Suitable Airline Performance Data, Provide a Discussion

¶ … suitable airline performance data, provide a discussion rivals North American Airline industry found hard match southwest airlines. 2)Discuss dynamic capabilities, distinct capabilities generally, a source competitive advantage fast-paced highly uncertain environments.

Southwest Airlines

The airline industry has generated unprecedented development within the society. Supported by technologic innovation, the airline industry has shifted balances in wars and fights and it has supported the advancement of the societies and economies. Due to the airline industry, people became able to travel to places once considered remote and as such to expand their cultural horizons, but also the business operations.

At its inception, the airline industry would be mostly owned and operated by the government, and this situation still applies in some of the countries in the globe. In the United States however, the airline industry has been subjected to deregulation and privatization and it is now characterized by high levels of competition. The cost of competition is increased; the returns are often insufficient and the industry is dependent on the economy, meaning that economic difficulties can easily lead to organizational shortages (Investopedia, 2012).

This sensibility of the airline industry to economic conditions has been observed on numerous occasions throughout the past recent years, when several airline companies were forced to declare bankrupt. Some examples in this sense include American Airlines (2011), Mesa Air (2010), Frontier Airlines (2008), Delta Air Lines (2005), United Airlines (2002) and so on (2011). Some of these institutions used the bankruptcy law as a period of protection against creditors and an opportunity to stabilize themselves, whereas others never managed to overcome the bankruptcy.

Southwest Airlines is one of the few companies which did not require filing for bankruptcy and has managed to preserve and further consolidate its position within the market and the industry, despite the threats in the micro and macro environments (changing customer needs, economic pressures, increasing oil prices, increasing pollution concerns and so on).

Southwest Airlines was established in 1967 in Dallas, Texas and has spent the past four and a half decades consolidating its position as leader in the low cost airline industry segment. Measured by the number of domestic passengers transported (110,587), Southwest Airlines is the largest airline company in the country. By measure of total passengers (domestic and international) carried by the company, Southwest Airlines is the second largest air flight operator in the United States (International Air Transport Association, 2012).

The success strategy implemented by Southwest Airlines and which has proved difficult to implement by other organizations is represented by an intense focus and commitment to operational efficiency. In this setting, emphasis was placed on the minimization of the costs and the maximization of the outputs. At the level of cost minimization, the company devised strategies such as minimum investments in personnel or decreased customer offer.

The buyers usually get the tickets online, where they do not solicit the support and consumption of the company's resources; still in support of efficiency, the company does not reserve seats for the travelers, but leaves the seats free for them to be occupied by the people arriving first at boarding.

Also, the company's infrastructure has been created in a manner to also support efficiency. Southwest Airlines as such only operates Boeing airplanes and in mostly national places. The organization as such places an increased emphasis on domestic direct flights, which are simple to deliver and do not include more complexities, such as long flights, the need for more personnel shifts and so on. The operation of only one type of aircrafts also creates efficiencies as the company will always require the same tools, mechanics and processes to upkeep its fleet of approximately 700 airplanes.

The economists at Hoovers summarize the company's competitive strategy as follows:

"Southwest Airlines will fly any plane, as long as it's a Boeing, and let passengers sit anywhere they like, as long as they get there first. Sticking with what has worked, Southwest has expanded its low-cost, no-frills, no-reserved-seats approach to air travel throughout the U.S. To serve 70+ cities in more than 35 states. Now the largest carrier of U.S. domestic passengers, Southwest still stands as an inspiration for scrappy low-fare upstarts the world over. The carrier has enjoyed 39 straight profitable years, amid the airline industry's ups and downs" (Hoovers, 2012).

At a managerial model, most companies in the airline industry believe that the customers come first and they represent the focal point of organizational operations and decisions. This perception is supported by the changing trends within the business community, where a shift is observed from manufacturing and agriculture to services industry. Within the United States for instance, nearly 80 per cent of the gross domestic product is generated by services, when agriculture generates 1.2 per cent of the GDP and the industries generate 19.2 per cent. The distribution of the labor force is also similar, where the agricultural sector employs 0.7 per cent of the total labor force and the industries employ 20.3 per cent, leaving the majority of 79 per cent of the American labor force employed in the services sector (Central Intelligence Agency, 2012).

In such a setting, the majority of the airline companies, in their quality of service providers, place the customers at the center of their operations. They believe that customer satisfaction is essential to ensuring sales, demand and organizational revenues. In other words, most airline companies implement an organizational philosophy based on the belief that customer satisfaction would lead to the attainment of the organizational objectives of operability and profitability.

Southwest Airlines nevertheless has adopted a different approach, in which the customer comes second, and the company believes that if they are able to attain their operability and profitability objectives, then they would be able to deliver services which would satisfy the customers. A similar approach is implemented in terms of the staff members, who are generically perceived as the most valuable organizational asset by other companies, who seek to train, organize, discipline, motivate and capitalize on their staff members. At Southwest however, the management of the human resource is more permissive.

"In their best-selling book Nuts, Kevin and Jackie Frieburg point to a company with people who are committed to working hard and having fun and who avoid following industry trends. The Freiburgs note that Southwest, based in Dallas, Taxes, is a company that likes to keep prices and rock bottom; believes the customer comes second; runs recruiting ads that say "Work at a place where wearing pants is optional"; paints its $30 million assets to look like killer whales and state flags; avoids trendy management programs; avoids formal, documented strategic planning; spends more time at planning parties than writing policies and once settled a legal dispute by arm wrestling" (Shah, Sterrett and Anderson, 2004).

The organization developed and implemented this seemingly unprofessional managerial model, yet managed to distance itself from the competition and has created unique points of differences. Southwest Airlines is as such a powerful economic agent and a notable presence within the global airline industry, and the primary element in this sense is represented by the consistency with which the company has implemented its business model. With the aid of its business uniformity, the organization has managed to create numerous strengths, such as those listed below:

Price leadership within the market

Human resource management based on flexibility, which stimulates employee satisfaction and engagement

The integration of technologic innovations to create operational efficiencies (e.g. The usage of the internet to make reservations)

Strong and positive relationship with its staff members, which support the company in reaching its overall objectives, and last

The provision of high quality low cost services (Rapid Business Intelligence Success, 2008).

Today, if other low cost airline companies were to adopt the model of Southwest, their success would be unsure and this is because they do not have the same consistency as the Dallas-based company. Southwest has already gained the trust and respect of the community, the customers, the employees and the investors and it relies its success on an established model. For other companies however, this model would not be applicable.

References:

Shah, A.J., Sterrett, C.R., Anderson, W.L., 2004, Southwest Airlines Co., Case study

2008, A Southwest Airlines SWOT analysis, Rapid Business Intelligence Success, http://www.rapid-business-intelligence-success.com/southwest-airlines-SWOT-analysis.html last accessed on August 1, 2012

2011, American joins long list of airline bankruptcies, Boston, http://www.boston.com/business/articles/2011/11/29/american_joins_long_list_of_airline_bankruptcies / last accessed on August 1, 2012

2012, Publications and interactive tools, International Air Transport Association, http://www.iata.org/ps/publications/Pages/wats-passenger-carried.aspx last accessed on August 1, 2012

2012, Southwest Airlines Co. company information, Hoovers, http://www.hoovers.com/company/Southwest_Airlines_Co/rrykki-1-1NJIDI-1NJIDJ.html last accessed on August 1, 2012

2012, The industry handbook: the airline industry, Investopedia, http://www.investopedia.com/features/industryhandbook/airline.asp#axzz22GxEqfd2 last accessed on August 1, 2012

2012, The world factbook -- United States, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/geos/us.htmllast accessed on August 1, 2012

2. Dynamic capabilities

The modern day business community is extremely challenging and it forces the economic agents to quickly develop and adapt to the challenges in the micro and macro environments. Economic agents must, for instance, quickly integrate the changing demands of the customers, better manage the growingly important staff members, integrate the technologic innovations and respond to the increasing pressures of the public.

The customers for instance are no longer the people buying whatever the company manufacturers, but they have gradually become the forces telling the companies what to produce and sell. Then, the employees, once the force operating the machines, are now the most valuable organizational asset. In the modern day society, in which more and more emphasis is placed on services in the detriment of agriculture and manufacturing, the organizations become more reliant and dependent on knowledge workers to create intellectual capital within the firm and to support the company in attaining its overall objectives.

Then, there are numerous external forces which generate pressures for the companies. For instance, the internationalized economic crisis forces the economic agents to rethink their strategy in order to cope with the decreasing purchase power of customers and also to better manage their decreasing resources. Then, in the face to globalization and market liberalization, a wide array of the economic agents operate within the international market place, meaning that they have to organize themselves in a manner which simultaneously complies with the domestic, international and foreign legislations and stipulations.

The economic agents also have to respond to the mounting pressures of the public, which pressures the companies to operate in a more environmentally sustainable manner, in which they pollute less and better protect environmental well-being. The local communities demand that the economic agents stimulate their development through the creation of employment opportunities and the shareholders demand profitability from their investments.

All in all, the economic agents in the modern day business society reveal the unchanged desire of profitability, but they must attain it in an indirect manner, through the satisfaction of the needs and wants of numerous stakeholder categories. The challenge nevertheless is represented by the fact that the desires of the stakeholders (customers, employees, business partners, shareholders and so on) often conflict, further deepening the challenges faced by the economic agents.

In order to overcome the impediments generated by the changing features of the micro and macro environment (and the demands of the stakeholders in these environments), the economic agents across the globe strive to devise and implement complex strategic endeavors which maximize their changes of generating stakeholder satisfaction and ensuring the attainment of the organizational objectives.

In such a setting, an important role is played by the generation of organizational capabilities which create points of difference and stimulate the competitive position of the economic agent. At this level then, it is important to assess the dynamic capabilities, through the lenses of their ability to generate competitive advantages in the fast-paced industry and the uncertain and unstable micro and macro environments.

The first step in launching such a discussion is represented by the definition of the dynamic capabilities, which is nevertheless a difficult task, since academicians have yet to devise a universally accepted explanation. Dorthe Dojbak Hakonsson, Jorn Flohr Nielsen, Charles C. Snow and John Ulhoi (2009) centralize some research and find that dynamic capabilities are linked to the following:

Problem solving activities, which in fact represent the essence of the dynamic capabilities

The development and implementation of long-term solutions, rather than ad hoc decisions, and the ability to remain consistent with the approach

The dynamic capabilities would be rare since they generate additional costs, mostly opportunity costs of the operability and productivity of the people and resources engaged in the exploitation of the dynamic capabilities

The dynamic capabilities are different from routine operations within the firm and they stimulate and support change within the internal environment of the economic agent; these changes are aimed to improve the efficiency of the organization (Hakonsson, Nielsen, Snow and Ulhoi, 2009).

Despite the lack of a universal agreement on the concept, some definitions of the concept opt dynamic capabilities are however presented below:

The dynamic capability represents "the firm's ability to integrate, build and reconfigure internal and external competences to address rapidly changing environments" (Teece, 1997, quoted by Felix Arndt, 2008).

The dynamic capabilities are "the firm's processes that use resource -- specifically the process to integrate, reconfigure, gain and release resources -- to match or even create market change" (Eisenhart and Martin, 2000, quoted by Felix Arndt, 2008).

"A dynamic capability is a learnt and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness" (Zollo and Winter, 2002, quoted by Felix Arndt, 2008)

As it can be observed from the definitions above, the dynamic capabilities have a primary role of creating competitive advantages for the economic agents and supporting their success in the highly dynamic and changing market place. This ability is created by the fact that the dynamic capabilities integrate high quality decisive efforts which support the development and implementation of successful strategies. In other words, through the integration of the dynamic capabilities, the economic agents can manage their resources in a means that integrates rare and valuable skills, which further generate competitive advantages.

While this ability of the dynamic capabilities to generate competitive advantages is generally accepted, there are some sources which indicate that the dynamic capabilities are not in fact able to generate competitive advantages. One such opinion is forwarded by Andreas Enders (2004), who states that the dynamic capabilities and in fact rare and valuable, but they are also imitable, non-sustainable within the long-term and also mobile; in other words, where one company can use dynamic capabilities to create competitive advantages, another company can also use the same dynamic capabilities to also generate competitive advantages. Overall then, the economic agents would find it difficult to create long-term sustainable competitive advantages through the dynamic capabilities.

Still, it is believed that the dynamic capabilities can in fact generate competitive advantages when they are first implemented within an industry and can generate (a limited term) position of leadership within the respective market. In order to better assess this assumption, it is useful to review the case of IBM's usage of dynamic competencies. Throughout the past two decades, the IBM Company has implemented dynamic competencies in order to identify the changes in the environments and develop means of adapting to these changes.

At the beginning of the 1990s decade, Wall Street economists had written off IBM, stating that it was no longer competitive. Today however, the company is strong, dynamic and an industry leader. And this transformation was obtained with the aid of dynamic capabilities, which stimulated maturity, change and ultimate success.

"To begin the transformation he emphasized focus, speed, customers, teamwork, and getting the pain behind them. He did this by developing a few global core processes, centralizing the company to leverage its strengths as a provider of solutions to customers, fixing the core businesses, redesigning the metrics and reward systems, and relentlessly driving the culture toward a focus on the marketplace. He began every meeting, including budget and technology meetings, by asking participants what they had heard from customers. He assigned customer responsibility to senior executives who acted as ombudsmen for the customer relationship. This forced senior managers to listen to customers' problems and complaints and created a sense of urgency about the marketplace. Incentives were changed so that business unit heads were no longer rewarded solely on the performance of their business but on how well they operated as a team" (Harreld, O'Reilly and Tushman, 2006

Overall, the theoretical stances on the role and ability of dynamic capabilities to create competitive advantages varies from one source to the other, but the success of IBM proves that, when adequately implemented, the dynamic capabilities can indeed create competitive advantages in the dynamic and fast-paced industry of today.

References:

Arndt, F., 2009, Managing dynamic capabilities in alliance portfolios: from a static dyadic alliance management to a dynamic alliance portfolio management, Diplomatica Verlag

Enders, A., 2004, Management competence: resource-based management and plant performance, Springer

Hakonsson, D.D., Nielsen, J.F., Snow, C.C., Ulhoi, J., 2009, New approaches to organization design: theory and practice of adaptive enterprises, Springer

Harreld, J.B., O'Reilly, C.A., Tushman, M.L., 2006, Dynamic capabilities at IBM: Driving strategy into action, Harvard Business School, http://www.exed.hbs.edu/assets/Documents/dynamic-capabilities.pdf last accessed on August 1, 2012

3. U.S. And China on the GCI

As the national economies become more important players in the global market place, more and more emphasis falls on their annual assessments. Specifically, focus falls on issues such as the countries' unemployment rates, generation of new employment facilities, economic growth rate, inflation and so on.

In the effort of assessing and comparing the evolution of the various countries across the globe, powerful analytical institutions have developed and implemented various indexes to assess the economic strength of the countries. One relevant example in this sense is represented by the Global Competitiveness Index, published in the annual Global Competitiveness Report, by the World Economic Forum.

The Global Competitiveness Report was first issued in 1979 and has, since then, become a reliable source of economic and national and international information. The more notable trait of the Global Competitiveness Index is represented by the fact that the index is resulted from the triangulation of the national competitiveness at the levels of both macroeconomy, as well as microeconomy. The strength of the index is also represented by the centralization of information from over 140 countries, in a means in which the data presented is relevant and useful.

"The World Economic Forum's Centre for Global Competitiveness and Performance through its Global Competitiveness Report and report series, aims to mirror the business operating environment and competitiveness of over 140 economies worldwide. The report series identify advantages as well as impediments to national growth thereby offering a unique benchmarking tool to the public and private sectors as well as academia and civil society. The Centre works with a network of Partner Institutes as well as leading academics worldwide to ensure the latest thinking and research on global competitiveness are incorporated into its reports" (Website of the World Economic Forum, 2012).

As for the most recent report (2011-2012), this is indicative of some notable traits, such as the maintenance of Switzerland on the first rank, as the most competitive country in the globe. What is also notable is represented by the decline of the United States with one more unit since 2011, as a result of the financial crisis. China, the still emergent economy, but an increasing power, is continuing its ascension and has reached one more step to now be ranked the 26th most competitive country in the world.

The 2011-2012 Global Competitiveness Index reveals the following top ten most competitive countries of the globe:

1 -- Switzerland, with a score of 5.74, maintaining its position

2 -- Singapore, with 5.63, having ascended one position

3 -- Sweden, with a score of 6.61 and having descended one spot

4 -- Finland, with a score of 5.47 and having ascended three positions

5 -- The United States of America, with a score of 5.43 and having descended one more position

6 -- Germany, with a score of 5.41 and having descended one position

7 -- The Netherlands, with a 5.41 score and having ascended one position

8 -- Denmark, with a score of 5.40 and having ascended one position

9 -- Japan, with a 5.40 score and having descended three positions

10 -- The United Kingdom, with a 5.39 score and having ascended two positions since the 2010-2011 Global Competitiveness Report.