Southwest Airlines CEO grounded in real world

Southwest Airlines CEO Herb Kelleher shares insights on gaining employee loyalty by recognizing good works outside the company, and why his customer satisfaction rates are soaring.

Introduction
In October 2004 Herb Kelleher, Executive Chairman and Co-founder generously gave us his time to talk about his favorite subject: the people of Southwest Airlines.

Throughout its more than 30 years of operation there have always been competitors with more airplanes, more flights, more cities served, more technology, more marketing power, more of everything that we would normally associate with competitive advantage. Yet no airline has performed as consistently profitable, with high growth rates and with high customer satisfaction as Southwest has. If we were to look closely at this, as others have, we might point at faster airplane turnaround times, lower operating costs, or a host of other factors as drivers of Southwest's success. But in reality, all of these factors depend on committed people to make them work everyday.

How do Southwest's people do it? How does the company build its people into leaders confident to handle decisions on their own in the planes, on the tarmac, at the counter and at the gate serving 75 million people this past year? What are the important elements of Southwest's people-culture? What makes it work and how is it sustained?

In this part 1 of our interview, Herb takes us on a conversational tour of the Southwest way, its leadership style and development, people-culture, communication style and customer focus, all enriched by many examples from his own amazing experiences. In part 2 of the interview we will bring you Herb's views on the entrepreneurial challenges of the early years, managing and growing the business and the future of Southwest Air.

We hope you gain as much reading Herb's views as we did speaking with him.

Building Leaders
Babson Insight: Let's start with how you build leaders for the future at Southwest, especially how you give them room to learn and grow without creating too many problems while they're learning?

HK: That's a good question. We believe that every person in the company is a leader in one way or another, no matter what their position in the company might be, ramp agents, flight attendants, whom ever it might be. So we start by asking our People Department to look for leadership capability at the point of hiring, because in addition to hiring people that are altruistic, who like to serve and like to work with others, we also want them to have leadership potential.

Babson Insight - What do you look for to help you identify whether a person has leadership potential?

HK: One of the things that we do in an informal way is to question people. There aren't any psychological or written tests, but we discuss many subjects, whether it's baseball, opera, whatever the subject may be. And we watch how they react to the questions. This is very helpful in determining their leadership capabilities and potential and also gives us an insight into their values.

To give you an example, I originally interviewed a guy who just became VP in charge of our financial planning. We talked for two hours and I never asked him a single question about his experience, his expertise, or anything connected with the job description. And the reason I mention that is that he later told some interviewers "I didn't know I was being interviewed." That's what we try to do, so people are at ease and they're not masquerading. We try to really get to the heart of where they are by asking them to give examples. Examples of difficult situations they've been in and what they did to solve them. Particularly, how they work with other people, how they accomplish results, correct mistakes, etc.

Babson Insight - Can you think of an example where, in the course of that kind of discussion, someone eliminated him or herself by that kind of answer?

HK: Oh yes, well actually I can give you any number of examples, although of course I don't deal with that every day.

Here's an example of what I'm referring to. One of our pilot applicants was very nasty to one of our receptionists, and we immediately rejected him. You can't treat people that way and be the kind of leader we want.

And there are other things that happen. For our interviewing in general and looking for leadership in particular, we use model employees to do it. We bring in our mechanics to interview mechanics, pilots to interview pilots, flight attendants to interview flight attendants, etc. We want their insights. They're out in the field, they know the kinds of people we want and so we involve them in the hiring process. And of course they can give us some pretty good insight. Most of our pilots have a fairly keen sense of humor. One day a bunch of applicants thought one of our pilots was also an applicant and sat down and started discussing things very frankly and two or three of them eliminated themselves from consideration by their comments. We also watch applicants when they go to the cafeteria and watch how they relate to our people while they're up there.

So it's not just a question of sitting down with them and asking, "Are you a good person? Do you have great leadership qualities?" We try to put them in situations and have conversations where this naturally comes out.

Babson Insight - What do you think it is that drives so many executives to be afraid to be so open and share information and be subject to criticism? What's your observation, because you've moved around in the corporate world, you've seen lots of people who fail to ask for advice, what's stops them?

HK: I think its insecurity. They're afraid that they'll be found to be fallible. The way we handle that is to go to our people and admit our mistakes.

Again, I'll just give you an illustration. Some years ago our pilots got into a tough situation, and I didn't realize how serious it was. It had reached the point where it was becoming a little fight with the FAA, not over safety issues, but it was becoming a competitive issue. At first I didn't realize the heat that was being brought on our pilots, so I was saying, "Don't pay any attention to this nonsense." Then after looking more closely I saw their problem, so I got all the pilots together and said, "I made a hell of a mistake, and it's costing you. We're going to make you and your union whole for every penny that it cost you."

You do things like that voluntarily. Like somebody will come in and they'll say, "Gee Herb, we're a little concerned because our carrier for loss of license insurance hasn't yet covered vision problems." So I say, "Okay, we'll cover vision problems until we get this straightened out and in addition, since I might die this afternoon, let's get this in writing." And I just write it out in longhand and give it to our people.

Another example is the government grants provided to the airline industry after September 11. I think we're the only airline that paid profit sharing to our Employees from those government grants. We didn't have to include it as a part of our financial results, but it's a fair thing to do, so we put it in there and we paid profit sharing on it. From things like this our Employees recognize that our primary focus is on them.

Babson Insight - Since no one lasts forever, how have you managed succession? How have you managed to find people who also have that spirit so deeply embedded, because it's one thing to believe, but it's another thing entirely to make it work in the real world.

HK: That is the key. You can't just mouth it. And it can't be a program for six months and then you're on to more important things. It's something that you have to be doing every day.

Our People are very good at keeping the spirit alive and staying in touch. One of the things that we do is called "A Day in the Field." To show our People that their work is respected the folks in the General Office go out and do actual work in line positions once a quarter. So our officers stay current with what's going on in the field … and you get some great feedback. Some significant changes have come about as a result of this.

If one of our People goes to a city to give a speech, we always tell them if at all possible to be sure to drop by the station, or the reservation center. We don't want you to be there and have our People feel you didn't pay any attention to them.

We also communicate in an informal way. We keep up with all of our Employees' sorrows and joys. There's nothing significant that happens in your life that we don't celebrate or commiserate with you. Whether it's a marriage, a death, the birth of a baby, a serious illness, we keep up with our People. This is a huge task, but our People are now part of the process and they call in and tell us, "hey just want to let you know that Sally, in Orlando, had a little auto accident last night and she'll be in the hospital three or four days." Then we get in touch with Sally.

Creating an Innovative Customer-focused Culture
Babson Insight - A big issue in many organizations is getting people to talk straight to their bosses. How do you get people to not to be afraid to say what they think?

HK: First of all, we tell them not to be afraid. And secondly, if you have bosses where the people who work with them are afraid to approach them, then you want to change bosses. And you know most people don't have the grit to do that, but we do. And it causes amazing transformations in work groups.

And thirdly, just to give you an illustration, we say if you have a suggestion box that announces the fact that you're a failure. Because they should feel free to drop in and talk to you any time they want to about anything that's on their minds.

And we encourage all of our People to meet with all of their People all the time. For instance, if you go into one of our stations, the station manager will have a weekly meeting with all the People that work for him. And that's just to keep it personal, keep up to date and get great ideas they might have. This helps show people that we care about them as individuals and some very good ideas come out of those sessions.

Babson Insight - So what happens when you have somebody who's been with you for a few years and they do something that violates the Southwest way?

HK: That's another very good question because we do something that I doubt many large companies do. We don't react by adopting a rule, or add to any manuals. We just call them in and talk to them individually and say, "This happened. Do you have a conflict with somebody? Are you having any problems at home, or anything of that nature?"

One of the things we tell our People is that a part of leadership is focusing on the problem – the issue – and not the person. They should never focus on the person and say, "We're in trouble because you didn't do such-and-such." Instead, if you have a problem, you focus on taking care of the problem and then later you talk to the person privately, saying you know, "we got into kind of a fix there because you did such-and-such, and I know you didn't intend to do that, but, here's the way to handle it better." Our approach is more a matter of individual guidance.

Babson Insight - In a way this is hard because "all you're doing" are things that make total sense.

HK: Yes, but it's very difficult to execute. We know we can not monitor every interaction between our Employees and the 75 million customers we'll have this year. So we decided our People need the flexibility to do whatever they want, as long as they're leaning toward the Customer, as long as their intent is good, as long as their heart is pure. At first there was a little concern: did we really mean it? But as people saw that we really did mean it they began to trust us.

Babson Insight - Can you talk about examples where people tested you on this policy of freedom and flexibility?

HK: I've got a great example for you. A probationary agent at BWI – I just love this one – she wrote me a little note and said, "Herb, I'm a probationary agent," she hadn't been there six months, and she said, "I hope you mean what you say," and then she proceeded to tell me that because an airplane couldn't get into the airport at Islip because of weather she went out and hired five buses to take the passengers to Islip.

So we told her "we not only approve, but you're our Star of the Month." That kind of thing goes on ALL the time at Southwest Airlines, and people feel free, and if it doesn't work out, or if they do something that would bankrupt us if everybody did it, again we address it on an individual basis. We sit down and say, "we applaud your intentions," but if everyone at every one of our stations did this we might go broke. And this is why we'd ask you not to do it again. Although, we'd laud the attitude you showed in doing it.

Babson Insight - In a large organization, you get thousands of new employees every year, and although certainly you want to hear all the good, new ideas they have, you also want them to benefit from what you know to have worked in the past. Are there ways that you capture specific examples of best practices and then disseminate those to people?

HK: When we bring people in, we give them a thorough schooling and grounding in Southwest Airlines and it's history so that they're familiar with who we are, what we do, why we do it the way we do it. Another thing that we do is to bring a group of new hires in after they've been here six months or so, we ask: "Okay, now that you have been with Southwest Airlines and have a sense of what we are, have we lived up to the vision we described? Have we let you down? If we've let you down, how did we let you down? And that's a very good process for self-interrogation, as to whether you're being hypocritical, or you're really doing what you say you're doing. And that's very illuminating. The best answer I ever received, one that I love, came from one of our Employees from the Houston Hobby station, where a ramp worker said: "I'll tell you what my biggest problem is. Every time I've got a problem, there are five or six people trying to help me!" I think I can probably live with that problem.

Babson Insight - How do you give visibility to people who perform well?

HK: We do that spontaneously, as well as recognize our Star of the Month. It's not a star, it's a number of stars, and we also put the faces of some of our superb performers on our flight schedule. For our Stars of the Month, we give them awards, they meet with the Chief Executive Officer, Gary Kelly, once a month and seven or eight people will get an award for extraordinary things they have done. And this might interest you: It doesn't necessarily have to have anything to do with Southwest Airlines. In other words, we're trying to demonstrate to our People the kind of heart that we want them to have. So it could be something that you did in the community, as an example, that was especially remarkable. It's not confined to Southwest Airlines. But it's the kind of thing where we try to set an example of what we value. There are many examples of our mechanics going on vacation with their family, and the airplane has a mechanical problem. The mechanic says, "Well look, honey, you go ahead with the kids and I'll fix this airplane and join you." This has happened probably a hundred times to my personal knowledge.

Babson Insight - You're known as a high enthusiasm, high loyalty culture. What happens when you've got to make a drastic shift in strategy, and I don't mean giving up the people-centric things, but changing the nature of the flights, the pricing, whatever. How do you get people to play?

HK: First of all, I think change has to be paced. Sometimes I have gone to different departments and said things like, "We've had enough change for this year, all these changes are good, but we'll wait till next year to put these last four into effect." The other thing is we try to give all our people a thorough explanation of why we are doing something, and they get it in advance. We tell them, "We're going to do this, we're going to do that, we're going to do the third thing. And we want to tell you why we think that we need to do it.

Babson Insight - You figured out early that in service businesses, if people aren't feeling good about themselves then the company isn't able to deliver.

HK: One hundred percent correct. Going back many years this used to be kind of a conundrum, when I'd speak at business schools, they would ask who comes first: your Customers, your Employees or your shareholders? Then it was regarded as sort of bizarre to say your Employees come first. If they feel good about themselves, just as you said, they will treat your Customers well and your Customers will come back, and that's good for the shareholders. It's amazing how shortsighted some of what we've taught in schools has been, but that's now an established notion.

Babson Insight – Having flown many flights with Southwest I've noticed that whenever there is a problem in operations there is never a focus on the person and fault-finding. Instead, your people talk only about the problem and its resolution. How do you encourage that way of working, particularly when you have new people coming in all the time?

First we try to always hire the right people. Secondly we try to focus only on the results achieved. Thirdly, everything our People do is about serving our Customers and you don't serve Customers by wrangling with each other over who was at fault while Customers are waiting for service.

This comes from the flexibility and freedom we have given our People because they know the object is not to report someone to headquarters because of a mistake or misjudgment. We just don't do that. We all understand that our mission and duty is to solve the problem and we don't spend time blaming.

I will tell you that problems can occur at any level when the Customer isn't part of the thinking. I remember an instance where I was meeting with a group of officers one day discussing how we were going to make operations work better for ourselves and it suddenly hit me that the only one not being considered in our discussion was our Customer. That's when I appointed Colleen Barrett Vice President and later Executive Vice President of Customers. In this way the Customer perspective would figure into every decision we make.

Babson Insight – Is a customer-focused person involved in evaluating all new ideas?

Yes, and if something new is being put in place we'll have People go out who have the role of training, troubleshooting and holding hands through the process until things are working well and everyone is comfortable. When everyone is comfortable that hand-holder goes on to another station to introduce the new process there.

Closing Thoughts
The best strategies seldom work well without outstanding implementation, and Southwest has been a leader in carrying its strategy to the deepest parts of the organization, imbuing all employees with the needed spirit. This interview gives a sense of how Herb Kelleher led the process, and how the centrality of treating people well is carried through the company.

In our next edition, we will continue our conversation with Herb and discuss the entrepreneurial tactics Southwest used to create its market, gain acceptance and grow the business, plus Herb's views on the future for Southwest Air and our own observations about Southwest's people-culture from our visit and conversations with staff at one of their airport operations.

Read the preview of part 2 of this interview.


To read more articles like this one, visit Babson Insight, an online source for business and IT analysis, information and research.

All materials copyright © 2005 of Babson Executive Education Center.

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