Southwest Airlines: How much can ‘LUV’ do? Naga Lakshmi Damaraju Gregory G. Dess Alan B. Eisner Vasudev Krishnan McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Southwest Airlines Assess the leadership effectiveness at Southwest Airlines. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Southwest Airlines Discuss the various components of Southwest’s strategic control systems. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Discuss Southwest’s approach to managing human capital. Southwest Airlines Discuss Southwest’s approach to managing human capital. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Southwest Airlines Discuss the basis of Southwest’s competitive advantage and the potential challenges to its strategy. McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Q1. Leadership Effectiveness Setting Direction: Low-cost airline providing point-to-point services. Leadership ensured that the organization did not digress from this core business and kept focus on profitability. Organizational Design: Open communica-tion, culture that was not bureaucratic; tight cost controls; employee participation at all levels; sense of ownership among employees Nurturing a Culture Dedicated to Excellence: “Excellent customer service” – key goal; employees come first; Kelleher’s personality; proactive approach to leadership transition McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Q2. Strategic Control Systems Informational Control Doing the “right things” Focus on low-cost strategy Conservative expansion Profitability prime focus, not growth Behavioral Control Doing “things right” Survival crises forged the ‘Southwest spirit’ Openness, communication, fun, and celebration “Star of the Month” Signed birthday cards ‘No furlough’ policy No elaborate rules and regulations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Q3. Managing Human Capital Mission statement makes a commitment to employees Recruitment policy is “hire for attitudes, and train for skills” Fun culture, reward systems, and ‘no furlough’ policy help in retention Nurturing of ‘social ties’ or social capital Emphasis on team work McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Q3. Managing Human Capital Strategy is “overall cost leadership” Structure and systems aligned with strategy Activity system – the tight linkage across its value chain activities that is valuable, rare, inimitable, and non-substitutable Sustainability JetBlue – Southwest needs to achieve parity on differentiation (‘in-flight entertainment’ system) The need to balance ‘low-cost’ and ‘differentiation’ McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.