Why do organisations succeed? Lessons from Southwest Airlines
September 1st, 2008
Successful organisations support and develop their staff. That is one of the principal roles of executive leadership. Museum executives contemplating reorganisations might contemplate this seriously. So might media companies such as Fairfax (in Australia) and governments offering small wage increases to which the response is negative industrial action.
In much of what I have written over the last several years â€“ indeed since 1986 – I have banged on about how important it is that leaders at executive level focus on developing staff. I have promoted this as one of the principal requirements for success. Many others do the same. But many executives in their day to day work do not! Of course being clear about the goals and rationale of the organisation is another of the half dozen most significant contributors to success. Not efficiency though inefficiency is not appropriate, not rules and regulations though some rules are essential or we would end up in chaos. Not technology though technology allows considerable advances in many areas.
Numerous examples of success flowing from attention to staff are given in the pages of this web site, examples from hospitals to airlines to grocery stores to public broadcasters. And yes, there are examples from museums, though few museum executives or board members pay attention to them. Like other organisations many firms have become besotted with the mantra of market economics and its attendant managerialism.
Many organisations respond to perceived bad times by pulling back, by reducing staff numbers, by looking for ways to trim costs. Instead they should never let up on the important work of creating a climate for innovation and making a difference. One of the fundamentals of managing any entity, from nation states to the local grocery store or local museum is that in bad times some of the money saved during the good times should be used to reduce fluctuations in basic practices like marketing, training and development, product improvement and research and development. Once staff are let go in bad times, rehiring and retraining staff when good times return costs so much that making gains becomes much harder. Most of all, large scale layoffs means loss of corporate memory, of how things get done in the organisation.
The fact is that executives seldom look at other organisations to see why they are succeeding; they seldom accept that it is the way staff are treated that makes a great difference, that gives a competitive advantage. With the increasing number of museum and arts organisations putting people from the business world on their boards, the tendency to cut back in times of financial stress would seem to be increasing.
One of the things that worries me about the financial stresses of the last 12 months is that many firms, including nonprofits, are simply applying blanket approaches to problems, adopting blunt instruments. These don’t just include cutting back on staff numbers, often through natural attrition or voluntary redundancies. Some banks are simply cutting back on lending generally, as if they still have not worked out how to evaluate the credit worthiness of clients seeking loans. The result is likely to be that more powerful clients will continue whilst less powerful but perhaps more worthy clients will not. Some governments approach prospective budget overruns in the same way: cancel the contracts for indoor plants, delay filling of vacancies, and restrict travel. It all ends up causing more problems than it is worth. It is disruptive and, in the long term, destructive of managersâ€™ credibility!
To return to the main focus of this intervention. The latest story I have read which shows how good staff policies are linked to high firm performance is a story about Southwest Airlines in the USA. In a report by Joe Nocera entitled â€œA chat with Herb Kelleherâ€ (International Herald Tribune May 24, 2008) we witness the differences in the annual meetings of two of America’s major airlines. (I have previously reviewed a paper on Southwest and American Airlines by Judy Hoffer Gitell (in California Management Review in 2000 ) which compares the different approaches to management structure and behaviour in the two companies. (Southwest is a point to point operator whilst American Airlines is a spoke (or hub) operator and this does influence their approach, a point brought up in commentary on Southwestâ€™s success.)
Nocera begins by telling us â€œThe Dallas-Fort Worth area is home to two of the country’s biggest airlines, American and Southwest, and for years they’ve both held their annual meetings on the same day. This year was no exception: Wednesday was the big day. He goes on to outline the different responses of staff to the event.
Nocera concludes his article comparing the two airlines by quoting the opinions of some consultants to the reasons for Southwestâ€™s success. One of them pointed out â€œevery time the legacy airlines have run into trouble in the last two decades, Southwest has used the opportunity to steal away market share. Even though its own profits are down this year, it still has plenty of financial powder to make investments its competitors won’t be able to match. And as the old-line airlines try to raise prices to keep pace with fuel price increases, Southwest, with its fuel hedges and productivity advantages, will squeeze them all that much harder. One analyst, Ray Neidl of Calyon Securities, has gone so far as to predict in a report that after the dust settles, Southwest will be, as he put it, “the last man standing.”
Nocera observes, â€œThat may be an overstatement, but it’s not much of one.â€