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Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines
 

Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines

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Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks. ...

Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks.

Strategy Model** is a methodology to describe the grand strategy and the model consist four levels:
1. Mantra (3-4 words and captures the essence of the organization.)
2. Must-Win Battles (identify 3-5 critical challenges )
3. Key Development Areas (strategic issues 2-3 per MWB)
4. Key Activities (also Simple Rules)

Presentation shows how to create visual model with six steps

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Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines Must-Win Battles & Strategy of Discount Airline case study of Southwest Airlines Presentation Transcript

  • Must-Win Battles of Discount Airline Strategy Case Study © Cone Advisor 1 Image via Flickr user columbuscameraop
  • © Cone Advisor 2 Author http://fi.linkedin.com/in/jukkaam/ http://www.slideshare.net/jukkaam http://jukkaam.wordpress.com/ Dr. Ala-Mutka is founder of Cone Advisor and Ocean Race 60 (Tokio II race boat) & Senior Research Fellow and lecturer at Aalto University School of Economics. Dr. Ala-Mutka is the author of the Agile Strategy Methodology, which focuses on business modeling, innovation, visualization, strategic agility, sensitivity, transparency, diversity, efficient interaction, resource fluidity and shared leadership. The key elements of the Agile Strategy approach are business model innovations and business modeling, of which builds the flexible business architecture for the whole strategy execution from ideas to business models and return on investments.
  • Presentation • Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks. • Strategy Model** is a methodology to describe the grand strategy and the model consist four levels: 1. Mantra (3-4 words and captures the essence of the organization.) 2. Must-Win Battles (identify 3-5 critical challenges ) 3. Key Development Areas (strategic issues 2-3 per MWB) 4. Key Activities (also Simple Rules) • Presentation shows how to create visual model with six steps © Cone Advisor 3 *( http://www.mustwinbattles.com ) **( http://www.coneadvisor.com )
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 4
  • 1. Why you are successful? © Cone Advisor 5 Source: http://www.freeimages.com/
  • Identify industry recipe: What are norms of your industry? © Cone Advisor 6
  • In 1970 Airline industry was… © Cone Advisor 7 Hub and spoke airline system More destinations Premium services for high-end customers Glamour atmosphere
  • …but world is changing as it changed in 1970s • New generation • New music genres • Advancements on technology • Growth of middle class • What are megatrends of your industry? © Cone Advisor 8 Source: http://www.freeimages.com/
  • © Cone Advisor 9 Create your own recipe: Break all the rules and start a different kind of business
  • The core idea of the discount airline business “If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline.” - Herb Kelleher 10© Cone Advisor
  • • Over 40 years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. • Southwest Airlines started operations in 1971 and it was a novel business model innovation that breaks all the rules. © Cone Advisor 11
  • © Cone Advisor 12 Charge the lowest possible fare with highest possible volume Charge the highest possible fare with premium services ”Norm strategy” in the airline industry in 1970s New strategy for Southwest Airlines
  • Evidence of success: growth • 1971: begins service between Dallas, Houston, and San Antonio. • 1975: Southwest expands to 5 aircraft • 1981: 2,129 Employees and 27 aircraft • 1991: 9,778 Employees and 124 aircraft • 2001: 29,274 Employees and 344 aircraft • 2007: Southwest Airlines flies over 104 million passengers a year to 64 great cities all across the country, and we do it more than 3,400 times a day. • Net income: $645 million • Total operating revenue: $9.9 billion • Making profit since 1975! © Jukka Ala-Mutka 13 Source: www.southwest.com
  • 2.Identify 3-5 Must-Win Battles © Cone Advisor 14 Source: http://www.freeimages.com/
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 15
  • © Cone Advisor 16 What we need to must- win, if we charge the lowest possible fare with highest possible volume?
  • © Cone Advisor 17 Economically?
  • Charge the lowest possible fare with highest possible volume © Cone Advisor 18 1. Highest utilization rate Per Flight Aircraft / day
  • © Cone Advisor 19 Operationally?
  • © Cone Advisor 20 High utilization rate (flight & aircraft) Reengineering Work: Don’t Automate, Obliterate* * http://hbr.org/1990/07/reengineering-work-dont-automate-obliterate/ar/1 2. Simple structure
  • © Cone Advisor 21 Resources?
  • © Cone Advisor 22 3. Lean and productive personnel Reengineering Work: Don’t Automate, Obliterate*
  • Summary: Low-cost airline’s the Must-Win Battles • Discount airlines’ strategy model include four Must-Win Battles: • (1) High utilization rate • (2) Efficiency through simple structures • (3) Productive personnel = (4) Very low ticket prices © Cone Advisor 23 1 2 34
  • Key differences: Network vs. Discount Airline Network Airline • Hub-and-spoke route system • Connected and continental & intercontinental flights • Premium passenger services (seating, meals, lounges) Discount Airline • Nonstop point-to-point routes • Short haul • Limited passenger service (no meals, no seating, no lounges) © Cone Advisor 24 HUB
  • 3.Define key strategic issues © Cone Advisor 25 Source: http://www.freeimages.com/
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 26
  • © Cone Advisor 27 Fact: The average aircraft trip length is 630 miles with an average duration of one hour and 52 minutes. Source: www.southwest.com
  • Growth © Cone Advisor 28 Hub and spoke airline system Nonstop point-to-point routes High utilization rate
  • Must-Win Battle #1: Growth • These the key issues keep planes in the air the most of the time (flight time/day). • Southwest is named America’s Most Reliable Airline by Forbes. Southwest proves that low fares don’t have to mean poor service. © Cone Advisor 29
  • © Cone Advisor 30 Fact: Southwest aircraft fly an average of 7 flights per day, or 13 hours per day. Source: www.southwest.com
  • Economics of scale © Cone Advisor 31 More destinations Frequent departures Source: www.southwest.com Simple Structures
  • Must-Win Battle #2: Efficiency through simple structures © Cone Advisor 32 • The process perspective based on simplicity of mainly in- house operations directly with customers
  • © Cone Advisor 33 Fact: In a 2008 TIME.com survey of the friendliest and stingiest airlines, Southwest Airlines ranked no.1 for being the Friendliest Airlines. Source: www.southwest.com
  • Personnel © Cone Advisor 34 Glamour atmosphere Fun LUVing attitude
  • Must-Win Battle #3: Productive personnel © Cone Advisor 35 • The hardest part of the implementation of low- cost airline business model is personnel. • Create lean organization, flexible, engaged and productive personnel – easy to say, hard to create. • The airline is about 86 percent unionized.
  • © Cone Advisor 36 Fact: Southwest received 329,200 resumes and hired 4,200 new Employees in 2007. Source: www.southwest.com
  • Productive Personnel © Jukka Ala-Mutka 37 Source: www.southwest.com Only hire persons fit in profile Instead of high skilled workers – multiskilled & right company culture
  • © Cone Advisor 38 Fact: Southwest’s average passenger airfare was $114.48 (2007) Source: www.southwest.com
  • Very low ticket prices © Cone Advisor 39 Premium service for high-end customers Limited passenger service
  • Must-Win Battle #4: Very low ticket prices © Cone Advisor 40 • Low-cost airline allow business travelers, who could not fly in First Class, to enjoy a premium service. • Frequent flyers are people, mostly business, who frequently travel between destinations that are average ~800 miles (average aircraft trip length is 630 miles ).
  • 4.Key activities & simple rules © Cone Advisor 41 Source: http://www.freeimages.com/
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 42
  • Must-Win Battle #1: Growth © Cone Advisor 43 Less traffic, reduced taxi time, cheaper gate & landing feesEvery aircraft flight 7 times per day Less time on the ground Availability creates high volume and access to service for frequent flyer
  • Must-Win Battle #2: Efficiency through simple structures © Cone Advisor 44 Efficient aircraft maintenance, low downtime costs Simple services is easy to buy • Just one type of aircraft (Boeing 737) keeps costs down related to pilots’ training, spare parts, maintenance, etc.
  • © Cone Advisor 45 Fact: The airline adopted the first profit-sharing plan in the U.S. airline industry in 1973. Through this plan and others, Employees own at least eight percent of the Company stock. Source: www.southwest.com
  • Must-Win Battle #3: Productive personnel © Cone Advisor 46 Compensation system Culture comes first The core competence of productivity
  • Must-Win Battle #4: Very low ticket prices © Cone Advisor 47 Sometimes it is hard to say what to do… say what NOT to do
  • Summary: Simple Rules • 1.Decision making rules • Midsized cities & secondary airports • Standardized fleet of Boeing 737 aircraft • Only hire persons fit in profile • 2.Boundary rules • Very low ticket prices • Limited Service: No meals, No seating, No baggage transfer • No connections with other airlines • Short haul flights • 3.Activity rules • Point-to-point service • Frequent departures • 4.Performance rules • 25-minutes gate turnaround • High utilization rate © Cone Advisor 48 Source: Ala-Mutka 2008 p. 185-188, see also Eisenhardt & Sull 2001 Simple Rules Make your strategy executable !
  • 5. Develop Mantra © Cone Advisor 49 Source: http://www.freeimages.com/
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 critical challengies 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 50
  • © Cone Advisor 51 A mission statement, while touted as necessary for any company, often is not representative of the true meaning of the company. Source: Guy Kawasaki, Stanford 20.10.2004
  • Southwest Airlines’ Mission The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Source: www.southwest.com 52© Cone Advisor
  • © Cone Advisor 53 Develop the true meaning of the company - A mantra is shorter 3-4 words and captures the essence of the organization. Source: Guy Kawasaki, Stanford 20.10.2004
  • © Cone Advisor 54 Frequent FunLow price Simple I’m free to make my own schedule… I know what to buy… I have afford to fly… I can make a choice…
  • Southwest Airlines’ Mantra Source: www.southwest.com 55© Cone Advisor Frequent Fun Low price Simple
  • Let’s put all pieces together Must-Win Battles based Strategy Model © Cone Advisor 56 Source: http://www.freeimages.com/
  • The whole MWB Model © Cone Advisor 57 Profitable Growth Efficiency of Processes Productivity of Resources Customer Value Must Win BattlesMeans Key Activities Source: Ala-Mutka 2008 p. 165 Themes of Must-Win Battles
  • © Cone Advisor 58 The strategy is model, but it is not yet managed
  • 6.Key strategic development projects, KPIs & risks © Cone Advisor 59 Source: http://www.freeimages.com/
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 60
  • © Cone Advisor 61 Executable Model?
  • © Cone Advisor 62 Make your model executable Must-Win Battle element KPIs Projects Risks Linking Management Elements with Model
  • © Cone Advisor 63 Linking projects, KPIs and risks with model
  • Make it managed © Cone Advisor 64 Project Dashboard KPIs Roadmap Risk Matrix
  • Managing strategy with Cone Made software Trial 30 days Pyydä 30 pv trial tästä linkistä (in Finnish) Ask for 30 days trial (in English) © Cone Advisor 65
  • 6 steps to visualize your strategic management 1. Why you are successful? 2. Identify 3-5 Must-Win Battles 3. Define key strategic issues 4. Key activities & simple rules 5. Develop mantra 6. Manage strategic development projects, metrics & risks © Cone Advisor 66
  • Background of the case: Discount Airline • Case description based on analysis of Southwest Airlines, but the rules of the strategy can be applied to discount airlines or also other discount businesses in general • A low-cost airline is also known as a no-frills, discount or budget carrier or airline. It is an airline that generally has lower fares and limited services. • The term originated within the airline industry referring to airlines with a lower operating cost structure than traditional airlines. • Low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares, because they have different business model. © Cone Advisor 67
  • Methodology of the Modeling • The structure of the analysis is based on so called Must- Win Battles and strategy as a visual model • Must-Win Battles* will show how to identify the critical challenges that will make your business and help you to focus on the most critical tasks. • Strategy Model** is a methodology to describe the grand strategy and the analysis consist four levels: 1. Mantra (3-4 words and captures the essence of the organization.) 2. Must-Win Battles (identify 3-5 critical challenges ) 3. Key Development Areas (strategic issues 2-3 per MWB) 4. Key Activities (also Simple Rules) © Cone Advisor 68 *( http://www.mustwinbattles.com ) **( http://www.coneadvisor.com )
  • Modeling - From Mantra to Key Activities Step 1: Make a mantra Step 2: Define 3- 5 Must- Win Battles Step 3: Define 1- 3 Key Means of the Battle Step 4: Define 0-3 Key Activities of the Mean 1 2 3 4 69© Cone Advisor
  • © Cone Advisor 70 Visual Strategy Model + Must Win Battles • Jukka Ala-Mutka, Strategiamalli (in Finnish), Talentum 2008. • Strategy Modeling • Visual method • Agile Strategy • Peter Killing & Tom Malnight, Must-Win Battles, 2005 • MUST-WIN BATTLES WILL SHOW YOU HOW TO IDENTIFY AND AGREE ON THE CRITICAL CHALLENGES THAT WILL MAKE OR BREAK YOUR BUSINESS, AND HELP YOU TO MOBILIZE PEOPLE AND RESOURCES TO ACHIEVE THOSE GOALS BY COMBINING STRATEGIC FOCUS WITH EMOTIONAL COMMITMENT. • See also • Eisenhardt & Sull 2001 Simple Rules, Harvard Business Review. • Porter, What is strategy, 1996, Harvard Business Review • Porter, Strategy Advantage, 1985, Free Press. Source http://www.mustwinbattles.com
  • More information www.coneadvisor.fi (Finnish) www.coneadvisor.com (English) 71© Cone Advisor