EXPONENTIAL PERFORMANCE IMPROVEMENT & BUSINESS GROWTH
How Southwest Airlines Improved the Business Model of Red Ocean Airlines …
And Became the Largest Airline in America
Dr. Rod King
Speaker, Consultant, and Trainer on Business Model Analysis, Design, and Innovation
rodkuhnking@sbcglobal.net & http://businessmodels.ning.com
http://twitter.com/RodKuhnKing

Blue Ocean Compass: Visually Documenting, Analyzing, and Improving the Performance of Business Models in the Airline Industry
Southwest Airlines
Blue Ocean Compass for
4 ELEMENTS OF BUSINESS MODEL:
the Average Airline and Southwest Airlines
Competitive Advantage Strategies
Increase quality (speed) to level 9
Reduce cost (ticket price) to level 1.3
Quality (Speed) Increase differentiation (novelty/simplicity)
10 to level 7.6
8 Increase on-demand; 24x7/(adaptability;
customization) services to level 3
6
4 Value Propositions (Innovative Processes)
2 Higher quality (speed) at lower cost
On-demand; 24x7 Higher differentiation (novelty/simplicity) at
0 Cost (Price)
(Customization) lower cost
Targeted Customer Segment(s)
Frequent/Low-cost traveler
Early adopter/innovator; Non-customers
Value Quotient (VQ)
Differentiation
(Novelty/Simplicity) Benefit = Quality + Differentiation +
Customization = (9 + 7.6 + 3)/3 = 19.6/3 =
6.53
Cost = 1.3
Ideal Business Model Southwest Airlines Average Airline Value Quotient (VQ) = 6.53/1.3 = 5.03
BOBM. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

Blue Ocean Map for THE VALUE QUOTIENT OF THE AVERAGE AIRLINE AND SOUTHWEST AIRLINES
IDEAL BLUE OCEAN (FINAL RESULT) Fractal Market Segmentation of Short-haul Airlines/Car Transportation
∞
BLUE OCEAN
Southwest Airlines
Benefit
Highly differentiated and
premium-priced/free value chain
Blue Ocean Plan
(+): DELIGHT
RED OCEAN
* Average Short-haul Airlines
* Car Transportation/Taxis
Strategic Commoditized and
Choice Red Ocean Plan low-cost value chain
(Uncontested Experience, Market Space, or New Category) (-): PAIN Cost
BOBM1.1. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

Company Overview of SOUTHWEST AIRLINES Date: April 28, 2009
Author(s): Dr. Rod King (rodkuhnking@sbcglobal.net) Ref.: …………………………………..…………………….
COMPANY BACKGROUND INDUSTRY/BUSINESS PRODUCTS/SERVICES
Location: Dallas, Texas (USA) Industry: Airline/Transportation Airline
Founder(s): Herb Kelleher; Rollin King Niche: Short-haul, low-cost air travel Aircrafts
(1967 inc.; first flight in 1971) Model: Point-to-point air travel with Air travel/transportation
Revenue: $11 Billion (2008) ‘no frills’ to secondary city-airports
No. of Direct Competitors: (cf. hub-and-spokes model with meal)
CUSTOMER VALUE PROPOSITION COMPANY OVERVIEW OF: CUSTOMER BENEFITS/EXPERIENCE
“The speed of a plane at the price of a SOUTHWEST AIRLINES Faster travel at lower cost
car …” Simple fare structure
Targeted Customer Segment:
Frequent/low-cost travelers
MAIN GOAL/OBJECTIVE/STRATEGY VISION (“Future Headline”) MISSION
To quickly reach the destination at “Do the right thing.” “Dedication to the highest quality of
the lowest price Customer Service delivered with a sense of
warmth, friendliness, individual pride, and
Company Spirit.”
BOBM8A. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

30,000ft Level: Blue Ocean Compass
60,000ft Level: Blue Ocean Map
Global Level: Company Overview

Blue Ocean Compass: Visually Documenting, Analyzing, and Improving the Performance of Business Models (in a Given Industry)
Worst Business IMAGE
Blue Ocean Compass for 4 ELEMENTS OF THE BUSINESS MODEL:
Worst Business Model Competitive Disadvantage Strategies
(\"Why Businesses and Value Chains Fail\") Reduce Quality: Level 1
Increase Cost (Price): Level 10
Reduce Differentiation (Novelty): Level 1
Quality
10 Reduce On-demand; 24x7/(Customization)
services: Level 1
8
6 Worst Value Propositions (Innovative Processes)
4 Lowest quality at highest cost (price)
Lowest differentiation at the highest cost
2
On-demand; 24x7 Lowest differentiation without adaptability,
0 Cost (Price) convenience, or customization
(Customization)
Lowest quality without adaptability,
convenience, or customization
Targeted Customer Segment(s)
Dissatisfied customers
Differentiation
Worst Value Quotient (VQ)
(Novelty/Simplicity)
Worst Benefit = Quality + Differentiation +
Customization = (1 + 1 + 1)/3 = 1
Worst Cost = 10
Worst Value Quotient (VQ) = Benefit/Cost =
1/10= 0.1
BOBM. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

Template of Blue Ocean Compass: Visually Documenting, Analyzing, and Improving the Performance of Business Models (in a Given Industry)
Ideal Business IMAGE
Blue Ocean Compass for 4 ELEMENTS OF THE BUSINESS MODEL:
Ideal Business Model Competitive Advantage Strategies
(\"Perfect, Free, Different, and 24x7 Value Chain\")
Maximize Quality: Level 10
Minimize Cost (Price): Level 1
Maximize Differentiation (Novelty/
Quality
10 Simplicity): Level 10
Maximize On-demand; 24x7/ (Adaptability;
8
Customization) services: Level 10
6
Ideal Value Propositions (Innovative Processes)
4
Highest quality at lowest cost (premium)
2
Highest differentiation at the lowest cost
On-demand; 24x7
0 Cost (Price) Highest differentiation on demand
(Customization)
(adaptability; mass customization)
Highest quality on demand (adaptability)
Targeted Customer Segment(s)
Every niche: customers; non-customers
Ideal Value Quotient (VQ)
Differentiation
(Novelty/Simplicity)
Ideal Benefit = Quality + Differentiation +
Customization = (10 + 10 + 10)/3 = 10
Ideal Cost = 1
Ideal Value Quotient (VQ) = Benefit/Cost =
10/1 = 10 (‘Perfect 10’)
BOBM. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

Blue Ocean Map for Simply Mapping, Designing, Executing, and Monitoring a Value Proposition as well as Business Performance
IDEAL BLUE OCEAN (FINAL RESULT) Fractal Market Segmentation of ……………………………………………………………………….
∞
BLUE OCEAN-
Benefit
Value Proposition
Highly differentiated and
premium-priced/free value chain
Blue Ocean Plan
(+): DELIGHT
RED OCEAN-
Value Proposition
Strategic Commoditized and
Choice Red Ocean Plan low-cost value chain
(Uncontested Experience, Market Space, or New Category) (-): PAIN Cost
BOBM1.1. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

Company Overview of ………………………………………………………………….. Date: …………………………………….………..………..
Author(s): …………………………………………………………………………………….. Ref.: …………………………………..…………………….
COMPANY BACKGROUND INDUSTRY/BUSINESS PRODUCTS/SERVICES
Location: Industry:
Founder(s):
Revenue: Niche:
No. of Direct Competitors:
Model:
CUSTOMER VALUE PROPOSITION COMPANY OVERVIEW OF: CUSTOMER BENEFITS/EXPERIENCE
Value Proposition:
Targeted Customer Segment:
MAIN GOAL/OBJECTIVE/STRATEGY VISION (“Future Headline”) MISSION
BOBM8A. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

INNOVATIVE PROCESSES FOR VALUE CHAIN AND BUSINESS MODEL (for fulfilling challenging value propositions)
GENERAL PROCESSES EMPLOYEE PROCESSES MACHINERY/FACILITY PROCESSES
Vertical/Horizontal Integration Specialization/IP Creation-Protection Franchise/Leasing/Rental
Extension/Compression/Removal Outsourcing/Sub-contracting/Agents Localization/Substitution/Reversal
Open Innovation/Collaboration ‘Star’ Performers/Top grading/Fun Modularization/Standardization
Unbundling/De-integration/Bundling Wisdom of the Crowd/Co-creation Asymmetry/’Poka Yoke’/Nesting
Convergence/Standardization/Self-X Cross-functional Teams/Downsizing Attributes Interdependency
ENVIRONMENT/SUPPLIER PROCESSES DOMAIN-PROCESSES/FUNCTIONALITY
Partnering/Complementing/Feedback Digitalization/Idealization/Downsizing
INNOVATIVE PROCESSES FOR
Merging/(De)Centralizing/Integration Virtualization/Customization/DIY
Networking/Volunteering/Recycling VALUE CHAIN AND Zero Defect/Lean/Six Sigma/JIT
Convergence/(De)Regulation BUSINESS MODEL Automatic/Outsourcing/Low Cost
Distributorship/Affiliates/Network Restructuring/Inventive Principles
CUSTOMER PROCESSES CHANNEL/WHOLESALERS PROCESSES PRODUCT/SERVICE PROCESSES
Segmentation/Direct Selling/Branding Multiple Channels/Syndication/Chain Product/Service-Platform/Package
Cross-subsidy/Hybridized Markets Pyramid/Multi-level Markets/Wheel Service-focus/Servicing/Upgrading
Subscription/Leasing/After Sale Digitalization/Online/Word-of-mouth Performance-based Pricing
Auction/Co-creation/Collaboration Distributorship/Affiliates/Network Fixed product (shell) and recurring/
Advertising/Freemium/Licensing Advertising/Auction Platform replaceable/upgradeable component
BOBM. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

8 QUESTIONS FOR UNCOVERING OPPORTUNITIES FOR EXPONENTIAL PERFORMANCE IMPROVEMENT & BUSINESS GROWTH
1. TRADITIONAL CUSTOMERS 2. JOBS TO BE COMPLETED 3. CUSTOMER OBSTACLES
Who are traditional customers/ What jobs or tasks are traditional What are obstacles, inconveniences, or
consumers/competitors of the products customers trying to get completed while interruptions to traditional customers
and services? What are other (task-based) using the products and services? Why, while trying to get jobs completed?
ways of describing traditional customers/ why, why? How, how, how? Where do the obstacles, inconveniences,
consumers/competitors? or interruptions occur? When?
4. ALTERNATIVE PROCESSES & TOOLS 5. SUCCESS CRITERIA
In how many and different ways can 8 QUESTIONS FOR UNCOVERING How do customers and other
traditional and non-traditional customers OPPORTUNITIES FOR stakeholders know that the jobs are
get the jobs completed? What comple- EXPONENTIAL PERFORMANCE successfully completed?
mentary jobs can traditional and non- IMPROVEMENT &
traditional customers get completed?
BUSINESS GROWTH
6. IDEAL PROCESSES & TOOLS 7. BEST BUSINESS MODEL FOR JOB 8. VALUE CHAIN OF CUSTOMERS
How can existing/future processes and What are business model and value chain What jobs are the value chains of
tools help traditional and non-traditional resources for most efficiently and traditional and non-traditional customers
customers to better get the jobs effectively getting complete the most deeply trying to complete? What jobs
completed without obstacles, inconve- critical or profitable jobs for customers? precede and succeed the jobs that
nience, interruptions, or other pains? customers are trying to complete?
BOBM. Blue Ocean-Business Models. Copyright 2009. Dr. Rod King. rodkuhnking@sbcglobal.net & http://businessmodels.ning.com

REFERENCES
1. Chesbrough, H. (2006) Open Business Models. Boston: Harvard Business School (HBS)
Press.
2. Christensen, C.; Raynor, M.E. (2003) The Innovator’s Solution. Boston: Harvard Business
School (HBS) Press.
3. Kaplan, R.S.; Norton, D.P. (1996) The Balanced Scorecard. Boston: Harvard Business
School (HBS) Press.
4. Kaplan, R.S.; Norton, D.P. (2008) The Execution Premium. Boston: Harvard Business
School (HBS) Press.
5. Kim, W.C.; Mauborgne, R. (2005) Blue Ocean Strategy. Boston: Harvard Business School
(HBS) Press.
6. King, R. (2009) The Infinitely Zoomable Page: The Ideal Tool for Business Model
Thinking, Design, and Innovation. Fresno: Ideal-Solution Management.
Dr. Rod King
Speaker, Consultant, and Trainer on Business Model Analysis, Design, and Innovation
rodkuhnking@sbcglobal.net & http://businessmodels.ning.com
http://twitter.com/RodKuhnKing