Strategic Analysis Of Southwest Airlines Case Study Management Essay
The current paper attempts to underpin various frameworks that presented in strategy management literatures that would better improve the overall performance of the firms. The paper first discusses the case of southwest airlines, the first successful low-cost carrier in USA. Two problematic situations have considered from southwest Airlines cause experiences, which was to some extent associated to the new leadership management that appointed in 2001. These difficulty are the dramatically change in southwest culture, and the cost increasing in fuel and wages. These problems also have also associated with the expansion of southwest business. The following section briefly presents the case problem of southwest airline and highlights some important facts about their status. After, the paper will investigate and analyses southwest airline strategy and the external environment. The analysis primary considered how southwest airline achieved a competitive edge and posted on the top five corporations in USA. After that, the paper discusses two academic journals that provide useful frameworks for southwest airline to overcome its difficulties. One of these academic journals provides framework (Goolsby Leadership Model) that underpin culture aspect, and the other one provides framework (Porter’s Generic Strategies) that considers cost effectiveness and competition in market. After presented these two academic journals and its literatures, the current paper attempts integrate the theoretical concepts and apply it to the case southwest airline. Finally, the paper presents some suggestions and recommendation that would better improve the work in this company.
2. CASE PROBLEM
The current paper discusses leadership changes that occurred in Southwest airlines in the 2001 when herb Kelleher promote two of his close aids for leadership positions; Colleen C. Barette, Vice-presidents for customers, promoted to be the president and chief operating officer, and James F. Parker, general counsel promoted to be the chief executive officer. Since Southwest’s airlines experienced leadership change, radical change in the organizational cultural experienced too. Instead of working as teamwork, there were increasingly distance between employees, managers and top management. Before changes, the top management was very close to its employees and personally contacts them and celebrates their birthday and events.
However, after changes, keeping in close touch with personnel become an increasingly challenging task to the new leaders. Furthermore, warm employee relations at southwest seemed to be absurd over time. Unions played a great role in the game and were becoming more aggressive in expressing their frustration. Employees uttered that the new management spend too much time in the back offices of Southwest while managers uttered that the feel their organization culture is at risk because of the actions taken by Southwest’s new management during negotiation with Unions. The paper argues that the growth of the company and the consequent in crease in the number of employees also posed challenges of keeping the culture intact.
Furthermore, Southwest was experiencing cost increasing in fuel and wages. For example, the cost per average seat mile (ASM) went up from 7.07 cents in 1995 to 8.8 cents in 2006. Most of Southwest’s Airlines customers reserve online (71.2 %) and the labor cost advantaging narrowing between major airlines after restructuring, the new management expressed that further cost reductions are very difficult and only could be achieved though increase modest fare increase and employee layoffs. These two available solutions for the new management are directly contradicting southwest culture.
Moreover, the new management faces growing competition in the low-fare segment as most of other airlines have copied their business model. Competitors has make restructured and adapted Southwest airline model, and then develop various business model to attract customers. For example, they use leather seats and in-flight entertainment system for almost the same fare. Few years after their great victory that post them among the top five corporation in USA, the company now questioned whether loyal customers would still stick with the airline when they could get more value for their money elsewhere. In short, Southwest airlines can say that the current paper thus investigates to what extent changes in culture, costs and competition were related to leadership change in Southwest Airlines. Whether thing would be the same after Kelleher left the scene completely was another important question facing southwest.
3. STRATEGIC ANALYSIS OF THE CASE
Southwest Airlines has grown from a small Texas carrier in 1971 to the nation’s fourth largest airline. It is important here to notify that the current section primary analysis the strategic management of Southwest Company before changes in leadership occurred. Before experiencing the leadership changes, southwest Airlines’ was very successful and competitive firm that rated on the top of five companies in USA Southwest clearly defines its existing purposes, which is to provide the lowest fares for business and leisure travelers traveling between states. Instead of competing with large-scale airlines to fly international routes, Southwest focuses on “point-to-point” interstate short trips, and more on maximizing the profitability than focusing on market share. This strong vision outweighs the allurement of international flight market, keeping Southwest airline concentrated on its own niche to gain profit.
3.1 COST CONSCIOUSNESS
A key component of providing the highest quality of Customer Service and a stable work environment is low fares. In order to keep their fares low Southwest airlines must keep their costs low. Southwest airlines therefore, dedicated to finding ways to lower their costs and increase their productivity and quality. Southwest airlines value suppliers who have the same focus and look internally for ways to improve their processes and service, and willingly pass on cost savings. Southwest is also dedicated to creating an environment of trust and respect for its Customers, Employees, and suppliers. Employees are expected to maintain the highest ethical standards and conduct business with integrity, and in a manner, that excludes consideration of personal gain. Southwest airlines require the same ethical standards and conduct from their suppliers. Southwest airlines value diversity and seek to create an environment that encourages it, both in the workplace and among their supplier base.
Since low fares have become its selling point, decreasing the cost becomes very important. Southwest Airlines tries to save money by simplifying its operating process. Utilizing strategies such as having “One type of aircraft”, “cash-register receipts as tickets”, “no computer reservation system” and “no meal service” are some examples of its low cost strategies. Southwest knows that airplanes generate revenue only when they are in the air. Accompanied with the “point-to-point” strategy, Southwest chooses to operate by the most efficient way of adopting the concept of “high average velocity” instead of conventional “hub-and- spoke” system.
In order to provide low fare costs, the company has excluded the meal service from its flights, by serving beverages, crackers and other light snacks to the passengers during flights. Another reason for the cost advantage derives from the work force Ã¢Ã¢â€šÂ¬” the company has the shortest turnaround time, and also, in comparison with other airlines, its pilots fly longer hours, therefore the time is used in a more efficient way.
Airline can generate significant cost savings by sending tickets, newsletters, quotes, and other documents via Internet, rather than by post or facsimile. Airline can use Web site to publish – in a cost-effective way – public domain documents such as annual reports, product brochures, positions vacant, contact details and other important Airline information. American Southwest Airlines CEO, Gary Kelly said the Web site is playing a major role in mitigating the rise in unit costs affected by high fuel prices. It’s 10 times cheaper to deliver to customers through the online service than through a travel agent, Kelly said, and costs 5 times less than using Southwest’s own reservation staff. The booking cost per passenger online is “well under $1,” said Kelly, and is scaling down even further. He said Internet use by passengers was helping the carrier keep fares at low discount levels.
3.2 SUCCESSFUL INTERNAL MARKETING
Southwest airline has “Southwest spirit”, which is deep in everyone’s heart. They treat each other like family members. Good interpersonal relationship and communication ability won’t leave with Kelleher. If Kelleher leaves Southwest, the organization would still be able to function with the same dedication as before.
Southwest emphasizes customer service. It is the company’s policy not only to treat the customer in the best way possible, but also to treat employees as internal customers. This way, southwest becomes a comfortable and fun place to work. “If you are comfortable, you are smiling more and you give better service”, says Colleen Barrett (p.7 in the case study text). Another example of the Southwest attitude towards its employees is a quote by Herb Kelleher (CEO): “Fun is a stimulant to people. You don’t have to surrender your individuality to work for Southwest Airlines, work is important don’t spoil it with seriousness” (p.9 ,the case study text).
The Southwest culture is to serve people in a fun and innovative way, but at the same time, make profits. Southwest’s human resources department, also called” The People Department,” has its own principles to select employees. The motto is, “Employees are hired for attitude and trained for skill.”
Southwest believes that it should satisfy its employees first and then they would satisfy its customers. The secret for the success of Southwest Airlines is that it never sacrifices happy employees in order to satisfy customers. In other words, Southwest uses the Market-Focused Management Model. It believes that the company should trust and stand on its employees’ side because sometimes customers might be wrong.
Southwest lets inexperienced workers be hired as interns to learn from a good well-experienced employee for a period of time. This is done so that a newbie can observe the essence of Southwest culture from the demonstration of the experienced one. It also trains employees to put their own shoes on other colleagues of different departments. They have the chance to experience other department’s work so that they can understand others’ difficulties and become more willing and natural to help. Also, managers often come to walk around to work with the front line employees to understand their working and difficulty.
Southwest tries to let employees know that it is not a company but a big family. The profit sharing plan is an example. Also, Southwest promotes celebration. Every year, there are many times to celebrate for the new opening of an airport or for someone to be the best server of the year. They care about each other and even the president can know somebody is sick and needs encouragement.
All the employees of Southwest Airlines work as a big family, and everyone in the crew share the responsibility of cleaning up the aircraft, and enabling their planes to have the take-off again after a spending very short period of time after the ground duty. Southwest Airlines have, in fact, pioneered a rapid turnaround service on keeping its aircraft on the ground for less than twenty minutes. Beside the fact that they have all the people working to get the plane ready for the next flight despite of the original duty , Southwest Airlines has also gone into the effort of change the internal design of the aircraft in order to speed up the time of ground duty.
Every employee of Southwest is creative and has his or her own personality. Their original clothing and dress, humorous conversations, and interesting broadcasting lead to a relaxing and delighted atmosphere. It can relieve the stress and pressure for passengers that take Southwest Airlines as well as create additional entertainment for everyone onboard without spending additional money. Too much emphasis on deference can build a wall between people. It’s hard to express ones true self in an environment that is focused on providing the most professional service. Instead, Southwest employees always treat everyone properly with their heart, and they do it not because the company requires them to, but because they want to. This is part of the Southwest spirit.
Just as wearing one’s favourite clothes can help let someone relax, Southwest Airlines also has many ways to let their employees relax as well. There are gadgets, games, and other creative outlets readily available on planes and in the corporate offices to make it easy for employees to engage in breaks. Having a humorous time cuts down on the time spent on feeling stressed and creates a work environment that is interesting and fun. Every employee of Southwest is emotionally-connected with their company, and as such is willing to do anything for the beneficial growth of Southwest. Every employee infects each other with an extreme sense of joy and satisfaction; therefore as a result, customers are also influenced by the employees’ delight and are, consequently, may also feel happiness. This is how Southwest became one of the most efficient airlines.
3.4 FLAT ORGANIZATION
Southwest has a lean structure and informal code of conduct. The leanness leads to the cross-functional communication. Employees can connect with managers or even the president immediately whenever they want to deliver opinions and suggestions. Its hierarchy is quite simple so that department supervisors can manage employees very well and both sides can maintain good and direct communication. The leaders of Southwest are not in a prominent or unreachable position. Any employee can enter their offices to discuss anything at any time. If there are suggestions to be made, the leaders are there to hear them. The leaders also, surprisingly, help with ground work such as baggage handling. This type of organization allows Southwest employees to feel free to do their job and continuously improve upon whatever needs to be improved without many restrictions or pressure.
Southwest realized that the real ownership of an organization doesn’t come from how much stock one owns. Southwest claims, “Ownership is the result of believing that you can make a difference, then acting on that belief in everything you do.” Southwest empowers its employees to solve service problems in a timely manner without asking supervisors for permission. They are encouraged to offer extraordinary service and their judgments are trusted, whether they are flight attendants or engineers.
Southwest believes the more employees know, the more they care. The most updated information about Southwest is easily available for every employee. It lets employees know the profit of Southwest is not only the president’s concern, but also related to your employment security. If every employee understands how the company makes money and how a single customer would influence on the performance of profitability, they would know their service to each customer mean a lot. In this case, they are more eager to suggest solutions for reducing cost and the front-line service providers can be in a better position to provide better services.
3.5 SUCCESSFUL EXTERNAL MARKETING
Southwest Airlines stewardesses always let passengers enjoy their journey by telling some interesting jokes and stories, which make many customers enjoy their flight, despite lacking other forms of entertainment. In a longer haul flight, such as in a five to six hour flight, stewardesses would have a very difficult time to maintain their enthusiasm. In such a situation, Southwest would have to upgrade its facilities, or hire more stewardesses such that one could take a break while the other serves. It is obvious, in this case, that hiring more stewardesses would not make sense because they would just take up passenger space. Ultimately, this would mean that Southwest Airlines would have to upgrade its airplanes to include in-flight entertainment, and subsequently, Southwest’s future passengers would have to carry the burden of these costs.
Southwest could choose to add some forms of entertainment without installing costly equipment on every plane. However, this strategy would also be very costly in the long run. When one takes into account that Southwest has over 300 aircrafts, it is immediately obvious that even if Southwest provides newspapers and magazines, that its daily or even weekly and monthly distribution costs would quickly add up to become a financial burden. It would be cheaper in the short run to choose magazines and books; however, in the long run, installing electronic entertainment would be cheaper. Regardless of the choice of entertainment, Southwest would have to pay a lot of money in order to entertain its passengers on long haul flights-and the fares would also increase.
A five to six hours transcontinental flight with no food and movies would be very boring. As such, most consumers would probably choose to pay more for proper amenities like movies and food. I think having no food or movies is tolerable for a flight that is up to three hours. Any longer, however, the passengers would probably be willing to pay more. An exception to this case might be if saving money is the primary goal. Southwest provides nuts as a snack, which is terrific for a short-haul flight, but in a long-haul flight, nuts will probably not be sufficient for many American customers.
3.6 EXTERNAL ENVIRONMENT ANALYSIS
Southwest airlines face many external factors that influence the way the run their business. Despite the economic downturn, Southwest’s position will continue to remain unassailable by competitors and industry environments. Southwest is the leader of all of the airlines in the United States for its ability to attract customers based not only on its low-fares and exceptional service, but also on its ability to change and evolve as it needs to. In recent years, the global price of oil has caused many airlines to collapse as airlines were forced to raise ticket prices and lose customers.
Airlines were also hurt by low ridership rates. Southwest Airlines was able to overcome these issues, and it will continue to do so. In the greater part of 2008, the price per barrel of oil soared to the highest that the world has ever seen. As a result of this, world gas prices also increased and as such, it became more costly to operate airplanes. Due to rising oil costs, and other factors such as a weak economy (leading to poor ticket sales), many different airlines went bankrupt and were subsequently absorbed by other airlines. This has affected many airlines, but the airlines that are the most affected are low-cost airlines because they run on a lower operating income compared to normal carriers. Although Southwest Airlines is also a low-cost carrier, it has effectively escaped this fate.
Due to the sluggish economy, many potential passengers are mainly concerned about price before other factors. Southwest is suitable for this type of customer in the current economic environment. This is an advantage for Southwest because it is typically the lowest-cost airline. The main threat in the sociocultural segment is the ongoing concern about terrorism and its effect on aviation safety. The major political/legal force was the 1978 deregulation of the airline industry that essentially removed all entry barriers and opened the industry to intense competition. During the first decade after deregulation, more than 150 carriers filed for bankruptcy. Another political/legal issue is related to federal taxation. Southwest has done well despite these threats, but the current threats in the form of federal taxes are likely to have a disproportionate effect on the “no frills” strategic group of competitors.
A number of technologies are available to assist airlines in minimizing costs and maximizing revenues. However, Southwest and other low-fare carriers did not use a flexible pricing approach; it did use other technologies to reduce costs. Southwest is generally known as a first mover in the use of technologies. For example, southwest were the first airlines to have tactless by having internet website. With new aircraft coming on stream, airlines also have access to more efficient aircraft as well as flight management systems to minimize fuel burn.
3.7 SWOT ANALYSIS
The following table present SWOT analysis for Southwest Airline
Table 1: SWOT analysis for Southwest Airline
Concentrating on the niche market
Speed and Efficiency
High Service Quality
Successful Internal Marketing
Successful External Marketing
Strong leadership (Herb Kelleher, Colleen Barrett)
Excellent relations with customers
Excellent relations with employees
Image of fun/excitement
Dependence on single aircraft supplier (Boeing)
Retirement of Herb Kelleher
The current Boeing 737 jets may not be enough to fly long-haul flights
Entertainment and food are two unavoidable issues for Southwest when it comes to long-haul flights and international flights.
Weak relations with labour unions
Leadership management and challenges
Short-haul business traveller market is a potential market. Point-to-point trips between cities are a new niche in airline industry.
Few low-cost competitors that fly internationally (JetBlue, Virgin Atlantic)
Code-sharing with other airlines can save costs of expanding into this market by themselves
International destinations are desirable places to visit for leisure
The market segment to grow in the future
Uncertainty of economy – not so much money for holiday travels
High fuel costs (not a current issue, but perhaps in the future)
Other large-scale airlines could offer lower fares to compete with Southwest.
decline in customers’ need for affordable short-haul carriers.
Rise in ticket costs because of international airport taxes
Some threat of substitutes
Federal tax burdens (effect on price-conscious travellers)
Intense rivalry in industry
Concern about terrorism among travellers
4. ACADEMIC JOURNAL
Section 2 presents primary two challenges that face Southwest Company due to the leadership changes, these challenges mainly happen because of expanding the company and thus its manpower. Firstly, the communication become difficulty and obviously changes in Southwest culture, as described by its management ‘it becomes new creature’. Secondly, southwest experienced increasing costs and competition in the airline industry. Related to these two problems, which briefly presented in section 2, the following section attempts to provide two academic articles that would be the framework for this paper. Primary the paper address 1- how a company by adapting Goolsby Leadership Model, could enhance its organization healthy and better creates a culture that personnel work in good and satiable environment, and 2- how a company could use Porter’s generic strategies to reduce its costs and sustain its competitiveness edge.
4.1 ARTICLE ONE: ORGANIZATIONAL HEALTH AND THE GOOLSBY LEADERSHIP MODEL
Studies explains that organizations could maintain vigour, productivity, and their competitive edge though top management and executives who are healthy, strong, and talented (Gowing et al., 1998). In his study, Gowing et al. (1998) argued that Organizational health is three-dimensional framework that takes into consideration healthy employees and healthy organization. Moreover, he explained that Healthy top management and leaders is at the core of organizational health in which it provides healthy for employees. He explained that of leader is unhealthy then it is not possible to make employees healthy, as leader healthy is the heart of organizational health. Table 2 table present the attributes of organizational (leader) health.
Table 2: attributes of organizational (leader) health
Leading a life of purpose
Ã¢â‚¬Â¢ Clear mission and goals
Ã¢â‚¬Â¢ Give back to the community
Ã¢â‚¬Â¢ Quality focus
Ã¢â‚¬Â¢ Provides opportunities for growth
Ã¢â‚¬Â¢ Rewards or recognizes achievement
Quality connections to others
Ã¢â‚¬Â¢ Open, honest communication norms
Ã¢â‚¬Â¢ Fairness or justice in practices
Ã¢â‚¬Â¢ Trust and safety norms
Ã¢â‚¬Â¢ Mutual purpose and sense of belonging to the bigger whole
Ã¢â‚¬Â¢ Embrace and encourage diversity of people, skills and ideas
Ã¢â‚¬Â¢ Cohesiveness and positive affiliation
Ã¢â‚¬Â¢ Pride in group accomplishments
Ã¢â‚¬Â¢ Facilitates interdependent workers
Positive self-regard and mastery
Ã¢â‚¬Â¢ Encourage balance
Ã¢â‚¬Â¢ Growth opportunities
Ã¢â‚¬Â¢ Support systems for problems
Ã¢â‚¬Â¢ Fitness support systems
Ã¢â‚¬Â¢ Positive physical work environment
Ã¢â‚¬Â¢ High safety focus
Source: James Campbell (2007)
On the other hand, studies indicated various attributes under health employees such as confidence, hope, optimism, and self-Efficacy (Luthans et al. (2007). In his studies, Luthans (2002) and Luthans et al. (2007) indicated that these attributes is directly linked to positive organizational behaviour. Table 3 present characteristics of healthy employees.
Table 3: characteristics of healthy employees
Leading a life of purpose
Ã¢â‚¬Â¢ Clear mission and goals
Ã¢â‚¬Â¢ Balanced – living within one’s value system
Ã¢â‚¬Â¢ Purposeful work
Ã¢â‚¬Â¢ Spiritual or higher purpose basis
Ã¢â‚¬Â¢ Passion or motivation to achieve for the better good
Quality connections to others
Ã¢â‚¬Â¢ Interdependent: strong, positive social support system
Ã¢â‚¬Â¢ Emotional competence
Ã¢â‚¬Â¢ Mature, intimate connection to family and significant others
Ã¢â‚¬Â¢ Communication competence
Positive self-regard and mastery
Ã¢â‚¬Â¢ Hope and optimism
Ã¢â‚¬Â¢ Self-efficacy or confidence
Ã¢â‚¬Â¢ Self awareness – strength focus – a component of emotional
Ã¢â‚¬Â¢ Subjective well being/happiness
Ã¢â‚¬Â¢ Hardiness, self-reliance, and adaptability
Ã¢â‚¬Â¢ Vigour, physical and mental energy
Ã¢â‚¬Â¢ Personal challenge and growth goals
Source: James Campbell (2007)
Traditional framework to leadership considered various dimensions and approaches such as leader attitude (traits versus behaviours) and degree of generalizability (universal versus contingent) (Jago, 1982). Voluminous studies explained that this framework give great intention to inspirational styles of leadership, including visionary, charismatic, and transformational. (Jackson, 2005; Michie and Gooty, 2005; Wood, 2005). Few years later after publishing this framework, researchers explained criticisms of the inspirational styles, which deemed as unethical due to the ability of leaders to exploit followers to their detriment and to the benefit of the leader (Wood, 2005). Therefore, academic research are aiming to differentiate between authentic and inauthentic leaders (James Campbell, 2007).
One of the most popular frameworks in scholars is the Goolsby Leadership Model, which primary developed from the transformational leadership approach and anchors in the more recent emphasis on authentic leadership. Goolsby Leadership Model suggested that positive leadership could influence on three dimensions of employees healthy, which are Integrity, Courage, and Impact (Keller et al., 2005). The model explains that only leader with positive attitude, healthy, courage and passion can improve employees healthy. The Goolsby Leadership Model shown in Figure 1 elaborates key dimensions of Integrity, Courage, and Impact.
Figure 1: Goolsby Leadership Model
Source: James Campbell (2007)
Studies defined Integrity a “the heart of good business practices” (Hull, 2004). Moreover, studies defined integrity as good moral character (Gavin, 2002). The four core questions of the Four-Way Test aim to test personal integrity. Authenticity and emotional competence are two key attributes of integrity in the healthy leader. In their study, Avolio and Luthans (2006) provide four sub-factors under authenticity factor, which are presented in Figure 1: self-awareness, transparency, positive psychological states, and personal integrity. Avolio and Luthans (2006) explained that the authentic leader have good self-awareness, is apparent to others while being provoke positive psychological states between employees. In his study, James Campbell (2007) explained that authentic leaders are “who they say they are”; which mean that there is a consistency between their values, their intentions, their beliefs, their promises, and their actions and behaviours.
Studies indicated that the other dimension of integrity is emotional competence, which concerns the integration of thought and emotion, goes to the authentic characteristic of self-awareness (Boyatzis and McKee, 2005). Emotional competence is the self-awareness, self-management, other-awareness, and other management (Boyatzis and McKee, 2005). In their study, Boyatzis and McKee (2005) explained indicated that leader who are emotionally competent is one who is aware of his/her own feelings and emotions as well as being aware of the feelings and emotions in other people. James Campbell (2007) explained that emotional competence assists the healthy leader to be optimistic, positive, and compassionate in their actions and behaviours.
As figure 1 shows, Courage as the second factor in the Goolsby Leadership Model. In his study, James Campbell (2007) defined courage as “the capacity to act, even in the presence of adversity, fear, and danger”. Previous studies explained that Courage are three combined factors; purpose, energy, and character. In his investigation study, Thomas (2005) conducted an investigation study and interviewed 28 senior executives, he concluded that a wide variation in leadership concept, leadership attributes and leadership characteristics existed (Thomas, 2005). On contrary, other studies indicated that there was no discrepancy along the dimension of purpose (Macik-Frey et al., 2006). In his study, Levinson (2006) explain that the purpose, goals, and objectives are at the crux of good leader where character is found.
In their study, Loehr and Schwartz (2003) suggested that while some leaders focus on time management, energy management is very important to healthy productivity and achievement. Moreover, studies indicated that Character is very important to courage, and it may be defined as who you are when no one is looking (Murray, 1998). In his study, Gavin et. al (2003) explained that character has an important role in a leader’s health because it leads to consistency in actions and behaviours based on core values and principles. Studies explained character can be empirically measured and the strength of character is powerful as an enabling force for leaders to act with courage in the midst of business crises or disasters (Cooper et al., 2006).
Finally, studies explained that great leaders have high impact on their management and staff and on the businesses, they lead (Boyatzis, 2005, Watson and Petre, 2000). As presented in figure 1, the Goolsby Leadership Model suggests that the important impacts of integrity and courage are individual and organizational health, each of whose dimensions are vitality, productivity, and flexibility as previously identified by Mott (1972) in his research on the characteristics of effective organizations. When individuals and organizations function in a healthy way, they get results and make a positive impact for a range of organizational stakeholders (Edwards and Gill, 2006; Laird, 1929).
4.2 ARTICLE TWO: PORTER’S GENERIC STRATEGIES
Strategy found to have different meaning to different people (e.g. Bracker, 1980). For example, the well-known author, Porter’s (1985, p. 47) has defined strategy as “Ã¢â‚¬Â¦positioning a business to maximise the value of the capabilities that distinguish it from its competitors”. Literatures and studies have increasingly focus on strategy to as primary mean to achieve competitive advantageous (Johnson and Scholes, 1993; Feurer and Chaharbaghi, 1994). Studies suggested that strategies drive firms advantage by achieving distinctive value in the market (e.g. Svatopluk, 2001). Regardless the strategy frameworks, every organization should aims to maximise their performance by improving its position in the market related to other organization and in the same competitive environment (Feurer and Chaharbaghi, 1997).
Related to Porter (1985), the distinctive firm value can be sustained by pursuing the following three “generic strategies”: 1- cost leadership, 2-differentiation, and 3-focus. In his study, Porter (1985) suggested that his strategies deemed as mutually exclusive and thus firms should attempts to pursue more than one generic strategy to achieve the competitive adage. He argues that a firm have to make a choice between these generic strategies to achieve a competitive advantage in the market. Literature and studies deemed Porter’s generic strategies best framework that would be adopted by firms as it is the best way of creating a sustainable competitive advantage (Murray, 1988; Miller, 1992; Dess and Miller, 1993; Karnani, 1984; Miller and Friesen, 1986; White 1986; Hill, 1988; Mathur, 1988; Johnson and Scholes, 1993; Feurer and Chaharbaghi, 1994). Porter energetic strategy frameworks has greatly affect industrial economics and it is perhaps best known through the following simple paradigm (Shortell and Kaluzny, 1994):
Porter (1985) has introduced the concept of industry analysis, which enhances our understanding and provides us an insight into structures within different competitive environments. Porter argues that its five competitive forces that determine the attractiveness of a given industry. Figure 1: present porter five forces.
Figure 1: porter five forces:
Source: Porter (1980)
Due to the existence of uncertainty and the competitive nature of market environment, it become difficult to firms to determine their strategic direction, however firms should constantly adapted to fast changing circumstance and thus it could sustain (Feurer and Chaharbaghi, 1997). It was therefore Porter’s generic strategies that could still be employed by different organizations, in different sector and context. Next, the paper explains this strategy in details.
Porter’s generic strategies
Porter (1980) has enhanced our understanding by providing framework that dominated the strategic management literature. Related to Porter (1980), the two types of competitive advantage are cost leadership, differentiation. Both of these represent “generic strategies”. Porter explained that ‘focus strategy’ is the third generic strategy and it is a subset of the former two strategies.
Source: Porter (1980)
This strategy underpins a firm efficiency. Porter (1980) explains that by producing high volumes of standardized products, a firm could have a advantage of economies of scale and experience curve effects. Firms should produce products that are relatively lows cost and are available to large customer base (Porter, 1980). In order to maintain this strategy firm required to have a continuous search for cost reductions in all aspects of their business. Furthermore, the distribution strategy should obtain the most extensive distribution possible, while promotional strategy attempts to make a virtue out of low cost product features that a firm products (Porter, 1980).
Studies indicated that to be cost leader, a firms thus requires a considerable market share advantage or superior access to raw materials, labour, mechanism, and other important input. Without having one or more of these advantages, a firm strategy would be easily be mimicked by other competitors in the market (Feurer and Chaharbaghi, 1994). To be cost leader, cost reduction is thus the major priority in a firm strategy. The lost cost strategy should considered firm facilities, operations, overheads, service, sales force, cost saving from experience, R&D, training and development and advertising (Dess and Miller, 1993; Karnani, 1984; Miller and Friesen, 1986). In his study, Porter (1980, pp. 35-6) explained, “A low cost position protects the firm against all five competitive forces” (Porter, 1980, pp. 35-6).
Differentiation mean that a firm seek to provide a product or service that is perceived as unique (Porter, 1980). If this strategy is to be successful, then the distinctive features should provide superior value for the customer. Porter explained that a successfully company differentiate themselves and thus rewarded for their uniqueness with a premium price. Porter explained that this strategic is generic and it requires that the premium exceed the extra cost incurred in being unique. However, differentiation strategies cannot be achieved without costs, firms that differentiate themselves should create a defensible position in opposition to the five competitive forces. Porter (1980, pp. 37-8; 1985, p. 14) explained that the firm that has differentiated itself to achieve customer loyalty should be better substitutes than its competitors and thus better position.
However, studies explain that successful differentiation strategy of a company may attract competitors to enter the company’s market segment and copy the differentiated product (Lynch, 2003). in his study, Porter, (1980, pp. 37-8; 1985, p. 14) explained “Differentiation provides insulation against competitive rivalry because of brand loyalty Ã¢â‚¬Â¦ The resulting customer loyalty and need for a competitor to overcome the uniqueness create entry barriers. Differentiation yields high margins with which to deal with supplier power and clearly mitigates buyer power since buyers lack comparable alternatives and are thereby less price sensitive. Finally, the firm that has differentiated itself to achieve customer loyalty should be better positioned vis-a`-vis substitutes than its competitors”.
Focus is the last of the three generic strategies that proposed by Porter. In his study, (Porter, 1980) explained that a firm that adopt a focus strategy target narrow segments of the market, rather than the market segment as a whole. To be successful in doing this, firm should be either cost leadership or effective differentiation while their market is more limited in scale (Porter, 1980). Through cost focus or differentiation focus, a company attempts to benefit from differences between what they can do for specific segments compared to what their competitors can do. Companies employ this strategy by focusing on the areas in a market where there is the least amount of competition (Pearson, 1999).
In market there are some segments that are more poorly served by broad-based competitors, by focus strategy to specific target segments, the focuser seeks better serve these segments and thus achieve competitive advantage. Porter (198) stressed that one prerequisite for a focus strategy is that the target segments are somehow different than other segments in the. Porter (1980, 1985) also stressed that a firm should adopt at least one generic strategy, while failing in that a firm is thus “stuck in the middle”. Such firms lack “Ã¢â‚¬Â¦ the market share, capital investment, and resolve to play the low cost game, the industry wide differentiation necessary to obviate the need for a low cost position, or the focus to create differentiation or low cost in a more limited sphere” (Porter, 1980, p. 41).
5. BACK TO SOUTHWEST CASE
The first article illustrates to us the role of leaders in enhancing employee healthy. The case of Southwest obviously indicated that the leaders are not interacting with employees and managers, and they are spend too much time in the back offices. The expansion of the company and its manpower was further obstruct to the new management to make communication. However, as argued by Little, Simmons, and Nelson (2007), being away from employees, leaders would not contribute in enhancing the organizational and employee healthy, which would negatively increase the aggressiveness and destroy commitment and loyalty.
Goolsby Leadership Model provides an opportunity to the new leadership management to better enhance and improve their image and contribute in building healthy organizational culture, where commitment, loyalty and productivity are part of it. Goolsby Leadership Model explain to us the urgent need of Southwest to have authentic leader who possesses good self-awareness, transparent to others while being consistent, engenders positive psychological states within oneself and followers, and is widely known for having personal integrity. the high quality management are thus requested to enhance organization environment, relationship between employees and managers and thus organisational culture.
Southwest new management also need to considered people feeling. People always like to talk and express their feeling while leader should be emotionally competent and aware of his own feelings and emotions as well as being aware of the feelings and emotions in other people. Goolsby Leadership Model explains to us how the emotionally competent leader is able to act in ways to appropriately managing their own emotions while accommodating the emotions of others. Referring the case of Southwest airlines, managers uttered their concern about unions, they where afraid from the silent of the new management. Managers feeling are considered reflection to what leaders feel. Goolsby leadership mode, stress on the leader’s courage that would enhance the courage of followers. To be successful, Loehr and Schwartz (2003) stressed that courage management is thus requested. Thus, courageous leaders are healthy because they are purposeful, energetic, and possessed of strong character.
On the other hand, Porter’s model of generic strategies are found to be particularly useful to the Southwest airlines due to of the explicitness with which it captures the essence of the strategy formulation process and the intensify of competition in airlines industry. Southwest face many political, economic and technological changes of recent years, which have stimulated its cost containment strategies. Related to the case study, the new management uttered that it is impossible to make cost reducing without increase modest fare increase and employee layoffs, while these two solutions are deemed as contradicting southwest culture.
The new leaders of Southwest have focused a great deal of attention on cost control measures in order to protect themselves from competitive forces arising in the industry, but mainly to cope with regulatory changes. A good example of cost control strategies used by Southwest is the low wages and long working hours. By tight cost control southwest has attempted to demonstrate efficiency in use of allocated resources to the resource providers. However, union take part in the game and thus change some roles (increasing salaries). The competition also drives the company to adapt various technologies (entertainment technologies) and incurring further costs.
Porter’s model of generic strategies provides several activities could fall into the category of differentiation strategy and thus recommended to Southwest. Examples of this generic strategy include creation of “high technology” image among customers by adapting latest technologies (e.g. electronic seats, C.D, D.V.D, internet service and public computers and laptops available to customer’s usage). southwest also can use electronic check up process that would reduce the queue and thus increase their customer satisfaction. Southwest also, could benefit from their accurate and proper time schedules and thus promote it to their customers using formal and informal marketing communications. By demonstrating competence and high proficiency, Southwest should attempt to create institutional loyalty and hence price inelasticity.
Finally, a focus strategy involves Southwest pursuing a cost leadership or differentiation strategy but competing in a narrow segment – a specific type of low-fare segment. Low-fare segment pursuing this strategy try to offer a unique service for the chosen market segment. Southwest new leaders recommended to be aware about the importance of the three strategic orientations that represent three fundamentally different alternatives to a firm seeking to establish a competitive advantage. New leaders are recommended to use various measurements (e.g. employee productivity, comparative parameter with heir rivals) to sure not to “stuck in the middle”, which deemed to be a disadvantage because the cost leaders, differentiators, and focusers are all able to concentrate their capabilities more effectively.
6. CONCLUSION AND RECOMMENDATION
The current study attempts to enhance our understating by exploring various situations that face Southwest airline, which primary occurred because of the company desire to expand and the extensive competition in the market. The competitor could not be developed without understanding the secret of Southwest airline succession. While Southwest airline, as pioneer in the airlines industry should seek effortful to exploit opportunities and develop various strategies that are complex and not easy to mimicry by rivals. The new leader of Southwest should promote and encourage personnel by adapting various framework and models that appears the in management filed. The current study underpin two but important model that could be in one hand, change the attitude of employees and thus enhance the organizational culture, and on the other hand, enhance the competitions and cost reducing of the firm the market.Order Now