Simply, Strategy

Sometimes you read of a strategic move and its simplicity has a brutal beauty.  Some entrepreneurs and, perhaps lesser number of executive leaders, can lay claim to doing something truly original, executing a new and novel strategy.  Often these are based on simple, old fashioned notions.

Decide to cut out the extras and focus on what you can deliver and what the customer really wants.  How many companies can truthfully say that they have made that decision?  Herb Kelleher at Southwest Airlines can.

Southwest stamped an indelible mark on the airline industry.  It is the godfather of the likes of RyanAir and easyJet.  Herb Kelleher proved that differentiation is a CEO-level issue.  “It is still the low-cost airline by which all others are judged,” notes the Financial Times.

Yet, if you look at the basics, Southwest doesn’t appear to have a lot going for it.  Its product is, from a business person’s perspective, plainly inferior.  There is no first class, no seat assignment.  This is the kind of thing that matters to harried business people anxious to finish a report on their laptop during the flight.  Yet, Southwest still captures a reasonable share of business traffic.  Its services are high frequency, punctual, and passengers have shorter ground journeys as Southwest flies to alternative airports.  The value of this higher certainty and shorter overall door-to-door time is immeasurable to many business travellers.  On top of this is the legendary, much talked about, Southwest service which is built around people enjoying their work and enjoying helping customers.  Southwest started wooing customers — male ones at least — with a “Love” theme (drinks became Love Potions etc).  Now, it does so through its promise of  “positively outrageous service”.

In a business that is often bland, Southwest sends out strong, simple messages to customers and employees – this adds value for both groups.  This information flow combines to help the company’s logistics.  Turnaround times tend to be quicker than those of competitors — often 20 minutes — because staff work together.  There is a similar win-win in the company’s use of a standardized fleet of Boeing 737s.  A single plane means a single inventory of spare parts.  Customers don’t care if it is a 737 so long as it gets them to their destination safely and on time.

It is nothing like rocket science.  But it gave Southwest a huge headstart. It invented a new channel — low thrills, low cost, high service — and, as a result, captured the Texan market and built up a tidy cash pile to expand into other plum markets such as California. Southwest built up a long record of uninterrupted in the black performance.

Others have, inevitably, boarded the bandwagon.  But, such strategic clarity is easier said than done.  The lesson from Southwest is to keep it simple.  Strategy needs to be compellingly straightforward in order for it to be understood and executed effectively.  Another airline exec who understood Kelleher’s message was Gordon Bethune, when chairman and CEO of Continental Airlines.  He took on the job in 1994.  It didn’t appear to be the greatest career move.  In fact, it appeared to be the career-equivalent of suicide.  Continental was in disastrously bad shape.  The previous CEO Frank Lorenzo had followed a cheap fare strategy which had got the airline nowhere.  It had been in Chapter 11 and seemed stuck in the red. Its market capitalization of $230 million was actually less than the trade-in value of its planes.  (This must rank as one of the most inglorious achievements in recent managerial history.)  Continental lost $204 million in 1994.

Things were bad.  “We even had pilots turning down the air conditioning and slowing down planes to save the cost of fuel.  They made passengers hot, mad, and late,” said Bethune.

On arrival Bethune took the double locks off the executive offices on the 20th floor.  He ordered that the planes be repainted so that they were all the same color.  He instructed staff to ensure that the planes were cleaned three times more often.  He announced that every month that Continental was in the top five airlines on on-time performance everyone got $65 – the company lost $6 million per month by being late.  In the first month Continental was seventh; in the second it was fourth and in the third, first.

In 1996 Continental made profits of $556 million.  Fortune selected it as the Most Improved Company of the 1990s.  “We don’t spend a lot of time on strategy; we spend more time on implementation, making sure we get it done,” said Bethune who – like Herb Kelleher — proved single-handedly that strategy is not aeronautic science: great strategy is simple.

Resources
Kevin and Jackie Freiberg, Nuts!, Texere, 2001
Jody Hoffer Gittell, The Southwest Airlines Way, McGraw Hill, 2005.

This was originally published in What we mean when we talk about strategy by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).