Tuesday, 18 August 2020

What can be learned from the sustainable success of Southwest Airlines that retained its superior investment-grade ratings in times of extreme uncertainty

Southwest, Ryanair and easyJet are the only three airlines that retained investment-grade ratings from S&P Global Ratings, after the credit rating agency downgraded a host of carriers and slowed the pace of its air travel recovery forecast. In a report published last week, S&P analysts said that superior ratings come from the low-cost model, “robust liquidity”, and greater relative exposure to healthier short-haul and leisure markets. 

What these kind of ratings don’t tell us is that the superior ratings come mostly from immeasurable values which are beyond hard facts, things that drive sustainable growth and success, like leadership, culture, relationships with employees and passengers. This is what the unwavering success of Southwest is made of. Unlike any other airline, it has been profitable every single year between 1972 and 2019, and this year it tops the league of the most successful airlines in times of extreme uncertainty.  

These are the kinds of things that cannot be copied or enforced by any kind rules. It is all about setting the overall framework and the right tone that radiates from true leaders. Herb Kelleher, ex CEO and co-founder of Southwest Airlines and his team have shown us the way and generously shared their experiences.  

Here are some quotes from Herb’s interviews that I hope will be more deeply heard at this unsettled time. And more importantly, inspire so much needed actions to adapt to the new circumstances in the way that will speed up the recovery:


On strategy 
Herb Kelleher liked to say, “We have a strategic plan. It’s called ‘doing
things.” He never allowed himself to become bogged down by too much strategic thinking or analysis paralysis. He believed that all he needed was an overall framework. Nothing more. And he came up with something very basic. For Southwest Airlines, his vision and the basis for this framework was simple; low cost, superior service, people first.

"This framework approach gives a long-term horizon. It liberates from the contingencies of the moment. At a time when everything is created, deployed, and measured in real time, strategy and execution are one. Sequential thinking, which requires putting strategy first and execution second, is becoming more and more outdated, even irrelevant. Today’s business relies on a constant back and forth between the two."

"Because you can’t really be disciplined in what you do unless you are humble and open-minded. Humility breeds open-mindedness — and really, what we try to do is establish a clear and simple set of values that we understand. That simplifies things; that expedites things. It enables the extreme discipline. When an issue comes up, we don’t say we’re going to study it for two and a half years. We just say, “Southwest Airlines doesn’t do that. Maybe somebody else does, but we don’t.” It greatly facilitates the operation of the company. "

"When planning became big in the airline community, one of the analysts came up to me and said, “Herb, I understand you don’t have a plan.” I said that we have the most unusual plan in the industry: Doing things. That’s our plan. What we do by way of strategic planning is we define ourselves and then we redefine ourselves." 


On leadership
“As far as leadership is concerned, I think that everybody needs to be a leader in order to have a successful company. Because everybody, by example, sets a leadership standard. I don’t care whether you’re checking bags or loading them in the bin or no matter what you’re doing.  You’re setting a standard for other people and we want people to all, all our people to be leaders. We think everybody is a leader no matter what their job is. We want everyone to be a leader. They’re setting an example by their conduct and they should be inspirational.” 

On who comes first 
“Employees came first, customers second, shareholders third.  If the employees serve the customer well, the customer comes back, and that makes the shareholders happy.  It’s simple, it’s not a conflict, it’s a chain. If you treated the employees well, if you cared for them, if you value them as people, if you gave them psychic satisfaction in their jobs, they would really do a great job for the customers and the customers would come back, which would be good for the shareholders. Most companies didn’t operate that way. So, we turned the pyramid upside down, in effect, and said the employees come first and they always have.  Not just in our minds but in our hearts as well.”



On Focus
“You have to focus intently upon what’s important and what’s unimportant, not be trapped in bureaucracy and hierarchy. Be results- and mission-oriented. Keep it as simple as they possibly can, so that the values and the destination of the organization    are well understood by all the people that are part of it — so that they can feel that they are truly participants in it. The business of business is not business. We’ve always said, “The business of business is people.”
           
On three main things
“We basically said to our people, there are three things that we’re interested in. The lowest costs in the industry — that can’t hurt you, having the lowest costs. The best customer service — that’s a very important element of value. We said beyond that we’re interested in intangibles — a spiritual infusion — because they are the hardest things for your competitors to replicate. The tangible things your competitors can go out and buy. But they can’t buy your spirit. So, it’s the most powerful thing of all... 
How do we get low costs? Through a lot of things, including the inspiration that you give your people, their productivity, the fact that they feel that they’re doing something that is really significant and that they enjoy.”

On talking jargon and labelling
"We have never used the fancy titles for empowerment, total quality, etc. Every time you talk jargon you find that people assume that they have the same thing in mind when they really don’t. We don’t apply labels to things because they prevent you from thinking expansively."

On culture as a competitive advantage
“The intangibles are far more important than the tangibles in the competitive world because, obviously, you can replicate the tangibles. You can get the same airplane. You can get the same ticket counters. You can get the same computers. But the hardest thing for a competitor to match is your culture and the spirit of your people and their focus on customer service because that isn’t something you can do overnight and it isn’t something that you can do without a great deal of attention every day in a thousand different ways. This is why I can say our employees are our competitive protection.”

On keeping the culture values alive
“We decided that we had to institute another limitation on expansion, one which is cultural in nature. We simply cannot increase our staff by 10% per year and expect to maintain the same kind of environment and culture we have, and that is important to us.”

“We were a little concerned as we got bigger that maybe some of our early culture might be lost, so we set up a culture committee, whose only purpose is to keep the Southwest Airlines culture alive.”

On empowering people 
“If you create an environment where the people truly participate, you don’t need control. They know what needs to be done and they do it. And the more that people will devote themselves to your cause on a voluntary basis, a willing basis, the fewer hierarchies and control mechanisms you need.” 

“Provide guidelines only, not rules. Give your employees the flexibility to make decisions on the spot.”

On relationship between employees’ pay and productivity 
“We’re perfectly happy with having, generally speaking, the highest pay for employees in the domestic industry. They reward us with tremendous productivity, which lessens the effect. And the other airlines disadvantaged their people. I’m not saying they didn’t have to, in the sense of “either we do this or we fail,” so it’s not a criticism. I’m just talking about the economic effects of it.”

On company mission
"The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit."

On learning it by doing it
"I learned it by doing it, and I was scared to death." 


So, here we are, facing the biggest leadership challenge ever! The question is, can we get anywhere close to this kind of culture with minds stuck in the legacy world? 

Of course, we can start moving towards it if we become open to rechannelling the work and information to their natural flow. The opening starts with the engagement of employees through creation of space for collaborative hubs and opportunity scans supported by latest technologies. These are the things that have been at the heart of my consulting work, that I have written and talked about and described in my book