The Southwest Airlines Message: Where is paper’s new competitive business model?
By Pulp & Paper Canada
By Pulp & Paper Canada
At the CEO session during the recent PaperWeek conference, the question was raised as to “where will the Southwest Airlines of the paper industry come from?” Unfortunately, there was little discussion…
At the CEO session during the recent PaperWeek conference, the question was raised as to “where will the Southwest Airlines of the paper industry come from?” Unfortunately, there was little discussion on the important message behind the question. The Southwest Airlines message is an example of successful strategy in a sector saddled with high capital requirements, high operating costs, razor thin margins, energy intensity, declining markets [recent past], overcapacity, and an overburden of regulations and taxes.
Does this sound a bit like the paper industry? In spite of these impediments, Southwest Airlines was a pioneer in the new “low-cost airline” business model. There are now many imitators, but interestingly not one of the major carriers has to date been successful at fully duplicating this strategy. The reasons for this offer some important insights into the crafting of competitive strategy and deserve closer scrutiny by the paper sector.
The starting point for a discussion on strategy is the seminal research by Michael Porter of the Harvard Business School; his paper “What is Strategy?” [Harvard Business Review, Nov-Dec 1996, p74] is a must-read. In this work, Porter reminds us that operational effectiveness is not a strategy in itself. It is necessary, but not sufficient, to successfully compete in a commodity market such as air travel or paper manufacture. Successful business model strategies are built from a set of strongly linked strategic initiatives. Moreover, the strategic initiatives are often different from the industry norm and this is where the entrepreneurial innovation in competitive strategy development originates. Trade-offs in strategic initiatives are also important; an organization has to decide on limits to its offerings and thus decide what not to do. As they were evolving their business model, Southwest chose not to use hub airports, serve no meals, schedule no flight connections, limit the use of travel agents and use standard fleets, among many other differences in their strategic initiatives. Sustainable competitive advantage is not attained if everyone is using the same business model, using the same consultants, benchmarking each other, copying each other’s “best practices,” and each seeking to be in the “lowest cost quartile” as their strategic beacon. To quote Porter: “A company can outperform rivals only if it can establish a difference that it can preserve.” Lastly, the strategic initiatives are uniquely linked to form a synergistic “net.” It is this synergistic linkage that provides the sustained competitive advantage. It is also clear that no strategy is locked in time, but must be adaptable to accommodate new competitive challenges — as has been the case with Southwest.
Using Porter’s principles, the recipe for strategy development first involves the identification of strategy components, which “can be based on customers’ needs, customers’ accessibility, or the variety of a company’s products or services,” [Porter]. As shown in the example figure, strategy components may be innovation, business foresight, business unit relationships, customer interface etc. — these are the building blocks of strategy. Each of these components asks a “how to” question to develop 3 to 5 alternate strategic initiatives. The process may be envisaged as different faces of the building blocks. Typically, a business strategy would have up to 16 components and as many as 64 initiatives. Finding a consistent “fit” between different initiatives [or block faces] involves a consistency analysis, whereby the organization asks itself what combination of initiatives create synergy and are within reach of the organization’s capabilities. The consistent fit [or the unique assembly of blocks] defines self-consistent strategy alternatives. One of these options would be the unique business strategy of Southwest Airlines.
Why is this important?
Back to the original question: “Where is paper’s new competitive business model?” Some companies have perhaps moved in the direction of a unique competitive business model, but by and large most companies are doing similar things — trying to compete on assets or fibre basket or price or product or market access and wringing their hands at the dollar exchange rate or government restrictions. The “best in class” examples of successful strategy in well-trodden commodity sectors are illustrated by examples such as Southwest, Dell, Starbucks, NewspaperDirect and many others. They are difficult to copy because competitors cannot or will not make the necessary trade-offs or step into new spaces.
Alan Procter is an international consultant helping organizations discover competitive business and technology strategy. He can be reached through www.alanprocter.com