Change Implementation Techniques for Creating a Sense of Urgency

Technique 2.47 Porter's Cluster Model

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Mapping Activity Systems to build a Cluster Model ‐ sequence of steps

Identify activities

Relate activities to positioning, such as simple consistency

Look for clusters of linked activities, such as strategic themes/core activities

Sketch an activity map

Look for optimisation of effort (substitute activities)

Compare fit to

- imitators

- differently positioned rivals

Drawing a cluster map (linking main and minor activities)

organisational development change management

organisational development change management

. Southwest Airlines is unique in many ways, ie

- it is the only low-cost carrier that maintains a double-digit operating profit margin

- rated best for on-time departures and lowest for lost baggage

- lowest turnover of staff in industry, ie never laid off an employee

- highest approval rating from passengers

- it is the most profitable and most successful of the US airlines, ie it has not made a loss in any of the past 32 years (while competitors are going bankrupt)

. Its business model has remained unchanged for more than 30 years, ie

- charge low fares to put bottoms on seats

- don't serve meals

- cut down on terminal cost by using less congested airports (this often means flying to regional strips rather than main airports in the city)

- don't pay commission to travel agents with two-thirds of passengers booking online, ie reducing ticketing costs

- spend little time at airport gates, reducing landing fees and increasing time planes are in the air earning revenue

- use one type of aircraft, ie Boeing 737s as it reduces maintenance, pilot training and simplifies scheduling

. Based on this, Southwest offers

- regular, short-haul flights (averaging about 90 minutes)

- over 80% of passengers flying non-stop (hub-and-spoke model regularly has at least one stop in a flight)

. This results in operating costs and margins being the benchmarks in industry, ie recent operating cost per available seat mile was 7.1 cents while the average for the industry is 12.6 cents. Furthermore, its operating profit as the proportion of revenue is 11.5 %; most airlines are not profitable

. Southwest Airlines carries more US passengers domestically than any other airline

. To handle the escalating fuel prices, Southwest Airlines hedged, ie 85% of its 2005 needs at $US 26 per barrel and 65% of its 2006 needs at $US 32

. Underlining its financial performance is a strong corporate culture based on a family atmosphere

"...we are good, hard-working, honest people who try to deliver the best customer service package to customers.....we define our customers as being employees number one, passengers number two and shareholders number three. It's kind of a different pyramid than most...."

Colleen Barrett as quoted by Sean Aylmer, 2005

- job security plus relatively higher wages than the industry norm plus around 10% of employees being shareholders

- all new employees go through extensive filtering and induction based on a 7 point checklist for favoured characteristics, including cheerfulness and optimism. The company employs around 1,700 new people each year but gets around 225,000 applicants

- it has one of the most unionised workforces in the industry, ie 83%. As a result, management meets with union representatives every quarter; staff must feel good about their work environment, be part of the team and have ownership

. There is some concern that as Southwest gets bigger, it will lose its flexibility that has been a key to its success. It has started

- code-sharing, ie this means it relies on other airlines to be timely and reduce terminal costs

- now flies to some congested hubs

(sources: Michael Porter, 1997; Sean Aylmer, 2005)

 

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