Saturday, June 10, 2017

Southwest: Evolving Core Competencies and Strategy

Many of the readings and cases this week honed in on an organization’s ability to define their core competencies and align their strategy with synergistic, attractive industries. While I absolutely agree that uncovering competencies is essential for a successful strategy, I can’t help but emphasize that these proficiencies evolve as companies grow and pivot. In my opinion, understanding competencies will require constant evaluation, which may result in the need to shift the strategic framework in the future.

The assignment of the Southwest case underscored and highlighted the necessity to exploit differentiation as a valuable resource that is difficult to imitate. Southwest is a great example of a company that managed to succeed as a low-cost airline in a notoriously difficult industry. However, the HBR article was a historical representative of the company from its inception in 1967 up to a difficult decision to bid for slots at La Guardia in 2008. Having flown Southwest recently and repeatedly for a work engagement (Pittsburgh to Los Angeles), my understanding of the company’s strategy differed from that presented in the case. It seems that over the past few decades, Southwest focused on relationships with small airports and urban markets. Yet, today it’s competing with the largest providers (Delta, United, and American) within the most congested airports. I had to ask myself, what’s the goal here, and am I missing something?

According to Fortune magazine, Southwest’s strategy has shifted from short distance urban flyers to attracting high-fare business travelers flying long distances – a scenario which I myself have fit within over the past few months. [1] What’s most impressive here is that CEO Gary Kelly (a 29-year Southwest veteran) has evangelized the shift in strategy due to the decline in short haul flights between southern cities. Because long haul is the fastest-growing segment in U.S. air travel, Kelly believes that it’s an attractive market with little risk: “If you’re going to grow, you need universal appeal.” [1]

However, it should be noted that with the focus on long haul business flights, prices for all flights have gone up. Southwest no longer operates as the lowest cost carrier; this award is granted to budget carriers Spirit, Frontier, and Allegiant. [2] However, Kelly has addressed the issue head on, stating that “Our service levels are the best in the business, our costs are the lowest of the majors, and our beloved brand puts us in a prime position. We’ll grow faster than they will.” [1]

Ultimately, I think that evaluating where you stand in the competitive environment should be an ongoing priority for leadership. It is clear that since the case was published, Southwest CEO Kelly has conducted evaluations which resulted in a shift in focus to a hybrid strategy, concentrating less on cost and more on differentiation through route convenience and on-time business departures. I’ll be interested to see how the large airlines respond to the change in target market (i.e. Southwest competing with their most profitable arm head-on), and overall strategic focus over the coming years.
-Abby (ahardt)

Works Cited:

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