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Running Head: SOUTHWEST AIRLINES

Assignment 5; Southwest Airlines Veronica Wallace-Pszoniak Dr. Veronica Brown-Corbin BUS 599 Section 052VA016 Strayer University June 08, 2011

SOUTHWEST AIRLINES Discuss the corporate culture at Southwest Airlines and how it leverages its culture to achieve a competitive advantage. There are three basic areas that can be used to define the corporate culture at Southwest

Airlines. These areas include: compensation, management style(s), and core value(s). There are two main core values that Southwest Airlines emphasized. These core values are LUV and fun. LUV was popular that it became the companys signature symbol and recruiting theme. The LUV theme even developed into Southwests word for treatment of anyone; regardless employee or customer. Southwest expected all employees to treat each other and customers with dignity and respect at all times. The LUV theme grew with these values into the red heart on banners, posters, and other advertising. It was to be a reminder of their compassion. The fun value was incorporated in employee behavior. Southwest did various things to make employees jobs fun. The company would daily jokes/pranks. The company even sponsored parties for the employees to help boost morale. Southwest takes their values seriously. They even created a management team whose sole role is to ensure that employees are proud of the work they do and the company they work for. It is required that all managers spend at least one-third of their time with the workers that they supervised. In doing this they were to observe and ensure that employee concerns and suggestions were addressed. Southwest enforced an open door policy with all managers and executives. They felt it was very important that the managers/executives be approachable and that they listened to employee concerns. Regardless of any other benefits, environment, management that a company has compensation will remain an important issue to employees. Like many other companies now practice employee compensation is based on performance. However Southwest has been known

SOUTHWEST AIRLINES to have a higher pay scale than other airlines in the industry, on average. Thus Southwest offers

employees not just a good company to work for but one that also pays well. On top of a pay and good employer, Southwest also offers a good benefits package. This benefits package offers some of the following: profit-sharing plans, 401 (k) employee savings plans, and along with stock option programs. Southwests corporate culture is built to support all staff to enjoy the company for which they work. Employees of Southwest Airlines feel happy and secure in their jobs. Individuals that feel secure in their workplace tend to be more productive. They also tend to be more involved with the organization. Team work is extremely important in this type of work environment and Southwest sets team work as a key to success. All of these various initiatives and creativeness has helped Southwest outperform their competition. Evaluate the companys financial performance by calculating and interpreting the profitability ratios. (operating profit margin, net profit margin, return on total assets, return on stockholders equity) Southwest Airlines continues to operate profitably as it made $474.3 million in a growing net income on $4.7 billion in 1999 revenues. It has a record of over 27 consecutive years of operating at a profit. Its debt of $871 million has been the lowest against all U.S. carriers and also has the highest Standard and Poor's credit rating in the industry with a rating of A. Assets are increasing as they reached $5.65 billion from $4.71 a year ago. Their debt and equity are both rising as they have issued common stock with retained earnings of $505 million. Their income expenses have come from negative $21 million to positive $7 million over a year time. Overall, the company is making very smart and strategic moves as it is enjoying growing profits as net income rose 9% to go along with an increase of 13% in total revenue.

SOUTHWEST AIRLINES Describe the characteristics of companys culture and how you think it affects company performance. Southwest Airlines has various characteristics associated with the companys culture. Trustworthiness and loyalty are two of their most important characteristics. The open door policy at Southwest is a perfect example of their trustworthiness characteristic. It encourages employees to bring any concerns to management. This trust that is created by this policy helps employees feel even better about working at Southwest and gives them extra comfort to know

that they can discuss issues or concerns with management. Employees can feel more like an asset to the company than just another employee. Southwest has a no layoff policy. This policy also adds to the trust employees feel in the company and the employees have a great feeling of loyalty. By living up to their no layoff policy they have built a strong relationship with not only their employees but the unions that represent their employees. All of these characteristics come together like a puzzle. They work together to play a very important role in the companys success. With that said the trust and loyalty at Southwest is reciprocated; employees for the company and vice versa. Given the strategic decisions in the case, recommend actions that management should take to sustain/strengthen the culture (or implement a change), based on the situation given. Given the strategic decision in this case my recommendation would be to definitely sustain the current culture. On that note since the company has found a good combination of values and characteristics that has made the company a strong operating machine they could look at other ways to expand and make the company more successful. Southwest could start to move into other US and international markets. By doing this they could generate higher revenues. Higher revenues mean higher profit sharing for employees. Southwest could focus more on

SOUTHWEST AIRLINES customer needs. Southwest has placed equal value on employees and customers. Since they have done this they could look for other incentives or initiatives to attract more business. In conclusion Southwest should continue with the strategies they already have implemented. They should continue to try to lead in cost savings and find other ways in which they can gain a greater market share. Southwest should also, as noted above, expand in the US market. There are many cities that they are not yet in that would be more than happy if they entered their area.

Given the strategic decisions in the case, identify three leadership actions that the company would need to consider to implement the decisions. Explain why these are critical to implementing the strategic decision. Given the strategic decisions in this case there are various leadership actions that the company could consider to implement decisions. One factor that Southwest could consider would be to continue to discuss ideas and suggestions with Southwest Airlines employees. Many new good ideas come from people within the company that arent necessarily directly associated with the matter. Also there are many employees that have daily direct contact with customers thus they may hear or think of things that others may not even consider. Having a greater employee input could be a great success. Southwest needs to continue to encourage team work and encourage employees to be stakeholders. Southwests mission is to be a low price, frequent flight, short haul, reliable carrier and if both the company and its employees continue to follow the companys mission statement they will continue to grow and be successful. The company also needs to continue its business following its values and characteristics because this culture they created is a main reason for its success. The LUV and fun values continue to contribute to their huge competitive advantage.

SOUTHWEST AIRLINES Reference: Thompson, A.A., Strickland, A.J., & Gamble, J.E. (2010). Crafting & Executing Strategy: The Quest for Competitive Advantage Concepts and Cases: 2009 Custom Edition (17th ed.). New York, NY: McGraw-Hill-Irwin