Systems and Operations Management - Southwest Airlines - Case Study Example

Systems and Operations Management – Critical Evaluation of Competitive Factors: Case Study on Southwest Airlines Table of Contents 2. Vitality on Systems and Operations Management 3. History of the Southwest Airlines 4. The Necessity to Search for New Markets 5. Product and Service Design 6. Porter’s Value Chain 7. Epitome of Capacity Planning 8. Resource Planning in Southwest Airlines 9. Quality and Resource Management Strategies Followed In the Company 10. Role of IT in Internal Management 11. CRM and Knowledge Management and ERP 12. Competition Prevalent In the UK Domestic Flight Service Industry 13. Employee Motivation 14. Recommendations for Southwest Airlines Abstract The paper analyses whether it is the correct timing for the South West airlines, a major US domestic flight service provider, to enter the UK market. It critically evaluates the core competition in the field from the other domestic flight providers like EasyJet, Ryanair, Flybe and Bmibaby. It explores the various strategies Southwest Airlines should use to gain competitive advantage over these companies if they have to gain a major market share in the UK airlines industry. The paper explores the company culture, the technologies used by the company and their quality control measures and how far these strategies will be relevant in the foreign field. It presents useful recommendations to the company after analysing in strengths, weaknesses and the competition in the industry thoroughly. Vitality on Systems and Operations Management The 21st century has reframed the traditional way business is done. There are several new challenges for new businesses and the existing companies are forced to use many new strategies and modify their operations to sustain in the new age. The internal operations of any organization should be very efficient for it to achieve grand success in its overall performance. Every business operating in the modern day should strive for competitive advantage over others in the field. They have to acquire a good market share in the industry to make decent profit. Relevant operations management strategies are a must to establish themselves as market leaders (Lohman, 2004, pp. 267-286). Effective systems and operations management is viewed as an in-built process capable of managing firm’s daily operations in a structured format (Letza, 1996). Every company has to make sure they choose an appropriate design for its operational management and ensure it is followed using the proper technology. Operational management is an ongoing process mingled with continuous planning. It should help the organisation earn massive profits and ensure the strategies used are in alignment with their key mission statement of the company (Slack et al, 1995). Any study about systems and operations management should critically evaluate all the factors starting from the internal strategies used to the technologies necessary to achieve the goal. It should also take into account the problems that might arise while implementing the operations management strategies. This essay will explore the competitive factors which are prevalent for Southwest Airlines planning to enter the European market especially the UK soil in a short while. History of the Southwest Airlines Southwest Airlines is an American company famous for providing lower-cost domestic flights within the country. It is very famous for great customer service, low-cost airfare and effective management. The company did not show losses for 37 consecutive years which is considered as a major accomplishment by the business world. Southwest Airlines main mission is to reduce the cost of the flight travel less than the driving charges between two points. They started their service in Texas in early 1970s. Southwest Airlines changed the way the market worked and transformed itself into one of the major airlines in the US and the one transporting most number of passengers in the world per year. The company earns net revenue of US $ 16.65 billion per year. Its total assets are worth US$18.06 billion. The company has more than 46000 workers. Southwest Airlines have been planning to go global for a long time. Southwest Airlines subsidiary AirTran was used to operate international flights to neighbouring countries like Mexico and Caribbean Islands (Perkins, 2012). The company has plans to extend its domestic flights in chosen European countries. There is no doubt that the UK market is ripe with opportunity for Southwest Airlines. Many experts wonder as to why the company would choose the European countries instead of expanding their business countries surrounding the US. There are many different reasons for this. The Necessity to Search for New Markets As everybody knows Herb Kelleher started Southwest Airlines after fighting a great legal war which extended for years. The company had faced severe contempt from other competitors since then. Even recently, the company faced stern restrictions from the US government when they tried to operate flights from Houston to Mexico. There are other luxury flight travellers who oppose Southwest Airlines entering their zone strictly. The competition in the domestic flight market has increased by many folds in the past 40 years since its inception. Nearly 40 companies are in the US domestic flight market posing a great challenge for the Southwest airlines. It is the right time they reframe their strategy and start looking for other plum markets to sustain their profit and brand name. Hence, they try to operate flights to other European nations. But, they also see a great potential for domestic flight services, their area of specialization, in the European markets. Hence, they decided to test their strategies starting from UK, one of the countries with greatest number of air travellers in the European Union. Product and Service Design Southwest Airlines believed strongly the inception of low-cost flights to the nearby cities in point-to-point routes will create revolution in the airlines industry. They were perfectly right. Several domestic low-cost airlines like EasyJet in the UK, AirAsia in Malaysia and Canada’s WestJet uses the same strategies followed in the Southwest airlines for their internal and external operations. Prior to the inception of the Southwest airlines people had to travel from one major city to another and catch a train to travel to the small destinations between them. Southwest Airlines eliminated this unnecessary time loss and started operating point-to-point small city flights. They targeted routes like the Texas where transportation through railways and other means were very high. They simply ensured the farmers and the merchants were able to pass the goods through air travel the quickest time, for more or less the same cost they used to transport them through the land. They created history by bringing down the average cost of the US airlines industry by 15% in a very short period of time. Their mission is to fly any person at the cheapest cost available with the best service ever. As a major airlines service provider Southwest Airlines aims in providing the highest quality customer service both in the air and in the ground. The ensure their staff are given utmost freedom and the best possible training to ensure their staff serve the customers to the best of their ability. They make it a point that the customer should not be startled in the airport due their mistake at any point. Effective operations management is necessary to gain the major market share in any company (Dyson, 2000). Hence, their staffs are ready to help the customers under any circumstances and transport them from point A to B safely in the lowest time possible. Porter’s Value Chain Porters value chain gives importance to good infrastructure, human resource management and usage of cutting edge technology. All the primary activities of the company like inbound/outbound logistics, administration, marketing as well as core service are supported by the former three entities. According to porters value chain, the main emphasis is given to the product, in this case the service provided by company. Southwest airlines aim in providing the best service by involving the customers in all the primary activities of the company as shown in the second figure. When the company is offering a service instead of a direct product, every customer will require different level of service. Every customers need cannot be identified beforehand. The best way to satisfy all the customers is to involve them in the process and make them suggest the best alternatives for the given situation. Epitome of Capacity Planning They have a fleet of more than 500 flights. But, the demand from the customers is so high, that the frequency of the flights has to be increased constantly. Southwest Airlines uses careful capacity planning to solve this issue. They bring down the discrepancy arising between the expectations of the customers and the airlines capability to serve them by involving the customers in the process. Customers and employees who come up with innovative ideas to handle peak time crisis are awarded with various perks. They always have extra flights travelling in alternate routes to manage to manage excessive air traffic. They keep expanding constantly hiring new workers, adding at least ten new flights to their fleet every year. Southwest airlines planes fly three times more than any other average airlines carriers in the US. They have more than 5500 pilots for the available 550 planes, so that the flights can be operated day and night in various shifts by different personnel. Southwest Airlines is an epitome of efficient capacity planning. Resource Planning in Southwest Airlines The frequency of their flights is very high to keep the cost of the tickets low and handle the high customer volume. They make sure they introduce modern methods to eliminate any problems occurring due to missing baggage or wrong documents. To keep the air fare low, Southwest Airlines does not provide food for customers travelling for a short time in their direct destination planes. They eliminated all the unnecessary costs in the operations and administration. They did not adapt the modern automated systems until a long time. Employees were encouraged to keep the customers entertained with their own skill instead of engaging them with high cost magazines and other cost increasing measures. Everything from the uniform of the air hostesses to the lady singing while announcing the flight instructions were done in a creative way to stand out from others. Southwest airlines aimed in establishing itself as the airlines for common man and succeeded enormously in doing the same. They treated every common man with utmost respect and care instead of bombarding them with the luxuries fixed for the rich. Their product and service design aimed in distinguishing itself from the others and meeting their mission statement perfectly. Their efficient resource planning enabled them to use low cost technologies available for the same. They did not use the high cost automated system, but they ensured very flexible easy to access systems were used for booking and maintaining reservations. They were the first airlines to start their own website for booking and reservation even before developing very sophisticated database for themselves. Quality and Resource Management Strategies Followed In the Company Total Quality management which aims in constant improvement of services with the help of technology is the quality management strategy used in the Southwest Airlines Company. TQM started to appear in the Japanese markets after the Second World War. Companies following TQM give ample importance to the labour market. Human resource is their greatest asset and they invest a lot in managing this resource efficiently and effectively. They aim in mass production and marketing the products at a very cheap rate. Southwest Airlines use all of these strategies. As per TQM a major part of their resource management plan is dedicated to keep the human resources or the employees of the company happy and motivated. Herb Kelleher, the founder of the company always treated his employees as his first customers. They made it a point that no person should be fired or laid off from the company for the sake of cost cutting. Southwest Airlines is more like a family to all the 46,000 employees working there. Their work culture is very friendly and gives a lot of space for every employee to express themselves. In fact, it is much different from the one practised in countries like UK. There is no traditional top-down approach. Any employee is free to give out his views and the manager is liable to follow it if the majority of the workers consider it legible. As a major follower of TQM, they give their employees the best salaries possible in the market, even though they aim in providing the most low-cost service to the customers. They follow the TQMs basic policy of maintaining a steady human resource team and making the cost of the product affordable to the customers. Keeping the employee quite happy helps them in maintaining the quality of their customer service to the best level. The quality of Southwest Airlines services is near perfect. The number of accidents which occurred over the 40 year term is less than 10. Similarly, the Company is famous for providing flawless service in terms of baggage, fast assistance in terms of emergency as well as quickest customs clearance. TQMs philosophy is to strive constantly for excellence. Southwest Airlines aims in improving their service constantly by reducing the time the customer spend in the air port and the general travel by many folds. TQM gives importance to bottom-up approach and the role of the leaders will usually be reduced to that of monitoring staff. The same happens in the Southwest Airlines. Mike Van de Ven, the COO of Southwest Airlines said "The less we do, the better it runs" (Mouawad, 2010). It might seem quite inappropriate for a Chief operating Officer, who manages an airline which flies 86 million passengers every year. But that is the whole point of following TQM. The importance given to the labour force makes them work wholeheartedly increasing the production and improving the quality of the service, constantly. Role of IT in Internal Management Southwest Airlines have of fleet of nearly 550 planes flying over 70 cities all over the US. At the peak of the recession most of the airlines were losing billions. But Southwest Airlines continued to show constant profits amidst soaring fuel prices and several other problems. One of the main reasons for this is their strong internal IT infrastructure. Their automated IT systems play a major role in gaining consistent profits to the company. South-west airlines adapted to using the latest technologies in the IT sector quite lately. But they made the best use of the cost-effective IT resources, making the IT infrastructure of the company the most valued asset of the company next to human resources. Effective inventory is the key for efficient management. Advanced technology is the key to easy inventory control, which in turn helps in increasing the competitive advantage of the company (Bourne, 2000). Hence, the company is starting to give major importance to automation of inventory management, data warehousing etc, lately. As a major airline company with nearly 5600 pilots’ working day and night investing in cutting-edge technologies is unavoidable. Patrick Bolin is a senior official working in the data warehousing sector of the Southwest airlines. He states nearly 31,000 people are working in the IT sector of the company. He admits there was a lot of confusion in terms of governance and what policy to follow when the company started integrating its processes with IT infrastructure. But now they have a clear idea on what to do and focus on their goals in a much better way. "The warehouse is the foundation for business intelligence" says Patrick. Southwest Airlines view technology as an empowering tool which will reduce the workforce of the employees and give them more time to serve the customers better. They do not aim in changing the process constantly or making their employees stick to a certain rational model. The operation in the company is still largely intuition based (Bernard, 2006). The authorities look upon the IT sector as an efficient means of strategic deployment across various departments. The software used in Southwest airlines is quite cost-effective and innovative. For example, we can mention their Self Check-in Systems which reduces lots of time and effort because it gives a chance to print the boarding pass directly. Similarly, they have the Southwest Thumbs up scanner. It is a system designed to receive quick feedback from the customers. They need not fill up survey forms or click on check boxes. They just need to show a thumb-up impression if they like the service and thumbs down impression if they do not like the service. This innovative means of feedback collection brings a smile across every customers face. Recently, they used the IBM webSphere development technology to implement Java enterprise edition in its display boards. It replaced their boarding system with graphical applications to make it very innovative and time saving (Afshar, Saeb & Tadros, 2010). The IT infrastructure in Southwest Airlines is continuously evolving and the company aims in investing heavily in the same sector when they land in the foreign markets like UK. CRM and Knowledge Management and ERP The 2010 CRM service award was given to the Southwest Airlines for excelling in Customer Relationship Management. The feature which fetched Southwest airlines this award was the implementation of Virtual Hold Technology, which enabled the customers who called their helpdesk to hold on or hang up and receive a call back at their convenient time. The IT department of the Southwest airlines which designed this useful VHT technology has saved nearly 24.8 million toll minutes for the company. Nearly 45% of the total customers ringing up the helpdesk book a call back. This helps them prevent nearly 500000 abandoned calls. Every customer who abandons a call due to high waiting time chooses some other airlines for their need. Calling them back fetches thousands of new ticket bookings for the company and increased customer service level (Sebor, 2010). This process which came into action on April 2009 took only a fortnight to get implemented smoothly. All the staff in the customer service department were trained on how to handle the new software quite easily and the process kick-started without any commotion. This was possible because of their efficient knowledge management process. Southwest airlines always insist all their employees are well informed about any decision taken in the company. Each and every staff in the company is well informed about the decision making process. They are communicated regarding all the productive measures taken in the company by the higher officials immediately though emails, notice boards and meetings. In fact, every employee is made to involve and their feedback is received constantly. Efficient knowledge management through compulsory information sharing keeps the organizations policies very transparent and make every person working in the company feel like they too have an important part in contributing to the decisions made by the company. ERP or Enterprise resource planning is the process of automating and integrating all the internal and external departments in an organization through software. The main purpose of ERP is to improve knowledge management and increase the transparency of the company’s process. However, implementing the same is not such an easy process. Southwest airlines use various enterprise applications including SAP R/3 for ERP. They have a well integrated pilot training system and an accounts system. But, not all departments of the company are well integrated through single software. The company is reluctant at the moment to spend much on this field as their process is already very transparent given the various low cost applications they use. But, they might resort to using some advanced ERP when they enter into UK market pertaining to the work culture prevalent there. Competition Prevalent In the UK Domestic Flight Service Industry There is a lot of competition in the US domestic market awaiting Southwest airlines. The charges for the domestic flights are more or less similar to the charges of the trains in UK. There are many domestic flight companies in the market like Ryanair, Flybe, Bmibaby and EasyJet. They connect all the famous tourist areas in the country. The no-frills airlines or the domestic airlines are used only by a one fifth of the total air travellers. Nearly 18.4 million people use the domestic flights while an estimated amount of 1352 million people use the railways for the same destinations. The domestic airlines in the UK provide the same quality service equivalent to that of the Southwest airlines. But, they did not succeed in attracting the passengers much. There are various reasons for this. The demand for air travels remains the same since 1975. Though there are many aerodromes in UK, not all of them have the facilities to house huge and frequent flights. The few aerodromes which are used by the domestic flights are located in remote places than the railway stations. The severe weather conditions in the northern regions of the country limit air travel to a great extent. The domestic flights usually take the customers in well established routes to famous places. They do not target business oriented cities. The people in UK are quite traditional. They prefer using high class flights rather than using the domestic flights because they consider it a prestige to travel in them. They expect certain standard of service even though the cost is low in domestic flights. When the airlines are not able to meet their needs, they get dissatisfied quickly. If Southwest airlines aim in reaching the UK market quickly, they should give importance to all these factors and make sure, they target the right audience in an efficient way. Let us analyze how well they can fare in the UK market using Porter’s five forces analysis. The potential for new entrants: The chances for new companies to enter the domestic market are very low in UK. No company will be ready to risk its huge investments in a country with such low domestic flight users. Bargaining power of the buyers: It is quite high as there is lots of choice for the users. Being so traditional and nationalistic in approach, most of the potential customers will choose to use an existing service with good reputation, rather than trying a new airline. The passengers who use luxurious flight in the UK are mainly the upper middle class and the rich people. They have the ability to use the usual flights than the domestic ones and enjoy the luxuries offered by them. Bargaining power of the suppliers: Southwest airlines always use the Boeing 737’s instead of using a variety of planes. They have very good tie up with the suppliers. So the threat from supplier demand is very little. But, they will face some great problems in acquiring licences and permission to use the different aerodromes in the country due to high regulations. According to Southwest airlines, their workers are their greatest resources. Hiring experienced workers from the other airlines operating in the UK will be quite easy as their remuneration is the best in the industry. But, they will certainly face problems in retaining them especially the staff in the higher management due to cultural differences. Most of the people in UK are used to working in top-down managements. They will feel it quite hard to adapt to the fun filled working culture. The will lose trust in the company where the CEO dresses as the ‘Toy Story’ character and rolls along with the employees. Overcoming the cultural barriers will be the greatest challenge in training the employees and retaining the potential ones. Threat from Substitutes: Threat from the substitutes is very high. Bus, cabs, trains everything come as direct threats for domestic flights in the UK market. The accessibility to railway stations and the timings of the trains are much convenient to the customers than using domestic flights. Industrial Rivalry: The prevalent competition in the market is very high. There are several domestic flight services providing companies which provide impressive service at a very low cost. The main challenge for the Southwest airlines will be to attract the customers from these airlines and make them use the new service. They created a revolution in the US market when they introduced the low cost air travelling. They should do the same here too by making sure, they increase the number of people using the domestic flights. Employee Motivation Given the effective systems and operations management system in the Southwest airlines, they can do this easily. They can implement the same strategies followed in the US in terms of IT infrastructure as well as employee motivation. The work culture in the Southwest Airlines is much different to that available in the UK domestic flight companies. It is very transparent and motivational. The CEO of the company and the lowest temporary worker in the office both dress up and attend the same party in Southwest airlines. Kelleher himself agreed to do a hula dance in the Wall Street if the company executives work towards achieving a particular target within a given time, and kept his promise. The environment in the Southwest Airlines is very friendly and impressively communicative. There are several clubs acting in every office to manage the personal relationships as well as the minor fights occurring between the employees. Their recreation club is responsible for conducting various parties and inventing various innovative measures to please both the employees and the customers. Be it Halloween or Christmas, the company employees look forward to come to office along with their families to enjoy themselves rather than staying home. Recommendations for Southwest Airlines The main aim of successful operations management revolves around one major function, proper provisioning of products and providing the best services to the customers. All the planning and strategy implementation should drive the company towards this ultimate goal (Epstein & Manzoni, 1998, pp. 190-203). Southwest Airlines manages both these strategies well. If they are to succeed in the UK market they should concentrate on ‘creating the need’ for the customers. They should target the lower middle class customers and the industrial cities which depend upon the courier services for goods shifting. They should target lower middle class businessmen and attract them with potential lures. Distributing liquor to attract the Texas farmers worked. But, it will be a more tuff task here. They should try something like free movie tickets or attractive eatables in UK. The main problem with the available domestic flights is their odd timings and remote location of landing areas. Southwest airlines can provide easy or free cab access to its customers and bring in convenient flight schedule timings. However they still have to face strict regulations form the British authorities regarding the usage of available air landing areas and operating regulations. However, with efficient systems and operations management, Southwest airlines can gain a competitive advantage over the other domestic flight services in the UK market quite quickly. Great potential to investment and the domestic flight companies which are in the verge of dissolving are their greatest strengths. The domestic flight customers in UK are looking for a refreshing chance which Southwest Airlines can definitely provide. References 1. 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