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Identification of strategic issues is an important element of the strategic planning systems (Bryson 2004, p. 183), which assist any organizations to determine what they should do for the following years (Mc Namara 2000). Strategic issues is a fundamental policy question or vital issues that influence organization's rules, missions, values and quality of services and products provided (Bryson 2004, p. 183). This paper identifies and describes a set of strategic issues that this organization is facing, proposes and evaluates specific set of strategies for the organization.
Southwest Airlines or SWA is one of the most popular low cost airlines in the United States. The organization give scheduled air transportation in the United States. Its effective operating strategy allows the organization to attain high asset utilization and dependable on-time performance. This strategy also supports Southwest Airlines to increase its revenue and to tap profitable markets. On the other hand, weak economic outlook for the U.S. may place more pressure for the organization (Datamonitor, 2009, p.5). Furthermore, they also need to address the following strategic issues that influence company's profitability:
What can Southwest Airlines do to expand its routes to underserved markets such as Canada, Mexico and Latin America?
Because of intense competition, Southwest Airlines should serve these markets. If Southwest wanted to increase its revenues, they should choose profitable yet untapped areas of Latin America, Mexico and Canada.
How Southwest Airlines does to sustain its "fun culture"?
Herb Kelleher has been the influential figure within Southwest since its conception and he implemented the "fun culture" (D'Aurizio, 2008, p.391) that Southwest has been known for. In fact, his wacky management style called "management by fooling around" gained so much attention from numerous management scholars for years. Kelleher has been recognized as a hard drinker and heavy smoking eccentric. However, significant concerns emerged when he decided to step down as CEO and president during the early 2000 (Jackson & Jackson 2009, p. 66).
Fortunately, the organization's selection of Colleen Barrett enabled Southwest Airlines to sustain its advantage through their management style (Jackson & Jackson 2009, p. 66). After Barrett' retirement, Gary Kelly took over. Although similar concerns still exist, it seems that Kelly also adheres to the leadership approach similar to his two predecessors (Jackson & Jackson 2009, p. 66). On the other hand, the question remains how fun culture would be sustained on the following years after Kelly decided to step down.
What the company should do to increase its employee productivity?
Southwest Airlines has poor revenues in proportion to the total number of employees. In the fiscal year 2008, the organization has documented income worth $11,023 with a total number of 35,499 personnel. The organization's revenue for each employee is approximately $310,515, which is lower than to its close competitors such as Continental Airlines, Jet Blue Airways and UAL (Datamonitor, 2009, p.7).
What strengths can the company use to exploit opportunities, strength to overcome threats, and weaknesses?
Even though Southwest is one of the most popular low cost airlines, like any other organizations it also has its own weakness. They are also subjected to threats posed by uncontrollable circumstances. On the other hand, they could exploit opportunities posed by airline industry and sustain their strengths in order to overcome weakness and minimize the impact of potential threats (Datamonitor, 2009).
How can Southwest Airlines minimize its dependence to passenger revenues?
Southwest Airlines has heavy reliance on passenger revenues. The organization acquires its 1.3 percent to 3.2 percent of its revenues from freight and other operations. Passenger transports covers 95.5 percent of total revenues during the fiscal year 2008. The company did not yet improve its network to increase its cargo and freight revenues, which may provide higher stability to its revenues (Datamonitor, 2009 p. 7).
Proposed Strategic Plan for the Organization
Strategic Goal 1: Expand SWA's routes to underserved markets
expand through partnership with airlines in underserved markets
expand their routes alone
Steps In order to Perform Alternative 1
If the company chooses to expand through joint ventures, Southwest Airlines needs to consider the following:
Southwest Airlines should first examine potential partners in the underserved markets. The company should set specific criteria in choosing potential partners for expansion; for instance, an airline to be selected is willing to accommodate a 'fun culture' within their organization or the company should be smaller than Southwest. Once they have evaluated these companies, they should create a list by ranking (e.g. first choice, second choice) (Business Link 2010)
Second, after the selection, they should first communicate with the potential partner if they will agree with the said partnership and discussed the conditions involved
Third, Southwest should then examine deeply the main intentions of potential partners before proceeding to the formal agreement (Seetharaman 2010, Business Link, 2010). If these intentions are contrary to the interests of Southwest Airlines', then they may choose another partner
Advantages of Alternative 1: (Joint Venture)
Easier access to new markets and new networks as the result of partnerships
Risks and costs associated with entering the market can be shared with a partner
Southwest Airlines will get an easier access to a more specialized personnel, more efficient technologies and finance structure
Depending on the established conditions, joint ventures can be flexible and can only have limited time span
It can only cover a specific responsibilities that each organizations should do, thus, this would minimize risks of exposing businesses and limits each partner's responsibility (Business Link, 2010)
Disadvantages of Alternative 1(Joint Ventures)
Some objectives of joint venture might be ambiguous and not everyone might deeply understand such goals
Partners often have varying goals in the joint venture. This is the reason why Southwest should deeply understand the main intention of their partners
Different partners might provide imbalance degrees of expertise, assets or investment into the joint venture (Business Link, 2010)
Partners do not often give sufficient leadership and assistance during its early stages
Differences in management style and culture may result in weak assimilation and cooperation. One way to overcome this issue is to set specific criteria in choosing potential partners (as mentioned earlier). If no airlines satisfy specific criteria, they should choose a partner who are willing to incorporate during the partnership period; e.g. an organization who will agree to the condition that Southwest will choose staff who can execute a fun culture regardless of their ethnicity (Business Link, 2010)
The success of SWA's joint venture with other company would be based on the research and evaluation of goals and objectives of their partner. This must also involved constant communications regarding business plans with those people involved (Business Link, 2010).
Steps on Alternative Two (Entering Markets Alone)
First, Southwest Airlines might examine the case studies of other airlines when they enter new markets and/or they could rely on their own experience
Understand the risks and benefits of entering new markets alone (Lesson 20: Entering into New Markets n.d.)
They could outsource market analysis of countries where they will enter
Implement plans when or where to enter these underserved markets and adjust schedules if necessary
Assigned dedicated personnel that would handle market expansions who will report directly to the senior management since southwest Airlines have no other partners to expand underserved markets, only their staff
Strategic Goal 2: Sustain its Fun Culture
Sustaining its fun culture will be based entirely on the processes of recruitment and selection as well as their approaches in maintaining their staff. Similarly, they should be careful in selecting President and CEO of the company once Kelly decided to step down.
Tasks Needed to Achieve This Goal
In recruiting personnel, they should attract the right person; for instance, they should place advertisements in suitable sites (Dale 2004, p. 65)
Selection should involved customized set of selection techniques that are still considered effective by Southwest. (Dale 2004, p. 167)
Implement ways to motivate employees both intrinsically and extrinsically. Intrinsic motivation might involve making employee feel that they are a part of Southwest Family. Extrinsic motivation involves providing sufficient benefits and compensation to deserving employees (Ferris State University 2010)
In selecting management team and chief executives, it would be more advisable to hire someone who fully understands Southwest's culture and who is willing to accept that culture. This can be done through the help of psychological experts and appropriate selection methods (Dale 2004, p. 167).
Sustaining a fun culture is a complex strategy and previous techniques employed by Southwest in choosing their staff and managers might not that effective in the following years. In this sense, constant monitoring of relevant results will enable Southwest Airlines in making decisions whether to change or not to change their selection standards
Strategic Goal 3: Improve revenues per employee
Tasks needed to Achieve This Goals
Employ technology to decrease expenses and increase efficiency
Southwest may outsource some of their business processes to those companies that have the capability to provide an efficient technology. One good example is their decision to choose Sabre Airline Solutions' Cargo Max Revenue System to assist the airline increase its efficiency and improve cargo revenue as well as overall profitability of the organization. The Sabre Holding's Company, the firm behind Sabre's Cargo Max System is capable of providing comprehensive solution that will support end-to-end cargo revenue management of airlines like Southwest (Presswire 2007). Outsourcing technological improvements are more prudent since this allows Southwest Airlines to focus on their core competencies (Outsourcing Professionals 2010).
Overcome heavy reliance to passenger revenues for the next five years
They should improve their networks in order to expand their market in cargo such as creating partnerships with companies that focuses on interstate or global logistics as well as with freight services. Southwest airlines should assign a staff whose job is to expand and sustain relationships with these organizations, for instance, they could assign an existing senior manager to perform this job. Furthermore, this also serves as a mean to exploit opportunities provided by positive development in the U.S. airfreight industry in order to improve revenues per employee (Datamonitor 2009).
Implement rules to avoid passenger cancellations
They should impose rules to avoid passenger cancellations since this is one form of lost revenue for airlines. For instance, when booking tickets, the company should require their customers to pay for tickets within 24 hours before the flight. They could also make their tickets non-refundable. Aside from discouraging passenger cancellation, this would avoid any airlines from practicing overbooking, which unfavorable for the customers as well as to the brand image of Southwest (Mouwad & Higgins 2010). However, they should communicate this strategy to passengers so that they would be able to understand that Southwest only avoids overbooking, which is an inconvenient issue for the customers.
Strategic Goal 4: Exploit remaining opportunities and strengths to overcome threats, and weaknesses
Apart from the aforementioned strategies, the company could also exploit the remaining opportunities and strengths to overcome unsolved threats and weaknesses
Tasks Needed to achieve These Goals
One of the threats faced by Southwest Airlines is intense competition. Virtually all organizations in the United States are facing such dilemma. Since intense competition cannot be prevented, Southwest can minimize the impact of intense competition through sustaining their 'fun' image, improving efficiency of technologies such as enhancing navigation of their booking sites, improve and sustain employee morale. Aforementioned strategies such as expanding their cargo networks (opportunity) could also help SWA reduce the impact of intense competition (threat). (Datamonitor, 2009, p.8)
Another threat is airline regulation. Since all airlines are subjected to these regulations, SWA should remain up to date with these guidelines. Additional expenses associated with these regulations can be overcome by increasing efficiency of the operations and discouraging passenger cancellations. (Datamonitor, 2009, p.8)
Code Sharing Relationships-- since other airline firms practices this business strategy, it would be prudent for Southwest Airlines to employ this strategy to reduce the impact of competition to their overall profitability (Datamonitor, 2009, p.8)
Identification of strategic issues is an important element of the strategic planning systems, which assist any organizations to determine what they should do for the following years. Strategic issues is a fundamental policy question or vital issues that influence organization's rules, missions, values and quality of services and products provided. For Southwest Airlines, strategic issues that must be addressed includes expansion of routes to underserved markets, increase employee productivity, sustenance of fun culture and taking advantage of the remaining strengths and opportunities to overcome its threats and weaknesses. Specific set of strategies for the organization are given to address such issues including expanding domestic cargo networks and minimizing passenger cancellations to increase efficiency and increase revenue per employee.