Wednesday, April 12, 2017

The ‘Staying The Course’ Strategy of Southwest Airlines – How to Evade Strategic Failure using Great Coherence

In this post, I’d like to reflect on a strategic move of Southwest Airlines in the late 1990’s, discussed in “Southwest Airlines: in a different World” by James Heskett and W. Earl Sasser Jr. For this reflection, I will make use of two papers: “The Coherence Premium” by Paul Leinwand and Cesare Mainardi and “Seven ways to fail big” by Paul Carrol and Chunka Mui.

In the years coming up to the 1990’s, Southwest were experiencing enormous growth, as their core competency of relatively very low prices, with good customer experiences, and short turnaround times, made them very desirable for the low budget flyer. This high percentage of annual growth however, caused Southwest to have a growing problem in recruitment. One of the most important capabilities for Southwest was their great service and the “FUN” atmosphere among the staff. A capability is described in ‘The Coherence Premium’ as something a company is good at, customers value and competitors can’t beat, and that was exactly the case for the customer service of Southwest. With an average growth of 25 percent in the years coming up to the late 90’s, Southwest found it increasingly difficult to find new employees that fit their profile of 'fun and enthusiastic' staff members.

As the article of Carrol and Mui describes, one of the seven major causes of companies to fail in their strategy is to 'stubbornly stay in the course of their current strategy', even though the market around them changes. For Southwest, the market was not exactly changing itself, but the expansion of Southwest from only short distance flights, to cross-country flights, changed the market in which Southwest participated.

So, at this point in time, Southwest stood for a choice, to either continue their rapid growth and possibly abandon their strategy of providing the best customer service in the air, or limit growth so recruitment practices could keep up. Southwest chose the latter, and from what is found in the article of Heskett and Sasser, this paid off as growth continued in the following years.

I believe that the takeaway from the reflection on the three articles is as follows; Focussing on key capabilities can sometimes create such an added benefit to your company, that even with changing environments and markets, your company can thrive under the ‘staying the course’ strategy. When the capabilities are strongly aligned with your market position, this coherence will cause a strengthened competitive advantage, a better focus for strategic investments, efficiencies of scale and alignment between strategic intent and day-to-day decision making. 

However, changing markets come in a wide variety of shapes and sizes, all with a different impact on your company. Therefore, whereas the ‘staying the course’ strategy worked out for Southwest, a company that might have been in a seemingly similar situation, with similar characteristics, could have had a totally different outcome.

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