CASE: HR-1B

DATE: 1995 (REV’D. 04/05/06)

SOUTHWEST AIRLINES (B): USING HUMAN RESOURCES

FOR COMPETITIVE ADVANTAGE

Marielos Aldi, director of human resources for Motorola in Central America, was talking to her
case study group about tomorrow’s case, Southwest Airlines (A). “It simply isn’t possible. The
case can’t be right. No company can be the way this case describes!”

Bob Wells, another member of the group and the executive vice president in charge of human
resources at Youna & Rubicam, the sixth largest advertising agency in the world, was also
skeptical. He lived in Connecticut and worked in New York City and, like Marielos, had no
personal experience with Southwest. However, as a longtime resident of the East Coast, he had
his own views on the likelihood that any organization could deliver the kind of service described
in the case. As someone long experienced in advertising, it sounded too good to be true.

The third member of the study group was Kevin McNamara, director of worldwide training for
Burger King. He too was suspicious of the picture described in the case. His job included
responsibilities for training over 100,000 people and, with over 20 years in the fast-food
business, he had seen too many organizations that just paid lip service to the importance of
people and even joked that the phrase “people are the most important asset of our company”
comes preprinted on the paper used to produce annual reports. He suspected the case writers had
been taken in by Southwest. It was hard to see how management could develop the levels of
commitment described in the case.

The final member of the group, Dan Cockroft, was head of human resources for the Northrop B-
2 production and test facilities in southern California. He had flown on Southwest on several
occasions and was less skeptical, although he had never looked carefully at the company. Even
though the B-2 project was exploring commercial opportunities, he doubted whether there would
be much demand for stealth commercial aircraft. He knew for certain that it was unseasonably
hot and thought to himself that the heat was making everyone a little irritable.

This case was prepared by Professor Charles O'Reilly III based on a class presentation made by Bob Wells, Kevin McNamara,
Dan Cockroft, and Marielos Aldi, participants in the 1995 Stanford Human Resource Executive Program. This case is to be used
as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Copyright © 1995 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or
request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing
Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of
this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any
means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate
School of Business.

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 2

BACKGROUND

Stanford’s Human Resource Initiative

In the early 1990s, Mike Spence, dean of Stanford’s Graduate School of Business, and a group of
interested faculty members decided to take seriously the notion, often expressed as a cliché in
speeches given by CEOs, that “human resources are our most important asset.” Mike had spent
his first year as dean listening closely to heads of major companies from around the world.
Human resource issues seemed to be the ones they found were most pressing and required the
majority of their attention.

Yet, in spite of their concern, Spence also realized that the current state of HR research and
practice did not measure up to the challenges. Even though HR managers aspired to be
considered as “business partners,” Spence knew that HR was not considered a central strategic
player in the majority of firms. These disconnect between the challenges and the reality offered
an opportunity. What if Stanford were to take the idea of strategic human resources seriously and
to develop the insights necessary to really leverage an organization's intellectual assets?

Operating on this premise, GSB had begun a Human Resources Initiative to begin a program of
research and teaching in the general domain of HR. This included hiring a number of senior
faculty from schools like Chicago, Cornell, Northwestern, Wharton, and Berkeley, all of whom
had enduring interests in HR management issues. It also led to the development of a core HR
course required of all MBA students, funding case writing and research efforts in the area, and
establishing a Human Resource Executive Program. The intent of these activities was to develop
expertise in the area of human resources that would help managers develop sustainable
competitive advantage through people.

The Human Resource Executive Program

One critical part of the initiative to develop the expertise necessary for achieving competitive
advantage through people was a one week Human Resource Executive Program (HREP).
Extensive conversations with HR professionals and senior executives had convinced the faculty
that they needed a dialogue or learning partnership with practitioners if they were to come to
grips in a realistic way with the strategic HR demands confronting organizations.

The design of HREP was to explicitly link business strategy to human resource policies and
practices in ways that might give the firm a competitive advantage. Executives and faculty
interacted around a set of cases and materials designed to explore how the management of
human resources could be used for competitive advantage. This program entailed, among other
activities, case studies illustrating some of the current challenges confronting managers dealing
with human resources. Participants in HREP met in study groups to prepare cases for the next
day's sessions.

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 3

HREP Meets Southwest Airlines

The Marketing Research Study

The heat really was the driving motivation behind a growing uneasiness with the case. Although
it was now 8:00 p.m., the temperature was still in the mid-nineties. Earlier in the day the
temperature had reached a record 99 degrees in Palo Alto. Since HREP participants were lodged
in Stanford student dormitories that offered no air conditioning, the study group members were
sweating profusely, discussing the case, and wondering where they might find some relief. The
latter issue was the most pressing topic under consideration.

Dan Cockroft provided the solution. He had a rental car with air conditioning. The question was
how to study the case while driving around? Bob Wells provided the rationale: “Market
research! Let’s get out of town, get to the airport and talk firsthand with Southwest Airlines
people.” Bob said later, “It reminded me of the movie Animal House when John Belushi yelled,
‘Roadtrip!’ and everyone piled in the car.”

On their way to the air conditioned San Jose airport and an unsuspecting Southwest Airlines, the
study group generated a set of interview questions to put to any hapless Southwest employees
they could find. They decided to focus on five areas:

• What makes Southwest Airlines different?

• Why should we fly SWA?
• Who do you compete against?
• Why do you work for Southwest?
• What don't you like about SWA?

The research strategy was human wave interviewing: four-on-one.

The Sample
During the next hour and a half, the group conducted five in-depth interviews with Southwest
employees: two customer service agents working the counter (Buzz and Dina), an agent and a
supervisor at the gate (Judy and Paul), and a pilot (Tony) who was waiting for the flight to Las
Vegas. Tony was helping at the gate. When asked why he as a pilot was hanging around the gate
rather than sitting in the cockpit, he replied, “Hey, I like these people. They're like family.” This
latter interview almost resulted in the flight being delayed since Tony was so interested in
continuing the conversation that he forgot about the departure time.

Study Results
The following are as close to verbatim results of the interviews as the group could record.

1. What makes Southwest Airlines different?

• People ... the friendly attitude ... team spirit.
• A real nonconformist structure. The company lets people be themselves. We’re
empowered to make on-the-spot decisions. For example, if a customer misses a flight, it’s
no sweat. We have the latitude to take care of the problem. There's no need for approvals.

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 4

• How many airlines do you know that send birthday and Valentine’s Day cards to
employees—and customers!
• Dina said, “We are all dedicated to the delivery of positively outrageous service to
customers—with a sense of pride, warmth, and friendliness.”

As the group left the ticket counter heading for the gate area to continue their research, one of
the agents called out “Bye-bye, Adrian!” to a departing customer. Buzz, another of the agents,
made it a point to step out from behind the counter to speak with the group and to say good-bye.
Bob Wells later noted that this was a nice example of how Southwest employees treat people:
“We’re all one,” rather than “We’re us and you’re you.” Kevin McNamara commented that Buzz
had only been on the job for three months but his service skills were evident. He was polite,
answered all questions patiently, and never interrupted.

2. Why should we fly Southwest?

• “We love our customers—You’re #l,” said Dina with an “up with people” tone.
• We believe in outrageous service.
• If there are flight delays, we play games with you and give out prizes!
• We've got singing on board.
• We support the Garlic Festival. (NB: This caused some confusion among those who were
not from the West Coast. The Garlic Festival is an annual event in Gilroy, California, the
world's leading producer of garlic. The festival features a variety garlic-flavored food,
including ice cream and wine.)
• Low fares.
• The best on-time service.
• “Hey, we want to have fun together,” said Buzz.

3. Who do you compete against?

• Other airlines like the Shuttle by United and Morris Air, but we just bought them (Morris
Air).
• Our strategy is to grow and get better, but we’re concerned about growing too fast. That
could hurt the family feeling here.

4. Why do you work for SWA?

• I love to come to work each day. Southwest let’s us have fun. We can be who we are. We
can be real.
• I used to work for Continental. I had three pay cuts there. Here I get a raise every year,
even in lean times.
• Tony, the pilot, described how enthusiastic his wife was about his job with Southwest.
He said she makes sure he always gets to work on time. She doesn’t want to miss the two
free tickets that are given for perfect attendance over a three-month period.
• Southwest rewards excellence. They focus on positive rewards rather than punishment.
• Southwest promotes from within. It trains me even when times are rough.
• Dina indicated that all employees get three weeks of training before starting their job.
Then, when they do begin on the front line, they are teamed up with an experienced

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 5

person until they’re comfortable dealing with the customer. She felt her future with the
company was unlimited.
• I used to work in Silicon Valley. No one there ever cared about me as much as Southwest
does.
• I may work for a little less here, but there’s never a layoff. Pilots do fly a little more here,
but they make about the same as at other airlines. Tony provided a simple graph to
illustrate this (Figure 1).
• We get to dress down here—to relax.
• I get stock options and profit sharing. I also get to fly for free. When a member of the
Southwest family needs help, we all pitch in. Everyone helps out around here. Pilots help
unload bags or work ramp duty. We all relate well to each other. (NB: Judy described the
“Walk in your shoes” program that encourages people to swap jobs for a day and to gain
some empathy for the other person's efforts.)

5. What don't you like about SWA?

(NB: Although all five employees were asked this question, the only response was
shrugged shoulders or blank stares)

During the interviews the team also probed other aspects of Southwest described in the case.

Is the turnaround really 15–20 minutes?

• Yeah, although we’ve done it in five minutes.
• Dina: “Herb keeps telling us that we can’t make money with the planes sitting on the
ground.”

What happens if Herb leaves?

• The stock will plummet... but it’ll rebound quickly.
• We have someone who can step right in.

How close are you to Herb?

• Everyone knows him.
• He’s (NB: Kelleher) been seen working in the baggage area loading and unloading bags.
• Judy: “I was kissed by him in my first week here.”
• “He is crazy!”
• We all call him “Herb.”
• We all know Colleen too (NB: Colleen Barrett is EVP for Customers).

What about the Culture Committees?

• It's an extension of our family.
• We all have a similar feeling about the company.
• Everyone walks the talk.

What do you look for in selecting people?

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 6

• Extroverts
• Service attitude
• Problem solvers
• No airline experience is necessary

Why is there a lack of union versus management tension?

• Tony: “It’s a miracle.”

As Tony, their final interview, ran down the jet-way for the flight to Las Vegas, he stopped and
shouted to the dumbfounded members of the group, “Hey, good luck tomorrow. We’re all
counting on you.”

Kevin McNamara commented that, “coming away from the airport that evening, this hardened
group of executives were so excited with what we found that on the ride back to campus we kept
interrupting one another with the positive comments we heard from the Southwest people. While
I first thought no company can be as good as the case described, I found that the case didn't
exaggerate at all, and in fact, may not have completely captured how well Southwest Airlines
does treat its employees and customers.”

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 7

Epilogue

Several weeks after reporting their findings to their HREP colleagues, several of the participants
were asked what conclusions or lessons they took away from their “roadtrip” to Southwest.

Bob Wells (Young & Rubicam)

“A couple of things stay with me. First—to achieve strategic advantage—it truly can make sense
to swim against the tide. (How many people want to fly on an airline with people doing conga
line dances in the aisles?) Southwest is notoriously successful, while portraying a seemingly
outrageous image for an airline. Second, maintaining this ‘outrageous persona’ requires a lot of
serious work. Nothing about nurturing the culture of Southwest is casual. The result? Southwest
people—even at the lowest parts of the employee food chain—are extraordinarily articulate
about the essence of the Southwest vision. Their culture is organic.”

Kevin McNamara (Burger King)

“For me, I know a company has it right when the front line people actually do and say what
management values. Any company can teach Customer Service, but only companies that have
systems in place that reward great service will demonstrate it in practice. Very few companies
treat people as their most important asset, especially the people that count the most—the ones
that deal with the customer. For me, the lesson learned is that it is possible to be the low cost and
high service leader. The key is to invest heavily in training, staffing, and reward systems for your
people that are aligned with the values of the company.”

Dan Cockroft (Northrop Grumman)

“Using culture as a lever for strategic advantage and change can't be underestimated. Most
companies could take a lesson from Southwest in articulating, practicing, and reinforcing desired
organizational behavior. The freedom employees seem to have with their jobs and the ability to
talk clearly about the goals of the organization gave me a very dramatic example of a
sophisticated selection and training process. Just below the surface of this apparently fun-loving
airline is a very calculated corporate strategy attempting to maximize its use of both human and
material resources.”

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 Southwest Airlines (B): Using Human Resources for Competitive Advantage HR-1B p. 8

Figure 1
Pilots’ Compensation

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