After more than 45 years of service, the company was facing some major challenges. Legacy carriers in the United States had become more efficient, and the recent mega-mergers involving Delta/Northwest and Continental/United were shaking up the industry. Smaller companies like JetBlue and Allegiant were pressuring Southwest's cost-advantage and low-fare focus. A major internal challenge for Southwest would be managing its acquisition of AirTran. To make the acquisition a success, the company would have to integrate a workforce of more than 8,000 and new markets that included non-U.S. destinations. In addition, high fuel prices were a continuing challenge, and Southwest's salaries were among the highest in the industry.
Swot Analysis of "Southwest Airlines" written by Andrew Inkpen includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Southwest's Southwest facing as an external strategic factors. Some of the topics covered in Southwest Airlines case study are - Strategic Management Strategies, Competitive strategy, Innovation, Supply chain and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Southwest Airlines casestudy better are - – cloud computing is disrupting traditional business models, geopolitical disruptions, increasing household debt because of falling income levels, customer relationship management is fast transforming because of increasing concerns over data privacy, increasing transportation and logistics costs, competitive advantages are harder to sustain because of technology dispersion, increasing inequality as vast percentage of new income is going to the top 1%,
there is backlash against globalization, central banks are concerned over increasing inflation, etc
Introduction to SWOT Analysis of Southwest Airlines
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Southwest Airlines case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Southwest's Southwest, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Southwest's Southwest 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 can be done for the following purposes –
1. Strategic planning using facts provided in Southwest Airlines case study
2. Improving business portfolio management of Southwest's Southwest
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's Southwest
Strengths Southwest Airlines | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Southwest's Southwest in Southwest Airlines Harvard Business Review case study are -
Strong track record of project management
– Southwest's Southwest is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Southwest's Southwest digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Southwest's Southwest 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.
Sustainable margins compare to other players in Strategy & Execution industry
– Southwest Airlines firm has clearly differentiated products in the market place. This has enabled Southwest's Southwest to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Southwest's Southwest to invest into research and development (R&D) and innovation.
Ability to recruit top talent
– Southwest's Southwest is one of the leading recruiters in the industry. Managers in the Southwest Airlines are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Learning organization
- Southwest's Southwest 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's Southwest is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Southwest Airlines Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Diverse revenue streams
– Southwest's Southwest is present in almost all the verticals within the industry. This has provided firm in Southwest Airlines 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.
Operational resilience
– The operational resilience strategy in the Southwest Airlines 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 brand equity
– Southwest's Southwest has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Southwest's Southwest to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Superior customer experience
– The customer experience strategy of Southwest's Southwest in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Cross disciplinary teams
– Horizontal connected teams at the Southwest's Southwest are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Organizational Resilience of Southwest's Southwest
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Southwest's Southwest does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Innovation driven organization
– Southwest's Southwest is one of the most innovative firm in sector. Manager in Southwest Airlines Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Weaknesses Southwest Airlines | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Southwest Airlines are -
Increasing silos among functional specialists
– The organizational structure of Southwest's Southwest is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Southwest's Southwest needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Southwest's Southwest to focus more on services rather than just following the product oriented approach.
Slow to strategic competitive environment developments
– As Southwest Airlines HBR case study mentions - Southwest's Southwest 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.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Southwest Airlines, in the dynamic environment Southwest's Southwest has struggled to respond to the nimble upstart competition. Southwest's Southwest has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Low market penetration in new markets
– Outside its home market of Southwest's Southwest, firm in the HBR case study Southwest Airlines needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Lack of clear differentiation of Southwest's Southwest products
– To increase the profitability and margins on the products, Southwest's Southwest needs to provide more differentiated products than what it is currently offering in the marketplace.
Slow decision making process
– As mentioned earlier in the report, Southwest's Southwest 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's Southwest 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.
Interest costs
– Compare to the competition, Southwest's Southwest 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.
Skills based hiring
– The stress on hiring functional specialists at Southwest's Southwest has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
No frontier risks strategy
– After analyzing the HBR case study Southwest Airlines, 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.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Southwest Airlines 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's Southwest has relatively successful track record of launching new products.
Aligning sales with marketing
– It come across in the case study Southwest Airlines that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Southwest Airlines can leverage the sales team experience to cultivate customer relationships as Southwest's Southwest is planning to shift buying processes online.
Opportunities Southwest Airlines | 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 are -
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's Southwest 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's Southwest 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.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Southwest's Southwest is facing challenges because of the dominance of functional experts in the organization. Southwest Airlines 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.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Southwest's Southwest can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Southwest's Southwest 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.
Learning at scale
– Online learning technologies has now opened space for Southwest's Southwest 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.
Using analytics as competitive advantage
– Southwest's Southwest 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 - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Southwest's Southwest to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Developing new processes and practices
– Southwest's Southwest 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.
Better consumer reach
– The expansion of the 5G network will help Southwest's Southwest to increase its market reach. Southwest's Southwest 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's Southwest can use these opportunities to build new business models that can help the communities that Southwest's Southwest operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Manufacturing automation
– Southwest's Southwest 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.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Southwest's Southwest in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Southwest's Southwest 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's Southwest to hire the very best people irrespective of their geographical location.
Leveraging digital technologies
– Southwest's Southwest can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Threats Southwest Airlines 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 are -
Environmental challenges
– Southwest's Southwest 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's Southwest can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Regulatory challenges
– Southwest's Southwest 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.
High dependence on third party suppliers
– Southwest's Southwest 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.
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.
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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Southwest's Southwest with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology acceleration in Forth Industrial Revolution
– Southwest's Southwest has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Southwest's Southwest 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.
Consumer confidence and its impact on Southwest's Southwest 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.
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's Southwest.
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, Southwest's Southwest 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 .
Stagnating economy with rate increase
– Southwest's Southwest 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.
Shortening product life cycle
– it is one of the major threat that Southwest's Southwest is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
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's Southwest in the Strategy & Execution sector and impact the bottomline of the organization.
Weighted SWOT Analysis of Southwest Airlines 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 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 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 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 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's Southwest needs to make to build a sustainable competitive advantage.