Southwest airline compiled project report


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A project report which shows hows the low cost airline can survive in the toughest times of one' life and recession.

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Southwest airline compiled project report

  1. 1. MET-IOM BATCH 2011-13 MBA SEM 1 Adgon Nashik, Maharashtra 422 003 Phone: 0253- 2303515 Fax: 2303203 E-Mail: Web: SOUTHWEST AIRLINE7th October 2011Change Management
  2. 2. 7th October 2011 Southwest AirlineIndexTopic Page NumberChange Management 4-6Southwest Airline- Ceo Resignation 7-8Backround 9-10Success Story 11Trouble Brewing 12-16Southwest Change 17-18Can Gary Kelly Replace Kheller? 19The New Millennium Organizational Structure- 20Southewest AirlineThe New Millennium Organizational Structure- Southewest 21Airline- Outstanding Business Relationship.The New Millennium Organizational Structure- Southewest 22Airline- Hire and Train For Relationship Experience.The New Millennium Organizational Structure- Southewest 23Airline-Use Conflicts To Build Relationships.The New Millennium Organizational Structure- Southewest 24Airline- Bridge The Work family Divide.The New Millennium Organizational Structure- Southewest 25Airline- Create Position That Span Boundaries.The New Millennium Organizational Structure- Southewest 26Airline- Use Broad Performance MatrixThe New Millennium Organizational Structure- Southewest 27Airline- Having Highly Flexible Job DescriptionThe New Millennium Organizational Structure- Southewest 28Airline- Partner With The UnionsThe New Millennium Organizational Structure- Southewest 29Airline- Build The Supplier Relation 2
  3. 3. 7th October 2011 Southwest AirlineIndex Topic Page Number The New Millennium Organizational Structure- Southewest 30-31 Airline- The Southwest Business Environment The New Millennium Organizational Structure- Southewest 32-33 Airline- The Southwest Business Techniques Net Income Comaprision 34 Exhibit 2 35 Exhibit 3 36 Exhibit 1 37 Bibliography 38 3
  4. 4. 7th October 2011 Southwest AirlineChange ManagementWhat is Change Management? “Change management is a structured approach to shifting/transitioning individuals, teams & organizations from a current state to a desired future state. It is an organizational process aimed at helping employees to accept and embrace changes in their current business environment. Change management refers to a project management process where changes to a project are formally introduced and approved.” What is Organizational Change? It is generally considered to be an organization-wide change, as opposed to smaller changes such as adding a new person. (See below for examples). It includes the management of changes to the organizational culture, business processes, physical environment, job design / responsibilities, staff skills / knowledge and policies / procedures. When the change is fundamental and radical, one might call it organizational transformation.Obstacles in Change ManagementThe major obstacles while change management are Denial, Resistance, Exploration, and Renewal. It is verytough to manage their changes because of various reasons personal and professional.Why people Resist change?Resistance to change can be a defense mechanism caused by frustration and anxiety. Individuals may not beresisting the change as much as they are resisting a potential loss of status, pay, comfort, or power that arisesfrom expertise In many case there is not a disagreement with the benefits of the new process, but rather a fearof the unknown future and about their ability to adapt to it, e.g. fear that one will not be able to develop newskills and behaviors that are required in a new work setting.Examples Of Change Management Examples That Provoke Organizational Change ü New Time and Attendance System. ü Management adopts a strategy to ü New email system. accomplish some overall goal. ü Transition from paper to electronic ü May be provoked by some major outside Requisitions. driving force, e.g., substantial cuts in ü Change from primarily print to primarily funding. electronic media. ü An Organization may wish to evolve to a ü Introduction of a new technology (e.g. different level in their life cycle, e.g. from EDMS). traditional government to e-government. 4
  5. 5. 7th October 2011 Southwest AirlineResistance To ChangeThere may be resentment in disgruntled employees due to a perceived unfairness of the change. This can bestrong enough to lead to sabotage. Some employees may see the change as a violation of "personal compacts"management has with their employees. This can involve elements of mutual trust, loyalty and commitmentand go very deep. An employee may have a “competing commitment” that is incompatible with the desiredchange.An employee may be operating on the basis of a desire to protect what they feel is the best interests of theorganization. He may provoke insightful and well-intended debate, criticism, or disagreement in order toproduce better understanding as well as additional options and solutions.The take-home message from all this is that there is no simple explanation for Resistance to Change, andtherefore no simple way to circumvent it. Indeed, there are instances where an employees “resistance”,although not in the plan, could result in beneficial consequences.Managing Organizational ChangeWidely communicate the potential need for change. Communicate what youre doing about it. Communicatewhat was done and how it worked out. Communicate that Senior Management backs this strategyunanimously.Get as much feedback as practical from employees, including what they think the problems are and whatshould be done to resolve them. If possible, work with a team of employees to manage the change.Dont get wrapped up in doing change for the sake of change. Know why youre making the change. Whatgoal(s) do you hope to accomplish? Communicate the goals! How Prevalent is resistance to change? ü 15% of the workforce is eager to accept it ü 15% of the workforce is dead set against it ü 70% is sitting on the fence, waiting to see what happens 5
  6. 6. 7th October 2011 Southwest AirlineManaging Organizational ChangePlan the change. How do you plan to reach the goals, what will you need to reach the goals, how long might ittake and how will you know when youve reached your goals or not? Focus on the coordination of thedepartments/programs in your organization, not on each part by itself. Have someone in charge of the plan.Delegate decisions to employees as much as possible. This includes granting them the authority andresponsibility to get the job done. As much as possible, let them decide how to do the project.The process wont be an "aha!" It will take longer than you think.Keep perspective. Keep focused on meeting the needs of your customer or clients.Take care of yourself. Organization-wide change can be highly stressful.Dont seek to control change, but rather expect it, understand it and manage it.Include closure in the plan. Acknowledge and celebrate your accomplishments.Read some resources about organizational change, including new forms and structures.SummaryOrganizational Change Management is “all of the actions required for an organization to understand, preparefor, implement and take full advantage of significant change”. The goals of Change Management are successfuldesign, implementation, measurement and maintenance of an organization’s change initiative Enhancement oftheir on-going capacity for managing change.Enterprise Transformation is driven by an underlying strategy that organizes and energizes people tounderstand, embrace and make full use of new process and technology. Degree of success of this endeavor ismeasured by the level and nature of the Business Impact achievedTake Home MessageProvide adequate attention to the human side of technology projects and you will eliminate one of the greatestcauses of technology project failure. 6
  7. 7. 7th October 2011 Southwest AirlineSouthwest AirlineSouthwest Airlines is the Leading U.S. low cost/low fares airline operating around 3300, primarily short-haul,high - frequency, point-to-point flights each day to over sixty cities throughout the United States. Passengerscan opt to pay a premium for extras offered under the "Business Select" scheme, introduced to attract businesstravellers. Southwest has served as a model for a number of low-cost, low-fare operations around the world.CEO’s Resignation James Parker (Parker), the CEO and vice chairman of Southwest Airline Co. (Southwest) announced hisresignation from the airline, in July 2004. The news came as a surprise to company insiders as well as analysts,who did not expect that Parker would step down just three years after taking over from Herb Kelleher(Kelleher), who had an almost iconic status at the airline.The Southwest board had accepted Parker’s resignation “with both deep regret and profound gratitude”.Kelleher said that he had great hopes on Kelly, under whose guidance Southwest had achieved the strongestbalance sheet in the US airline industry.Both Parker and Southwest, maintained that the resignation was due to personal reasons. Parker said that thejob was too ‘draining’ for him and that he did not feel he could cope with it anymore. “Sometimes you feel likeyou’ve given all you can give”. Some analyst’s linked Parker’s resignation to the difficult time he had in thenegotiation with the airline’s flight attendants union, in which he was involved since 2002.In early 2004, Parker had to withdraw from these negotiations, because he said the discussion were going toocritical and personal. Kelleher had to be brought in before a tentative agreement could be reached in 2004.Certain analysts said that this affected Parker’s credibility among employees, at a company renowned for itsharmonious labor relations. “You would certainly think that the troubles he’s had with the unions may haveled to his departure,” said Bill Warlick, a senior airline analyst at Fitch ratings in Chicago. 7
  8. 8. 7th October 2011 Southwest AirlineSouthwest AirlineSouthwest was the pioneer of low cost airlines (Refer to Exhibit-1). It was the first time in its history that theairline had experienced major labor problems. Otherwise, although Southwest had the highest percentage ofunionized employees in the industry (about 85% of its employees belonged to unions), relations between theemployees and the management were positive and cooperative. The company had also experienced only onestrike since its launch in 1971.Just before Parker’s resignation, Southwest had announced that its second quarter profits for 2004 would fallbelow expectations by 54%, although it was the 53rd profitable quarter in a row for the airline (Southwest wasalso the only airline in the industry to post profits every year since 1973). The fall in profits was assigned toincreased labor costs and rising fuel prices. However, many analysts believed that the underlying reason behindall of Southwest’s problems was that the culture, for which the airline was famed, was changing. 8
  9. 9. 7th October 2011 Southwest AirlineBackgroundIn 1966, Kelleher (who was a lawyer) and Rollin King (King) a San Antonio entrepreneur who owned a smallcommuter air service conceptualized a low cost airline that would provide the best service with the lowest faresfor short-haul, frequent-flying and point-to-point non-interlining6 travelers. Kings banker, John Parker,conducted the feasibility study for the project and declared that it had potential. The airline was initially calledAir Southwest Co., but the name was changed in 1967 to Southwest Airlines Co.The trio decided to commence operations in the state of Texas, connecting Houston, Dallas and San Antonio(which formed the Golden Triangle of Texas).These cities were growing rapidly, and were too far apart fortravelers to commute conveniently by rail or road. With othercarriers pricing their tickets very high, making themunaffordable to most Texans, Southwest sensed an attractivebusiness opportunity.Kelleher applied for the incorporation of the company inMarch 1967. On February 20, 1968, Southwest receivedpermission from the Texas Aeronautics Commission (TAC)to operate across the three cities.Immediately thereafter, the Trial court restrained the TACs permission in response to a petition moved byother intrastate airline operators Braniff, Trans Texas, and Continental.After an unsuccessful appeal to the State Court, Southwest obtained its certificate for operation after clearancefrom the Texas Supreme Court.In January 1971, the Southwest management appointed Lamar Muse as the airline’s first CEO. Muse hadearlier worked for Trans Texas, Southern, Central and Universal Airlines. Southwest again faced hurdles in theforms of complaints, filed by Braniff and Texas International with the civil Aeronautics Board (CAB) to protestagainst Southwest’s start-up. (Southwest offered fares that were one-thirds the fares of other airlines.) Braniffalso put pressure on some of the Southwest’s underwriters to withdraw from the airline’s initial public offering(IPO). The airline, however, overcame these obstacles and started operations on June 18, 1971. 9
  10. 10. 7th October 2011 Southwest AirlineBackgroundSouthwest had its first profitable year in 1973. In 1977, the airline’s Stock started trading on the New YorkStock exchange. It was listed as ‘LUV’ (for Love field, the airline’s base in Dallas). In 1978, Kelleher becamethe chairman of Southwest, and by 1979, Southwest had started flying out of Texas, to New Orleans. In 1982,Kelleher took over as CEO and President of Southwest.Southwest became a ‘major airline’ in 1989 when it exceeded the billion-dollar revenue mark. In 1994, itpioneered ticket less travel, which made it easier for customers to board and helped the airline turnaroundplanes faster. In 1995, Southwest’s pilots signed an unprecedented ten-year contract, which locked in rises forthe first five years largest airline in the US by passenger numbers.In 2001, Kelleher stepped down as the CEO and President of Southwest. He was succeeded by Parker andColleen Barrett (Barrett). Parker became the vice chairman of the Board and CEO while Barrett was made thepresident, chief operating officer, and corporate secretary. Kelleher remained the chairman of the board andchairman of the executive committee of Southwest.In the years following the September 11, 2001 terrorist attacks on the US, Southwest was the only majorairline to remain profitable, while the other majors grounded more than 240 planes and laid off over 70,000workers. Technological changes since 2001 included automated boarding passes, ticket kiosks, and onlineboarding passes that could be printed at home.Southwest reported a net income of US$ 241 million and US$ 442 million for the years 2002 and 2003respectively. In early 2004, Southwest had 34,000 employees and flew to 58 cities. In 2004, Parker resigned andKelly became CEO of Southwest. 10
  11. 11. 7th October 2011 Southwest AirlineSuccess StorySouthwest was one of the biggest success stories in America. Up to 2003, the airline had had 31 years of profitsin a row. In the years since it was set up, Southwest weathered some major storms and emerged successful.Despite offering a no frills service, it was able to cut out competitors in most markets. Southwest achieved thisby offering fares that were considerably lower than those of its competitors and emphasizing customer service.In addition to this, the airline utilized its employees in the most productive way possible (Flight attendantscleaned cabins between flights, pilots helped load baggage, and senior managers helped in ticketing). Thisreduced the per unit labor costs and Southwest needed only 80 workers to fly and support each aircraft, asagainst 115 or more at a traditional full service airline.Analysts said that the main reason for Southwest’s success was its culture. The Southwest culture wascharacterized by warm, informal relationships, and a distinct lack of hierarchy. Employees were given a highdegree of autonomy. This helped keep the morale high, and employees went out of their way to improvecustomer service. They also dint mind-doing jobs that were not strictly in their work sphere and this raisedproductivity.The top management went to great lengths to keep the cultural elements alive and cultural committees wereformed at each new location for this purpose.Southwest’s success spawned off many imitators, not only in the US, but also is Europe. It was the benchmarkof low cost airlines and the brand was one of the most respected in the US. The second part of the Southweststory however, was not so successful.Up to 2003, the airline had had 31 Southwest needed only 80 workers toyears of profits in a row. fly and support each aircraft, as against 115 or more at a traditional full service airline. 11
  12. 12. 7th October 2011 Southwest AirlineTrouble BrewingThings began to change at southwest in the early-2000s. The changes were not apparent, but analyst felt thatcompany was undergoing a subtle transformation. External factors like increased competition and rising fuelprices fuel also contributed to the airlines troubles.Labor ProblemsSouthwest had a reputation for being one of the best companies to work for (it was a regular on fortunemagazine’s Most admired companies list). People loved working for southwest, because the company valued itsemployees and gave them a lot of flexibility. Southwest’s motto was ‘employees comes first, customer comessecond’. Kelleher believed that if employees were happy, it would be reflected in their work and automaticallyimprove customer service.Southwest never had to advertise or use recruiters to fill posts that fell vacant. It received thousands of resumesevery year. However, a very small proportion of those who applied were recruited, because southwest believedin recruiting for attitude. Empowerment was stressed and employees were encouraged to give their opinionsand suggestions.Relations between the employees and management were cordial and familial and there was no history ofemployee restlessness. Trust was an important element in the relations. In the mid-1990s, the pilots atsouthwest even signed a ten-year long contract, which showed the level of trust within the organization.Southwest had a ‘no-layoff’ policy, and was the only airline that didn’t lay off any employee after theseptember11 attacks.In 2002, however, the flight attendants’ union protested against the pay and working conditions of flightattendants at southwest. Flight attendants argued that the pay they received at southwest was much lower thanwhat their counterparts got at other airlines, September 2001. In 2004, the starting pay for flight attendants atsouthwest was US$14000 and median pay was $24600, which union officials contended was less than that atother airlines.The flight attendants also wanted better terms of working, which included their not having to clean cabinsbetween flights. The union said that southwest must remunerate flight attendants for all the work they did, andnot just for the official duties. They wanted to be remunerated for time span on the ground dealing withsecurity procedures or cleaning the plane. They also wanted their four-week training period to be paid andspecial compensation for working on holidays. 12
  13. 13. 7th October 2011 Southwest AirlineTrouble BrewingThe union said that flight attendants were given secondary treatment at southwest when compared to pilotsand other some categories of employees, who got more frequent raises and better terms of work. The unionwas planning to negotiate for better stock options. Analyst said that was as an indication that company’sculture as changing.In June 2004, southwest reached a tentative agreement with the flight attendants’ union, ending almost twoyear of negotiations. The agreement, in which Kelleher played a major role, would increase the pay by 31percent over a period of four years. By the time the contract ended, the flight attendants’ pay would lead theindustry. Starting pay for flight attendants would also double. The contract also had provisions for better payfor working on holidays and more stock options for flight attendants. Southwest’s flight attendants would alsoget faster raises and reach the top of the pay scale after 14 years on the job, instead of the 17 years they had towork under the former contract.The new terms for flight attendants were expected toincrease the airlines already soaring labor costsconsiderably. In the second quarter of 2004, southwestcost per available seat mile (CASM) has increased t oover 8 cents, which was higher than the targeted 7.5cents. The costs were creeping closer to the costs ofother full services airlines, whose cost were between 9and 13 cents.Customer RelationsWith a change in external factors, southwest relations with customer also began to change. Southwest did notassign seats on it s flight and customers were seated on a first come first serve basis. This worked well because itencouraged customers to check in on time and board faster. However airline was required to increased securityafter September 11, and sometimes passengers had to be called out of line for checking. Due to this delay,passenger could not get the seats they wanted and many of them stopped flying southwest.Southwest’s lightly staffed airport systems also made it difficult to get tickets fast and people had to stand inline for a very long time. The airline’s refusal to accept email inquiries also lowered its popularity withcustomers. In a survey conducted by the customer respect group, on how many companies treat Internetcustomers online; southwest came last, scoring 5.3 points on a scale of 10. This despite the fact, that southwestsold the highest number of tickets online in the industry. The low score was because southwest required anInternet customer with a question to call the airline’s customer service number and talk to a real person. 13
  14. 14. 7th October 2011 Southwest AirlineTrouble BrewingRising costCost was one the important factor from which southwest derived competitive advantage. The airlinebased its low fares on keeping cost at the minimum level and turning around planes faster.Southwest was known for its profitability record and had the best financial position in the US airlineindustry however; southwest ‘s costs started rising in the early 2000s .In the 2004, southwestannounced that its second quarter profit had fallen by 54 percent.This was attributed to rising fuel prices and an early –retirement plans that more 1000 of the airline’sairlines employee accepted. However, analysts said that Southwest’s new deal with employee also hitthe company hard .in 2004 Southwest’s labor cost as a proportion of operating cost were almost onper with the full service carriers and much higher than that of other low cost airline.Southwest also hedged its fuel price extensively. However, its hedging position was due to expire in2005 and this would expose southwest to the high cost of fuel that was crushing many of itscompetitors .in mid –august a barrel of fuel cost around $47. That was almost double the price whichsouthwest was getting it analysis said that if this trend continued, southwest was likely to lose its costadvantage quickly and would lose the market to other airline like JetBlue airways and AirTran late august 2004, southwest announced that it would cut 88 flights on routes that were notprofitable .the flight would be shifted to more profitable location, and that was expected to increaseSouthwest’s profits by 60 percent. 14
  15. 15. 7th October 2011 Southwest AirlineTrouble BrewingLooming competitionSouthwest was also under threat of losing its dominant positioning in the market. With the riseseveral low cost competitors. Notable among southwest competitors were JetBlue and AirTran.Although these airline were set up with southwest as the model, some of them had depart from theno-frills approach and were emphasizing slick and stylish services .jet blue for instance, offered, morelegroom comfortable leather seat set back television sets and free internet at some of its alsohad the best punctuality record in the industry and among the lowest prices in the early 2000s. Someof the other low cost airline also offered better service than southwest for similar prices.JetBlue was catching up with southwest very fast .in 2003, Southwest’s coverage of the country waswide enough to enable 20 percentage of its passenger to make transfer between own flight .at JetBlue,ten percent made a similar transfer. This was significant, considering that jet blue was set up only in1998,years after southwest. JetBlue had an exceptional growth rate .the airline growth rate .theairlines growth rate doubled in2002 grew by 66 percent in2003 and was expected to grow by over 30percent in 2004.simalarly, jet blues passenger capacity rose by 43 percentage in the first half of 2004.AirTran was also growing at more than 20 percent in the early 2000s and expected to end with 15new places, bringing the number to 87. 15
  16. 16. 7th October 2011 Southwest AirlineTrouble BrewingLooming CompetitionJetBlue also rated higher than southwest in service quality .in early 2004, an annual airline qualitysurvey rated JetBlue and southwest first and third. Respectively in quality according to a study by theUS department of transportation, JetBlue rank first among 19 US airline in on-time performance forthe year 12 month period ended April 2004,and southwest third. Jet blue also had the best record inthe industry for baggage handling and had the lost the least number of bags during the same addition to this, JetBlue was non-union airline which itself was a plus its favor.Analysts said that competition had become significant in the low cost airline market in the late-1990sand the early 2000s, low-cost competition existed on 70% of American routes and low- cost carriersheld about 30% of the market share.Besides the gap between low cost airline and full service airlines seemed to be narrowing down inearly 2000s. Due to increasing cost pressures, some of the full service carriers were cutting down onfrills. On the other hand, increased competition was making some of the low cost airlines offer moreservices than they did earlier. Analysts said that there would be a point where there would no longerbe any difference between the two categories, and this would increase competition tremendously.Besides, Southwest’s increasing costs were also placing it on par with full service airlines, while itcontinued to offer low cost services. Certain analysts felt that Southwest would not be able to sustainits low cost if it continued the thread.JetBlue rank first among 19 US airlines 70% of American routes and low- costin on-time performance for the year 12- carriers held about 30% of the marketmonth period ended April 2004,and share.southwest third. 16
  17. 17. 7th October 2011 Southwest AirlineSouthwest ChangeAnalysts believed that the culture at southwest had undergone a transformation in the early-2000s. Southwestwas always associated with Kelleher, who was a charismatic leader and influenced a great deal of the culture atthe airline. His flamboyant and fun loving attitude pervaded the airline and created a culture that was peopleoriented, informal, and nurturing. He was also a hands-on leader and involved himself in all the activities ofthe airline. It was said that he knew thousands of employees by name and often communicated with peoplepersonally. Analysts believed that a large part of southwest employees’ motivation was drawn from Kelleher.Kelleher’s influence on the company could be understood by the fact that he had to be brought in to resolvethe deadlock with the flight attendants’ union even after he retired, because Parker, a seasoned negotiator (hewas the key negotiator in many of Southwest’s breakthrough contracts) could not resolve the issue. In anotherinstance, a personal letter from Kelleher in early 2000, to Southwest’s employees about the fuel crisis, helpedsouthwest save more than two million dollars everyday to protect Southwest’s profitability, one departmentoffered to do its own janitorial work and a group of mechanics figured out how to heat the planes morecheaply, which helped cut costs.Southwest’s employees worked much harder than their counterparts at other airlines did. They went beyondtheir official duties to keep the airline profitable. Cross utilization of labour was a very important way in whichSouthwest saved on labour costs and achieved faster turnarounds. People also treated each other with respect,no matter which level of hierarchy they belonged to and helped each other. It was the culture, which helpedsouthwest achieve its record profitability.However, the problems that southwest began experiencing in the early-2000s seemed to indicate thatemployees had begun to disassociate themselves with the company and its cultural elements. One analyst saidthat s long as Kelleher was around, employees would go the extra mile in the name of herb. “If you were aunion leader, you couldn’t badmouth Kelleher; he was an icon. But anybody new was new going to be justanother corporate executive.” It did not help that parker was a personality opposite of Kelleher. He was staidand reserved, where Kelleher was outgoing and unconventional, and employees found the change too drastic.Very soon after taking over, parker came in for severe criticism from many of the company’s employees, whodirectly compared him with Kelleher. “All Mr. Parker will ever be remembered for is that he was the little manwho destroyed Herb’s wonderful airline,” read a message posted on Forbes magazine’s message board.“Everything that the Herb Kelleher built has just become a house of cards because of Jim Parker.” 17
  18. 18. 7th October 2011 Southwest AirlineSouthwest ChangeAnalysts also said that in the initial years, Southwest’s employees saw themselves as industry outsiders and thisworked for the airline by creating greater cohesion between the employees. In the later year however, with theincrease in low cost airlines and the major airlines going bankrupt, southwest became one of the mostsuccessful airlines in the US It was no longer an outsider and Southwest’s employees lost a major motivator.Southwest had also grown tremendously and the informal way in which it was run earlier was not suitableanymore. Analysts said that this was a major potential problem and the root of the labour problems atsouthwest. It was said the southwest offset the lower salaries it paid initially with a chance to work for agrowing, profitable company. However, with the growth of the company this changed. Therefore, peoplewanted the management to change as well. “All Mr. Parker will ever be “Everything that the Herb Kelleher remembered for is that he was the little built has just become a house of cards man who destroyed Herb’s wonderful because of Jim Parker.” airline,” - Forbes magazine. 18
  19. 19. 7th October 2011 Southwest AirlineCan Gary Kelly Replace Kelleher?Succession planning is thought to be one of the key functions of top management. It assumes even greaterimportance at companies that have long been associated with a dynamic and charismatic leader. “ i don’t seeany charismatic leaders on the horizon. I see lots of managers. But I see on one that appears to be the one heirapparent,” wrote Holly Hageman, an airline analyst, sometime before Kelleher’s retirement. A Merrill lynchesreport published soon before Kelleher’s retirement also cited succession as one of the main risk factor for theairline. When parker first took over from Kelleher, fortune magazine wrote, “ Jim parker has probably thetoughest job in business today: replacing Herb.”Parker was the CEO of southwest for the three difficult years following the September 11 attacks. He managedto keep the airline profitable at a time when other airline giants were collapsing. However, people within andoutside the company only saw him as a bad replacement for ‘herb’.After parker’s resignation, the attention of the airline industry as well as analysts was riveted on ell. Analystsspeculated about whether Kelly would be able to achieve what parker never managed to- replace Kelleher. Itwould be an easier job for him comparisons to him would not be so harsh. However, company insidersremarked that Kelly’s personality resembled parker’s more than it did Kelleher’s.Kelly’s biggest challenge would be to re-establish the employee oriented culture, which somewhat dissipatedunder parker. “ Our esprit de corps is the core of our physical things. The thing you can’t buy is dedication toimitate. They can (buy) all the physical things. The thing you can’t buy is dedication, devotion, loyalty – feelingyou are participating in a cause or a crusade.” Whether Kelly would be able to recapture the esprit de corps.The best way for southwest to retain its success, said analysts, would be to stick to its original business model ofproviding the best services at the lowest fares. “ The miracle at southwest is that it’s gone on so long,” saidMichael roach, airline consultant and former America west president. “ I don’t see any charismatic leaders on “ The miracle at southwest is that it’s the horizon. I see lots of managers. But gone on so long,” I see on one that appears to be the one heir apparent,” -Michael Roach -Holly Hageman 19
  20. 20. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineDespite following these same strategies, however, no other airline has yet been able to successfully cloneSouthwest’s success. What’s missing is the “secret sauce” Southwest uses to make all these operational factorscome together effectively and efficiently. Lying at the heart of the Southwest success story are three elements: 1. 10 organizational practices which build relationships between managers and frontline employees and among employees. 2. An environment, which emphasizes shared goals, shared knowledge and mutual respect. 3. Sound communication techniques, which are frequent, timely and focused on solving problems.Southwest Airlines has used these ten relationships to generate extraordinary performance. Each of thesepractices reinforces the others so the total effect of all these relationships combined is greater than the sum ofeach individual part. Any organization can improve the quality and efficiency of its performance by adaptingthese relationships to its own specific requirements. 20
  21. 21. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineOutstanding Business RelationshipWhile it’s true every organization would like to have a charismatic leader, that isn’t necessarily a prerequisite tosuccess. Good and effective business leaders must have: • Credibility – the ability to inspire trust in their workers. • Empathy – caring deeply for the well being of the employees.A business leader will develop credibility over time rather than all at once. Once there is a long history of“telling it straight” and being up-front with employees, then they will start believing you will do the same in thefuture. Credibility is built up one episode at a time over an extended period, but it can be dissipated in aninstant if bad judgment is exercised in an attempt to deceive the employees. Southwest’s high profile formerCEO, Herb Kelleher, and exemplified credibility with the Southwest employees because he had a long andunbroken history of always telling things like they were, without sugar coating. As a result, Kelleher had a veryhigh degree of credibility within the organization.As desirable as credibility is, it is not by itself sufficient. Outstanding business leaders also find ways todemonstrate conclusively they care about the well being of their people individually. At Southwest, this isdemonstrated by the fact the company has a no layoff record which they have maintained even in the face ofthe dramatic ebbs and flows of the airline industry. It is also well known that Kelleher and COO ColleenBarrett are happy to be approached by Southwest employees who need help in dealing with their personalproblems. Not only do they listen but Kelleher and Barrett get hands-on involvement in helping people dealwith their problems. They are perfectly happy to cross the boundaries of the organizational chart to findeffective ways to help their people out. In this way, they demonstrate they care on an everyday basis rather thanjust when crises roll around.“I can call Herb today. You don’t just call and say there’s a problem. He’ll say, ‘think about it and tell me thesolution you think will work’. He has an open door policy. I can call him almost 24 hours a day. If it’s anemergency, he will call back in 15 minutes. He is one of the inspirations for this company. He’s the guidinglight. He listens to everybody. He’s unbelievable when it comes to personal etiquette. If you’ve got a problem,he cares.” – Pilot, Southwest AirlinesRelationship focus as a way of doing business not only can drive growth and profitability, it can sustain themthrough crises and through ups and downs in the business cycle. It can help organizations adapt to theturbulence of today’s business world.” – Jody Gittell 21
  22. 22. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineHire and Train For Relationship ExperienceSouthwest makes a deliberate and conscious effort to hire people who are good at working in a team. Theorganization then works hard at enhancing those team-building skills by giving them training for relationalcompetence.In some businesses, there is a deliberate attempt to attract and retain the high performers or superstars.Southwest doesn’t even attempt to recruit the elite. Instead, preference when hiring is given to new people whowill be able to integrate smoothly with other members on a team. There is a deliberate attempt to find peoplewith the right attitudes first, and then provide them with the skills and experience they will need to excel.Interestingly and uniquely, Southwest’s hiring priorities extend not just to the customer service people but alsoto mechanics and pilots, two groups of people who are usually hired solely for their technical skills. To increasethe probability of hiring the right people, the recruitment process at Southwest: • Allows a trial employment period before a long-term commitment is made – to allow both Southwest and the new hire to learn more about each other before making a final decision about employment. • Involves ongoing training – so the new hire has a realistic opportunity to build functional expertise and teamwork competence. This training will be a mix of: ü Classroom works – for the first week or two. ü On-the-job training from a supervisor – two to three weeks. ü Mentoring – by an experienced person. ü Regular periodic sessions with the training coordinator. • Focuses on the overall work process – so new hires get to understand where they fit and how their job impacts on the way others in the organization can do theirs. • Incorporates regular job exchanges–to become familiar with what happens at other departments. • Stresses internal promotion as the preferred way to fill management positions – since that sends all the right signals to the rank and file employees. “Something we look at is people who are very team oriented from prior work experiences. We get a feel forpeople who will go above and beyond. We spend more money to recruit and train than any of the otherairlines do. We take the time to find the right people to hire, at all levels within our organization, and wespend time training them. We really believe in the notion of ‘one bad apple’. It’s like a religion here. As aresult, our turnover is far less than it is at other airlines.”– Libby Saratin, former vice president of people, Southwest 22
  23. 23. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineUse Conflicts To Build RelationshipsConflicts are a fact of life. Instead of viewing conflicts as a destructive force, Southwest uses themconstructively to build relationships and improve performance. The company is very proactive in identifyingand resolving.To resolve conflicts, Southwest has a well defined process: 1. The parties themselves are encouraged to use every means available to resolve the conflict themselves first. If that’s not possible, managers are expected to take an active role in developing a solution, which will be suitable. 2. An information-gathering meeting is held, at which both sides of the conflict put forward their perspectives on the issues involved. Many times, conflicts sort themselves out at this stage mainly because better communication is achieved. 3. If the conflict is still unresolved, the managers hold what is called unofficially a “Come to Jesus” meeting. This is a face-to-face meeting, which takes an entire day. By the end of this meeting, most problems have been able to be resolved because of the dialogue that takes place between the parties and the managers.The overall process sounds simple, but when well implemented, conflict resolution becomes more of a teambuilding exercise and less of a source of destructive energy. Note that Southwest takes a proactive approach toresolving disputes, and never leaves these conflicts and differences as background issues, which should beignored. Instead, the company works on the premise conflicts will naturally arise from time to time –particularly given the pressures of the flight schedule an airline works to. By using these conflicts productivelyas opportunities for learning, Southwest strengthens relationships between groups of employees, sharesknowledge and fosters mutual respect between different teams within the company.“We have worked for years to get to this point. We have a very heated, potentially dangerous operation on theramp. There is a lot of stress when the plane is on the ground. Inevitably some conflict will arise. If somethinghappens out of the ordinary, if you feel someone didn’t handle something correctly, you fill out a report. Wegot so many reports after a while we added a line. ‘If it involved a Southwest employee, have you discussed itwith him or her?’ If we got a form where the answer was no, we would call and say, why don’t you all have achat? The local managers will help get the people together. When the senior managers get the final report, wedecide if a ‘Come to Jesus’ meeting is needed. We tell them this is not a disciplinary meeting. We are justmoderators, the focus is on the employees.”– Colleen Barret, COO, Southwest Airlines 23
  24. 24. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineBridge The Work family DivideSouthwest work environment is structured in many ways like a big extended family. Because people sharecommon goals and exchange knowledge freely in an atmosphere of trust and mutual respect, there is a strongbond that forms. This is good because it bring more energy into the workplace.“We try to allow our people to be themselves and not have to surrender their personality when they arrive atSouthwest.”– Herb KelleherSouthwest is famous for allowing its people to inject their own personalities into their roles. However, ratherthan being funky or trendy, this is actually a deliberate effort to increase the quality of the work that gets done.Southwest employees are encouraged to form good friendships with the people they work with blurring theboundaries between work and life. That way, Southwest employees identify strongly with the company andthink of it as an extension of their own families.So how does Southwest bridge the gap between what a person does at work and what they do in their ownprivate time? • As mentioned, people are encouraged to be themselves – which allows them to personalize the way they go about their duties and responsibilities. • Southwest has a “Catastrophic Fund” – which any employee can access in times of personal pain and triumph. By not only recognizing the needs of the employee but doing something tangible to help, Southwest employees feel the organization can be depended on. • Every Southwest station has its own “Culture Committee” – who meet monthly to plan social events (at which Southwest employees get to know each other) and charitable events (in which the company gives something back to the community). By creating these events, the Southwest culture is further strengthened while at the same time some good community causes receive backing. • Southwest allows and encourages shift trading – allowing employees to vary their schedules so they can meet other family obligations. In this way, the company demonstrates that work should not overwhelm or supercede family and community relationships. 24
  25. 25. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineCreate Position That Span BoundariesBoundary spanners are people who bring together information from different operating units of the business.A good boundary spanner will help to build relationships between different parts of the organization aroundcommon goals and mutual respect so the organization will operate more cohesively.Most companies use information technology as a platform for sharing information from one business unit toanother. Southwest takes the opposite approach. It has strengthened the role of on-site operations agents whoare responsible for turning around each Southwest flight as rapidly as possible. In addition, Southwest’soperations agents handle just one flight turnaround at a time as opposed to the operations agents at otherairlines who might each be responsible for three to fifteen flights at any one time.Boundary spanners are good because:1. They tend to take a more holistic perspective – whereas people closely involved in running one or another function rarely have the time to stop and consider the bigger picture. Boundary spanners can share that broader viewpoint to help others work more effectively.2. They build relationships across boundaries–meaning there will be a broader sense of shared identity and shared vision between parties who interests may not always mesh together. As a result, collective actions become more effective.3. They playa key social role–since they represent the point at which the efforts of one unit or department mesh with those of other units or departments. By having a real live person in this role rather than a computer, there is the opportunity for relationships to grow and be strengthened. In effect, the boundary spanner puts a human face on the combined work of both teams.4. They provide flexibility – in that if one team has a temporary work impediment, the boundary spanner can suggest ways in which other parts of the business may be able to compensate.“Boundary spanners play a critical role in coordinating work processes, but the boundary spanner is mosteffective when the position is conceived to be more than an automatable conduit for information exchange.When the boundary spanner role is generously staffed, the boundary spanner can develop a web ofrelationships of shared goals, shared knowledge and mutual respect across functional boundaries.Coordination that occurs within this web of relationships is more effective and leads to improved performanceof the flight departure process.”– Jody Gittell 25
  26. 26. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineUse Broad Performance MatrixSome firms spend more time analyzing which department is at fault when problems occur than they do ontrying to fix the problem itself. Southwest avoids this by measuring performance broadly. That way, whenthings go wrong, there is more of a desire to learn how to avoid a repeat of the problem in the future thanthere is to apportion blame.The key to running an airline profitably is to avoid delays with turning around planes. At most airlines,whenever a delay occurs, they analyze whether it was caused by the refuellers, the baggage handlers, the rampagents or another functional department. As a result, it is common practice for each of these functional teamsto rush to finish their tasks so they won’t get the blame for any delays. This can, at times, be counterproductivebecause: • If the teams had cooperated together more closely, the speed and quality of the total work performed may have been improved instead of having one group finish early and wait for the others to catch up. • Loads of time and effort will be squandered pointing the finger and blaming other departments or units. • There is no incentive to share information. Therefore, the problem does not become a learning exercise on what to avoid in the future.With this in mind, Southwest takes a different approach. Delays are recorded as “team delays”. By being lessprecise about the cause of the delay and measuring performance by the metrics which matter to customers,Southwest puts more emphasis on learning how to avoid a repeat in the future than on accountability.Southwest also does the same in its relationship between field units and headquarters. There is a good deal oftwo-way communication occurring, which allows the lessons learned in one station to be communicated toother stations. Other than that, however, station managers are given free reign to do whatever works best. Byavoiding too much detail in performance measures, the overall system works much better.“You can get to the point where you saturate yourselves with information, and you get paralyzed. We havemore interest in broader categories, rather than analyzing and assessing blame. It’s easier to adjust with broadercategories. Maintenance could come up with 50 categories of flight delays, if they wanted to. But you end upchasing your tail.”– Jim Wimberley, executive vice president of operations, Southwest Airlines 26
  27. 27. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineHaving Highly Flexible Job DescriptionWell-defined job descriptions are too static for a dynamic and evolving economy. Instead, at Southwesteveryone’s job description is clear and specific but there is an added requirement that each employee isexpected to “do whatever is needed to enhance the overall operation – even if that means helping out with adifferent type of job as required”.Southwest is legendary for having pilots who are willing to help load luggage if that’s what it takes to get awayon time. This is indicative of the flexible job boundaries which exist throughout the entire company whereanyone is willing to pitch in wherever required. Herb Kelleher was an excellent role model in this regard as wellsince he often pitched in to help ground staff when visiting different ground stations.Why is such exemplary job flexibility so rare when it clearly has the potential to generate significantperformance benefits? 1. Most employees tend to use their job descriptions as a defense mechanism against work overload. 2. Some employees like job descriptions because they prevent their managers assigning them tasks arbitrarily. 3. By limiting areas of responsibility, employees can specialize and develop expertise. 4. Unions use job descriptions to protect the pool of available positions.By having clearly defined job descriptions but including the stipulation each employee is expected to dowhatever is necessary to make the operation successful, Southwest encourages its employees to stay focused onwhat the organization is trying to accomplish. It also has the added benefit of reducing status barriers betweenjobs and helping to foster strong relationships between employees.Note, however, flexible job descriptions cannot exist in isolation. If the management of a company were toattempt to introduce this practice without all the other practices Southwest uses, employees would most likelyresist the initiative. For example, if performance is measured and detailed by department rather than theresults of the overall process, there is little incentive for the workers in one business unit to help another.Flexible job descriptions work and make sense only if other supporting elements are in place.“At Southwest, we manage in good times as though we were in bad times.”– Herb Kelleher, chairman of the board, Southwest Airlines 27
  28. 28. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlinePartner With The UnionsMost people assume Southwest has no unions because of its flexible job descriptions. In fact, Southwest isactually the most highly unionized U.S. airline. The difference is that Southwest treats its unions as partnersrather than adversaries.As in most areas of business, Southwest has its own approach when it comes to dealing with unions. Inessence, Southwest does three key things: 1. 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 judgment. 2. 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. 3. 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.As a result, Southwest has exceptional labor relations. There has only ever been one six-day strike in thecompany’s history. As proof of the benefits of the Southwest approach to labor relations, when one unionattempted to make outrageous demands, the Southwest management did not need to respond. Instead, theother unions who partner with Southwest sent the message they were not prepared to stand by and let oneunion ruin what they had all worked so hard to build.“Our goal is to keep productivity high, keep the business model in place. I go to Herb (now chairman of theboard) before the union negotiations, and then I put as much money on the table as I can, right at the start.There is not always harmony, but we know our employees at Southwest have realistic expectations. I would saythere are different degrees of harmony. Most labor disputes are not really about money. There is somethingelse – respect. It comes down to personal contact between the company and its employees.”– Jim Parker, CEO, Southwest Airlines 28
  29. 29. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineBuild The Supplier RelationSouthwest does not follow industry practice and form alliances with other airlines. Instead, the company worksclosely with its suppliers – an aircraft manufacturer, airport authorities and air traffic control – to formpartnerships, which deliver tangible benefits for both sides. Plus, Southwest works very hard to keep itssuppliers in the loop.The traditional approach to supplier relations is to play one off against the other to try and get a better deal.Most companies also try and avoid relying too much on any one supplier so they don’t have the upper handwhen negotiating. Southwest Airlines turns this approach on its head by forming long-term and close workingrelationships with its main suppliers.The advantages of Southwest’s approach in this area are: • 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.The key to making this work is the quality of Southwest’s own organizational relationships. If Southwest didn’thave strong internal relationships in place and leaders with a high degree of credibility, it would be verydifficult to effectively form partnerships with key suppliers. Those strong internal relationships will alsodissipate any “us-versus-them” feelings, which may stand in the way of partnering with suppliers.“With Boeing, it’s like with everyone else. We try to make them understand that what’s good for us is good forthem. When you are the launch customer for an aircraft, there are lots of advantages. When you’re as good acustomer as we are, they listen. We don’t go along with the crowd. Boeing likes us because of our history. Theyknow our philosophy now, so they know we do not want ‘one little change’ that will drive up the cost. Our wayis actually less costly.”– Colleen Barrett, COO, Southwest Airlines 29
  30. 30. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineThe Southwest Business EnvironmentThe “glue” that makes these 10 organizational relationships work for Southwest is its business environment ofshared goals, shared knowledge and mutual respect. Without this kind of environment, the high performancerelationships Southwest uses won’t have the same kind of impact.Shared GoalsAt Southwest, every employee is working to achieve three quite straightforward goals: 1. Safety. 2. On-time performance. 3. Creating satisfied customers.The fact every employee shares those goals regardless of the functional area in which they work createstremendous energy. It allows them to respond in a coordinated way whenever new challenges arise or newinformation becomes available. It also provides a context by which decisions can be made and informationshared. Shared goals are a foundation on which business relationships can be grounded.“Shared goals at Southwest appear to be strong. When discussing the need for on-time performance, nearlyeverybody explained that ‘our aircraft are valuable and they don’t earn any money sitting on the ground’. ASouthwest ramp supervisor explained to me: ‘If we can’t keep you, the customer, coming back, we are notgoing to stay in business’.”– Jody GillettShared KnowledgeAt Southwest, every employee understands the overall work processes. They also know and understand thelinks between what they do and the work others do in the organization. Shared knowledge enhancescoordination and the emergence of innovative ideas.“When asked to explain what they were doing and why, the answers were typically couched in reference to theoverall process. These descriptions by Southwest employees typically took the form, ‘The pilot has to do A, Band C before he can take off, so I need to get this to him right away.’ Rather than just knowing what to do,Southwest employees knew why, based on shared knowledge of how the overall process worked. There are nogreat secrets. Every part is just as important as the rest”– Jody Gillett 30
  31. 31. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineThe Southwest Business EnvironmentMutual InterestIn most airlines, there are clear and definitive boundaries between people working in different functionalareas. 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 foodchain.By contrast, Southwest has a culture in which each employee treats others with respect. They acknowledge thedifferent roles the functional departments play in keeping the planes flying. The contribution each personmakes to the overall operation of the business is acknowledged and respected. And since each employee valuesthe contribution of others, there is an inclination to act productively to achieve the larger organizational goals.“Whether these relationships are conceived as social capital, teamwork, or relational coordination, thecommon thread is that they are critical for achieving high performance. The guiding principle behindorganizational practices that create high performance is that they somehow need to build and sustainrelationships among the organization’s key participants.”– Jody Gittell“The idea that high performance depends on bundles of organizational practices – rather than individualpractices – is a powerful one that extends to other industry settings.”– Jody Gittell“Southwest is a remarkable company with a consistent record of profitability and performance in a turbulentindustry. Southwest’s most powerful organizational competency – the ‘secret ingredient’ that makes it sodistinctive – 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 mutualrespect. Although these relationships appear simple, appearances are deceptive. Over time, Southwest Airlineshas carefully developed a set of organizational practices that build and sustain strong relationships among thosewho are critical to the organization’s success.”– Jody Gittell 31
  32. 32. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineThe Southwest Business TechniquesEffective communication is the technique by which Southwest builds relationships within the organization.The company excels at communicating well – which means it communicates frequently, in a timely mannerand with efforts focused on solving problems rather than fixing blame.Frequent And Timely CommunicationFor an airline, time literally is money. If it can reduce even by just five minutes the amount of time a planestays on the ground being turned around, the financial gains can be significant. Southwest consistently has thefastest gate turnarounds in the U.S. Airline industry. How does it achieve that? It keeps everyone in theinformation loop by providing near constant communications when the plane is on the ground.While this may seem rather obvious, other airlines find it difficult to emulate Southwest’s example. The mainreason for that is turning an airplane around is a complex task which requires the combined efforts of 12distinct functions – pilots, flight attendants, mechanics, gate agents, ticketing agents, ramp agents, baggagetransfer agents, aircraft cleaners, caterers, fuellers, freight agents and operations agents. In most airlines, thesefunctional departments dislike each other. Therefore, they don’t communicate very much, if at all. Andwhenever delays do occur, there is a mad scramble to point the finger elsewhere.At Southwest, things happen differently. Everyone knows what’s happening and everyone gets the same flow ofup-to-date and accurate information. That way, Southwest employees can respond to changing circumstancesquickly and effectively because everyone knows all there is to know. Sharing information is not carried out on ahaves-versus-have-nots basis, but everyone knows everything. That allows each Southwest employee to be able tomake better decisions and better judgement calls.“Communication is one of the primary ways that people coordinate their work with others in a wide variety ofsettings. Organizational experts have long recognized the power of frequent communication for coordinatingwork processes, and have now begun to focus on the critical importance of timely communication. ASouthwest station manager described the normal pattern of communication regarding mechanical difficulties: ‘The pilot reports a maintenance issue when he calls in range to operations. The mechanic is usually here tomeet the plane. If something is seriously wrong, we move to an off-terminal location and cancel the flight. If it’sjust two hours, we do an aircraft swap. Ops keep everyone informed. It happens smoothly’. A Southwest gateagent praised the quality of communication: ‘The ops agent is responsible for every bit of information goinginto the computer. We can tell the customer everything they need to know, because it’s right there.Communication is ultimately the key’.”– Jody Gittell 32
  33. 33. 7th October 2011 Southwest AirlineThe New Millennium Organizational Structure- Southwest AirlineProblem Solving CommunicationAt most airlines (and many other businesses), when problems arise, everyone wants to avoid the blame. Withthat goal in mind, nobody likes to be the bearer of bad news. As usual, Southwest turns this around to itsadvantage. Southwest employees are openly encouraged to report problems as soon as they become aware ofthem so everyone can get involved in figuring out the best way to solve it. Just this subtle change has a hugeimpact on the quality of the communication-taking place.“When something goes wrong, according to a Southwest pilot: ‘we figure out the cause of the delay. We do notnecessarily chastise, though sometimes that comes into play. It is a matter of working together. No fingerpointing, especially here, and I’m sure that’s the case elsewhere at Southwest.’ A Southwest station managerexplained his philosophy: ‘If there’s a delay, we find out why it happened. Say there was a 10-minute delaybecause freight was excessive. If I’m screaming, I won’t know why it was late. The freight handlers will think,‘He’s an idiot. If only he knew.’ Then they’ll start leaving stuff behind or they’ll just shove it in and I won’tknow. If we ask, ‘Hey, what happened?’ then the next day the problem is taken care of. You have to be in thatmode every day. There’s no one person who can do it. We all succeed together – and all fail together. You haveto truly live it. I think we do here’.”– Jody Gittell“Organizations with strong relationships can move beyond traditional trade-offs between efficiency and quality,shifting out the efficiency/quality frontier to achieve higher levels of each. Relationships are not just ‘nice tohave’ but rather – if invested in consistently over the long term – can be powerful drivers of organizationalperformance.”– Jody Gittell 33
  34. 34. 7th October 2011 Southwest AirlineNet Income Comparison- Refer Exhibit 2 and 3. 34
  35. 35. 7th October 2011 Southwest AirlineNet Income Comparison- Refer Exhibit 2 1 Includes leased aircraft 2 After cumulative effect of change in accounting principle 2010 SOUTHWEST AIRLINES 8 ONE REPORT™ 35
  36. 36. 7th October 2011 Southwest AirlineNet Income Comparison- Refer Exhibit 3 Source: Slideshare 36
  37. 37. 7th October 2011 Southwest AirlineExhibit 1 37
  38. 38. 7th October 2011 Southwest AirlineBibliography 1. Employee Resistance to Organizational Change ©2002 by Albert F. Bolognese 2. Basic Context for Organizational Change Written by Carter McNamara, PhD | Applies to nonprofits and for-profits unless noted 3. Case Studies in Management- ICFAI Publication. YouTube: ü ü 4. Balance Sheet –Southwest Airline 2010 5. “Turbulent Skies,” The Economist, July 08, 2004 6. 7. 8. 9. 10. 38
  39. 39. 7th October 2011Southwest Airline 39
  40. 40. 7th October 2011Southwest Airline 40