In 1994, both United Airlines and Continental Airlines launched low-cost airlines-within-an-airline to compete with Southwest Airlines. From 1991 to 1993, Southwest had increased its market share of the critical West Coast market from 26% to 45%. Considers how Southwest had developed a sustainable competitive advantage and emphasizes the role of human resources as a lever for the successful implementation of strategy. Asks whether competitors can successfully imitate the Southwest approach.
Swot Analysis of "Southwest Airlines (A)" written by Charles A. O'Reilly, Jeffrey Pfeffer includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Southwest Airlines facing as an external strategic factors. Some of the topics covered in Southwest Airlines (A) case study are - Strategic Management Strategies, Organizational culture, Strategy execution and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Southwest Airlines (A) casestudy better are - – there is backlash against globalization, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing government debt because of Covid-19 spendings, increasing energy prices, supply chains are disrupted by pandemic , talent flight as more people leaving formal jobs, wage bills are increasing,
cloud computing is disrupting traditional business models, customer relationship management is fast transforming because of increasing concerns over data privacy, etc
Introduction to SWOT Analysis of Southwest Airlines (A)
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Southwest Airlines (A) case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Southwest Airlines, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Southwest Airlines operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Southwest Airlines (A) can be done for the following purposes –
1. Strategic planning using facts provided in Southwest Airlines (A) case study
2. Improving business portfolio management of Southwest Airlines
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Southwest Airlines
Strengths Southwest Airlines (A) | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Southwest Airlines in Southwest Airlines (A) Harvard Business Review case study are -
Strong track record of project management
– Southwest Airlines is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Low bargaining power of suppliers
– Suppliers of Southwest Airlines in the sector have low bargaining power. Southwest Airlines (A) has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Southwest Airlines to manage not only supply disruptions but also source products at highly competitive prices.
High brand equity
– Southwest Airlines has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Southwest Airlines to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Training and development
– Southwest Airlines has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Southwest Airlines (A) Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Learning organization
- Southwest Airlines is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Southwest Airlines is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Southwest Airlines (A) Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Superior customer experience
– The customer experience strategy of Southwest Airlines in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Southwest Airlines digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Southwest Airlines has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Ability to lead change in Strategy & Execution field
– Southwest Airlines is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Southwest Airlines in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Highly skilled collaborators
– Southwest Airlines has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Southwest Airlines (A) HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Innovation driven organization
– Southwest Airlines is one of the most innovative firm in sector. Manager in Southwest Airlines (A) Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Operational resilience
– The operational resilience strategy in the Southwest Airlines (A) Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
High switching costs
– The high switching costs that Southwest Airlines has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Weaknesses Southwest Airlines (A) | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Southwest Airlines (A) are -
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Southwest Airlines is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Southwest Airlines (A) can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Need for greater diversity
– Southwest Airlines has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Southwest Airlines supply chain. Even after few cautionary changes mentioned in the HBR case study - Southwest Airlines (A), it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Southwest Airlines vulnerable to further global disruptions in South East Asia.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Southwest Airlines (A) HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Southwest Airlines has relatively successful track record of launching new products.
Slow decision making process
– As mentioned earlier in the report, Southwest Airlines has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Southwest Airlines even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Products dominated business model
– Even though Southwest Airlines has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Southwest Airlines (A) should strive to include more intangible value offerings along with its core products and services.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Southwest Airlines (A), is just above the industry average. Southwest Airlines needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
No frontier risks strategy
– After analyzing the HBR case study Southwest Airlines (A), it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Increasing silos among functional specialists
– The organizational structure of Southwest Airlines is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Southwest Airlines needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Southwest Airlines to focus more on services rather than just following the product oriented approach.
Capital Spending Reduction
– Even during the low interest decade, Southwest Airlines has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Low market penetration in new markets
– Outside its home market of Southwest Airlines, firm in the HBR case study Southwest Airlines (A) needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Opportunities Southwest Airlines (A) | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Southwest Airlines (A) are -
Loyalty marketing
– Southwest Airlines has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Manufacturing automation
– Southwest Airlines can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Southwest Airlines in the consumer business. Now Southwest Airlines can target international markets with far fewer capital restrictions requirements than the existing system.
Using analytics as competitive advantage
– Southwest Airlines has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Southwest Airlines (A) - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Southwest Airlines to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Southwest Airlines can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Creating value in data economy
– The success of analytics program of Southwest Airlines has opened avenues for new revenue streams for the organization in the industry. This can help Southwest Airlines to build a more holistic ecosystem as suggested in the Southwest Airlines (A) case study. Southwest Airlines can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Better consumer reach
– The expansion of the 5G network will help Southwest Airlines to increase its market reach. Southwest Airlines will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Southwest Airlines to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Building a culture of innovation
– managers at Southwest Airlines can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Southwest Airlines can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Southwest Airlines (A), to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Low interest rates
– Even though inflation is raising its head in most developed economies, Southwest Airlines can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Developing new processes and practices
– Southwest Airlines can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Buying journey improvements
– Southwest Airlines can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Southwest Airlines (A) suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Threats Southwest Airlines (A) External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Southwest Airlines (A) are -
Regulatory challenges
– Southwest Airlines needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Southwest Airlines.
Environmental challenges
– Southwest Airlines needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Southwest Airlines can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Stagnating economy with rate increase
– Southwest Airlines can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Southwest Airlines with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Southwest Airlines in the Strategy & Execution sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Southwest Airlines can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Southwest Airlines (A) .
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Southwest Airlines can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Consumer confidence and its impact on Southwest Airlines demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
High dependence on third party suppliers
– Southwest Airlines high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Southwest Airlines business can come under increasing regulations regarding data privacy, data security, etc.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Southwest Airlines (A), Southwest Airlines may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Weighted SWOT Analysis of Southwest Airlines (A) Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Southwest Airlines (A) needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Southwest Airlines (A) is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Southwest Airlines (A) is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Southwest Airlines (A) is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Southwest Airlines needs to make to build a sustainable competitive advantage.