Management Control System

Aditya JamaludinAisyah Tiar Arsyad

M. Arif BaihaqiWahyu Adhi Nugroho

Iguh Pandyo Paramartho

The Southwest Difference

Discussion Question

What is Southwest’s strategy? What is the basis on which Southwest builds its

competitive advantage?

How do Southwest’s control systems help execute the firm’s strategy?

Content• A brief overview of Southwest

Airlines• Southwest analysis using:

o Porter Competitive Modelso SWOT Analysiso Sustainability Strategieso Company Structureo Corporate Cultureo Human Resource Managemento System Information Technologyo Southwest’s Key Points

• Conclusion• Recommendation

Southwest Airlines Corp.• Founded on March 15, 1967 by Rollin King and

Herb Kelleher• Operate as LCC Airlines and known as the

"discount airline" since 1973• Currently using a hybrid system, flying point-to-

point routes, but also connecting passengers through several smaller hubs at Las Vegas McCarran, Chicago Midway, Baltimore/Washington, Dallas Love, and a few others.

• Its original primary livery was beige and red, with orange on the tail end, and pinstripes of white separating each section of color. In 2001, Southwest introduced the new livery that uses canyon blue color and changes the Southwest text and pinstripes to gold.

Southwest Airlines Corp. (cont’d)• Since 1987, when the US Department of

Transportation began tracking Customer Satisfaction statistics, Southwest has consistently led the entire airline industry with the lowest ratio of complaints per passengers boarded.

• As an innovator, Southwest pioneered senior fares, a same-day air freight delivery service, ticketless travel, the first airline web page—southwest.com, DING!- the first direct link to customer’s computer desktops that delivers live updates on the hottest deals, and Nuts About Southwest - the first airline corporate blog which was awarded as "Best Blog" for third year in a row at the 2009 PR News Platinum Awards.

Southwest Airlines Corp. (cont’d)• Some Southwest planes feature special themes, rather

than the normal one; some of the most well known examples are: Shamu, Lone Star One, California One, Silver One, Triple Crown One, The Spirit of Hope, Slam Dunk One, Tinker Bell One, and Sports Illustrated

VisionSouthwest’s vision for a sustainable future is one where there will be a balance in our business model between Employees and Community, the Environment, and our Financial Viability.

In order to protect our world for future generations, while meeting our commitments to our Customers, Employees, and Stakeholders, we will strive to lead our industry in innovative efficiency that conserves natural resources, maintains a creative and innovative workforce, and gives back to the communities in which we live and work.

MisionThe 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. 

TO OUR EMPLOYEES; We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same concern, respect, and caring attitude within the organization that they are expected to share externally with every Southwest Customer.

Mision (cont’d)TO OUR COMMUNITIES; Our goal is to be the hometown airline of every community we serve, and because those communities sustain and nurture us with their support and loyalty, it is vital that we, as individuals and in groups, embrace each community with the SOUTHWEST SPIRIT of involvement, service, and caring to make those communities better places to live and work.

TO OUR PLANET; We strive to be a good Environmental Steward across our system in all of our hometowns, and one component of our stewardship is efficiency, which by its very nature, translates to eliminating waste and conserving resources. Using cost-effective and environmentally beneficial operating procedures (including facilities and equipment), allows us to reduce the amount of materials we use and, when combined with our ability to reuse and recycle material, preserves these environmental resources.

Porter Competitive Models

SWOT AnalysisSTRENGTH• Has low operation costs which leads to low fare• Has an increasing brand equity• Has good corporate culture and loyal employees• One of the biggest airlines in USA• Uses a optimum combination of short – medium haul and point to point flight• Sets limit turn – approx. 20 – 25 minutes• Uses online reservation.

WEAKNESSES• Does not provide international flights

• Does not offer a seat numbering (for reservation)• There is no class type

• Only have 6 Customer Support & Services• Only use 1 type of aircraft (Boeing 737)

SWOT Analysis (cont’d)OPPORTUNITIES• Opportunities through the addition of international routes• Deregulation of flights• Internet and new technology give the chance to develop new products and services• Economic condition

THREATS• Bad weather and the price change of fuel• Fierce competition between LCC airlines

• Some competitors begin to replicate SWA’s business model

• Security problem related to terrorism and health disease

Southwest’s Key Points

Southwest’s Key Points (cont’d)• Herb Kelleher's vision as one of the founder and CEO

of SWA

• Standardization of their fleet on the Boeing 737 is beneficial

towards its operational and financial sectors.

• Focus on city-to-city routes with high-intensity flight, which

more cost-efficient than hub-and-spoke system

• Use fuel hedging to prevent the increasing of

jet fuel price

Southwest’s Key Points (cont’d)• Offering affordable prices

• Develop its IT system to generate optimal crew

schedule and on-time performance

• Make flight attendants to responsible in cleaning

up the trash and preparing the plane for the next

flight

• Integrated marketing communication though

above the line (print media and the website) and

below the line (WOM by customer satisfaction)

System Information Technology

Online ticketing facility brings benefits in the form: provide convenience to customers; provide customer knowledge; provide a new channel for consumers; build a CRM through customer databases.

Sustainability Strategies• Maintain and promote “Living the Southwest Way”• Provide leadership to a changing work force• Great commitment of its employee supported with employee retention policy• Reinforce and focus the community and charitable programs to maximize results• Optimize fuel efficiency and alternative energy options• Minimize energy use at all ground-based operations• Ensure suppliers are adhering to Southwest’s environmental and Culture standards

Sustainability Strategies (cont’d)• Eliminate waste generation through source reduction and recycling/reuse where practicable• Support legislation that provides incentives and funding for safe solutions to climate change, including alternative jet fuels and engine, airframe, and related infrastructure development• Creates market segments peculiarly (for adapting changes that are most efficient and economical)• Pioneered senior discounts, fun fares, a same-day airfreight delivery service, ticketless travel, frequent flyer program which give credit for the number of trips taken and not the number of miles flown, and other unique programs

Company Structure• Southwest Airlines operates into a multi-divisional structure, as it subdivided into divisions on the basis of products, services, geographical area or the processes of the company. Since the markets where Southwest operates are so diverse, it could be unfeasible to bring the tasks together in a single body.

• Southwest also maintains a “culture committee,” consisted of more than 100 members from different parts of the company.

Corporate Culture1. Lead with credibility and caring2. Invest in frontline leadership3. Hire and train for relational

competence4. Use conflict to build relationships5. Bridge the work/family divide6. Create boundary spanners7. Avoid finger pointing-measure

performance broadly8. Keep jobs flexible at the boundaries9. Make unions your partners, not

adversaries10.Build relationships with the suppliers

Corporate Culture (cont’d)The company spirit has been socialized well inside the organization through "Living The Southwest Way", which can be described below:

Human Resources ManagementControl system that serves the company here is the beginning of the employee recruitment process. These systems use the senior roles within their respective job functions or divisions and then identify the common features they have. 

Southwest Airlines has characterized its reward systems as basic. Hence, Southwest views salaries, variable compensation, and recognition programs as part of the process of management and highly integrated with the things leaders and people do on a day-to-day basis.  Southwest also utilize its operations principles by putting employees attitude ahead of their skill. The concept of the strategy is by hiring employees for their attitude and train them for the skills required to do the tasks. The hiring process involves an interviewing approach called "target selection" which focus on matching their traits for specific tasks. SWA has the lowest turnover rate in the industry because 80%-90% of supervisory positions are filled internally.

Conclusion• Southwest Airline has developed a great low cost

model for the past thirty year that fits today's

economy condition.

• It has expanded to one of today's major airliners

that flies between 58 cities carrying over 60 million

customers each year.

• Opportunity to grow even bigger

at this extremely hard and critical

time for the airline industry.

Conclusion (cont’d) • After the incident of September 11, Southwest Airline is one of the few airliners that remained profitable; other airline companies were losing millions of dollars due to the insurance raise, the security cost and lack of customers. • Low operational costs make Southwest Airlines is able to offer tickets with low rates for customers. • Southwest’s financial success also makes clear and free publicity to help the company building its image as an airline that can be trusted and used by many passengers. • Company's success in achieving the goals for all aspects from the people and management is controlled by a comprehensive system to provide the best service.

Recommendations• Accommodate the international routes.

• Using low price tickets as their competitive advantage is vital

to beat its competitors out of business and take their market.

• For additional long-term program and goal, the development

of extensive campaign on Customer Relationship Management

is beneficial to distinguish the difference SWA and other LCCs

related to how they treat their loyal customers. For instance,

loyalty programs, frequent flyer, etc. can be implemented.

Recommendations (cont’d)• With this, the company will be able upgrade their services and the amenities of their aircrafts. In addition, acquisition of new aircrafts would replace old, existing ones. New and improved aircrafts would require less maintenance, thus, contributing to the company’s aim to reduce its costs.           • Moreover, Southwest Airlines can offer more long hauled flights and recover its higher costs with fare hikes (1998). In this way, the company can still promote low-fare rates to its consumers, thus retaining them and not losing profit from the business.

• Southwest must be required to modify and upgrade

a significant portion of its internal software to

guarantee that its computer systems will function

properly

• Innovation of the company, such as the installation

and use of new information systems and software

programs will enable the company to encourage

internal and external communication more effectively.

• The use of website to promote its promotional

campaign towards customers.

Recommendations (cont’d)

Recommendations (cont’d)

References Anthony, R. N., & Govingarajan, V. (2007). Management Control System 12th Edition. New York: McGraw-Hill/Irwin.

Gittel, Jody .H. (2003) The Southwest Airlines Way: Using the Power of Relationships to Achieve High Performance. New York: McGraw-Hill.

Smith, G. (2004). “An evaluation of the corporate culture of Southwest Airlines,” Measuring Business Excellence, Vol. 8 No.4, pp.26-33.

Southwest Airlines, 14 Maret 2010, “Southwest Airlines Fact Sheet,” diakses pada 15 Maret 2010 (http:// www.southwest.com/about_swa/press/factsheet.html)

http://en.wikipedia.org/wiki/Southwest_Airlines

Thank You!!!