Mastering Strategic Management

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Chapter 4

Managing Firm Resources

L E A R N I N G O B J E C T I V E S

After reading this chapter, you should be able to understand and articulate answers to the following

questions:

1. What is a resource-based theory, and why is it important to organizations?

2. In what ways can intellectual property serve as a value-added resource for organizations?

3. How should executives use the value chain to maximize the performance of their organizations?

4. What is SWOT analysis and how can it help an organization?

Southwest Airlines: Let Your LUV Flow

Southwest Airlines’ acquisition of AirTran in 2011 may lead the firm into stormy skies.

Chapter 4 from Mastering Strategic Management was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 license without attribution as requested

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Image courtesy of Stuart Seeger,http://en.wikipedia.org/wiki/File:Southwest_737_At_Burbank.jpg

In 1971, an upstart firm named Southwest Airlines opened for business by offering flights between

Houston, San Antonio, and its headquarters at Love Field in Dallas. From its initial fleet of three airplanes

and three destinations, Southwest has grown to operate hundreds of airplanes in scores of cities. Despite

competing in an industry that is infamous for bankruptcies and massive financial losses, Southwest

marked its thirty-eighth profitable year in a row in 2010.

Why has Southwest succeeded while many other airlines have failed? Historically, the firm has differed

from its competitors in a variety of important ways. Most large airlines use a “hub and spoke” system.

This type of system routes travelers through a large hub airport on their way from one city to another.

Many Delta passengers, for example, end a flight in Atlanta and then take a connecting flight to their

actual destination. The inability to travel directly between most pairs of cities adds hours to a traveler’s

itinerary and increases the chances of luggage being lost. In contrast, Southwest does not have a hub

airport; preferring instead to connect cities directly. This helps make flying on Southwest attractive to

many travelers.

Southwest has also been more efficient than its rivals. While most airlines use a variety of different

airplanes, Southwest operates only one type of jet: the Boeing 737. This means that Southwest can service

its fleet much more efficiently than can other airlines. Southwest mechanics need only the know-how to

fix one type of airplane, for example, while their counterparts with other firms need a working knowledge

of multiple planes. Southwest also gains efficiency by not offering seat assignments in advance, unlike its

competitors. This makes the boarding process move more quickly, meaning that Southwest’s jets spend

more time in the air transporting customers (and making money) and less time at the gate relative to its

rivals’ planes.

Organizational culture is the dimension along which Southwest perhaps has differed most from its rivals.

The airline industry as a whole suffers from a reputation for mediocre (or worse) service and indifferent

(sometimes even surly) employees. In contrast, Southwest enjoys strong loyalty and a sense of teamwork

among its employees.