Following Southwest Airlines‘ systemwide implosion over the holiday season, experts and novices alike hastily pointed fingers at one or more causal failures. Looking deeper, a number of interrelated issues—from managerial to technical—contributed to the perfect storm during a not-so-extraordinary storm. Rather than simply indicting the airline, we should consider how any business might mitigate the risk of a similar meltdown.
Executive Management Experience Versus Brand
Herb Kelleher, known for his commitment to operational excellence, customer service, and employee relationships, founded and led Southwest for decades. His successors, on the other hand, come from accounting and financial backgrounds and have spent the last decade focusing on what they know: revenue management enhancements. Not to say that a company shouldn’t pivot or transform, but it must do so in a way that is consistent with its brand.
In an open letter to the executive team, Southwest Airlines Pilots Association vice president, Captain Tom Nekouei, chastised chairman and former CEO Gary Kelly of filling the company’s senior leadership with people with similar backgrounds, specifically accounting degrees from Texas universities.
Starting at the top, a board of directors should ensure that senior management has experience and expertise consistent with the firm’s reputation, that it is sufficiently diverse, and that it can stand up to investors who may not appreciate the intricacies of running a given business.
A strong culture is good until it becomes cult-like. Anyone who has heard a Southwest flight attendant’s legendary comical or lyrical in-flight announcements has experienced the airline’s truly unique culture. Insiders however describe a culture of groupthink and resistance to innovation at the top since Kelleher’s departure. This is not only debilitating but cultural inconsistency across an organization can be fatal.
There’s little evidence of change management-related issues in Southwest’s recent system breakdown, perhaps because there’s little evidence of much change in systems over the past decade or more. Nonetheless, preparing for and guiding an organization through technological innovation and transformation can be crucial for mitigating the risk of adoption and usage challenges that can lead to significant commercial impact.
Cultural inconsistencies can result in critical labor shortages, with employees quitting, striking, calling in sick, or the new trend: “quiet quitting” in which employees show up for work and put in minimum effort. Even worse, operational mandates that put employees in peril will exacerbate labor issues—especially when there are mistrust issues with management. This played out as Southwest forced ground personnel to work longer shifts in frigid weather.
But as Kelleher purportedly told an MBA class in the mid-80s: A well-treated, loyal, and well-trained staff will do things to recover operations when weather, air traffic control, or other factors screw up the works.
Operational Model Tradeoffs
Many experts contend that Southwest’s point-to-point model, as opposed to the hub-and-spoke model used by other airlines, contributed to the difficulty of rescheduling resources. While this model may optimize routes and resources under normal conditions, as data science author and expert Neil Raden notes:
“Their point-to-point model is far more likely to collapse under severe disruption. There is a formula in route optimization, (n * ( n − 1)) /2), to calculate the number of routes where the variable of n stands for the number of point-to-point cities (destinations). If an airline offers flights to 100 destinations, 4,950 routes will be needed to cover all destinations in the network.”
Mathematics notwithstanding, business leaders must be conscious of the tradeoffs, especially in edge scenarios, with any operational model.
Becoming a Technology Company
For years, the IT research and advisory firm Gartner has admonished executives that, regardless of their industry, that they are or must become a technology company. Each year this becomes increasingly germane and urgent. Prioritizing digital transformation, technology innovation, and the use of data must be an executive-level priority. Despite this, technological prowess appears to be a mere velleity among Southwest senior management. No mention of technology priorities has been made in any of Southwest’s annual report letters from the chairman and CEO over the last ten years. This sends a clear message to the rest of the organization (and a prodrome for investors) that the overall business strategy is business as usual.
Interoperability and Integration
One of the major issues, according to current Southwest CEO Bob Jordan, is that the airplane and route optimization program known as “the Baker,” which is designed to automate disruption recovery, is not integrated with their crew scheduling system. Furthermore, Southwest has resisted integrating its reservation system with the reservation system used by the majority of other airlines for decades, making rebooking stranded passengers on other airlines impossible. Furthermore, Southwest’s manual process of tracking crews and booking hotels for them resulted in a lack of knowledge about crew locations.
These stovepiped and non-automated systems may have worked fine when Southwest was a small regional carriers, but not today when it’s become one of the world’s largest airlines. As an enterprise grows, manual processes that worked in the past can become an Achilles heel.
Redundancy and Dynamic Capacity
Commenting on the recent Southwest snafu, celebrated airline captain Sully Sullenberger offered, “For large major airlines to be prepared for major disruptions, they must have already invested heavily in improved technology and communications systems that have high reliability and redundancy, as well as the training for their employees to use these tools effectively.”
Shail Khiyara, founder and CEO of Vocal Council, observes that an obsession with a low-price based point-to-point system has slashed redundancies to “the point of exponential risk” and that “‘hyperefficientizing’ a system can cause disasters.” He says, “Efficiency often can reduce redundancy and invoke systemic failure.”
On the other hand, Matthew Trifiro, chief marketing officer of Vapor IO, suggests that redundancy can be a nimiety detrimental to certain customer segments, “I would prefer an every-10-year meltdown over higher prices. Mechanical redundancy is a gigantic waste of money.”
Moreover, businesses must be able to handle large swings or spikes in demand, and not just seasonal ones. This ability to handle widely fluctuating demand is a primary reason why some business have transitioned from fixed capacity in-house systems to dynamically elastic cloud solutions.
Planning for Planned Obsolescence
As Captain Nekouei wrote in the pilots association’s open letter to management, “CEO Gary Kelly make a conscious decision to make the less than necessary investments in tech upgrades in favor of maximizing shareholder return because, well, ‘our tech’s been working OK for 2 years.’”
Any system is designed to last only so long—especially as technologies advance, the marketplace evolves, business processes change, and business volume grows. All inevitably so. In fact, many technologies, most notably the iPhone, incorporate baked-in degredations that encourage if not force their upgrade or replacement. Regardless, businesses should treat components of their tech stack as if they do, and plan accordingly to replace them, not just keep patching them.
Similarly, companies must understand the degree to which extant and increasing technology issues impose an operational, strategic, safety, and economic burden on the organization. Known as “technical debt” this is evocative of the old adage: “Pay me now or pay me later.” All too often, the “pay me later” part results in what ago I coined a decade ago as blunderfunding—having to fund an expensive operational clean-up or legal mess resulting from “techical debt.”
Especially, “older patched software is subject to technical debt,” says Raden, also the founder and CEO of Hidden Brains Research, “Airlines, which were early adopters of automating optimization models, are particularly susceptible to technical debt, but Southwest’s predicament is extreme.”
Many IT industry experts, as well as some consulting firms that perform “tech diligence” on behalf of private equity firm clients, contend that technical debt should be formally quantified, even somehow represented on the balance sheet. Particularly as companies increasingly become digital, measuring technical debt can be critical to a company’s strategic planning and investments.
As a recent Business Laboratory blog quipped, “Technology risk is a hidden demon. It lurks in the shadows rather than cry out in monthly reports.”
Balanced and Opportunistic IT Investments
According to its own annual reports over the past decade, Southwest has invested heavily in “technology designed to enhance revenues and lower costs,” its reservation system, putting wi-fi on planes, its customer loyalty program, and replacing its financial systems. At the same time over the past few years the company has reported to have “narrowed its near-term technology focus, and deferred a significant number of technology projects.” To be sure, the COVID-19 pandemic’s impact on revenue played a part. But what better time to upgrade systems than when nobody is flying and the government is keeping you aloft financially?
Scenario Planning, Stress Testing, and Simulation
Not every scenario can be anticipated, especially when there are so many moving parts as in businesses like an airline. However, businesses must try to anticipate them and make this a priority. On a human scale the combinatorics may be overwhelming, but software designed to perform millions of scenarios and complex simulations is now available. Indeed, putting your software through these paces can be difficult, particularly in terms of setting up scenarios and simulations from a data perspective.
When it comes to highly integrated systems and procedures involving human interaction, many advanced organizations are developing “digital twins” that provide visibility into how the business (or a product) performs under a wide variety of “what-if” circumstances.
For more strategic scenarios or where bad actors might be of concern, businesses can employ a “red team / blue team” approach in which one team attempts to anticipate or respond to the simulated untoward actions of the other team.
Stakeholder Journey Mapping
Long before this incident, Southwest management was alerted by employees to the procedural challenges with tracking crews. However, it appears that the potential impact of this in extreme circumstances wasn’t fully understood or appreciated. Organizations must be cognizant of the movements, behaviors, habits, interactions, and relationships among of key stakeholders such as customers, employees, and partners. Formally mapping these “journeys” can help uncover opportunities for improving their experience, optimizing overall operational excellence, and also reducing or eliminating disastrous situations.
Southwest’s Skysolver platform is based on GE Digital’s Network Operations Platform designed for commercial airlines. The system is advertised to “optimize passenger experience by mitigating delays and cancellations,” “provide visibility into network operation exceptions,” perform “crew optimization and scheduling” and “optimize schedule recovery” to prevent schedule issues from propagating, all via “advanced algorithms.”
This all sounds great until the part about it running on Windows 10 with a recommended 4GB of free disk space and 2GB of RAM—specs that are barely enough to handle a handful of spreadsheets.
Businesses must hold their vendors to a “partner-level” standard. And for mission-critical technologies be fully aware of their limitations, product roadmap, and support capabilities.
AI and Advanced Analytics
Around the same time that American Airlines was trumpeting its implementation of advanced data science workstations for optimizing operations, Southwest publicly touted its basic self-service analytics platform to provide hundreds of employees across 28 departments with access to data and dashboards. These dashboards provide a variety of historical analyses on network and capacity planning. While hindsight-oriented analytics can be valuable for strategic planning or compliance reporting, it falls short of providing diagnostic, predictive or prescriptive analytics.
The vast majority of analytics solutions that materially affect the business operations efficiency, cost, revenue, and risk fall into these latter three categories, not “reporting.” A tell-tale sign of a business poorly positioned to compete by becoming data-driven or digitally transforming is one that is failing to adopt advanced analytics or artificial intelligence. Or one that is overly excited by dashboards.
Business Model Transformation
The airline business model is what it is. Or is it? So were bookstores before Amazon altered that paradigm and then expanded exponentially from there. And automakers today make more money on loans than on cars. Who’s to say how the airline business model could transform? With the advent of online meetings, virtual reality, and the imminent metaverse, not to mention a lingering pandemic, a forward-leaning airline might just perpend how to take advantage of or integrate with these technologies to morph into a new kind of business altogether.
Business leaders must keep an eye on not just emerging technologies but also on emerging businesses adjacent to or even unrelated to their own. Asking, “What are others doing in my industry?” merely positions a business to be in second or third place, at best.
Another approach to business transformation is applying the little-known concept of “economic architecture.” This entails developing prospective financial statements and other documents reflecting what the business could or should look like in some future timeframe, then determining how to rearchitect aspects of the business to achieve that economic vision.
Mergers and Acquisitions
Though not necessarily a worst-case scenario, when one company’s systems become so antiquated that investing in and transitioning to new ones is cost- and operationally prohibitive, a merger or acquisition may be the best or only answer. Moving customers and operations wholesale to an entirely new already-operational platform can be easier than the proverbial “changing the wheels on a moving car.”
Keeping Your Enemies Close
Because Southwest has no interline partner agreements, it was unable to rebook passengers on other airlines. Nor did it have the ability to book hotels for crews or passengers. In his classic book, “Co-opetition,” Adam Brandenburger instructs, “Co-opetition is a strategic approach to business that combines cooperation and competition in order to create value for all parties involved.” Business leaders should identify who their traditional and emerging competitors are and consider how to engender a “rising tide lifts all ships” relationship with them.
Sometimes a company finds that its core competencies don’t exactly jive with some particular aspect of its business, especially building, integrating, or managing technology. In this case it makes perfect sense to pay an expert to do it. Even if they’re a strategic advantage, entire processes still can be confidentially attourned to another enterprise. For example, today most organizations have moved their data centers to the cloud, managed by Amazon, Google, or Microsoft, and have outsourced business functions like recruiting, accounting, or legal.
In this era of climate change, it’s hardly ironic that a deep freeze led to the meltdown of a company’s operations. Hopefully, a deeper examination of this cautionary tale will compel business and IT leaders to warm to the ideas above for averting similar situations for their companies, lest they themselves be forced out into the cold.