This short paper is an overview of Southwest Airlines, its strategy, and what role Human Resources plays in the implementation of that strategy. Particular attention is paid to the hiring and promotion practices, and how Southwest Airlines selects individuals based upon their fit with the organizational culture. A portion of the paper is devoted to assessing and measuring the effectiveness of HR’s efforts and what metrics and analyses might be added to improve the assessment.
Southwest Airlines is known for two key things. One, it has a fun-loving corporate culture. Second, it is the only airline to have consistent profitability for over 30 years. Southwest’s strategy is unique to itself. However, it is important to understand what role toplevel and functional-level managers play in implementing strategy. Human Resources has a key role in recruiting, hiring, selecting, promoting, and training personnel who will be a good fit with the strategy and with the fun-loving organizational culture. Company Overview
The mission of Southwest Airlines is a dedication to the highest quality of service delivered with warmth, friendliness, individual pride, and company spirit (Mission…, 2007). The company also strives to provide opportunities for learning and personal growth to each employee. Creativity and innovation is encouraged, for the purposes of improving effectiveness. Perhaps most important, employees are to be provided the same concern, respect, and caring attitude within the organization that the employees are expected to share with the customer. Southwest Airlines was initially created to be a low-cost alternative to high price of intra Texas air carriers (Freiberg, 1996).
Strangely, Southwest’s fares were originally structured to compete with car and bus transportation. It was a little upstart airline, and it would withstand the test of time, survive court challenges, and overcome all obstacles even with an increased need for capital. As a discount, no-frills airline, it would wage war with larger airlines. Part of their strategy was to operate at low cost, for the most part offering no food, no movies, no first class, and no reserved seats. They created their own market niche and increased turnaround times at the gate, by avoiding hub-and-spoke airports and opting for short-haul, direct flights. Through this unique market approach, Southwest boasts a super majority of market share in the markets they serve.
Although all companies are in business to make a profit, Southwest claims that their primary goal is not profit maximization. However, they have been consistently profitable by making air travel affordable to those who previously could not afford it (Freiberg, 1996). Southwest often says the customer comes second, showing their devotion to employees. By taking care of their own, the company encourages employees to take care of the customers. Employees are to think and act like they own the place, serving customers, creating new ideas, exhibiting a fun culture, and increasing profitability. The market value of Southwest has been greater than that of all other airlines combined (Gittell, 2003). Southwest has remained profitable through deregulation, terrorist attacks, and the bankruptcy of their competitors. While major airlines initially mocked the little airline, over time they found themselves reacting to every little action Southwest took. Southwest now serves half the country, preferring to frequent less crowded airports.
They have engaged in a slow, consistent, cautious, and deliberate expansion, choosing airports where competition is limited (Company, 2004). Rather than practicing the routine tactic of lowering fares to compete, Southwest permanently reduces fares to establish profitability and loyalty. However, they are not always the cheapest, so their success has been as much to do with marketing and image development, rather than just low fares. With the exception of killing a kid in a car, Southwest has a fatal-free record. Southwest ranks highly in employee satisfaction, having been one of Fortune’s top one hundred companies to work for.
Fortune has hailed Southwest as the most successful airline in history. After 9-11, most airlines had layoffs, route consolidations, and huge financial losses. However, Southwest used its strong cash position and their low debt/equity ratio to expand the availability of its low cost model. Southwest benefits from strong management-labor relations, turnaround times at the gate, and the speed of operations afforded by smaller airports. The company model benefits from a combination of leadership, strategy, coordination, and culture. Analysis of Strategy
Porter discusses that strategy and operational effectiveness may be implemented in a unique way at each company (Porter, 1996). Southwest uses marketing to present itself as a lowcost leader, even though Southwest may not be the cheapest fare. Southwest is really more of a differentiator, using those short-haul segments rather than hub-and-spoke. Southwest is more about fun, convenience, and speed. Individuals take short-haul flights that might just as easily be taken by car, bus, or train. For that reason, Southwest has to provide frequent flights and rapid turnaround times at the gate, which they do. Southwest has its own niche, using the shortdistance flights and the less populated airports that have often been abandoned by larger carriers. Part of Southwest’s strategy is branding and building loyalty. This image development is part of the strategy, whether to market to a specific clientele or to bring repeat business.
Southwest Airlines maintains competitive advantage. Creative solutions have lowered costs, such as being the first airline to introduce ticketless travel. They have outfoxed competitors, such as when they bought up gate spaces in Little Rock before the competition could get there. Southwest’s strategy does focus on low-cost, even if it is not always the lowest price. They use the same fleet of aircraft, to limit the number and variety of technicians and the training expense that would be required of a varied fleet. They have brought in some of the gate equipment and luggage vehicles that use electricity or alternative fuels. When computerized reservation systems and ticketless travel were introduced, it was done so as a cost-savings tool.
Another low-cost approach was to avoid full-service activities, whether that involves cargo, meals, or additional services afforded on larger carriers. Porter (1996) also wrote of positioning, and needs-based positioning. This is probably more relevant to the early days of Southwest. Before deregulation, air travel was very costly and limited in options. Southwest was focused on lowering consumer prices and providing freedom to air travelers. Porter (1996) spoke of tradeoffs that have to be made. Full-service airlines that tried to mirror Southwest without making tradeoffs were not profitable. Southwest does not use travel agents, and for the most part, as continued to avoid other expense items that full-service airlines offer. As such, they are still the only airline to have over a quarter century of profitability.
Southwest has been able to sustain its advantage and profit, while not falling into the growth trap (Porter, 1996). Southwest has been able to
sustain its competitive advantage with additional strategic points. Southwest invests heavily in fuel futures, locking in fuel prices in advance, so as not to suffer shock during summer highs or following terrorist attacks. Southwest also keeps a large reserve of cash. This allows Southwest to engage in a slow and deliberate expansion into new markets, without taking on vast amounts of debt, if any. Other businesses might attempt a large, lump-sum investment to start a multi-market venture. They would also loose money in the financing activities. No doubt financial management is part of Southwest’s strategy.
Porter (1996) talks of the growth of leadership. Southwest and Herb Kelleher has led with a strategy that is almost cultic. This is part of the culture. Human resources were not absent from the strategy planning either. There is often a significant experience requirement, especially for administrative jobs. Every challenge that Southwest faced, especially in those early years, required entrepreneurial thinking. It was always something new, a problem that had not been tackled before.
The functional strategy of Southwest is achieved through its competitive advantage, which is accomplished through low fares and great service. Southwest accomplishes efficiency by doing more with less. Southwest wins the competitive race with creative and innovative ideas. Personnel offer a high level of service. Business-level strategy is accomplished through cost leadership and differentiation. The company is a cost leader, by keeping expenses and consumer costs low. Southwest accomplishes differentiation through market segmentation. They focus their efforts on limited market segments, such as the cost-conscious business travelers.Distinctive competencies are achieved by offering necessary services, without the added costs of in-flight food or other costly frills. Global strategy is not directly relevant to Southwest. Southwest does engage in marketing directly to specific consumer markets, such as the Hispanic community. Other companies might relocate to Mexico as a cost-reduction strategy, but domestic airlines do not have that luxury. Corporate-level strategy is achieved through strategic alliances and diversification. Such alliances are only made with vendors. Diversification strategy at Southwest is achieved through the expansion of airline and investment activities.
The internal strengths of Southwest Airlines include a great climate for employees. They are heralded as one of the greatest companies to work for. Employees are to help each other out and support each other. Employees have means to air grievances within the company, and the other will answer to those charges. The company has a strong financial position, it is profitable, and they always keep a large amount of cash on hand to finance new ventures. The culture and image within the company are also widely known to and favored by customers. The internal weaknesses of Southwest Airlines are limited. It is possible that there is not a great unity in decision making when spreading into new markets. Criticism has been made when actors were used in advertising, instead of using employees. There is a great fear of competition, due to the low profit earned per passenger. There are really limited opportunities for advancement within the company.
The external opportunities of Southwest Airlines consist of its competitive position. Southwest dominates the short-haul market. They have market segments that other carriers to do not provide. Southwest has the option to expand in its continued, slow fashion. There are still some parts of the company that have not been entered into by Southwest. Further, there are other local and regional airports that would be highly suitable for Southwest. There have also been limited partnerships, such as code sharing, allowing Southwest to enter new markets indirectly. The external threats to Southwest Airlines consist of new competitors. While it is difficult for new entrants in any industry, there are other regional airlines that have offered some competitive threats to Southwest’s market share. Another threat is that corporate raiders may buy up large blocks of stock in an attempt to control management decisions. Rewards Systems
Southwest Airlines provides the standard run-of-the-mill benefits common to other businesses (Employee…, 2007). These include medical, dental, vision, and health coverage. Other benefits include time off, dependent care spending accounts, long-term care disability insurance, and a 401(k) retirement savings plan. The not-so-common benefits are profit sharing plans and stock purchase plan. The unique benefit is the space-available free flying privileges.
Profit-sharing is a tool that links compensation to business strategy. Southwest implemented a profit sharing program so that employees would feel and act like they owned the place. Southwest encourages creativity, and has adopted many ideas put forth by employees over the years. If an idea will save money and increase profit, and employees are allowed to share in that profit, then the employees will be more likely to apply themselves. It may not even take a new idea, but an increase in speed and efficiency. An example is the rapid turnaround time at the gate. Southwest once calculated how much money would be wasted if a plane spent more time at an airport and less time on a flight segment. Profit sharing provides employees a motivation to increase speed of service, and therefore profitability. S
outhwest salaries are governed by contracts, so specific and unique rewards are not a key opportunity to reward someone. Southwest does try to incorporate rewards with a sense of pride and recognitions for jobs well done (Wilson, 1999). The philosophy is to give top management a below-mean salary, yet to reward other managers with an above-mean salary, coupled with stock options, thus allowing managers to share in the profitability they create. It is a point of contention to have standardized salaries, since pay can no longer be used as a motivation to excel. However, the profit-sharing does reward the collective group, while reducing competition between employees.
It is dangerous to pay someone based upon the job, and not based upon his individual skill and worth (Lawler, 2000). Human capital is the key to organizations, as more people have greater education, experience, and skill than in years past. It would be beneficial to pay, reward, and recognize individuals based upon their market value. This may involve changing from evaluations based upon mere job descriptions, but accounting for a person’ s professional development activities. Lawler (2000) calls for personal descriptions, not just position descriptions. The preferable reward system is one that is individualized. It gives choices to managers and motivations to employees.
Total compensation must include pay, as well as non-monetary compensation and recognition (Williams, 1999). The strategy and philosophy requires a compensation scheme that rewards performance. One idea is to provide merit increases, and spell out in advance what it will take for the employee to attain these. Southwest rewards employees, but individual rewards are limited to recognitions. Total compensation must be individualized and should provide a wide array of potential benefits, such as bonuses, recognition, promotions, training, and more. Role of Human Resource Management
The human resource department has a critical role in recruiting, hiring, training, and promoting individuals who fit with the strategy of Southwest Airlines. More specifically, human resource managers must hire individuals who fit with the culture and exhibit the cultural characteristics that the company wants to advance. Human resource managers are only one managerial voice in setting and determining what the culture of the organization will be, but human resources is solely responsible for hiring those who fit with the culture and implementing that culture. Such activities include crafting interview questions and means of identifying the best personality. In an entrepreneurial climate, HR has a greater latitude regarding its hiring procedures and in socializing new employees (Gomez-Mejia, Balkin, and Cardy, 2007). Southwest may not allow its hiring managers to be informal in its methodology, though managers can be creative.
In modern times, employees have lost faith in the management line, “take care of the company, and the company will take care of you”. Through layoffs, firings, downsizing, scandals, hiring the wrong managers, and for various lesser reasons, employees have lost faith in business. Individuals are focused on developing their own career, regardless of which company or companies it will be with. Employees look for development, training, and advancement opportunities. With this in mind, HR managers must look for options in training employees, providing job rotations, or providing other services that will have a vested interest in the employee, all while strengthening the company.
The best people seek out the best employers. Talented individuals know who to work for, in the interest of career potential. To that end, workers will look for employers who have the name, image, and promotion opportunities. Some new applicants may be willing to start with lower pay and fewer responsibilities, just to get into the right company. HR professionals must take a long-term approach to building an image that prospective employees are looking for. One suggestion would be to provide training, job rotation, job enrichment, and training opportunities, in addition to pay and benefits (Gomez-Mejia et al., 2007).
HR is also responsible for identifying those who will be great performers. Just as the employee is interested in the best company, the company needs employees that are best fro the company. Once hired, HR must continuously evaluate their workers, as some workers may be determined to perform better in a position other than the one they were hired for. This is talent management (Rodriguez, 2007).
The keystone of HR responsibility is talent retention, keeping great performers from going somewhere else. Many organizations are looking to fill the vacuum of star performers (Chambers, 1998). The war for talent, and talent retention, must become a burning corporate priority. HR managers must identify talent in the individual, not just by comparing a person to a job description. Rodriguez (2007) points out that employees flow through an organization as they flow through their career. The company spends a great deal of money training employees.
HR is tasked with retaining the best talent in the company. This is accomplished through compensation, recognition, new assignments, and promotions. Southwest must continue to market its culture. Chambers (1998) says that companies should market jobs. By attracting the right managers, the company brand will take care of itself, as the new team will reinforce the values the company seeks to build. HR should keep workers interested by giving them new opportunities before they expect them. Employees are always searching for advancement opportunities, so it might as well be with the company that trained them. Another consideration is the requirements for a higher level job. If jobs are awarded based on seniority, not competence, then employees know they are working toward nothing. There is no future potential for them. Talent will leave the company and go somewhere where they do not have to wait 20 years.
Organizational culture is the shared values among organizational members (Mathis and Jackson, 2000). Linking human resource practices to the culture is part of the overall strategy and becomes a core competency for the company. Southwest relies on its People Department to hire those who are a good fit with each aspect of the culture. Most employees are familiar with the knowledge, skills, and abilities that hiring managers use to match prospective employees with the technical requirements of a job. However, using human resources as part of the strategy requires a selection process that goes beyond technical skills. The prospect must fit with a funloving culture, must be willing to support other employees, must be willing to create, and must have initiative. Southwest’s hiring personnel will ask additional questions to determine if a good fit exists.
Hiring and Promotion Practices
Southwest’s culture believes in nourishing lightness in the workplace (Freiberg, 1996). Terms like professional just are not appropriate.
Customers encounter employees at Southwest who are empathetic and uninhibited. As for hiring practices at Southwest, they strive to hire individuals who are agreeable to that kind of atmosphere. Comical jokes, stories, or actions of flight attendants are not the result of coercion, but the expressions of an actual, real person. Southwest employees are encouraged to have personality and to be creative (Freiberg, 1996). If not in dealing with customers, then in business practices they are encouraged to act like they own the place. They tolerate mistakes and encourage creativity. This has been seen a number of times over the years where employees came up with ideas that saved the company money. Southwest is religious about hiring the right people (Freiberg, 1996). Their human resources, or people department, see employees as real people. Southwest hires for attitude and trains for skills.
Practicing targeted selection, is the practice of hiring people who have the right attitude, people who do not take themselves too seriously. They believe that the new employee can be trained on whatever job skills are needed, but not on attitude. Interviewers ask applicants for examples of how they have used their sense of humor. Or, they ask how the applicant has used humor to diffuse a difficult situation. In one exercise, applicants give presentations to other applicants, about themselves. The interviewer is observing, not the speaker, but the observers, to identify who unselfishly applauds and encourages the nervous speaker. One common example involved having over-dressed interviewees change into Bermuda shorts. Those who refused were immediately disqualified because they lacked the attitude. Southwest claims that they do not care how the employee gets the job done; They are interested in his resourcefulness. This is the people department matching applicants to culture. Hiring for attitude fosters and perpetuates the desired culture.
It should be noted that the people department aims recruiting ads to the unconventional and whimsical (Freiberg, 1996). Being entirely unprofessional by conventional standards in its recruiting, Southwest tends to attract applicants who already fit such a fun-loving cultural environment. The color outside the lines ad was intended to attract the unconventional applicant who would color outside the lines once given the job. Applicants have actually responded to such bizarre solicitations by sending resumes written in crayon, packaged with confetti, and done up as labels on Wild Turkey, which is Kelleher’s favorite liquor.
HR seeks out people who fit the culture. Individual applicants may be required to wear Bermuda shorts in an interview. Or they may attract HR’s attention by sending in an application written with crayon. Applicants are identified who cheer and support their fellow applicants while the latter is giving a presentation about himself. Southwest Airlines’ focus is on the employees (Freiberg, 1996). The idea behind “the customer comes second” is that employees take care of customers if someone takes care of them. Employees care when they know more, meaning that management communicates openly with employees. Southwest employees are encouraged to pursue employee satisfaction.
Metrics – Assessing the Effectiveness of HR
Southwest can conceivably verify the effectiveness of their hiring efforts. Rather than taking a scientific, mathematical survey, perhaps observational methods would work best. Observe which and how many customer-contact personnel act like they are enjoying their work. How many make the customers laugh? How many jump out of overhead bins? How many make funnies on board the plane? The success of HR’s efforts in hiring individuals who fit the culture could be measured by how many of these hires exhibit the desired behavior, at least on occasion. Measurements may include everything from customer satisfaction to absenteeism, but those measurements must show positive results and an explanation for those results (Fit-enz and Davison, 2002).
HR must follow-up its hiring efforts with a system of observations, assessments, or evaluations. HR managers can consider retention numbers, length of time with the company, employee satisfaction surveys, or interviews. Each can provide information to the People Department as to the effectiveness of the methods employed by HR managers. Southwest Airlines does use a complaints system (Freiberg and Freiberg, 1996). Customers and employees alike may submit complaints. The offending employee is given an opportunity to respond. In some cases, someone was offended by the fact that the employee tried to make jokes or otherwise do something that fit the organizational culture. If the employee can show he was trying to exhibit the behavior or cultural characteristics that the company seeks, then there will be no sanction.
The aim of performance appraisals should be focused on the employee’s ability to meet customer needs (Cook, 2007). Customer service must be embedded in the corporate culture, which it clearly is at Southwest. Feedback must be solicited from customers and employees alike. Being focused on the customer is seen in Southwest’s emphasis on how employees make the experience fun for customers. This is a process of empowering the employee and then monitoring how the employee performs with customers.
The People Department hires and evaluates personnel on their fit with the organizational culture. That is highly focused on the employee’s ability to satisfy customer needs. The interview team looks for those who do things that are fun, to try to lighten up the environment.
They identify those who are supporting other employees and encouraging them. Likewise, managers and personnel submit complaints against those who refuse to help other employees or who are rude to employees (Freiberg, 1996). Southwest is not crazy about paperwork. They would rather address employee issues in brief, face-to-face sessions. HUMAN RESOURCES
Internal Complaints System
Time with Company
Time til Promotions
No. & Type of Recognitions Given
Interview Employees Regarding Interactions with
Turnaround time, changes in
Load Factors / No. of Vacant Seats
There is little information that Southwest conducts evaluations and assessments on its HR practices. No doubt the HR managers keep their own data, but it would seem helpful to implement additional assessments and observations to establish the effectiveness of HR practices in hiring for cultural fit. Whether by observations, subjective assessments, or quantifiable instruments, managers must evaluate each employee’s contribution to the corporate culture. Most air travelers are fully aware of Southwest’s fun-loving corporate culture. It is imperative for Southwest to nurture that culture and continue to preserve it.
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