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

• Brief Summary of the caseoHistory of Southwest Airlineso The Southwest Culture

• Discussion of theoretical conceptsoCreating Shareholder ValueoAligning HR practices with corporate strategyoHR’s role in driving Organizational Changeo Leading the HR Function : The Next Paradigm

Agenda

A DIFFERENT ORGANIZATION ALTOGETHER

How many CEOs of the company do you know who come into a cleaner’s 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!

CUSTOMERS* No ‘ frill’ services leading to

low prices* ‘CUSTOMER’ is capitalized

SHAREHOLDERS* Profitable organization* Increased stockholder’s

equity value

EMPLOYEES* Treated as internal

customers* Incentives based on

seniority* Recognized as competitive

advantage

CREATING VALUE FOR

STAKEHOLDERS

Competitive Environment

Company’s Strategic Situation

Company’s Internal culture

Organizational Performance

Company’s strategic plan

Company’s HR strategies

ALIGNING HR PRACTICES WITH CORPORATE STRATEGY

Improve market share from current value

Fly fewer planes (maximize passenger miles flown per seat)

Maintain industry-wide low prices

Maintain profit growth of 4% per year

Maximize on-time flights

Turnaround planes at gates in 15 minutes

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

airlines

What overall goals does Southwest Airlines want to achieve ?

What must Southwest do operationally to achieve these goals?

What employee attitudes and behaviors will produce these operational outcomes?

• 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

• Extraordinarily selective recruiting process (It’s 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 style

• 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

• Point to point strategy instead of hub and spoke model

ALIGNING HR PRACTICES WITH CORPORATE STRATEGY

• What are the cultural gaps ?• Gaps in HR policies ?• Can they imitate ?

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

HR’S ROLE IN DRIVING ORGANIZATIONAL CHANGE

How are Continental and United imitating Southwest Airlines ?

What are the changes that Southwest need to take to ?

Continental Airlines - CALite

• 2 operations • First-class services, biz class prices• Short-haul, low-fare flights

• 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 measure for

competitive relevance• Examples

• Newark – Greensboro fare went from $273 to $99

• Greensboro – Greenville fare from $226 to $59

United Airlines – United’s Shuttle

• Airline within-an-airline• No clear business separation but

strategic differences brought in• Regain its market share – captured by

Southwest • Cost cutting by 30% on SW’s routes• 184 daily flights on 13 routes -

expanding to almost 300 by year end• United’s 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

HERE COMES THE COMPETITION !

Continental Airlines – CALite

• CEO reputation• 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

United Airlines – United’s Shuttle

• Top Management• Mechanic – “… thinks they are way up there, and

the rest of us are way down here”• Flight Attendant – “We’ve always been treated

like angry children who don’t 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

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

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 Southwest’s 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

Period Flight Attendant

Reservation Agent

Customer 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

Table: Pay Scales for 3 Selected Jobs

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 ParadigmChange Acceleration Process

Change Effectiveness EquationQxA = E

Q: Quality of strategy/ changeA: Acceptance of strategy/ change

In simple words, paying attention to the people side of the equation is as important to success as the technical sideTo 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

Driving Change• Lean Workouts• Kaizen• Idea Generation Schemes• Six Sigma Practices

Talent Development• Identifying potential leaders and

managers• Accelerated leadership programs• Job rotation• Mentorship• Career development plans• ENPS

Customer Connect Program• Launch a company wide people driven

program to retain customers by improving customer satisfaction

• Introduce CRM