What is your organization’s strategic position? Does your organization truly understand what strategic position is?
Many organizations mistake the pursuit of continuous improvement and improving their operational efficiencies as strategy. When in reality implementing best practices in your business only makes you like other competitors in the industry. While necessary to strive for continuous improvement, if this is the only thing competitors are doing in any specific industry, overtime they transfer their profit margins to the customers as they have commoditized their abilities. The only way to raise profit margins on commodities is to limit the supply or at least have the perception by the customer that this is the case.
Strategy is about being different. It’s about making choices. In my opinion, Southwest Airlines is the poster child organization that truly understands how to craft a formidable strategic position. Southwest’s original business plan fit on the back of a napkin. It looked something like this:
It took from 1966 to 1971 to bring this simple diagram to life. They finished 2011 with over $15 billion in revenue. How could this simple business plan forge such a powerful strategic position against competitors such as Delta, Eastern, United, Continental and American Airlines?
It’s only 278 miles between Dallas and San Antonio; 241 miles between Dallas and Houston and 197 miles between Houston and San Antonio. Who or in this case what are you competing against for customers traveling between these three cities? It wasn’t another airline. It was the automobile. What is required for an airline to compete against an automobile for a short distance?
- It has to be incredibly cheap.
- It has to be incredibly convenient.
- Frequent flights
- Ticketing had to be streamlined
- No delays – arrive on-time
- No hassle with bags
- No waiting on qualified crews
- Airports had to be easy to get in and out of for passengers and flights.
By focusing their attention on competing with the automobile, Southwest Airlines forged a strategic position that has served them for almost 41 years. To meet these requirements the following was necessary:
- Fly only one type of plane (Southwest has the largest fleet of Boeing 737s of any airline.)
- Maintenance crews only have to be trained on one type of plane.
- Parts are stocked for only one type of plane.
- Pilots only have to be certified on one type of plane. (Any pilot can fly any plane in the fleet.)
- Flight crews only have to be trained on one type of plane. (Any steward or stewardess can substitute for another crew member on any flight.)
- Quick turnaround of flights in order to gain an acceptable return on assets (ROA).
- Only fly into midsize markets or secondary airports of major markets
- No meals offered on flights
- No seat assignments – passengers board on a first come first serve basis.
- Point to point vs. hub and spoke flight patterns (Baggage service is simpler as bags are taken off the plane and immediately placed in baggage claim. Bags that are checked-in are staged on carts ready to deliver plane side.)
These choices led to Southwest turnaround times of less than 30 minutes due to less cleanup needed between flights and no need to reload for meal service. They encountered less competition for landing and takeoff as well. On average Southwest obtained at least one more flight segment per plane each day than the average carrier.
You might say – “OK, so they are the low cost airline in the industry, why is this considered such a formidable strategic position?” It isn’t. Michael Porter, Professor at Harvard business School, a leading authority on company strategy and the competitiveness of nations and regions, author of 18 books and numerous articles on strategy states that “the essence of strategy is choosing to perform activities differently than rivals do.” The strategic position for Southwest Airlines is not that they are the low cost leader in the commercial airline industry, it is in the way that they became the low cost leader.
In two words their strategic position is Short Flights. All their activities are coordinated to maximize efficiency and deliver convenience to a certain type of route to a certain type of passenger. Their strategic position is based on delivering a very unique circumstance for their employees to perform their jobs in and next to impossible for a full service carrier to duplicate.
Formidable strategic positions force competitors to change the way they do business in order to compete. When the full service airlines tried to compete with Southwest’s model it added more complexity instead of less complexity. Another type of plane was purchased. Mechanics and flight crews had to be trained or hired for another type of plane. Their reward programs had to be changed as they could not provide the same amount of points for such a flight as their full service flights. Many full service carriers suffered a loss in their reputation as they allowed their identity to become confused in the mind of passengers. Continental Airlines almost went broke trying to compete as both a low cost and full service carrier.
Your strategic position should clearly define for your employees what business you are in and what makes you different. In this way they can truly focus the majority of their time, energy, and budgets on honing and coordinating the activities that strengthen this difference. In addition, a clearly defined strategic position should help employees to know what they shouldn’t do and what they should stop.
Granted, it is difficult to forge a strategic position that can last 41 years and beyond; however, you should fight hard in your organizations to develop one that can last at least 10 years. Other household names that got this correct from their onset are Dell Computers – “Sell Direct” and Federal Express – “Overnight Delivery.” All three of these companies exemplify why it is worth fighting for to get your strategic position correct as quickly as possible. While I doubt any of us would have given either of them a dollar of investment money to begin with, each of these companies have transformed their respective industries.
By: Terry L. Massey
Terry is a Partner and Co-founder of AmeriStride, a business growth, leadership development and management consulting firm. He assists business owners and executives in building organizations that learn, lead and last. Please email Terry at terry.massey@AmeriStride.com.