The secondary gross margin measure, Gross Margin after Depreciation, shows the costs of having a rapidly growing infrastructure to support new routes and the purchase of additional planes over the five-year period. The reduction Gross Margin after Depreciation would be flat or slightly down during a strong economic period as well. This measure of gross margin indicates that the capital investments that are often amortized over seven years as fixed assets are being depreciated on the Southwest Airlines balance sheets through the 2004 -- 2009 period. In summary, the Southwest Airlines financial statements reflect how effective the strategies of continually improving productivity through process improvement are which are tied very closely to the culture the company has worked so hard to create. The activity-based ratios shown in Table 1 including Inventory Turnover, reduction of Operating Cycles and stabilizing Days to Sell Inventory stabilized at 9 days is impressive. This says that despite the rapid growth the company has achieved, they are still as efficient as when they were significantly smaller in 2004.
Table 1: Southwest Airlines Ratio Analysis
Describe the characteristics of company's culture and how it affects company performance.
The thirteen core values of the companies mentioned earlier define a strong foundation on which trust is established and maintained between managers, employees, senior management and service partners throughout the airline's network. This trust acts as an accelerator of key business processes, as it enables much greater tolerance and resiliency to change on the part of its employees. It is noteworthy that Southwest Airlines is one of the few airlines that is not completely managed from unions at the mechanics level of operations, and the commitment to values is a major factor in contributing to keeping unions from overtaking this company (Krames, 2003). If there is a cornerstone to the culture that directly contributes to the company's ability to translate its values to profits, it is its egalitarian nature and openness, and the trust that pervades communications (Sadri, Lee, 2001). This cultural attribute above all others has led to fewer mistakes being made, fewer problems with operations, greater insight into how to improve the efficiency of key customer-facing processes form ticketing to disembarking from aircraft. Southwest Airlines' culture has shown that trust is an exceptional accelerator change, and the financial ratios on operational efficiency illustrate this.
Another aspect of the culture that has directly contributed to improved financial performance is the focus on egalitarian mindsets pervading every aspect of company operations including decisions on which airlines to standardize on and why. Herb Kelleher involved his mechanics and the entire operations staff in the decision of which model of airliner to standardize on, with the goal being a turn-around time of 40 minutes or less for each flight. Given this goal, the operations teams and mechanics studied the many different jets and chose the Boeing 737 due to its excellent reliability record, ease of maintenance, low Mean-Time-to-Repair (MTTR) and its excellent Maintenance, Repair and Overhaul (MRO) record with other airlines (Rhoades, 2006). This decision alone has saved the company literally millions of dollars over the last two decades the planes have been in service. Management theories predicted Southwest Airlines would be the single profitable airline decades ago due to their extreme standardization on a single jet model when the type airline had several models to manage and support (Bovier, 1993). All of these benefits would not have been realized if the company had not adopted their core set of values and stayed passionately committed to them over time.
Given the strategic decisions in the case, recommend actions that Southwest's management should take to sustain/strengthen the culture (or implement a change) based on the situation given.
CEO Herb Kelleher and his management team need to continually reinforce their core values and continue to aggressively build a culture of trust over time to ensure their competitive strength is maintained (Smith, 2004). The first step Mr., Kelleher and his team need to take is to celebrate success stories and hold up for recognition those employees who go far above and beyond their jobs to serve customers and also help the company overcome significant odds to achieve success. In short, the CEO and senior managers need to use stories to further permeate the values into the organization; a proven technique for ensuring long-term learning of values happens (Bacon, 2004). Second, the company's management team needs to define programs that further provide employees with the opportunity to gain autonomy, mastery and purpose over their jobs as well (Vargo, 2006). By combining these three attributes together in job descriptions, job enrichment and design programs, Southwest Airlines will be able to further support and strengthen ownership of job responsibilities by employees (Vargo, 2006). Third, Southwest Airlines needs to continue investing in the social networking and social media programs they have, which to this point have been very successful. The company needs to expand their commitment to social networking as a form of voice of the customer programs to further gain insights into customer expectations and needs. Unlike their competitors who are doing this however, Southwest Airlines needs to staff these positions with employees who share their identities online and further bring a human face to the Southwest brand. Finally, Southwest needs to continue creating opportunities for employees to excel in the service of customers by concentrating on the capturing of stories on video and posting them on YouTube. This immediacy of feedback and recognition internally will fuel even greater commitment and willingness on the part of employees to go the extra mile for customers.
Given the strategic decisions in the case, identify three leadership actions that the company would need to consider to implement the decisions. Explain why these are critical to implementing the strategic decision.
The Southwest Airlines culture is one of the strongest in American business. The three leadership actions that the company needs to take today must be oriented towards continually strengthening their position in the market and ensure profitable growth. First, management needs to concentrate on an ongoing leadership program to ensure that transformational leadership skills continually are taught to everyone in the company. The pay-off of having transformational leadership skills permeate an organization will result in greater trust and authenticity -- two of the critical catalysts in the growth of the company. Second, Southwest Airlines needs to focus the attention of employees on how to make every customer-facing process even more efficient, including trimming the costs and time associated with common complaints, creating more effective procedures for tickets, and managing common issues through automated means. Third, Southwest senior management needs to concentrate on keeping operations and mechanics teams focused on owning each jet turn-around time and striving to be the best in the world at what they do. They need to give these teams an opportunity to own that level of accomplishment and celebrate it once it happens not for the benefit of the Southwest brand, but for those individuals who will have to make sacrifices to get there. Being excellent at aircraft operations and mechanical tasks is an enviable skill throughout the entire airline industry. Setting these teams up to be rock stars not only set the entire company in motion with an intensity to excel, it underscores the one aspect that so many airlines are faltering on Right now: trust and reliability. Creating rock stars of their operations and mechanics teams will give southwest far more value than they realize both in employee morale and in market differentiation.
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