Reference no: EM131150613
Case Study I: Southwest Airlines: Positively Outrages Leadership
When Southwest Airlines first taxied onto the runway of Dallas's Love Field in 1971, industry gurus predicted it would be a short trip to bankruptcy for the Texas-based airline. But the first short-haul, low-fare, high-frequency, point-to-point carrier took a unique idea and made it fly. Today, Southwest Airlines is the most profitable commercial airline in the world.
But it took more than a wing and a prayer for Southwest to soar to such lofty altitudes. It took a maverick spirit. From the beginning, Southwest has flown against convention. Southwest's fleet of 737s, considered by many the safest in the industry, still makes only short hauls to 45 cities. The average flight distance is 394 miles. The airline does not give seat assignments and the only food it serves passengers is a "snack pack." But what Southwest may lack in amenities, it seems to more than make up for in what could be called positively outrageous service. "FUN" is the company's mandate! Leading the way is founder and CEO, Herb Kelleher. "Herb Kelleher is definitely the zaniest CEO in the world," Libby Sartain, vice president of Southwest Airlines' People Department, admits. "Where else would you find a CEO who dresses up as Elvis Presley, who's on a first-name basis with 20,000 employees, and who has a heart as big as the state of Texas? His style has fostered an atmosphere where people feel comfortable being themselves, where they can have a good time when they work."
Legendary for his love of laughter, Kelleher calls his unique leadership style management by fooling around. "An important part of leadership, I think, is enjoying what you're doing and letting it show to the people that you work with," Kelleher reveals. "And I would much rather have a company that is bound by love, rather than bound by fear." Kelleher's philosophy has been enthusiastically embraced by a workforce that is 85 percent unionized. "Southwest's culture is designed to promote high spirit and avoid complacency. We have little hierarchy here. Our employees are encouraged to be creative and innovative, to break rules when they need to in order to provide good service to our customers," Sartain explains. "If you create the type of environment that a person really feels valued and they feel they make a difference, then they're going to be motivated. That's the type of environment we create here for our employees," Rita Bailey, Southwest's director of training, adds.
Beginning with its new-employee orientation, the airline nurtures entrepreneurship by grooming a workforce of leaders. "You can do whatever it takes to keep this airline on top," an orientation instructor tells his class of newly hired staffers. At Southwest Airlines' University for People, future managers and supervisors attend a course titled "Leading with Integrity." Through a series of role-playing exercises, employees learn that trust, cooperation, mutual respect, and good communication are the components of success. "An organization that has an esprit, that does things cooperatively and voluntarily rather than through coercion, is the most competitive organization you can have," Kelleher asserts. These guiding principles have earned Southwest Airlines the distinction of being named one of the ten best companies to work for in America.
Employees are valued and recognized in many ways for their achievements. Perhaps the most prestigious is Southwest's "Heroes of the Heart" award. Each year, one outstanding department has its name tattooed on a Southwest Jet. Southwest was the first airline to offer stock options to its employees. Today, employees own approximately 10 percent of the company.
In the lobby of Southwest Airlines' corporate headquarters is a prominent tribute to the men and women of Southwest. It reads, "The people of Southwest Airlines are the creators of what we have become-and what we will be. Our people transformed an idea into a legend. That legend will continue to grow only so long as it is nourished by our people's indomitable spirit, boundless energy, immense goodwill, and burning desire to excel. Our thanks and our love to the people of Southwest Airlines for creating a marvelous family and wondrous airline."
1. Describe some of the factors needed to reengineer corporate thinking that Southwest Airlines already exhibits. Compare and contrast these factors to those that other businesses must study and analyze. Do case outcomes help other businesses to make good decisions?
2. What specific elements of a corporate entrepreneurial strategy are apparent within Southwest Airlines? How can a small business owner learn from this and apply the information and outcomes to his or her own company?
3. Has Herb Kelleher structured a climate conducive to entrepreneurial activity? Why or why not? Has this changed over time? Support your answer.
Case Study II: A Friend for Life
The Glades Company is a small manufacturer. It has produced and marketed a number of different toys and appliances that have done very well in the marketplace. Late last year, the product designer at the company, Tom Berringer, told the president, Paula Glades, that he had invented a small, cuddly, talking bear that might have a great deal of appeal. The bear is made of fluffy brown material that simulates fur, and it has a tape inside that contains 50 messages.
The Glades Company decided to find out exactly how much market appeal the bear would have. Fifty of the bears were produced and placed in kindergartens and nurseries around town. The results were better than the firm had hoped. One of the nurseries reported: "The bear was so popular that most of the children wanted to take it home for an evening." Another said the bear was the most popular toy in the school.
Based on these data, the company decided to manufacture and market 1,000 of the bears. At the same time, a catchy marketing slogan was formulated: "A Friend for Life." The bear was marketed as a product a child could play with for years and years. The first batch of 1,000 bears sold out within a week. The company then scheduled another production run, this time for 25,000 bears. Last week, in the middle of the production run, a problem was uncovered. The process of making the bear fur was much more expensive than anticipated. The company is now faced with two options: It can absorb the extra cost and have the simulated fur produced, or it can use a substitute fur that will not last as long. Specifically, the original simulated fur will last for up to seven years of normal use; the less-expensive simulated fur will last for only eight months.
Some of the managers at Glades believe that most children are not interested in playing with the same toy for more than eight months; therefore, substituting the less-expensive simulated fur for the more-expensive fur should be no problem. Others believe that the company will damage its reputation if it opts for the substitute fur. "We are going to have complaints within eight months, and we are going to rue the day we agreed to a cheaper substitute," the production manager argues. The sales manager disagrees, contending that "the market is ready for this product, and we ought to provide it." In the middle of this crisis, the accounting department issued its cost analysis of the venture. If the company goes with the more-expensive simulated fur, it will lose $2.75 per bear. If it chooses the less-expensive fur, it will make a profit of $4.98 per bear.
The final decision on the matter rests with Paula Glades. People on both sides of the issue have given her their opinion. One of the last to speak was the vice president of manufacturing, who said, "If you opt for the less-expensive fur, think of what this is going to do to your marketing campaign of 'A Friend for Life.' Are you going to change this slogan to 'A Friend for Eight Months'?" But the marketing vice president urged a different course of action: "We have a fortune tied up in this bear. If you stop production now or go to the more-expensive substitute, we'll lose our shorts. We aren't doing anything illegal by substituting the fur. The bear looks the same. Who's to know?"
1. Is the recommendation of the marketing vice president legal? Is it ethical? Why or why not? What is the difference between legal and ethical? Support your answer.
2. Would it be ethical if the firm used the less-expensive fur but did not change its slogan of "A Friend for Life" and did not tell the buyer about the change in the production process? Why or why not? What are some real life examples of this? Describe at least two. You can research terms on the Internet if you are not personally familiar with situations or companies in which this was an issue.
3. If you were advising Paula, what would you recommend? State your answer and explain your reasoning and answer.