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Unit 6: Organisational Appraisal: Internal Assessment 2

Kelleher was so much into this culture that he once said, "Nothing kills your company's Notes
culture like layoffs. Nobody has ever been furloughed [at Southwest], and that is
unprecedented in the airline industry. It's been a huge strength of ours. It's certainly
helped us negotiate our union contracts. One of the union leaders….came in to negotiate
one time, and he said, "We know we don't need to talk with you about job security." We
could have furloughed at various times and been more profitable, but I always thought
that was shortsighted. Post-September 11, 2001, when most airlines in the US went in for
massive layoffs, Southwest avoided laying off any employee.
Southwest showed its people that it valued them and it was not going to hurt them just to
get a little more money in the short term. The culture at the organisation spoke about its
belief in the thought that not furloughing people breeds loyalty. At Southwest, it bred a
sense of security and trust. So in bad times the organisation took care of them, and in good
times they're thought, perhaps, "We've never lost our jobs. That's a pretty good reason to
stick around."...
As a result, Southwest was the only airline to remain profitable in every quarter since the
September 11 attack. Although its stock price dropped 25% since September 11, it was still
worth more than all the others big airlines combined. Its balance sheet looked strong with
a 43% debt-to-equity ratio and it had a cash of $1.8 billion with an additional $575 million
in untapped credit lines. The entire credit to the profit was given to the loyal employee
base the company had and it could be developed only as a result of the organisational
culture at Southwest. The company left no stone unturned to boost employee loyalty and
morale and made many a competitors to follow suit.

Questions
1. What do you analyse as the most influential characteristic of Southwest's culture?
2. Do you really think that the reason behind Southwest's profit's was its culture or the
leadership was just playing it humble?
3. Do you think that following the Southwest way, the other airlines would have also
made profits?
Source: www.ibscdc.com

6.2 Value Chain Analysis

Every organisation consists of a chain of activities that link together to develop the value of the
business. They are basically purchasing of raw materials, manufacturing, distribution, and
marketing of goods and services. These activities taken together form its value chain. The value
chain identifies where the value is added in the process and links it with the main functional
parts of the organisation. It is used for developing competitive advantage because such chains
tend to be unique to an organisation. It then attempts to make an assessment of the contribution
that each part makes to the overall added value of the business. Essentially, Porter linked two
areas together:
1. the added value that each part of the organisation contributes to the whole organisation;
and
2. the contribution that each part makes to the competitive advantage of the whole
organisation.

In a company with more than one product area, the analysis should be conducted at the level of
product groups, not at corporate strategy level.
Value Chain thus views the organisation as a chain of value-creating activities. Value is the
amount that buyers are willing to pay for what a product provides them. A firm is profitable to

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