Indian Institute of Management

KOZHIKODE

MANAGEMENT CONRTOL SYSTEMS- II

PROJECT

SOUTHWEST AIRLINE CORPORATION

SUBMITTED TO PROF. K.P. RAJENDRAN BY Mr. Vishwanathan Eagappan Mr. Jaiprakash Vappala Mr. Kulkarni Dilip Shridhar Mr. Venkata NarasimhaRao Jupudi DATE EPGP-03-093 EEPSM-04-047 EEPSM-04-022 EEPSM-04-018 5th June`12

1. What is southwests Strategy.

Southwests strategy is to sustain the market leader position for domestic routes in airline industries and also to achieve best customer service. For executing this southwest airline adopted the low-fare, high-frequency, point-to-point carrier route. It has chosen to offer lowest price for its various flights by tapping on its operating cost structure. Southwest is the only airline with the lowest operating cost structure amongst all domestic airlines. Southwest did not employ the hub-and-spoke approach used by other major airlines, such as United, American, and Delta. Instead, its approach was short-haul (average flight time was 55 minutes) and point-to-point (e.g., Dallas to Houston, Los Angeles to Phoenix). Southwest had no assigned seats, paid its crews by trip, and used less congested airports (e.g., Baltimore instead of Washingtons Dulles or Reagan; Manchester, N.H., instead of Boston, Mass.).

2. What critical financial and nonfinancial performance measures would you recommend for ensuring the successful implementation of the strategy?
Financial performance measures Recommendation Cost base, Encourage customer to book online so that they pay less than for the tickets - Currently 46% of customers make booking via internet at southwest.com website the cost of booking is 1 $ were as customer booking from travel agent pay 5-6$ more for each booking. Cash flow, identify the busy sector and introduce extra flights on those locations. Growth, Explore new sectors and feasibility to connect the best and shorter time to reach those destinations. Southwest can look at the options of entering in the smaller sectors and include 100 seated planes to those destinations like week end or tourism spots. Operating Expenses / Fuel Hedging southwest airline should continue fuel hedging in effective and efficient way to enhance its financial performance. Fuel hedging will help to maintain its low cost policy and reduce volatility in operating expenses.

a.

b. c.

d.

Nonfinancial performance measures - Recommendation a. Value; understand the value driver, like Incentives to the managers for their long services and services of ground crew turnaround time who act fast from

b.

c.

d.

e.

f.

the time flight landed and to next take off, factors indirectly contributing to the organizations growth. Review nonfinancial measures related to employees performance, operational efficiency and quality of service, channel partners, supplier relations and market position. Integrate measures; it must become an important part of reporting and performance evaluation if they are to affect employee behavior and organizational performance. This becomes a tough job as it relates to employees' careers and pay, controversy is bound to emerge no matter how appropriate the measures. Hiring Process to better understand what company sought in the candidate it adopted a unique approach Peers screened candidates and conducted interviews; pilots hired pilots, and gate agents hired gate agents. The right employee with the same wave length like all other employee We want people who do things well, with laughter and grace. High Tech, Southwest should also introduce the mobile facility during its flying hours to the passenger same as like what it did in case of internet communication by installing satellite-delivered broadband from Wi-Fi provider Row 44, beginning with the next-generation Boeing 737-700 aircraft. Cancellation / Accidents of flights, Southwest core process is flight maintenance, it should adopt a robust process and if anyone flight is found with malfunction of its engineering activity, all the flights should be grounded and checked immediately during this time they should tie up with other flights as charter partners who can fly their passengers without any extra cost.

3. Develop a Balanced Scorecard for southwest with a blend of financial and nonfinancial measures for each of four perspectives (viz., Customer perspective, internal business perspective, Innovation and learning perspective and financial perspective).
Balance score card is a measurement system that provides a complete framework that explains a companys strategic objectives into a consistent set of performance measures and also can motivate breakthrough improvements. However all the measures are directed toward achieving an integrated strategy.

Financial Perspective

The financial performance measure will fluctuate based upon the long-run objective and strategy of an organization in different stages. Performance measures of the following will indicate and highlight the growth rate of organization:

Cash flow Sales growth Market share

Customer Perspective In customer perspective, the company measures the performance in targeted segments. Performance measures are tailored to target the segment identified from which the organization expects growth and profitability. The following are customer measures:

Time- flights on time Customer Loyalty percentage of growth due to existing customers New customer revenue generated from new customer Customer satisfaction customer experience, feedback, quality, price, time. Response time to customer

Internal Business Perspective The internal business perspective identifies the most significant internal processes for the companys strategy to succeed.

Turnaround time Build and deliver the services Service to the customer

Internal Business processes play a vital role customer satisfaction, like customer waiting time, process quality and employee skills. Innovation and Learning perspective The innovation and learning perspective identifies the infra-structure that the company must build for a long-term growth and development. Ability to innovate and learning secure companys value. Innovation and learning can be categorized into following areas:

Employee Plans / Systems

Organizational policy Innovation - Create the service offering

Balance Scorecard of Southwest Airlines.

Strategy Financial Perspective 1. 2. 3. 4. Objective Cash flow Sales Mix Market share Hedging 1. 2. 3. 4. 1. 2. 3. 4. 5. 1. 2. 1. 2. 3. 4. Measure Cost reduction and service improvement. Revenue Growth Asset utilization and investment strategy Fuel Hedging On-time and meeting customers need % of growth from existing customer Total sales to new customer Customer feedback on quality of service, price and time. Response time to customer query Minimum waiting time and Customer satisfaction On-time departure Employee stock ownership plan Enhancing information technology and system Re-skilling employees Best practice and new ways to approach customer needs Goals 3% CAGR 10% CAGR 35% CAGR Continue to conserve fuel by fuel hedging program Same expectation as point 1 & 2 above 1. 2. 3. 4.

Customer perspective

1. 2. 3. 4. 5. 6. 1. 2. 1. 2. 3. 4.

Internal business perspective Innovation and learning perspective

Flight Timing Customer loyalty New customer Customer satisfaction Lowest Price Responsiveness Turnaround time Service to the customer Employee Plan / system Organization policy Create service offering

Increase the learning curve by 5% for customer response. 1. Sustain existing time 2. 97% Subject to all during Inception should see 90% within 3 years of Span should achieve 98%.

4. Would you consider that the true role of performance measurement is management learning rather than management control? In my Opinion both are required, it is generally understood performance measures are important if managers need to substantiate that there organization is moving in the desired direction. Managers do not control their workforce impulsively however managers still use measures to control, every company make measurement systems and specify particular actions to be performed by each employee, then they measure whether the employees have taken those actions or not this measure help the organization in identifying what works and what does not and in turn indirectly show the reason behind its poor or good performance. There are some control and learning experienced to check on the measurement by simple steps. 1. Making a decision what to measure helps in explaining the business strategy.

2. Comprehensible measures, support by a clear theory of how the business works, help in the process of communicating strategy and achieving organizational position. 3. Measurement data can be used to create performance insight. 4. The three steps in framing the BSC (a tool for performance measurement) help in indicating the direction. The first step i.e., deciding what to measure would depend on the firm strategy. The second step i.e., how to measure and the target help the management to communicate the strategy down the rank and file and achieve the alignment. The actual measurements i.e., the third step helps the organization to realize the direction and the progress of growth. Thus true role performance measurement would be management learning.