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Southwest Airlines: How much can ‘LUV’ do?

Naga Lakshmi DamarajuGregory G. DessAlan B. Eisner

Vasudev Krishnan

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Southwest Airlines

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

1.Assess the leadership effectiveness at Southwest Airlines.

Southwest Airlines

2. Discuss the various components of Southwest’s strategic control systems.

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Southwest Airlines

3. Discuss Southwest’s approach to managing human capital.

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Southwest Airlines

4. Discuss the basis of Southwest’s competitive advantage and the potential challenges to its strategy.

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Q1. Leadership Effectiveness

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Setting Direction: Low-cost airline providing point-to-point services. Leadership ensured that the organization did not digress from this core business and kept focus on profitability.Organizational Design: Open communica-tion, culture that was not bureaucratic; tight cost controls; employee participation at all levels; sense of ownership among employeesNurturing a Culture Dedicated to Excellence: “Excellent customer service” – key goal; employees come first; Kelleher’s personality; proactive approach to leadership transition

Q2. Strategic Control Systems

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Informational ControlDoing the “right things”Focus on low-cost strategyConservative expansionProfitability prime focus, not growth

Behavioral ControlDoing “things right”Survival crises forged the ‘Southwest spirit’Openness, communication, fun, and celebration“Star of the Month”Signed birthday cards‘No furlough’ policyNo elaborate rules and regulations

Q3. Managing Human Capital

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Mission statement makes a commitment to employeesRecruitment policy is “hire for attitudes, and train for skills”Fun culture, reward systems, and ‘no furlough’ policy help in retentionNurturing of ‘social ties’ or social capitalEmphasis on team work

Q3. Managing Human Capital

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Strategy is “overall cost leadership”Structure and systems aligned with strategyActivity system – the tight linkage across its value chain activities that is valuable, rare, inimitable, and non-substitutableSustainabilityJetBlue – Southwest needs to achieve parity on differentiation (‘in-flight entertainment’ system)The need to balance ‘low-cost’ and ‘differentiation’