Southwest Airlines - Leadership and Strategic Management, Organizational Design, and Culture - Research Paper Example

University

Introduction

Statement of the Problem

In modern business practices, the level of contemporary business competition is very stiff, especially in the airline industry. The airline business is also clouded by numerous uncertainties including the volatility of fuel prices and changes in technological advancement. Moreover, the industry is susceptible to changes in oil prices. For instance, the price of crude and jet fuel has almost halved since the high levels of 2013 and 2014.

Research Question

The analysis of the relevant literature in this field aims at providing insights into the success factors of Southwest Airlines despite operating in such as competitive and tough industry. This analysis seeks to answer this question:

What management, operational and historical aspects have contributed to Southwest Airline becoming the number one airline?

Purpose of Research

The purpose of this research paper is to critically analyse Southwest Airlines’ success in the industry from the aspects of leadership, organizational design, organizational culture, change and innovation and e-commerce used by the company. The aspects that make Southwest Airlines attain a distinct competitive advantage such as flight time and pattern; the type of aircrafts they use to minimise maintenance cost; and the ‘no frills approach’.

Rationale for conducting the research

Given that the strategic management and operation environment of the airline business is unique to different companies, it is important to conduct adequate research on the management and operational aspects of Southwest Airlines in order to generate important insight that will enable the company to position itself in such a manner that it manoeuvres the uncertainties in industry effectively while aiming at gaining a competitive advantage over the competitors. Southwest Airlines is one of the airline companies that have survived the industry’s micro and macroeconomics turmoil ever since its inception. The company has being able to become the number one airline due to its leadership and strategic management styles that have seen it retain a sustainable market share in the airline industry.

Research design

This will adopt the exploratory approach to research by using secondary sources such as books and journals to find the relevant materials required to address the research question. The first section of this research paper will introduce the history on Southwest Airlines, which will provide insights on how the company has progressed and grown since its inception. The second section explores the management and operation aspects of the company that have shaped its success in the industry. Lastly, the research paper will summarize the issue and provide some recommendations of the way forward.

The History of Southwest Airlines

Southwest Airlines was founded in 1971 by Rollin King and Herb Kelleher. At the time, it was servicing Dallas, Houston and San Antonio. The company has progressed over the years to become very fundamental with regard to innovation in the airline industry. For instance, the company has been the first airline to provide senior discounts, fun fares and the fun packs. The growth of Southwest Airlines has been tremendous since its inception, from 1980-1984 as it has been named as the number one airline in terms of customer service. The airline was also the first to devise the profit-sharing plan in the US airline industry in 1971, whereby the employees owned about 10% of the company stock. The company strategic management style saw it take over Transtar Airlines in in 1987 and in 1994 it took over Morris Air, which saw the company retain a substantial market share in the airline industry. The company progressed with its growth successfully until in 1998 where it named as the 5th largest US air carrier, with over 50 million passengers.

Southwest Airlines is also the first airline to utilize the Low-Cost Carrier (LCC) model that originated during the liberation of the American Airline Industry. This business model innovated by Southwest Airlines was vital in its success, and its main objective was to provide low, unrestricted fares, and frequent point to point departures for the passengers that were traveling within the state of Texas. The success of the LCC business model was very successful and it was later adopted by other airlines in other part of the world such as Ryanair and EasyJet (Doganis, 2010). One of the major historical challenges that the airline faced include the legal battle that it faced from the incumbent airlines such as the United Airlines, Trans-Texas, Braniff, and Aloha Airlines. The legal battle lasted for 3 years but the airline triumphed at the Supreme Court. The corporate culture in Southwest Airlines was instigated by the Herb Kelleher, which was mainly to maintain stewardess in the board.

Factors that have Propelled Southwest Airlines into the Number one Airline

The success of the company has been shaped by various factors that have motivated and inspired the employees, top executives and the management to focus on the achievement of the strategic goals of the airline.

Leadership and Strategic Management

Leadership is vital to the success of any organisation, as the leaders are the ones that are responsible and tasked with making the critical decisions of the company. Strategic management has been described as the set of decisions and actions that end up in the formulation, implementation, and the governance of plans designed to achieve the vision, mission, and the strategic objectives of the organisation within the environment that it is operating (Pearce and Robinson, 2007). Therefore, leaders of an organisation have the mandate to ensure that the strategic management actions are implemented. The strategic profile of Southwest Airlines in the last few years comprise of the 1998 fuel hedging strategy; in 2004 it devised the online boarding pass; in 2006 it was named first in relation to customer satisfaction; and in 2008 it purchased AirTrans, which was its main competitor. All these key strategic profiles require visionary and strategic leaders to steer the company to achieve such strategic goals. Southwest Airlines can be asserted to be very innovative, and this is what has contributed to its success. Therefore the leadership and strategic management at Southwest Airlines is directed towards innovation, and the employees are influenced by their leaders to be innovative.

The airline has been the first in many things, which is an indication of its innovativeness. For the company to be named the first in customer satisfaction in 2006 implies that the leadership is very thorough in Southwest Airlines, and the employees have been directed by their superiors to make sure that they value customers. Competition is an external environmental factor that if not addressed properly can edge out a business enterprise. Strategic management is exemplified by Southwest Airlines in the manner in which it acquired AirTrans, which was the company’s main competitor. Elimination of competition is very challenging, it is a strategic management option that requires top-notch leadership. Purchasing AirTrans was a strategic move that implied that Southwest Airlines was going to enjoy a substantial market share in the Low-Cost Carrier airline in USA, this also implied that the profitability of the company would be enhanced and this would increase the company’s financial resources.

Organizational Design

The organisation design is described as the manner that activities such as coordination and supervision, task allocation, are directed with an aim of achieving the aims and the objectives of the organisation. The organisation of Southwest Airlines can be described as an upside-down pyramid, which is very relevant in the manner that the company does business. This also attributed to the success of the company. The upper management is the bottom of the structure and is mandated to support the frontline employees, the employees are the experts and they are the ones that does most of vital activities that have ensured that Southwest Airlines has attained its number one status. The front line employees are mandated with the role of planning the day to day activities of the business and the operational budgeting, and this is very different from typical organisations since this process is done in a top-down manner. Herb Kelleher is the founder of this design, whereby the decision are made by everyone in the organisation, and not only the executives can make critical decisions (Richards, 1996). The organisation design at Southwest Airlines is also very unique such that the design or structure is not given much importance, the employees are encouraged to think in a liberty and autonomous manner reducing the constraints of aspects of such as titles or official mandates. This structure is what has made the Southwest Airlines to be number one in almost everything in the airline business. Employee participation is a very vital aspect in the organization design of Southwest Airlines, some of the mechanisms that have been employed by the company in its organisational design to allow the employee participation is the fact that employees have a very high standardization in relation to operations as well as encouraging the employees to try things.

Organizational culture

The organisational culture of Southwest airlines is directed towards ensuring that the people are motivated through various values. The company cherishes its employees to a large extent that it refers to its employees as people. The company ensures that its people are motivated enough to enhance their productivity and this is what has ensured that the company as achieved the number one status in many instances from various category. Therefore, the organizational culture of Southwest Airlines is mainly focused on the people (its employees). Some of the core values that are used to enhance the corporate culture in Southwest Airlines are warrior spirit, servants’ heart, and fun-luving attitude. Southwest Airlines spells love as “love,” and it has been a culture that is very motivating to the employees. A warrior spirit is the aspect of giving the employees at Southwest Airlines all the necessary resources to make sure that they serve the customers with utmost satisfaction, especially due to the fact that people travel for various reasons. The employees are also supposed to have a servant’s heart, this implies that they should put the customers and other people first, which explains why the airline has been named as the first one in customer service for a number. The other key value that has enhanced the organisational culture in Southwest Airlines is the “fun-luving attitude,” which has been very fundamental to the success of the company. These value dictates that the employees should be have a fun loving attitude, and they don’t take some matters too seriously, even when handling an irritated customer. The culture of ‘luv’ has been asserted to bring the financial success to the company, this is a culture that the company insists on to every employee.

Managerial Roles

Southwest Airline is known for its motivated and loyal management system not only due to the attractive wages paid to those in the managerial roles compared to their competitors, but also because such individuals are quickly immersed in the organizational culture of Southwest Airlines.

The planning role of management in Southwest Airlines relates to how the organization sets the goals and means of achieving them. The company views planning as one of the most strategic ways of achieving competitive advantage and motivating people to work harder and behave in a manner that promotes achievement of company’s goals and objectives. For instance, the acquisition of Air Trans Airlines was a calculated planning step of venturing into new routes.

The organizing role of the management in Southwest Airlines relates to the decision of where decisions will be made, which roles will be assigned to different individuals and how leadership roles will be distributed to ensure accomplishment of the company’s goals. The company is continually looking for new ways to organize its structures through innovation and development.

The leading role of management relates to the extent to which the organization is bale to motivate and inspire its employees to work hard and accomplish the set goals of the organization. Worth noting is the fact that Southwest Airlines treats its employees as brand, with the best wages compared to the market average and the most conducive working environment to achieve the set organizational goals.

Controlling is another managerial role in Southwest Airlines that relates to the monitoring of progress of the company’s operation towards achieving the set goals. This allows for corrective action to be taken in case there is no desired progress. As part of its controlling function, the Southwest Airlines management started contracting Pratt &Whitney to power wash their engines, which lead to a subtle reduction in the amount of fuel consumed, saving the airline an annual fuel cost of $5.1 million (Williams, 2012).

Global Business

Southwest Airline has been remarkable in its global business due to its considerable economies of scale, market presence, scale on the cost-side, demand-side in the provision of low cost flights and scale of the cost-side. It is prudent to note that the global nature of the airline business is different from the mainstream businesses since airline travel does not involve importing and exporting of goods and services. The company started its internationalization strategies in 2008 by venturing into a partnership with Volaris, a Mexican carrier with aim of introducing its service to Mexico. Moreover, Southwest airlines later acquired Air Trans Airlines. This acquisition was strategic in the opening of the company to new global horizons as the acquired company was already flying internationally. This allowed Southwest airlines to easily enter the global low cost carriers easily by taking advantage of this opportunity. Since Air Trans was flying to destination that Southwest airlines had not ventured into yet such as Mexico, Aruba, Jamaica, Dominican Republic and Jamaica, the acquisition was viewed as a strategic way to entering into new global market and expanding the company’s services to new markets.

Expansion into the global market has also exposed Southwest airlines to many international competitors who fly both nationally and internationally. The stiff competition has forced many competing airlines to adopt the hub-and-spoke styles of operations, which largely targets long-haul operations. On the other hand, Southwest airlines adopted the “no-frills”, low cost carriers’ strategy of operations in the short-haul market which operated either radical services connecting airports or point-to-point services parallel to a bus service (Griffin, 2015). The global airline business and the stiff competition has impacted different airlines differently depending on their competitive advantage. While competitors such as Aloha, Skybus, and the ATA Airlines have vanished from the market and others such as British Airways, Ryanair, and Air France suffering heavily financially, Southwest continues to add new routes targeting the market where the airlines have been pulling services and retracting (SignOn San Diego, 2008). Normally, whenever a new Southwest airline would enter the market, fare prices would drop and the volume of sales would increase significantly. This led to the coinage of the “Southwest Effect” by the TSA to refer to this incredible marketing tool that allowed the company not only retain its customers, but also expand its market share through the low price philosophy.

Change and Innovations

Southwest airline posits itself in the market by seeking to build a distinctive niche in the market through the identity of its employees and its management. The company, just like other successful companies like Harrods, Gap and Sony is widely preferred as the company is see as the brand itself. Southwest has effectively inserted itself creatively and innovatively between the surface transport and airlines transport, thereby attracting a highly profitable market (Mayle, 2006).

Innovation and changes in the airline are experienced not only in the management of its employees, but also in the design of its airplanes, delivery of its flight service and its mode of operation. This has been achieved by the state-of-the-art IT infrastructure which, together with the plane model and the flight services has been kept straightforward to ensure the operation of the business is as efficient as ever. With the advancement of technology in the airline industry, the company seeks to ensure that the recommended changes are implemented only on areas that need renovation. The use of innovation helps the company gain a competitive edge over its competitors. For instance, the Southwest airline uses its website for online reservation system, a strategy that is innovative and different from that of the other airlines. As such, it is able to use less aggregate trip and price in the airline network, allowing them to effectively focus on their own structures.

E-commerce

The e-commerce is one emerging business trend that has propelled the success of Southwest Airlines in the market characterized by intense competition. One of the trends involves the concept of loyalty schemes which is offered via Extensive Partner Network. The airline is one of the pioneers of implementing this new concept to supplement its already existing loyalty scheme where the travelers who shop from partner companies earn points, which earn them some miles is various ways. One of the ways in which the loyalty schemes have changed is through the new Rapid Rewards loyalty scheme where customers earn more miles according to the amount of dollars spent. This attracts more customers to the company by making loyalty schemes more useful to the customers than before (Napier et al., 2005).

Another e-commerce trend that the company has adopted relates to mobility, where the airline offers flight offer push notifications, car rental services, miles access and full integrated booking engine. The push alerts offered for the fought offers allows the customers to get informed whenever a selected flight, at a given price is available. Moreover, customers are able to reserve cars through an application. Customers are also able to book their flights and reservations without the need to access the company’s website, making the whole process easy and tireless.

E-business

Southwest airlines has ventured into e-business as a way of driving sales. While most of the competing companies struggle to form partnerships o attract sales, the independence of Southwest is assured by transferring its success in offline marketing to the internet. The first remarkable outcome of the company’s sales through e-business was experienced in 2004 when the airline recorded over 1.7 billion in sales, 30% of which came from the sales made through the company’s Website. Moreover, the use of the Website saves the company and the customers a substantial cost as it is 90% less booking flights via the website than it is using a travel agent or a phone representative. This has allowed the airline achieve a highly profitable business (Southwest, 2005).

Other than the booking services, the company ventured into offering car rental services to its customers through it Websites by using favored partners including Budget, Alamo, and Hertz. Moreover, the company partnered with major hotels such as Marriott, Hyatt and Hilton to increase the coverage of its clientele. It is worth noting that the success of the airline’s e-business is derived from the fact that the company carried its culture of low cost from its offline business operations and transferred it online, thereby attracting many customers. Moreover, the website is designed in a way that is very easy to use. For instance, with only five clicks, a customer is able to get the tickets, without the need for submitting emails or registering into the site (Napier et al., 2005).

This critical analysis of the success factors of Southwest airlines provides important insights into its history and its mode of business operation with a view of discerning the factors that drive the company into the success it currently enjoys in the market amidst intense competition. The company has faced its share of challenges including the fluctuating fuel prices that has negatively and positively impacted its outcome and the intense competition from already established companies in the industry. The analysis of the history of the company shows how it has progressed from humble beginnings and taking advantage of opportunities to thrive into a global business. Some of the operating attributes that has propelled the success of the company are inherent in various aspects of business operation including leadership, organizational design, organizational culture, managerial roles, global business, change and innovations, e-commerce, and e-business. As such, the company should strive to ensure that it strategically plans its management and operational aspects according to the changes in the industry environment and the market needs. This will help the airline to not only survive the stiff competition, but also create a competitive edge in the market.