In the table below, we list the decisions that Southwest chose to do to support its mission, which required consciously choosing not to do other activities. Many companies define what they want to accomplish, but the subtext is to do anything that will earn a profit. Thus, strategy by definition involves tradeoffs, and Porter, in fact, says that you cannot have an effective strategy without defining what you will not do. Southwest Airlines’ Activity System Mapping Lean productive gate crews also support frequent, reliable departures, and the combination of reliability and low prices is very attractive to customers. For example, lean productive gate crews enable high aircraft utilization, and these together support low-ticket prices. A large number of specific activities support these as shown in the more detailed activity system map from Porter’s aforementioned “ What Is Strategy” article. These include focusing only on short-haul, point-to-point routes, limited passenger service, high utilization of aircraft, and lean, productive ground and gate crews. Southwest Airlines’ Core Activities for “Reliable, Low-Cost Air Travel” The core activities are shown in green in the figure below. To do this requires a network of interconnected and innovative activities. In fact, it is even able to achieve low-price ticketing while paying among the highest wages in the industry. The company invests heavily in its culture of friendly associates who are known to take extreme measures to entertain and please customers. “To connect people to what’s important in their lives through friendly, reliable, and low-cost air travel.”
It has dominated the limited point-to-point markets where it does business and has typically traded out about twice the price-earnings ratio of its competitors. Southwest has been a benchmark for its success, experiencing its first quarterly loss in 17 years in 2008. In other words, they are benchmarking and copying the activities of their competitors and simply cannibalizing each other’s profit margins. In an issue of Harvard Business Review, the guru of corporate strategy, Michael Porter, defines strategy as: “performing activities differently than rivals do.” According to him, this requires “defining a company’s position, making trade-offs, and forging fit among activities.” He goes further in arguing that companies who focus on operational efficiency are playing a losing game. Why would a company do such absurd things? Southwest wasn’t just trying to be different it had a clear strategy.