Benchmarking:A Quantitative and Qualitative Look at Southwest Airlines and British AirwaysIn today’s competitive marketplace, all firms are seeking ways to improve their overall performance.
One such method of improvement, recently adopted by many firms, is benchmarking. Benchmarking is a technique used to evaluate internal business processes. “In this analysis, managers determine the firm’s critical processes and outputs, baseline those processes, then compare the performance of each process against a standard outside the industry” (Bounds, Yorks, Adams, ; Ranney 1994).
To effectively improve a business process to world-class quality, managers must find a firm that is recognized as a global leader, not just the industry standard. Successful benchmarking requires tailor-made solutions, not just blind copying of another organization. Measurement and interpretation of data collected is the key to creating business process solutions.
“Benchmarking’s real role has to be seen in the context of the organization that is continuously implementing improvement” (Bendell, Boulter, ; Goodstadt 1998). Organizations implementing the benchmarking process are continuously looking to improve, and planning improvement. Improvements can be made by looking at the firm both internally and externally.
Internal improvements are implemented by analyzing processes and setting targets for performance. However, output performance measures are not able to help management understand why a practice is effective. This understanding is a result of personal interpretation of the process. Organizations must look to other firms for ideas to borrow from global leaders, regardless of the scope of the necessary improvement. Equally important as data collection is the actual implementation of the newly acquired business practice. The most important aspect of benchmarking is to enable companies to employ the best business practices. This fundamental theory cannot be overstated.
Global competition is growing due to the technological boom. The expansion of the Internet and digital communication has forced once domestic firms to consider foreign competitors. To remain ahead, companies are realizing they must match or exceed the business practices of the best in the world. “The only way that we can drive our organizations to excellence is to ensure that we keep our eyes on our competitors and world best practice in all aspects of business” (Bendell, Boulter, ; Goodstadt 1998). Benchmarking should not be considered simply a tool of management, but rather an integral part of the business strategy of a firm.
When implementing benchmarking, management must consider the overall issues of performance and process re-engineering. It should be seen as part of the management practice with an organization pursuing excellence. In addition to influencing management’s practices, benchmarking should become part of the organizational strategy. Essentially, benchmarking effects all aspects of management, as well as the business.
The goal is to establish benchmarking as a dynamic process with full integration into the organizational structure. Commitment to the best practices eventually will become the natural way of doing things.There are five keys to successful benchmarking: emphasis on quality, business processes, limitations of Total Quality Management, external benchmarking, and benchmarking for survival. Benchmarking emphasizes quality in all areas and functions of the organization.
It is not limited to the major services or products used by the external end consumer. Organizations should approach their processes with a preventative mentality, rather than a reactionary approach. This will ensure quality in all steps of the process.
The second key to successful benchmarking is understanding the importance of business processes. An organization can be seen as a series of major and minor business processes. Major processes contribute to the delivery of products or services to the end consumer, while minor processes make more subtle contributions. These processes are not performed in isolation. The end result relies heavily on the satisfactory completion of all processes and the communication of all functional areas involved. By viewing these processes as a whole, management can identify process inefficiencies. These inefficiencies may include delays or queuing at process bottlenecks, lack of control or checking, or places responsibility for process activities is not clear.
The Total Quality Management model is limited in its scope of improvement. Total Quality Management establishes targets for performance rather than focusing on continuous improvement. This perspective is to narrow because it fails to consider the overall improvement process. To be effective, management must incorporate all aspects of the business into a dynamic improvement process. The fourth key to benchmarking is systematic external benchmarking.
Once management has realized the importance of internal business processes and world-best practices, it is their responsibility to combine these two themes. Management must systematically examine its internal practices and performance in comparison to external benchmarks. The last key is benchmarking as a survival technique. It may effectively save a business from declaring bankruptcy. However, benchmarking should be used in organizations regardless of financial or economic status.
Internal benchmarking is one of the most important aspects of benchmarking. This involves making comparisons with other parts of the same organization. Comparisons can be made between departments, satellite locations, and subsidiaries. This will ensure familiarity with internal business processes.
A major part of this is understanding the companies critical success factors. If management does not know which processes are most critical, it will not know which processes to benchmark. This form of benchmarking is fairly common and easy to perform.
However, this type of benchmarking is unlikely to produce world-best practices. The ability to critique oneself is the first step in being able to realize organizational shortcomings.External benchmarking is complimentary to internal benchmarking.
Despite the difficulty in admitting deficiencies, it is critical that companies look to fellow organizations for necessary assistance. Competition has reached a global level and the only sensible goals are world-best practices. The ability to use the practices of others to a firm’s own competitive advantage is key in realizing a firm’s full potential.
Information obtained from competitors is likely to be very relevant, but it will be impossible to get a picture of how a direct competitor operates due to corporate confidentiality. To effectively use this data, management must interpret the information and formulate their own conclusions. The remainder of this paper will look at two companies who can use benchmarking to gain competitive advantage. We will look at Southwest Airlines and British Airways and their practices. We will also consider potential areas of improvement, and how each company can benchmark the other to gain their own advantage in the industry.British Airways:Overview:British Airways is Europe’s largest airline. With over three hundred aircraft, British Airways serves over one hundred and seventy destinations in nearly ninety countries throughout the world.
Based in London’s Heathrow Airport, British Airways has built a global network through partnerships. It owns twenty-five percent of Qantas Airways, shares routes with Canadian Airlines, and has stakes in low-fare carriers Deutsche British Airways and Air Liberte. History:Emerging in 1916 as Aircraft Transport and Travel, British Airways has spent the last eighty-three years building an empire in the airline industry.
After years of mergers authorized by the British government, British Airways was officially organized in 1972. Among the accomplishments of British Airways was the first supersonic jet passenger service introduced in 1976 with the Concorde jet. Colin Marshall became Chief Executive Officer in 1983, and reduced manpower and routes.
This began British Airways climb to the top of the airline industry. Despite a broken partnership with United Airlines, British Airways crossed the Atlantic into the United States in 1988. Four years later, British Airways attempted to gain a forty-four percent stake in USAirways. However, American Airlines, United Airlines, and Delta Airlines strongly objected demanding equal access to the United Kingdom and Europe. Instead, British Airways had to settle for a twenty-five percent stake, which is the maximum foreign ownership allowed by United States law.
In 1996, Bob Ayling assumed the top position as Chief Executive Officer. Under Ayling, American Airlines agreed to coordinate prices and schedules and to share market data for their Trans-Atlantic routes. In 1997, British Airways sold its stake in American’s rival USAirways. That same year, British Airways and American Airlines, in conjunction with Canadian Airlines, Cathay Pacific, and Qantas formed the Oneworld Global Alliance. Today, British Airways stands as a global leader in the domestic and international airline industry.British Airways began its climb to excellence in 1986 with its mission “to be the best and most successful company in the airline industry.
” This mission was the basis for the performance of the company in the years to come. By redefining its marketing, sales, and managerial approach and substantially improving customer service, British Airways transformed its reputation and finances. In 1997, British Airways faced new challenges and was forced to redefine its mission, values and goals to address four key areas. Those specific areas were the global economic climate, the challenge of competition, customer demand, and employee needs. This new direction the company has adopted will improve customer service and employee-management relations and also set financial and operational goals.
This new mission is “to be the undisputed leader in world travel.”Areas to be Benchmarked:According to British Airways’ press office (1/27/99), “British Airways is seeing great results from its on-going punctuality push, with record levels of on-time departures being achieved.” This initiative has enabled British Airways to maintain an on-time departure rate of eighty percent. The Association of European Airlines (11/17/99) reported “thirty and a half percent of Intra-European flights were delayed by over fifteen minutes in the third quarter of 1999.”Numerous programs have been established in order to maintain and improve British Airways’ punctuality. The first initiative is the “minus ten” approach. Departure gates are closed ten minutes before flight to ensure that passengers are safely seated for take-off on time.
This enables the pilot and crew to make preparations and depart in a timely manner. The second initiative is the redesign of boarding passes. In order to expedite the process, British Airways introduced easy-to-read boarding passes that highlight the departure gate and the time the gate will close.
This new technique makes the process easier for both the customer and the employee. Finally, to further reduce delays, customer service staff is now weighing all carry-on baggage at check-in, rather than at the boarding gate. This reduces the delays by preventing customer queuing to check baggage at the gate. This entire program has produced results of British Airways being ten percent more efficient than its European competitors.British Airways has recently been attempting to form a strong alliance with American Airlines.
On November 15, 1999, “American Airlines and British Airways filed with the United States Department of Transportation applications to code-share on flights serving some seventy-five destinations in the United Kingdom, United States, Europe, and Africa” (British Airways Press Office). This is just one part of their efforts to develop a global marketing alliance. Both American Airlines and British Airways are committed to forming a strong international alliance. Code-sharing is an important part of this alliance. British Airways code will be designated for flights operated by American Airlines, American Eagle, and Business Express. The AA prefix will also be attached to British Airways’ flights, serving over forty destinations in Europe, United Kingdom, and Africa. Code-sharing enables domestic and international passengers to travel more quickly because they operate as connecting flights.
Therefore, there is no need for passengers to check-in numerous times for connecting international flights. This strategic alliance between the two companies, not only satisfies customers, but also gives British Airways and American Airlines a competitive advantage. British Airways has collaborated with American Airlines and several other airline companies to form another type of alliance. Seven Airlines, including British Airways have formed “Oneworld Alliance,” a global marketing campaign. According to Media Week, a leading advertising industry magazine, Oneworld’s campaign is the best in the world. “The magazine named the airline alliance’s global campaign, featuring the customer-focused message ‘Oneworld revolves around you,’ as the ‘Best International Campaign’ for 1999” (American Marketing Research Corporation, 1999). This ability to work with competitors has helped British Airways reach a level as one of the best in the world.
British Airways is also attempting to set the standard for fuel efficiency for the new millenium. In the company’s annual environmental report released July 13, 1999, British Airways announced their goal of a thirty percent improvement in fuel efficiency. “The report shows that the airline continues to lead the worldwide aviation industry in environmental care and is setting tough new targets” (British Airways Press Office, 1999). British Airways is taking several steps to achieve this goal. It has eliminated almost all ozone depleting substances and donated more than one million dollars to support environmental causes. It also plans to invest in new aircraft, improve air traffic control, and redefine operational functions.
Setting such an exact target is a bold move made by British Airways environmental division.Employee happiness is the key to any firm’s success. Research repeatedly shows that satisfied workers are far more productive than those who were discon 7bjbjU U! 7| 7| ” l” “” ” ” ” “6 87bjbjU U! 7| 7| ” l” “” ” ” ” “6 8 personal relationships with their peers. Third, employees who were most committed had the most compassionate and empowering supervisors.
This was the beginning of their program to improve employee morale.Several training programs were organized to challenge employees. One such program “Putting People First (PPF)” encouraged employees to show their ingenuity and creativity. Staff was told to utilize delays, bad weather, lost baggage, and other dilemmas as opportunities to solve crises without supervision. Management was also very committed to this particular initiative. Chief-Executive-Officer Colin Marshall attended ninety-seven percent of the PPF sessions.
This program was meant for all employees of British Airways. On top of this, management also had their own “Managing People First” training modules. In accordance with the third conclusion reached by the human resources department, managers were taught how to coach, train, and support their subordinates.More recently, British Airways has decided to move their airline crews to more modern facilities.
In October 1999 at Gatwick Airport, British Airways moved its flying staff to a new center. This move dramatically improved working conditions, and it combined all service delivery functions under one roof. This brought significant efficiencies and productivity gains to the operation. For example, travel times between the crew reporting center and the aircraft will be significantly shorter. This facility is based on more horizontal organizational structure. It “has an open plan, hot-desk environment with the latest technology – encouraging greater interaction, less hierarchy, and new ways of working” (British Airways Press Office, 1999).
Each of these are “world-best” practices that ultimately lead to high customer satisfaction. In a customer service oriented industry, such as the airline industry, these initiatives have set British Airways apart from the rest. The ability to maintain customer satisfaction leads to customer loyalty, and continuous profitability. British Airways strives to meet and exceed industry standards to measure up to its new mission, “To be the undisputed leader in world travel.”Southwest Airlines:Overview:Southwest Airlines is a Dallas, Texas based, low-fare carrier serving destinations in more than fifty cities in twenty-eight states.
Southwest currently offers more than twenty-four hundred daily flights, and is expanding eastward. The company has devised a strategy that has produced profits for twenty-six consecutive years. Short-haul flights compose eighty percent of the company’s entire flight load. However, Southwest is offering more long-haul flights and expanding its fleet to compete with larger domestic carriers.History:Southwest Airlines was founded in 1967 by two Texas businessman, Rollin King and Herb Kelleher. It was founded as an intrastate airline serving Dallas, Houston, and San Antonio. In 1971, the company made its first scheduled flight from its home airfield, Love Field in Dallas, Texas.
In accordance with the Wright Amendment of 1979, Southwest’s market was restricted to Arkansas, Louisiana, New Mexico, and Oklahoma. Passengers were not permitted to travel to any other destinations from Love Field. This was an effort by Congress to protect Dallas/Fort Worth Airport. In 1986, Kelleher introduced advance-purchase Fun Fares.
He also introduced a new type of frequent flyer program a year later. Frequent flyer credits were based on number of flights taken, rather than mileage. Southwest first expanded to the East Coast in 1993, with service to Baltimore-Washington International Airport.In 1994, the company acquired Morris Air, a Salt Lake City, Utah based airline.
That same year, Southwest launched several programs to cut costs. A ticketless system reduced travel agents’ commissions, and Southwest began to use an in-house reservation system.By 1997, Southwest Airlines served cities in all parts of the continental United States.
This same year, Southwest formed an alliance with Icelandair. This agreement enabled Southwest passengers to connect from several United States’ cities to Europe through Icelandair’s Baltimore hub. The company completed its first non-stop transcontinental flight in 1998, thus establishing Southwest as a formidable domestic competitor. Areas to be Benchmarked:”Southwest ranked number one in on-time performance for the last seven consecutive years according to The Department of Transportation’s Air Travel Consumer Report” (Southwest Fact Sheet, 1999).
This punctuality can be attributed the company’s ticketless system and no-frills approach to air travel. The ticketless system reduces costs for both consumers and Southwest. Travel agents and ticket brokers are eliminated from the ticketing process. This also minimizes the lengthy check-in processes by eliminating physical transactions between customer service representatives and the consumer. All that is a reservation number and a form of identification to receive a reusable boarding pass, which enables the customer to board quickly.Southwest’s no-frill approach reduces preparation time by eliminating the time required for three optional services.
The first service to be bypassed is the meal distribution by flight attendants. Southwest does not serve meals on any flight regardless of duration. This severely reduces the time required of planes while sitting at the terminal. Second, Southwest does not offer reserve seating on any of its flights. Passengers are asked to select the first available seat. This reduces boarding time by allowing all customers to board in an orderly fashion, but not mandating a seat.
The last technique used by Southwest to enhance on-time departure is a single class, seating array. Associated with the last service, this does not give any passenger special boarding privileges, delaying the departure.Southwest Airlines has increased its profitability through a strategic alliance with Icelandair. This agreement has expanded Southwest’s service to Europe. This new international capability of the airline has allowed the company to enter a new market. Although they are not yet fully competitive in the international market, their steady growth will likely produce an increase in market share in the years to come.
This is a huge step considering the youth of the company.Southwest has consistently offered airfares that are substantially cheaper than its competitors. Larger competitors are unable to meet the prices of Southwest without incurring substantial losses. “For example, in the first quarter of 1991, Southwest’s operating costs per available seat mile were fifteen percent lower than America West’s costs, twenty-nine percent lower than Delta’s, thirty-two percent lower than United’s, and thirty-nine percent lower than USAir’s” (Hartley, 2000). Many aspects of Southwest’s strategy have contributed to lower costs. Southwest uses only type of aircraft, Boeing 737’s. Using a single type of carrier reduces training, maintenance, and inventory costs.
Pilots and ground crew need only be skilled in operations and maintenance of a single type of plane. Therefore, training can be tailored specifically to reduce duration of training and the variety of skills taught. Inventory and storage costs can be reduced due to the Southwest’s need to carry supplies for only one type of aircraft. Southwest has the fastest turnaround time on the ground, which results in higher revenues, due to the company’s ability to offer more flights daily. “While competitors take more than an hour to load an unload passengers, and to clean and service the planes, about seventy percent of Southwest’s flights have a turnaround time of fifteen minutes, and ten percent have even pared a turnaround time to ten minutes” (Hartley, 2000).
As previously mentioned, the no-frills approach offered by Southwest Airlines, also greatly reduces costs.”In Fortune Magazine’s January 11, 1999 issue, Southwest was ranked as the number four company to work for in America. Southwest topped the list in 1998″ (Southwest Airlines Fact Sheet, 1999). Southwest is eighty-five percent unionized yet has world-best management-employee relations. Unlike the adversarial relationships experienced by other airlines, Southwest is able to maintain a healthy and productive working arrangement. Southwest has flexible work rules.
These work rules empower employees, resulting in higher levels of employee productivity and commitment. High employee productivity has allowed the company to carry minimal staff. Southwest maintains the same staffing level, regardless of revenues. This practice has contributed to employee feelings of job security and loyalty.
“Southwest Airlines has been named a charter member of the International Airline Passenger Association’s Honor Roll of Airlines among the World’s Safest Airlines” (Southwest Press Office, 1999). The company has achieved this status by employing the most highly skilled pilots in the world. Southwest has state-of-the-art training facilities across the United States. On April 6, 1998, Southwest opened its new ten million dollars flight operations training center. This facility is the key to Southwest’s flight training for more than twenty-six hundred pilots. It is well equipped to handle the flight training needs of this airline, well into the twenty-first century. Pilots must spend at least one thousand hours training for Southwest during their careers.
Their focus and commitment to safety is supported by this training, and has earned them distinction among their competitors.Rather than invest all revenues into exploring new markets, Herb Kelleher preferred an approach, which expanded the company only when enough resources could be committed to do so. As leader, his company would only reach new markets when enough flights would be able to fly into a city ten to twelve times a day. Kelleher’s strategy was to establish as a major competitor in one location before disbursing his resources to a larger region. This philosophy of conservative growth has reduced losses due to rash investment choices. Southwest Airlines has consistently had fewest customer complaints in the airline industry.
“Southwest has ranked number one in fewest customer complaints for the last eight consecutive years, as published in the Department of Transportation’s Air Travel Consumer Report” (Southwest Fact Sheet, 1999). Several factors contribute to this high customer satisfaction. Southwest offers the lowest airline fares in the industry, due to cost containment factors previously discussed.
Second, the company’s baggage handling practices have been recognized as world-best. It earned the “Triple Crown Award” five consecutive years for on-time performance, baggage handling, and customer complaints. This obviously leads to a very satisfied customer. Third, Southwest Airlines boasts the best on-time statistics among its domestic competitors. This is due to the factors mentioned earlier. Finally, Southwest does not disappoint its customers. Many large airlines’ disappoint customers when they do not provide the services promised. High prices and advertising promoting high quality, luxury accommodations, and dependable service heighten customers’ expectations. When large airlines cannot provide these services, customer satisfaction dramatically decreases. However, Southwest does not advertise these services. Therefore, customers are not disappointed because their expectations are not as high.Similar Wold-Best Practices:Both British Airways and Southwest Airlines are is a leaders in their respective markets due to their innovation and use of world-best practices. Although British Airways is a European based global airline, and Southwest is a United States domestic airline, they share several operational strategies. Despite slight differences in application, these techniques have led to their rise to the top of the industry. British Airways and Southwest Airlines use similar methods in the areas of employee relations, strategic alliances, on-time performance, and customer service.These two companiesSouthwest has have some of the most productive employees in the world. Each companyIt has achieved these results through slightly different employee relations’ techniques. British Airways is focused on cognitive factors that influence employee happiness. It has also empowered employees and made ergonomic changes, for example the new work center, to increase productivity. Southwest Airlines, on the other hand, is more concerned with employee commitment and loyalty. Southwest has instilled feelings of job security, through practicing sound human resource and management techniques.Both British Airways and Southwest Airlines have formed strategic alliances with foreign competitors in order to operate more effectively in an international capacity. British Airways is a well-established global airline with six strategic partners. Southwest, however, has only recently entered the international market through its alliance with Icelandair.Punctuality is a critical success factor for each of these airline companies. Both areSouthwest is highly recognized for their commitment to on-time flight departures and arrivals. British AirwaysSouthwest maintains the lowest percentage of delayed flights as does Southwest Airlines in their respective markets. British Airways has set a specific target with its “minus ten” rule to boarding, while Southwest prides themselves on their quick turnaround.All companies must require customer service in order to remain competitive in the global marketplace;. Through their different world-best practices, British Airways and Southwest Airlines have has achieved extraordinary levels of customer satisfaction. While Southwest achieves this satisfaction through a no-frills, cheap airfare approach, British Airways offers a comfortable, luxurious form of travel. These high levels of customer satisfaction have resulted in two profitable, market leaders.Practices to be Benchmarked:British Airways and Southwest Airlines operate in separate markets. They Southwest offers different services, serve different customers, and use different strategies to achieve their goals. Although they differ in these areas compared to the industry, these companies can learn from one a