Comprehensive Strategic Plan; A Case Study Of Southwest Airlines Essay

INTRODUCTION

Organization operating in a highly competitive industry need to operate strategy that gives them competitive advantage, and one that is not easy to imitate. Operating as a world leading organization is accomplished with a huge task; whereby for the organization to maintain its leading status it should continue to operate a strategic management plans that out pass those of its competitors. When an organization fully adapts to its environment in which it operates, there is the advantage ascribed to it where the organization would be positioned to effectively attain its objectives and long term goals.

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Strategic management is then considered as a significant tool for an organization to adapt to its environment by utilizing its resources in the most efficient way to bring out effective operation. In the contemporary business world, the level of competition is ever increasing; it requires that an organization strategize in a way that would give it competitive advantage over its rivals. Apparently, strategic management is a relevant tool an organization could use in withstanding the complex and dynamic business world.

Armitage (1992) defines strategic management as a continuous process that works to fit an organization into its changing environment. Thus, in this context, strategic management is seen to embrace both strategic and long term planning of an organization and its operational or short term planning. According to Brown & Eisenhardt (1998:3), “strategy is about two things: deciding where you want your business to go and figuring out how to get there”. Strategic management pattern of every organization may differ from what is obtainable in another; while there may be areas of similarity, certain aspects are uniquely structured out to suit the operation of the organization in concern. The ability of an organization to successfully compete depends on how unique its strategy is. In this view Peter (2005:5), argues that “strategic competitiveness is achieved when a firm successfully formulates and implements a value-creating strategy. When a firm implements such a strategy that other companies are unable to duplicate or find too costly to imitate, this firm gas a sustained, or sustainable, competitive advantage”.

Strategy (TCO F)

The case study for this write-up it is recommended that Southwest airline build up an intensive strategy in gaining more competitive advantage.  Intensive strategy which will enable the organization use its resources to consolidate on areas where it has competitive advantage and spread its market operations into areas where it is not well established to give it widened market share.

In contemporary times, the hard work and strategies of Southwest Airlines have over the years implemented has seen, the organization grow from leaps to bounds into an enviable airline organization that is a reckoning force in the US airline industry. Going into 2003, the Southwest Airline became the fourth largest US airline by the number of passengers that it carries, and the sixth largest in terms of revenue. It makes over an excess of $5 million annually, and has a workforce of about 35,000 staffs. It operates in 59 airports from 58 cites in 30 states (ibid). Presently the Southwest Airlines has become the largest domestic airline in the United States, by number of passengers carried. More than 70 million passengers fly the Southwest Airlines each year to about 60 destinations around the country. It is the largest airline organization in the US stock exchange with high stock value. “…in October – believe it or not – Southwest was valued in the stock market at a capitalization which surpassed that of all other US airlines put together” (Heller, 2005). In its fleet of aircrafts, Southwest Airlines is the world’s largest operator of the 737. Their current active fleet is over 480 aircraft. It has 194 Boeing 737-300, 25 Boeing 737-500, and 262 Boeing 737-700 (111 orders) (Southwest Airline, 2006)

Despite all these obstacles the organization faced in its phase of market maturity , the Southwest Airline maintained a resolute focus to see the organization succeeding. Its corporate culture and identity, motivated human resources and effective strategic operation have over the years being a reckoning force to its success. The organization operated a corporate identity that then to make its customers feel satisfied at the most conducive price. Its adopted corporate logo of ‘LUV’ is abided to in making customer relaxed and satisfied. Corporate identity is a way of gaining competitive advantage to compete favorably. Corporate identity is a vital tool for organization to carry out its effective competition among rivals; it thus makes the organization stands out from others. The image set up by the organization is a veritable tool for making stakeholders and those the organization do business with to stand out for it. According to Balmer & Wilson (1998), “the main objective of corporate management identity is to secure a competitive advantage for an individual organization”. Thus, this has made many organization determined in creating a good image and corporate identity for the public. The logo, strategic operation, corporate brand, corporate image of the Southwest Airlines over its historical growth have adopted ‘LUV’ as a way of winning customers to the organization. Its operational base is called ‘LOVE field’, the airline became popularly known as Love Triangle, its planes are called Love Birds, its drink Love portion, its peanut Love cake, its drink coupons are known as  Love stamp and  its tickets are designed with LUV symbols from love machines (Thompson, et al 2005). This has helped in no small measure in see in successful operations of the organization amidst grave competition and rivalry. However, the organization has witnessed some doom moment in its operation in some moment it has operated an organizational strategy to see itself surviving and coming out of the drums. “The rest of 1971 and 1972 saw Southwest Airline operating losses. One of the four aircraft was sold to Frontier Airlines of Denver and the proceeds used to make payroll and cover other expenses” (Southwest Airline, 2006). In addition, in 1990-1994, the organization had five-straight money losing years. This culminated in the layoff of 120,000 workers, and a lost of cumulative profit amounting to $13 billion (Thompson, et al 2005).

Core Competencies (TCO C)

Continuity and reliable business operation tends to win the continue patronage of customers. In this view Thompson, et al (2005), argue “if a company’s competitive edge holds promise for being durable and sustainable (as opposed to just temporary), then so much the better for both the strategy and the company’s future profitability. It is nice when a company’s strategy produces at least a temporary competitive edge, but a sustainable competitive advantage is plainly much better. What make a competitive advantage sustainable as opposed to temporary are actions and elements in the strategy that cause an attractive number of buyers to have a lasting preference for a company’s products or services as compared to the offerings of competitors”. The customers tend to appreciate the flexible and low cost service from Southwest airline. The services from the organization are not only low, but also efficient; giving value for customers’ money paid for such services. Thus, the efficient utilization of resources and effective time management has endeared the services to the heart of the Southwest customers.

Southwest Airline core competence that is said to be the organization’s ‘Order winners’ include the utilization of both cost effect strategy and product differentiation to provide satisfying services to its different categories of clients. The Southwest Airline has mainly capitalized in cost effectiveness and differentiating of pattern of rendering its services as strategies in winning the patronage of its timing customers. The cost effective strategy adopted by the organization is one that is used in giving the customer quality services at the most affordable price that is lesser than what the Southwest Airline rivals can offer. Michael Porter, in his work ‘Competitive Advantage’, proffers two ways a firm can obtain competitive advantage: through product differentiation and cost leadership. Product differentiation entails that the firm should come up with innovative product different from what is available in the industrial market where it operates. Cost leadership entails that the organization produces it product with less cost, and thus sell it at a price lesser than what is available in the market. This does not always necessarily means that the organization should sell its product at lower price, but should be cost efficient. The Southwest Airline has greatly capitalized in cost leadership strategy by reducing its airfare, which goes along with qualitative service delivery. Its service is also different from what is obtainable in the everyday operations of air transport service. It has also competed favorably by differencing its services from those of other rivals. It made air service enjoyable to customer, as a place where they can have fun and meet love ones.

Technology Sourcing and Internal Innovation (TCO D)

The Southwest Airline on regular interval introduces the best of technology in its fleet of aircrafts. However, it has not lost its focus for minimizing cost. The organization in time past has utilized its internal corporate identity as a viable tool for effective competition. The organization’s utilization of its internal innovation lays in its ability to use the organization’s corporate identity, its corporate logo, corporate slogan corporate culture and staff grooming to its advantage in competition against rivals. Its corporate culture and identity, motivated human resources and effective strategic operation have over the years being a reckoning force to its success. The organization operated a corporate identity that then to make its customers feel satisfied at the most conducive price. Its adopted corporate logo of ‘LUV’ is abided to in making customer relaxed and satisfied. Corporate identity is a way of gaining competitive advantage to compete favorably. Corporate identity is a vital tool for organization to carry out its effective competition among rivals; it thus makes the organization stands out from others. The image set up by the organization is a veritable tool for making stakeholders and those the organization do business with to stand out for it. According to Balmer & Wilson (1998), “the main objective of corporate management identity is to secure a competitive advantage for an individual organization”. Thus, this has made many organization determined in creating a good image and corporate identity for the public. The logo, strategic operation, corporate brand, corporate image of the Southwest Airlines over its historical growth have adopted ‘LUV’ as a way of winning customers to the organization. Its operational base is called ‘LOVE field’, the airline became popularly known as Love Triangle, its planes are called Love Birds, its drink Love portion, its peanut Love cake, its drink coupons are known as  Love stamp and  its tickets are designed with LUV symbols from love machines (Thompson, et al 2005).

For the Southwest Airline much participatory management has being encouraged. In addition, the management of the organization has created an atmosphere which is conducive that sees its working thriving to their great potentials. According to Giffel (2005), “Southwest is the most highly unionized airline the U.S. airline industry and in contrast to other airlines has emphasized the importance of labor/management partnerships. Respectful relationships between company management and the unions chosen by frontline employees appear to set the tone for respectful relationships throughout the company”. This cordial relationship created by the management has greatly enhanced the working environment of the organization that sees it able to operate effectively and thereby compete favorable by the effective implementation of the organization has set strategies.

Industry Dynamics (TCO A)

The Southwest Airline is a local carrier that operates within some 32 states in the United States and serves about 62 cities (Southwest Airline, 2007). There are many opportunities abounding to the organization. It could expand its services to cover the remaining 20 states and other major cities where it operation has not yet being established. The United States is a large country, and most times people prefer traveling by air from one state to another or from one city to another, considering the distance it would take to embark on road traveling by car. Thus, the opportunity abides that organization such as local carrier, in which industry Southwest belongs, that they utilize this golden opportunity by expanding on their existing areas of operations. Further, the government and economy of the United States is very vibrant and stable compared to other developed countries economy. This provides an avenue to ensure the success and thriving of business operations such as air service provider. The government from time to time legislate laws to ensure a fair competition among the operators in the airline industry. Thus, there is the chance of organization such as Southwest to operate effectively and succeed in its operations.

The ‘Southwest Effect’ is the term given to the Southwest Airline strategy. It is now a household strategy many organization look onto, especially in the aviation industry. Before, the development of the organization to its successful state now many competitors tried to make sure that it did not succeed. Though, it strategy at its humble beginning was seen as something that would have no much impact. “The key concept to the Southwest Effect is that when a low fare carrier (or any aggressive and innovative company) enters a market, the market itself changes, and usually grows dramatically. For example, when fares drop by 50% from their historical averages, the number of new customers in that market may not just double, but actually quadruple, or more” (ibid). The Southwest Effect strategy, thus, at the long run proved its critics wrong. In this view Perla (2003) argues that “By using a strategy that is nontraditional and innovative or that targets a market perceived as less attractive, you can potentially avoid a costly price war, which often draws the most aggressive responses from competitors and leaves a market depleted of profits”.

The easyJet airline, a UK base airline, has adopted the cost effective strategy of Southwest organization. The organization just like Southwest, operate to see that its operational cost are reduced thus, making it render its services at an effective price compared to those its competitors operates. “Using  their business model from American air carrier Southwest, easyJet and othr Southwest rivals such as Republic of Ireland-based Ryanair are by far the largest low cost airlines in Europe, and the rivalry between them has become intense.

The slightly difference in the ‘Southwest effect’ from what easyJet operates is that the organization is entering into partnership with other airline servicing organizations. “UATP continues its European expansion, adding easyJet as its newest UATP Merchant effective immediately. To meet customer demands, easyJet chose UATP as a form of payment. UATP will enhance easyJet’s strategic plan because it helps airlines lower distribution costs with low merchant service fees and global network available to all corporate travelers. “Europe continues to see growth and profitability; easyJet has positioned itself to capture these opportunities by including UATP in its overall strategy”, said Ralph Kaiser, president and CEO, UATP (UATP, 2006). The Southwest has holistically depended on its ability to carry out its cost reduction strategy without much dependence on other servicing organization in the industry. While Southwest carries out it cost reduction strategy by operating in low cost airports, and effective turnaround trips, easyJet carries out its cost reduction strategy through reduction on fees charged by servicing organization and agents.

Product Development Strategy (TCO E)

Southwest Airline operates domestic air routes below is a cycle of service for the company

                                               Southwest Airlines Domestic services

Business travelers                                          Leisure Travelers

(More time sensitive with high fares)                        (Price- sensitive with low fares)

Southwest Airlines rotates around the provision of domestic air travel services for   the 30 States where it operates spans in the United States. It engages in carriage of   goods, charter flights, executives’ domestic flights services, weekend travel schedules. Southwest was serving two quite distinct types of travelers in the Golden Triangle market: (1) business travelers who were more time-sensitive than price-sensitive and wanted weekday flights at times suitable for conducting business and (2) price-sensitive leisure travelers who wanted lower fares and had more flexibility about when to fly. The management came up with a two-tier on-peak and off-peak pricing structure in which all seats on weekday flights departing before 7 pm were priced at $26 and all seats on other flights were priced  at $13. Passenger traffics increased significantly-and system wide on-peak and off-peak pricing soon became standard across the whole airline industry” (Thompson et al, 2005).

Service Product Bundle Of Southwest

Southwest Airline became the fourth largest US airline by the number of passengers that it carries, and the sixth largest in terms of revenue. It makes over an excess of $5 million annually, and has a workforce of about 35,000 staffs. It operates in 59 airports from 58 cites in 30 states (ibid). Presently the Southwest Airlines has become the largest domestic airline in the United States, by number of passengers carried. More than 70 million passengers fly the Southwest Airlines each year to about 60 destinations around the country. It is the largest airline organization in the US stock exchange with high stock value. “…in October – believe it or not – Southwest was valued in the stock market at a capitalization which surpassed that of all other US airlines put together” (Heller, 2005). Southwest Airlines has in its fleets of aircrafts Boeing products. In fact, the Airline is recognized as the world’s largest operator of the Boeing 737. Their current active fleet is over 480 aircraft. It has 194 Boeing 737-300, 25 Boeing 737-500, and 262 Boeing 737-700 (111 orders) (Thompson et al, 2005)

Southwest Airline is one of the fastest airlines in the Golden Triangle; it has a quick turn around trip. The management in a bid to utilize judiciously the four available planes, in the organization take-off stage, they adopted a strategy of 10 minutes turn around trip. Here, when a plane landed at the port it is expected for the staffs to evacuate passengers and luggage, clean the plane, refuel, and get it ready for a return trip within 10 minutes. When the organization begins to experience a full capacity in its plane, it adopted a 25 minutes turnaround trip, as against 40-60 minutes that is practiced with its rivals. This time consciousness won the heart of businesspersons who are always on the rush to catch up with business appointments in another city. Efficiency is defined as the proportion of output to input. It is seen as the utilization of resource to get the maximum output with the least waste. The Southwest Airline has continued to imbibed in the strategic practice of efficiently utilizing its resources to get the maximum out.

The organization does not engage in a new route except it is sure that he could get four trips daily with full capacity. This also goes to show how efficient in the organization is in the management of its resources. This efficient management of time and resources has made the organization to win the goodwill and continuous patronage of its customer. The operation of the organization is thus reliable and dependable.

Strategy To Protect Innovations (TCO B)

The strategy Southwest Airlines can use in protecting its innovations, it is suggested that more needs to be done by the organization to expand its operational routes to include other states in the federation. The organization can do this by carrying out strategies that would see it making profit out those areas that it considers as unprofitable for its operations. This can be achieved through adopting other strategies different from the cost effectiveness it has adopted in other areas of its operations. Here, the organization can enter into deal with other airplane production companies to buy modern aircrafts that would make it give customers in these new routes the desired and taste they want in air service. The Southwest Airline mainly operates the Boeing aircrafts. Change to this in its expansion bid would mean that it would change its cost effective strategy to adopting service differentiating strategy. The organization should thus be flexible in its strategic operation in areas where it thinks cost effectiveness would not make the organization break through; other strategies that match with such environment should be adopted.

The strength of Southwest Airlines also lies in its ability to conduct its business in its own unique work. It innovate ways of carrying out its functions different from the traditional methods and ways adopted by other airlines. For instance, while other airlines use the Hub-and Spoke flight routing system, the Southwest engages on Point-to Point system. Customers are not assigned seats; rather, they are assigned to a “boarding group” depending on their check-in time (earlier check-ins get to board earlier), and are left to find their own seats on the plane (Thompson et al, 2005). This innovative pattern of operating has made the organization unique in its service delivery to its customers, and it has helped it to compete favorably with its rivals. Thus, the hub-and-spoke system would have promoted proper seat reservations, and enable the flight manifest to be properly arranged for each occupant of every seat number. In addition, the need for the company to properly plan for its inventories and proper arrangement for supplementary supplies would have been promoted by the adoption of a hub-and-spoke system in the Southwest Airlines. Thus, adopting a Hub-and-spoke system would aid the organization to have adequate supply of food and fuels for its operations, through the right and adequate data of fliers in its air schedules.

The hub-and-spoke system should be adopted for cities that have high densities of businesspersons, who are more time conscious than price sensitive. This category of people requires reserved seats, and they tend to book ahead of the flight take-off. Thus, reservation of seats will aid such travelers. The identified cities where these need arises to utilize Hub system include New York, Las Vegas, Washington DC, New Orleans, and Dallas. These cities are well populated with private businesses and commercial centers, including public administrative nerve centers of the country. The spoke system should be adopted for cities like Okalahoma, San Diego, Salt Lake city, Phoenix, and San Antonio. All these cities will not require too high record for urgent booking for flights, and high percentage of fliers for these cities maybe engaged on leisure trips.

The adoption of hub-and-spoke system will aid Southwest Airline in coordinating its flight schedules, and give the Management of the organization proper management utilization of inventories. The system will further enable the Airline keep a proper seat-to-seat record of its flight manifest. Proper record filing, and seat reservation and proper planning will be ensured when the airline adopts the hub-and-spoke system.

BIBLIOGRAPHY

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Ankli, Robert E. (1998), “Michael Porter’s Competitive Advantage and Business History” University of Guelph . http://wwwh-net.org/~business/bhcweb/publications/BEHprint/v021/p0228-p0236.pdf (18/05/06)

Armitage, Jack L. (1992), “Strategic management for Public Accounting (The  CPA Manager)”   The CPA Journal http://www.nysscpa.org/cpajournal/old/12543369.htm (10/05//06)

Brown, S.L. & Eisenhardt, K.M. (1998), Competing on the Edge: Strategy as Structured Chaos. Boston, Mass: Harvard Business School Press.

Chaturvedi, Siddharth (2005), “Strategic Human Resource Management” http://www.humanlinks.com/manres/articles/shrm.htm (13/08/05)

Flynn, B.B. & Flynne, E. J. (1996), “Achieving Simultaneous Cost and Differentiation Competitive Advantage through Continuous Improvement: World Class manufacturing as a Competitive Strategy” in Journal of Managerial Issues. Vol. 8, No. 3

Gittell, Jody Hoffer (2005), The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance New York: McGraw Hill

 McGregor, Mark (2003), “Business Process Outsourcing for Competitive Advantage?” http://www.markmcgregor.com (18/05/06)

Perla, Michael L. (2003), “How Should You Test Your Marketing Strategy?” http://www.marketingprofs.com/3/perla11.asp (20/01/07)

Peter, J. Dowling, et al (2005), Strategic Management: Competition and Globalization (2nd Pacific Rim Edition

Porter, E. Michael (1985), Competitive Advantage: creating and Sustaining Superior Performance. New York

Southwest Airline website:  www.southwest.com

Thompson, A. et al (2005), Crafting and Executing Strategy (Fourteenth Edition) , New York: McGraw-Hill

UATP (2006), “LLC Easyjet Accepting UATP Corporate Travel Accounts” http://www.uatp.com/files/uploads/PDF/newsletter_21%20Aug%202006.pdf (21/01/07)

 

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