Group 1: Abhinav | Ankit | Sraavya | Saurabh | Shelly | Subhabrata | Shubham

Agenda
Brief Summary of the case
o History of Southwest Airlines
o The Southwest Culture

Discussion of theoretical concepts

o Creating Shareholder Value
o Aligning HR practices with corporate strategy
o HRs role in driving Organizational Change
o Leading the HR Function : The Next Paradigm

A DIFFERENT ORGANIZATION ALTOGETHER

How many CEOs of the company do you know who come into a
cleaners break room at 3 am on a Sunday passing out doughnuts

How often do you see a pilot cleaning

aircraft or loading bags?

How many times you encounter employees with low income having
high productivity?
Where do you see most people taking a salary cut to join an
organization?
THE ANSWER to all these questions is in the Strategic model of
SOUTHWEST!

CREATING
VALUE FOR
STAKEHOL
DERS

CUSTOMERS
* No frill services
leading to low prices
* CUSTOMER is
capitalized

SHAREHOLDERS
* Profitable
organization
* Increased
stockholders equity
value

EMPLOYEES
* Treated as internal
customers
* Incentives based on
seniority
* Recognized as
competitive
advantage

ALIGNING HR PRACTICES WITH

CORPORATE STRATEGY
Competitive
Environment

Companys strategic
plan

Companys Strategic
Situation

Companys Internal
culture

Organizational
Performance

Companys HR
strategies

What overall
goals does
Southwest
Airlines want
to achieve ?

Improve market
share from
current value

Maintain profit
growth of 4% per
year

Maintain
industry-wide
low prices

Fly fewer planes

(maximize
passenger miles
flown per seat)

What
employee
attitudes and
behaviors will
produce these
operational
outcomes?

What must
Southwest do
operationally
to achieve
these goals?
Turnaround
planes at gates
in 15 minutes

Maximize ontime flights

Highly committed
employees who are
willing to go the
extra mile for
southwest airlines

ALIGNING HR PRACTICES WITH CORPORATE

STRATEGY

Extraordinarily
selective recruiting
process (Its a mini CAT
exam )
Hiring for attitude and
not skills
Focus on We rather
than I
People Department
goal to make
employees happy
Day on Field : Officers
to spend 1 day per
quarter in front line job
Relaxed management

Highest emphasis on
customers
Firm believer in 2 Cs
(Compassion and
Common sense)
Routinely volunteer to
help the customers
Focus on policy of
having fun at work
Aggressive , Underdog
spirit

Usage of single kind of

aircraft-savings on
maintenance and training
costs
Cost per mile :- 7.1 cents
vs 10 cents (Industry
average)
Cost Structure - Low cost,
low airfare airline
Turnaround time : 15 mins
vs 35 mins
Usage of less congested
airports- Increase in
efficiency

HRS ROLE IN DRIVING ORGANIZATIONAL

CHANGE
How are Continental and United imitating Southwest Airlines ?

What are the cultural gaps ?

Gaps in HR policies ?
Can they imitate ?
What are the changes that Southwest need to take to ?

Attitudinal changes ?
HR and strategy changes ?
How sustainable is this ?

HERE COMES THE COMPETITION

!
United Airlines Uniteds Shuttle

Continental Airlines - CALite

Airline within-an-airline

2 operations

First-class services, biz class prices

Short-haul, low-fare flights

No clear business separation but

strategic differences brought in

Reduce cost even lower than Southwest

Airlines

Primarily concentrating on East Coast

market to take advantage greater density

Wages were rolled back

Fares cut dramatically

Reduced turnaround time of 20 minutes

Cuts in fare

Severe
price-cutting
competitive relevance
Examples

measure

for

Newark Greensboro fare went from $273

to $99

Greensboro Greenville fare from $226 to

$59

Regain its market share captured

by Southwest
Cost cutting by 30% on SWs routes
184 daily flights on 13 routes expanding to almost 300 by year end
Uniteds frequent flyer mileage
program
Fares cut dramatically

Cuts in wages
In return of 55% of the company,
employees promised $4.9 billion in
wage cuts and productivity gains
17,000 flight attendants voted not to
participate

CAN THE CULTURE BE

IMITATED ?

SW employees were soaked into their culture since 1971. Is it then possible for United or
Continental to copy these values and spirit in a forceful manner in a short span of time

Continental Airlines CALite

United Airlines Uniteds Shuttle

CEO reputation

Top Management

Followed a top-down approach to management

Harsh and uncommunicative
A person familiar with his style claimed Ferguson has to become more people oriented

Cultural differences
Values of progression different
Individualistic excellence promoted
Led to cases of backbiting, mistrust, fear

Results
Only 59% seats were filled during operations
From April 1993, CA lost $38.5 million on
revenues, when it emerged from bankruptcy
protection
Employee complaints about excessive workloads
became frequent
Complaints by frequent flyers rose

Mechanic thinks they are way up there,

and the rest of us are way down here
Flight Attendant Weve always been treated
like angry children who dont deserve what
they get

Vastly dissimilar cultures

Exactly opposite that of Southwest
Labor and Management treated as two
different entities
Management v/s Labor
Union v/s Non Union
Power Struggle was continuous

Results
Ex-CFO Steve Wolf estimated that $1 billion
dollar losses in 1992 would have been a $700
million profit had they not competed

LIMITATIONS OF SOUTHWEST AIRLINES

WHERE CAN THEY IMPROVE ?
Does not offer segmented seating options
Space to carry freight and cargo is limited
Dependent on single airplane producer
Recruitment scrutiny limited to personality
Do not have baggage arrange with any
other airlines
Salaries offered to pilots and flight
attendants was lower than competitors

United, American and Delta paid pilots upto

$200,000 for flying 50 hours a month but
Southwests pilots averaged $100,000 for
flying 70 hours a month
Average wage at Southwest was $44,305 as
compared to $45,801 at American and $54,380
at united
Flight attendants and Pilots were paid by the
trip rather than a stable, comprehensive amount

Table: Pay Scales for 3 Selected Jobs

Period

Flight
Attenda
nt

Reservat
ion
Agent

Custome
r Service
Agent

1st year

13.37

5.75

6.00

3rd year

17.13

8.15

8.41

6th year

26.20

9.57

9.73

9th year

34.03

11.09

11.26

11th year

35.88

12.22

12.42

Stability

13th year

18th year

18th year

Key issues which Southwest Airlines faces today:

Retaining the market leadership position
Maintaining the most competitive fare
Superior quality service to the customers
Maintaining differentiation with other carriers
Maintaining the sense of family throughout the employee base

Key performance indicators to be followed to achieve these goals

:
Amount of the HR activities
The resulting employee behaviors
The resulting firm-wide strategic outcomes and performance

Leading the HR Function: The Next Paradigm

Change Acceleration
Process

Change Effectiveness
Equation

QxA = E
Q: Quality of strategy/ change
A: Acceptance of strategy/
In simple change
words, paying

attention to the people side

of the equation is as
important to success as the
technical side
To maintain competitive
advantage in its human
resource, it has to follow
continuous improvement

Managing Human Resources

and
Driving
Organization
Culture
Incorporating core values in
the appraisal process
Inclusiveness
External Focus
Imagination
Clear Thinking
Expertise
Talent Development
Identifying potential leaders
and managers
Accelerated leadership
programs
Job rotation
Mentorship
Career development plans
ENPS

Driving Change
Lean Workouts
Kaizen
Idea Generation Schemes
Six Sigma Practices

Customer Connect Program

Launch a company wide
people driven program to
retain customers by improving
customer satisfaction
Introduce CRM