Stanford University Case HR-1A,1B: Southwest Airlines

This case talks about a time when Southwest began facing competition from customers as they began to copy parts of Southwest’s strategy.  At the time, there was doubt about the sustainability of Southwest’s business approach in the face of competition from entrenched competitors.

The case describes a company where people contribute more, are paid less on the average and in some cases take pay cuts to join.  Southwest was able to provide incredible customer service even with the majority of employees being organized under any one of several unions.

There are many reasons why Southwest was able to achieve such success, and a very important reason is that CEO Herb Kelleher ignored status quo and broke all the rules about how to run an airline.  Other companies allowed contempt between employee groups, used more people per job, paid employees more and in general did not behave as if employees were important or that customer service mattered. In addition to having a sound business plan based on efficiencies due to using one airplane model, quicker gate turn arounds, etc., Keller built a culture of collaboration and spirit in his organization that made employees care about Southwest and its customers.

When competitors began to emulate Southwest, Keller’s response was to tell employees that success must be earned over and over again.  Because the company already had the employee- and customer- focused culture, Southwest simply had to continue its success incrementally because the foundation of success was already laid.  Southwest’s competitors were at a major disadvantage in that they had to make major cultural changes in addition to major business model changes.

Continental made one of the more aggressive challenges to Southwest by splitting out the company CALite.  CALite would concentrate on short-haul, low fare flights and compete with Southwest on fare prices.  However, the new challenge failed because the employees were not able to deliver the same level of customer service to the customers.  In fact, the company had very poor marks for customer service.    As of the time of the writing of the case, CALite had yet to make a profit and the CEO generally thought the company was on the right track.

This case was developed over a decade ago, and it is clear that Southwest’s approach has been very effective.  It is safe to say that Southwest’s treatment of its employees was a major factor allowing the company to stand its ground when competitors emulated other aspects of its business.

Explore posts in the same categories: BADM 720 - Organizational Behavior

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