Cost Leadership , Differentiation or Focus. Southwest Airlines
chose to compete on Cost Leadership .

After the strategy part ,comes the implementation part. Implementation requires choosing activates that are aligned with the
intended strategy . Alignment in term of People, culture , Leadership , Structure, incentives and Supportive activities.
CRITERIA TO CHOSE THE UNIQUE ACTIVITIES
The unique activities should go with the strategic positioning of the organization.

Cost Leadership Differentiation

Function Desired Effect of the Function Desired Effect of the


Activity Activity
Product and marketing Standardized product with low price- Product and marketing Customized product with high price- cost
cost margins and little advertisement margins , providing maintenance and
warranty and heavy advertisement.
Production Economies of scale, Economies of scope
and automation to reduce cost. Production Investment in marketing , Branding service
, reliability, flexible manufacturing.
R&D Redesign to reduce cost and emphasis
on process innovation. R&D Redesign to produce greater benefit and
emphasis on process innovation.
Organization and control Check all cost and incentivize
employees for productivity. Lean Organization and control Less rigidity to promote innovation
structure with simple hierarchy. ,subjective system of incentive and higher
average pay.
It is possible to design strategies as activity system maps but that may change with
time due to certain reasons like operational effectiveness ,technological advancement
in the industry or change in the business Plan. So with new Emergent Strategy activity
system maps may change
HOW DO MANAGEMENTS STRATEGIC
CHOICES SHAPE THE ORGANIZATIONS
STRUCTURE AND PROCESS?
During implementation ,alignment of the strategic choices with the tool to achieve the goal are
important , below are the factors that affect structure and process.
People
Right people with the right skills ,resources and attitude needs to be recruited .For Example, SW Airlines had extra ordinary
recruiting process searching for creativity and involved peer recruiting ,sometimes customers were also involved in the process
Upper management should clearly articulate the intended strategy to all the employees in the hierarchy so the employees
actions are reflecting in achieving the goals.
Culture and Leadership
Culture refers to the perception of the employees about the workplace and how work is done in the organization.
Training is an important exercise to help employee adapt the culture of the company .For example, SW Airlines used to
provide training to its employees , variety of courses offered ranged for new recruits to senior management. Not only that ,
they also paid serious attention to parties and celebrations in order to keep employee moral up.
Leadership also plays important role in enabling employees to be innovative and empowering them to do a better job.
HOW DO MANAGEMENTS STRATEGIC
CHOICES SHAPE THE ORGANIZATIONS
STRUCTURE AND PROCESS?
Structure
An organizational structure should be aligned with the intended strategy .
A rigid structure may lead to impediment in innovation but at the same time may help to standardize the process.
Depending upon the strategic goal, organization should plan its structure.
A rigid structure may be suited for undifferentiated products where not creativity is required whereas for
differentiation a flexible structure is recommended as in the case of Southwest Airlines.
Incentive
Whether the performance and rewards are aligned with the strategy of the organization is important for achieving the strategic
goals.
If Employees are motivated ,they tends to improve productivity which will lead to reduction in cost.
Southwest shares the profit with all the employees who were with the firm for more than a year and about 90% of the
employees had shares in the company.

Supportive activities
These activities are the tool through which primary activities are achieved.
For example, low fares was the primary activity of the SW Airlines which they achieved by high aircraft utilization, limited used
of travel agent ,standardization of aircrafts and highly productive ground crews. These all activities are supportive and are
pertinent to achieve strategic goal.
IS ORGANIZATIONAL STRUCTURE A RESULT OF
STRATEGY OR IS STRATEGY CONSTRAINED BY
STRUCTURE?

Yes, organizational structure is a result of strategy and is very important for the success of any
organization. In the case of Southwest Airlines ,competition tried to imitate the strategy of the
Southwest Airlines without proper alignment of strategic goals with the tools and failed.
The Contingency Theory states that there is no best way to organize; it is dependent on the strategy
being pursued by the organization. So, the best way to deal with the dynamic market is to adopt
emergent strategies that develop during the process.
Strategy of the Southwest Airlines was cost leadership which was highly dependent employee
productivity. Motivating employees played a large role in increasing the productivity of the employees and
thereby reducing the cost .Also the flat structure of the organization helped in maintaining transparency
between the employees and the management. Employees felt part of the organization . The overall
structure complimenting the strategy is the reason for the success of Southwest.
IS ORGANIZATIONAL STRUCTURE A RESULT OF
STRATEGY OR IS STRATEGY CONSTRAINED BY
STRUCTURE?

While on the other hand we saw that United Airlines, tried to imitate Southwest by entering low-cost
aviation segment was not successful due to several reasons.
They could not imitate the organizational structure of the Southwest Airlines, which was flexible,
supportive opposite to that at United which was rigid, specially from the top. Leadership and culture of
the organization was not nurturing as well. Power struggle did not bode well with the strategy that low-
cost airlines require for succeed.
Add to that the authoritarian management, United did not involve employee from lower management in
the strategy formulation process which not only made employee felt motivated but also lost valuable
feedback . Management issues also led to poor labor relations which in turn was the reason behind low
labor productivity and low morale and happiness among the employees.
These reasons led to the failure of United in the segment
THANK YOU

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