Friday, January 04, 2019

Herb Kelleher's Legacy at Southwest Airlines: 5 Important Lessons

Source: Southwest Airlines
Yesterday, Southwest Airlines co-founder and long-time CEO Herb Kelleher died at age 87. He led Southwest through turbulent economic times as well as periods of economic growth. While many of his rivals went bankrupt over the years, Southwest prospered. The company delivered strong profits, satisfied its customers, and kept its employees engaged and productive. What can we learn from Kelleher’s leadership at Southwest? Here are five simple, yet powerful, lessons that come to mind as I reflect on the Kelleher era at the airline:
  1. Make tradeoffs. To create and sustain competitive advantage, especially in a brutally competitive industry, you have to zig when others zag. You can’t just follow the herd. At Southwest, Kelleher chose to run an airline in a very different manner. He made clear strategic tradeoffs, choosing not to do what many competitors often did. For instance, he chose not to create a hub and spoke system, not to assign seats, not to offer meals, and not to provide interline service. 
  2. Harness the power of simplicity. Kelleher once said, “"I can teach you the secret to running this airline in thirty seconds. This is it: We are THE low-cost airline. Once you understand that fact, you can make any decision about this company`s future as well as I can.“ 
  3. Compete with your substitutes. In a fabulous 60 Minutes feature many years ago, Kelleher discussed some pushback that he had received from shareholders one time. They wondered why he was charging $40 or $50 less than competitors on a particular Texas route. They asked, “Why not charge $20 less and generate more profits?” Kelleher explained that they didn’t understand his strategic philosophy. He wasn’t competing with other airlines. He was competing with substitutes, such as automobiles and trains. The Southwest fare at the time between two particular Texas cities was LESS than what it cost to drive a car between those destinations. By defining the competition in this way, Southwest didn’t just take share from industry rivals; they grew the market substantially. You have to remember that you are competing with substitutes, not just direct rivals. 
  4. Think systemically. Building a great airline isn’t just about buying the right planes, choosing the right routes, adopting the best marketing practices, or even attracting the best talent. It’s about ALL of those things. You have to think systemically if you want to build and sustain competitive advantage. At Southwest, all their key choices fit together. To emulate their success required more than just benchmarking a few best practices. You had to understand and replicate the entire system, and that was extremely difficult for rivals to do. 
  5. Focus on the intangibles. Kelleher once remarked, “What keeps me awake at night are the intangibles. It’s the intangibles that are the hardest thing for a competitor to imitate, so my biggest fear is that we lose the esprit de corps, the culture, the spirit. If we ever do lose that, we’ll have lost our most important competitive asset.”

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