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 - – supply chains are disrupted by pandemic , increasing household debt because of falling income levels, technology disruption, increasing energy prices, talent flight as more people leaving formal jobs, increasing commodity prices, geopolitical disruptions,
increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion, 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 -
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.
Effective Research and Development (R&D)
– Southwest Airlines has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Southwest Airlines (A) - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Sustainable margins compare to other players in Strategy & Execution industry
– Southwest Airlines (A) firm has clearly differentiated products in the market place. This has enabled Southwest Airlines to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Southwest Airlines to invest into research and development (R&D) and innovation.
Organizational Resilience of Southwest Airlines
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Southwest Airlines does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
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.
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.
Successful track record of launching new products
– Southwest Airlines has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Southwest Airlines has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
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.
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.
Analytics focus
– Southwest Airlines is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Charles A. O'Reilly, Jeffrey Pfeffer can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Diverse revenue streams
– Southwest Airlines is present in almost all the verticals within the industry. This has provided firm in Southwest Airlines (A) case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
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 -
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.
High cash cycle compare to competitors
Southwest Airlines has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High bargaining power of channel partners
– Because of the regulatory requirements, Charles A. O'Reilly, Jeffrey Pfeffer suggests that, Southwest Airlines is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Lack of clear differentiation of Southwest Airlines products
– To increase the profitability and margins on the products, Southwest Airlines needs to provide more differentiated products than what it is currently offering in the marketplace.
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.
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.
Slow to strategic competitive environment developments
– As Southwest Airlines (A) HBR case study mentions - Southwest Airlines takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Southwest Airlines (A), in the dynamic environment Southwest Airlines has struggled to respond to the nimble upstart competition. Southwest Airlines has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Southwest Airlines has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
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.
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 -
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.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Southwest Airlines to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Southwest Airlines to hire the very best people irrespective of their geographical location.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Southwest Airlines is facing challenges because of the dominance of functional experts in the organization. Southwest Airlines (A) case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
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.
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.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Southwest Airlines can use these opportunities to build new business models that can help the communities that Southwest Airlines operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Southwest Airlines can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Southwest Airlines can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Learning at scale
– Online learning technologies has now opened space for Southwest Airlines to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
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.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Southwest Airlines can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
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 -
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Southwest Airlines in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
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.
Technology acceleration in Forth Industrial Revolution
– Southwest Airlines has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Southwest Airlines needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
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.
Increasing wage structure of Southwest Airlines
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Southwest Airlines.
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.
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.
Shortening product life cycle
– it is one of the major threat that Southwest Airlines is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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.
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 .
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth 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) .
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.
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.