Southwest Airlines Way

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This book examines how Southwest Airlines, the largest carrier of passengers in the largest market in the world has become the envy of financial performance, customer, and employee satisfaction for the airline industry.  For those of us who are involved in Organization Development or Human Resources and toil under the belief that people make a bottom line difference, this is our book.  For leaders this is also your book, the lessons learned at Southwest are transferable not only to the airline industry but to any industry.  A word of caution, the book is based on an academic/statistical study of the airline industry and reported more as an academic treatise than a captivating book.  Don't let the style of writing get in the way of the important message: 
Southwest's most powerful organizational competency--the "secret ingredient" that makes it so distinctive--is its ability to build and sustained high performance relationships among managers, employees, unions, and suppliers.  These relationships are characterized by shared goals, shared knowledge, and mutual respect.
Over time Southwest Airlines has developed 10 organizational practices to facilitate coordination among 12 distinct functions: pilots, flights attendants, gate agents, ticketing agents, operations agents, ramp agents, baggage transfer agents, cargo agents, mechanics, fuelers, aircraft cleaners, and caters by building relationships of shared goals, shared knowledge, and mutual respect.  The heart of this book is the description of these 10 practices and how managers in any setting can implement them to improve their business performance.

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Southwest Airlines Way

  1. 1. Executive Summary of the book By “Southwest Airlines Way” Power of relationships to performance by Ramki ramaddster@gmail.com
  2. 2. About the Author Jody Hoffer Gittel is an associate professor of Management at Brandeis University's Heller School for Social Policy and Management, & serves as Director of the Relational Coordination Research Collaborative, and Acting Director of the MIT Leadership Centre. Her research explores how coordination by front-line workers contributes to quality and efficiency outcomes in service settings, with a particular focus on the airline and health care industries. She has developed a theory of relational coordination, proposing that work is most effectively coordinated through relationships of shared goals, shared knowledge and mutual respect, and demonstrating how organizations can support relational coordination through the design of high performance work systems.
  3. 3. Prelude This book examines how Southwest Airlines, the largest carrier of passengers in the largest market in the world has become the envy of financial performance, customer, and employee satisfaction for the airline industry. For those of us who are involved in Organization Development or Human Resources and toil under the belief that people make a bottom line difference, this is our book. For leaders this is also your book, the lessons learned at Southwest are transferable not only to the airline industry but to any industry. A word of caution, the book is based on an academic/statistical study of the airline industry and reported more as an academic treatise than a captivating book. Don't let the style of writing get in the way of the important message: Southwest's most powerful organizational competency--the "secret ingredient" that makes it so distinctive--is its ability to build and sustained high performance relationships among managers, employees, unions, and suppliers. These relationships are characterized by shared goals, shared knowledge, and mutual respect. Over time Southwest Airlines has developed 10 organizational practices to facilitate coordination among 12 distinct functions: pilots, flights attendants, gate agents, ticketing agents, operations agents, ramp agents, baggage transfer agents, cargo agents, mechanics, fuelers, aircraft cleaners, and caters by building relationships of shared goals, shared knowledge, and mutual respect. The heart of this book is the description of these 10 practices and how managers in any setting can implement them to improve their business performance.
  4. 4. 1 About Southwest
  5. 5. “As company legend goes, the very first route map was drawn on a cocktail napkin during a meeting between Herb Kelleher and Rollin King.” In The Beginning…
  6. 6.  Incorporate in Texas –USA in 1971 with 3 Boeing aircrafts  2010- Net operating revenue –over US $ 12 Billion  2010- Net income of US $ 459 million  Low-fare, high frequency, Point-to-point carrier  548 Boeing 737 aircrafts  Largest domestic carrier  More than 35,000 Employees  Fly more than 88 mil. passengers a year  69 destination cities – 37 states  More than 3,400 flights a day Facts
  7. 7. Summary Company Overview
  8. 8. 2 Integrated Business Strategy
  9. 9. Product: Company’s –Business Context / product is Travel Market Map is drawn bigger as Travel and just not airline market Competition - not just other airlines but any mode of transportation.  Frequent, conveniently timed flights and low fares.  Point-to-point route system as compared to hub-and-spoke  Direct nonstop Target Market: Market Segmentation  Cost & value-conscious consumers  Small business executives  Travel short distances  Prefer low cost fares  Frequent schedules The other half consists of  Value-conscious consumers (male, female, families, and senior citizens)  Best value for their dollars Senior citizens are a sub-segment that receives special attention than a loyal customer - customer evangelist Integrated Business Strategy- Product / Market
  10. 10. Product Positioning Example of Southwest Airlines nuttiness - use of the word “love” One ad titled "How Do We Love You?" - flight schedule. Another ad titled "We're Spreading Love" - the rapid growth of the airline. Word "love“ - dedication to customer service Marketing Strategies Southwest offers a travel product that is built around flights targeted to specific demographics and ticket pricing that is simplified so that passengers know exactly what they are getting for what they pay. Building Brand Loyalty What is the Southwest Effect?  Air fares go down  Tourist traffic increases  Economic mini-boom ensues Marketing Blitz !!!! - Smart Campaign Integrated Business Strategy- Positioning/ Marketing
  11. 11. Competitors and Competition 11 major carriers (2003):  Alaska Airlines & Aloha Airline  America West  American Airlines  Continental Airlines  Delta Airlines  Northwest Airlines  TWA  United Airlines & U.S. Air Southwest’s brand exudes an element of fun: Obviously Fun  Love Theme,  Love Potions(on-board drinks)  Love Machines( ticket writing machines) Approaches coming out Product Positioning  Only low-fare  Short-haul  High-frequency  Point-to-point carrier  Fun to fly Average cost of serving meals per passenger in the industry - 5 $ For Southwest’s -20 cents Seemingly weird things-  Not assigning seats  Weird Color Scheme Integrated Business Strategy- Mapping Competition
  12. 12. Pricing Strategies  Charge the lowest possible fare  Compete with all other forms of transportation, including automobiles  Instead of increasing fares when market gets busier and more people are flying, it simply increases the number of flights. Distribution and Promotion Product Distribution Strategies  SWA does not rely on travel agents  Travel bookings - direct marketing  Does not interline or offer joint fares with other airlines Southwest's Internet ticketing saves it $50 million a year, or 1% of revenue “Not competing with other airlines. Competing with ground transportation" Integrated Business Strategy- Pricing & Promotion
  13. 13. Promotion Strategies: Marketing Mix Southwest Airlines wants to differentiate itself from other airlines as the airline that can get passengers to their destinations when they want to get there, on time, at the lowest possible fares – while having fun. Frequent Flyer Awards Rapid Rewards-based on number of trips taken Way of showing Southwest’s philosophy that every customer is equally important as the other and making ALL passengers feel special. Advertising “Don’t believe the hype.” Fares offered by other discounters & airlines on the Web are not good buys. Southwest attempts to do three things in their advertising:  Intrigue  Entertain  Persuade “We’d like to match their new fares but we’d have to raise ours!!" Integrated Business Strategy- Promotion /Advertising
  14. 14. Television Sports Advertising  Sports television programming  Reaching the corporate set via sports and other venues  In 2000, Southwest renewed its multi- year sponsorship agreement with the National Football League (NFL). Public Relations  Aims for “Free publicity”  Triple Crown Award for the fifth time in a row  Named a plane Triple Crown One and painted 24,000 employee names on it Internal Marketing Core Business - Customer Service business—they just happen to provide airline transportation Southwest’s philosophy - “Service for Smiles and Profits” Encourages employees to treat customer service as the most important aspect of their job CEO Kelleher, "We want people who do things well, with laughter and grace." Integrated Business Strategy- Advertising /PR
  15. 15.  Did all of its ticketing (not making seats available through computerized systems)  Did not operate in the hub & spoke route system  Flew into uncongested airports of small cities, less congested airports of large cities  Did not transfer baggage directly to other airlines  Only drinks and snacks often peanuts served on board Travel agents had to contact the airlines directly to book seats SWA passengers flew non-stop origin to destination. Did not promote connecting services Savings in reduced taxi time, fewer gate holds and less in-air waiting time It doesn’t coordinate its services with other airlines Integrated Business Strategy- Operations
  16. 16. Hiring  Identify attitudes rather than skills  Rigorous interviewing &Peer hiring Compensation  Varied with position & At par with industry norm  Pension through a profit-sharing plan Structure  Centered on team-building  Cross-training encouraged  Broad latitude offered  10% of stock held by employees Integrated Business Strategy- People Process
  17. 17. Compensation  Varied with position  At par with industry norm  Pension through a profit-sharing Advancement  Recognition, an important element  Celebrations quite common  Most promotions internal Culture  Casual dress code & Field visits  Strong guidelines to everyone  At par with industry norm Integrated Business Strategy- People Process
  18. 18. Blue Ocean Compass
  19. 19.  Be the best place to work  Operate the safest, most reliable, most efficient airline  Offer Customers the preferred 737 flight schedule with lots of flights to lots of places  Deliver the best overall high value Customer Experience  Be the low cost provider  Earn excellent financial returns on our investment for our Shareholders and Employees Vision Revisited - 2007
  20. 20. Outcome -Strategic Work Plan Results
  21. 21.  Safety Matters Most  Expand the Network  Grow Revenues  Win Customers  Conquer the Cost Mountain  Win the Hearts & Minds of our Employees  Manage Risk  Integrate with Excellence Vision 2011-2015
  22. 22. Vision linked to Strategic Plan 2011-2015
  23. 23. 3 Business Model
  24. 24. Use non- conventional models for low-cost Have Fun Together Treat employees as family Hire people who form the fit Involve employees Controlled, Solid growth for the airline Southwest Model
  25. 25. 3 The Southwest Way
  26. 26. Southwest –Secret Sauce Environment Shared Goals Shared Knowledge Mutual Respect 10 Organizational Relationships Techniques Frequent communication Timely communication Problem Solving communication
  27. 27. Shared goals Every employee is working to achieve 3 quite straight forward goals regardless of the functional area  Safety  On-time performance  Creating satisfied customers Every employee respond in a coordinated way whenever new challenges arise or new information becomes available Decisions are based on context & information shared ‘Shared goals at Southwest is strong. When discussing the need for on- time Performance, nearly everybody explained that “ our aircraft are valuable & they Don’t earn any money sitting on the ground”
  28. 28. Shared knowledge  Every employee understand the overall work processes.  They also know & understand the links between what they do & the work others do in the organization.  Shared knowledge enhances coordination & the emergence of innovative ideas
  29. 29. Mutual Respect  In most airlines, there are clear & definitive boundaries between people working in different functional areas.  Most employees will interact well with their peers but disregard anyone else below them in the hierarchy.  When delays occur, there is usually an attempt to pin the blame for the delay on someone lower down the chain  By contrast Southwest has a culture in which each employee treats others with respect.  They acknowledge the different roles each department play in keeping planes flying.
  30. 30. 4 What lead to their success ? High performance Relationships The “glue” that makes these 10 organizational relationships work for Southwest is its business environment of shared goals ,shared knowledge and mutual respect. Without this kind of environment, the high performance relationships Southwest uses won’t have the same kind of impact
  31. 31. Ten Southwest Practices for building high performance relationships  Lead with creditability & care- Outstanding Leadership  Invest in frontline leadership  Hire & train for relational competence/ excellence  Use conflict to Build Relationships  Bridge the work/family divide  Create positions that span boundaries  Avoid finger pointing-Measure Performance broadly  Have highly flexible job descriptions  Make unions your partners, Not adversaries  Build Relationships with Your Suppliers High Performance Relationships
  32. 32. Be a Leader who Cares
  33. 33. Lead with Credibility & Care  Herb Kelleher, the legendary co-founder and former CEO, recently handed the rudder to CEO Jim Parker & President/COO Colleen Barrett, exceptional leaders who are equally committed to continuing his traditions.  During his tenure, Kelleher developed a reputation, among other things, for being approachable, and the close relationships among members of senior management set the tone for the rest of the company.  At Southwest, credibility & caring are the two critical ingredients of effective leadership  Credibility & caring are the ability to inspire trust and the ability to inspire in employees the belief that their leaders care deeply about their well-being.  Southwest’s top management team have gained the complete trust of managers in the field, and of frontline employees, by being forthright and consistent in their messages to employees Credibility – The ability to inspire trust in their employees Empathy – Caring deeply for the well- being of the employees
  34. 34. Place More Supervisors in the frontline
  35. 35. Invest in frontline leadership  Southwest which has the largest ratio of supervisors to employees in the industry, leadership permeates all levels of management.  The supervisory function emphasizes coaching & mentoring — even side-by-side task fulfillment — over disciplinary vigilance.  Continental Airlines shared similar values, but the supervisor-to- employee ratio was too low and other staff members were too uninvolved to elevate supervisors to mentors.  United has cut positions during the last 20 years, precisely to help frontline employees feel less managed & more empowered.  The effect has been that the coaching function moved to the back burner, and employee-supervisor interaction occurred mostly during emergencies.  American also cut supervisory staff to enhance productivity, with similar results.
  36. 36. Invest in frontline leadership  Leadership at Southwest is understood as a process that can take place at any level of the organization  Southwest believes that leadership at the front line can play a critical role in organizational success so it has more supervisors per frontline employee than any other airline in the industry, despite the fact that many think the organization is flat and team-based  It is an approach that directly contradicts many contemporary management thinkers who argue that supervisors tend to perpetuate bureaucracy and, thus, get in the way New leaders at Southwest are told, “Don’t try to learn your job. Your first priority is to get to know your people
  37. 37. Role of Supervisors in Southwest’s Culture  Southwest supervisors are not obstacles to coordination among frontline employees, but play a valuable role in strengthening coordination through day-to-day coaching, counseling, and participation in frontline work, even baggage handling  Supervisors go far beyond measuring performance and disciplining “bad apples” and focus on problem solving, advising, and providing support, encouragement, and recognition to individual subordinates  Supervisors view their subordinates as internal customers who deserve help in doing their jobs better
  38. 38. Look for the right Qualities while Hiring
  39. 39. Right qualities in Hiring  At Southwest, where most positions (except in the front line) are filled from within, managers look for potential hires who are not just technically competent, but who also recognize the value of teamwork.  The airline then works with them to hone their relational competence skills.  The company places a premium on people skills, sometimes choosing this trait over airline experience. Managers are actively involved in the hiring of front line employees and considerable time is spent training and recruiting.  The company’s culture promotes egalitarianism, and those with a snobbish disposition don’t make the cut .
  40. 40. Hire & train relational competence  Teamwork at Southwest is based on “relational competence”—the ability to relate effectively with others  Relational competence is a critical ingredient of organizational success, though it tends to be undervalued in the world of work “If you live by the Golden Rule, empowering your people do the right thing, how can you go wrong?  Teamwork at Southwest is based on “relational competence”—the ability to relate effectively with others  Relational competence is a critical ingredient of organizational success, though it tends to be undervalued in the world of work  Other organizations usually underestimate the importance of relational competence, especially when it comes to people who perform highly skilled jobs  Often excellent performers are hired, but they cannot integrate their work effectively with the work of others which results in undermining of the organization’s goals, which does not happen at Southwest
  41. 41. Get & Train Relationally Competent Individuals  Southwest goes out of its way to hire those who will contribute to the “overall operation” of the airline— “Elitists” need not apply  In recruiting pilots or mechanics they obtain the best who are also team players and able to relate well with other functional groups  They then train & acculturate newly hired-most of whom come from other, more functionally divided airlines “A candidate who thinks he can “snow” a recruiter during the interview may have already eliminated himself because he’s proven to other employees that he isn’t a “fit” for the system.”
  42. 42.  Southwest’s training is geared toward fostering relational competence, as well as functional expertise  New staff learn about the overall work process and understand where they fit in and how their job relates to and supports jobs of coworkers  Those not able to catch on to Southwest’s perspective are let go Get & Train Relationally Competent Individuals “We put every possible support in place to help trainees succeed, and we work with those who are truly sincere and put forth the effort.”
  43. 43. We often say that Southwest “hires for attitude and trains for aptitude.” However, besides teaching technical “aptitude,” we also provide Leadership training, and our Managers in Training (MIT) program is a part of that learning process.“ Colleen Barrett , President Southwest Airlines Training at Southwest
  44. 44. Confront conflict & use it to your advantage
  45. 45. Use conflict to build relationship  In the airline industry, where highly interdependent work processes span multiple functions, not only are conflicts the norm, they are likely to have highly intensified effects “Conflicts are part of life. Instead of viewing conflicts as a destructive force, use them constructively to build relationships & improve performance  People in different functions occupy different ‘thought worlds’ that make shared understanding difficult  Although many believe conflicts are destructive and to be avoided, Southwest believes constructive aspects exist, so actively identifying and resolving conflicts is a means of strengthening relationships that inspire effective coordination
  46. 46.  Traditional organizational practices often demand that, while at work, employees disconnect themselves from the aspects of their identity related to family, spirituality, personal pain and tragedy, and race or ethnicity. As a result individual attitudes and performance often suffer. Bridge the work/family divide “Southwest Airlines does many things well. But one of the things it does best is taking care of its people – in the bad times, as well as the good.”  Southwest blurs the boundary between work & personal life and strives to enhance rather than undermine employee ties to family and community  Southwest openly recognizes deaths, births, and other major events in the lives of employees and their families, and has established a Catastrophic Fund to provide aid when needed
  47. 47.  Culture Committees were begun in the early 1990s to ensure that the company’s rapid growth would not result in barriers between functions.  Each station has its own committee to organize fund-raisers, parties, and ways for employees to give back to the community. These events bring family and other personal relationships into the workplace in a highly visible way.  Southwest has a long tradition of bridging the work/family divide by seeking to accommodate the needs of families through flexible scheduling and ensuring that managers do not devote too much time to the job at the expense of their families. Bridge the work/family divide
  48. 48. Utilize Boundary Spanners
  49. 49. Create positions that span boundaries  Although many different functions play a critical role in coordinating flight departures, the operations agent’s role is especially central  An agent is at the center of communications among the various groups working to unload a plane, service it, reload it, and send it on its way  An agent is responsible for bringing together and reconciling conflicting agendas among the various functions, regarding passenger needs, commitments to freight and mail customers, and the requirements of flight safety  Essentially, operations agents act as “boundary spanners,” collecting, filtering, translating, interpreting, and disseminating information across organizational boundaries  Effective boundary spanners do more than just process information they also build relationships of shared goals, shared knowledge, and mutual respect as a means of facilitating work coordination
  50. 50.  Since the mid 1980s, many airlines tried to reduce the cost of this function by reducing the number of agents, increasing the number of flights they are assigned to, and relying more heavily on computer technology to coordinate departures-quality and detail of communication is not very high this way  Southwest has chosen opposite tack and is unique its operations agents are assigned to lead only one departure at a time so that they can interact, face to face, with every party involved in the flight departure process  By developing a web of human relationships across boundaries, Southwest operations agents are able to create a broader sense of shared identity and vision among previously divided functions, creating more opportunities for collective action. Create positions that span boundaries
  51. 51. Look for improvement rather than blame
  52. 52. Improvement  Southwest Airlines resolved the accountability issue with the “team delay” approach, which spreads the blame among a group of people rather than one person or department.  Focusing less on blame & more on solving the problem generates more emphasis in learning and teamwork.  Southwest uses incentives to encourage all employees, managers or not, to do a better job.  United recently expanded accountability for mishaps to up to three departments to encourage cross-functional cooperation. Continental limits delay accountability to two areas, but its efforts to diffuse responsibility defeat the purpose by devoting excessive time to past action rather than improvement. It also motivates with fear.  American doles out penalties for delays, which promotes employee self-preservation rather than the larger goals of efficient flight dispatch and customer satisfaction.
  53. 53. Use broad performance metrics  Delays are measured as “ Team Delays” & not as functional delays like refuellers, baggage handlers, ramp agents etc.  Functional measurements can be counter- productive & pointing fingers / blaming mode  Incentive to information sharing if the measurement is on team output  Less precise about cause of the delay & measurement of performance which matters to customers  More emphasis on learning how to avoid a repeat in the future than on the accountability  A similar approach between field units and H. Q Some firms spend more time analysing which department is at fault when problems occur than they do on trying to fix the problem itself. Southwest avoids this by measuring performance broadly. That way, when things go wrong, there is more of a desire to learn how to avoid a repeat of the problem in the future than there is to apportion blame
  54. 54. Don’t get hung up on Job Descriptions
  55. 55.  SW Pilots are willing to load luggage if that what takes for the on time performance  Generally in other organizations employees tend to use their job descriptions as a defence mechanism against work overload.  Some employees like job descriptions because they prevent their managers assigning them tasks arbitrarily.  By limiting areas of responsibility, employees can specialize and develop expertise.  Unions use job descriptions to protect the pool of available positions. Have highly flexible job descriptions Well-defined job descriptions are too static for a dynamic & evolving economy. Instead, at Southwest everyone’s job description is clear and specific but there is an added requirement that each employee is expected to “do whatever is needed to enhance the overall operation – even if that means helping out with a different type of job as required”
  56. 56. Partner with Unions
  57. 57.  Southwest accepts the unions as legitimate representatives of employees and as valued partners in the organization.  Doing this removes the traditional anti-union bias which is the first major hurdle to good relations.  By accepting whichever unions the employees choose to align themselves with, the Southwest management team demonstrate they trust the employee’s judgement.  Southwest expects the unions to have an intense loyalty to the company and a feeling of ownership. Therefore, when negotiating with the unions, there is an anticipation they will act reasonably. Due to the fact Southwest employees have chosen to belong to six different unions, there is anticipation the other unions will help ensure none of their number make excessive demands. Partner with Unions
  58. 58.  Southwest treats the unions as full partners, not like some albatross hanging around their organization’s neck.  From that perspective, Southwest supplies each union with accurate information so negotiations can move forward in the bright light of day rather than in an environment of mistrust and confusion. Partner with Unions Most people assume Southwest has no unions because of its flexible job descriptions. In fact, Southwest is actually the most highly unionized U.S. airline. The difference is that Southwest treats its unions as partners rather than adversaries.
  59. 59. Reach out to Suppliers
  60. 60.  Each company – Southwest and its suppliers – can focus on what they do best – meaning the partnership ends up generating better outcomes than would have been achieved by working independently.  Southwest extends its sphere of influence – beyond its own company boundaries and into its entire value chain.  Problems can be solved jointly – allowing Southwest to benefit from the expertise of its supplier partners.  New opportunities can be responded to quickly – using the assets of not only Southwest but also its suppliers.  Joint new business initiatives can be developed – which harness the vision of more than a single organization Build the supplier relationships Southwest does not follow industry practice and form alliances with other airlines. Instead, the company works closely with its suppliers – an aircraft manufacturer, airport authorities and air traffic control – to form partnerships which deliver tangible benefits for both sides. Plus, Southwest works very hard to keep its suppliers in the loop.
  61. 61. What Makes Southwest Unique?  Much of Southwest's success is due to the willingness of its leadership to be innovative  Southwest's primary operating philosophy is low fares and lots of flights  Southwest management has created a culture where employees are treated as the company's number one asset  The benefits it gives it employees, include: profit- sharing and empowering employees to make decisions  Southwest mixes in New Age management techniques, such as celebrating different milestones, and letting love play a part in running the airline
  62. 62. Take Away  Southwest Airlines has turned a profit every year it’s been in business, even though its industry is characterized by competition and staggering losses.  Southwest’s reliance on relational coordination is the secret ingredient behind the company’s success story.  Southwest’s investment in relationships has been important to its success.  Effective leaders inspire employees’ trust and show commitment to their welfare.  Southwest invests heavily in training and stresses an egalitarian work ethic.  Face conflict head-on. Don’t let it pass or accept it as a natural, if unpleasant, workplace reality.  Companies where employees have a personal connection stand to reap the full benefits of relational competence.  Greater opportunities for learning exist where solving problems is emphasized over placing blame.  Flexible job descriptions help improve efficiency.  Southwest’s conservative finances served it well after 9/11 — no one was laid off.
  63. 63. “Southwest is a remarkable company with a consistent record of profitability and performance in a turbulent industry. Southwest’s most powerful organizational competency – the ‘secret ingredient’ that makes it so distinctive – is its ability to build and sustain high performance relationships among managers, employees, unions and suppliers. These relationships are characterized by shared goals, shared knowledge and mutual respect. Although these relationships appear simple, appearances are deceptive. Over time, Southwest Airlines has carefully developed a set of organizational practices that build and sustain strong relationships among those who are critical to the organization’s success.”
  64. 64. Happy Reading, Learning & Application Mail your comments to ramaddster@gmail.com

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