When a company’s performance begins to lag, decisions need to be made about what and how much to change. If it’s a publicly held company, activist investors may get involved, pressuring the company to make changes that the activist calls for. Ultimately, the company must determine what changes it should make.
The right kind of changes can help improve the company’s performance. Changes that are ill-fitting, however, can do more harm than good. And, sometimes, the ill-fitting harm can become a major financial disaster. That’s why it is so important to get the changes right.
This is the kind of situation recently faced by Southwest Airlines. Southwest has had pressure from activist investors to make major changes to improve its performance.
Compared with other really large airlines, Southwest is a relative newcomer that has been doing things different. Southwest is being pressured by activists to change the company’s procedures to be more like what the other large airlines do.
This raises the question of whether the proposed changes are right for Southwest and how many of the proposed changes Southwest should actually be making. It is true that some of the proposed changes entail adopting procedures that Southwest has not been doing, but that generate considerable revenue for other large airlines. Nonetheless, the bigger question is whether or not these changes are a good fit for Southwest.
It is true that Southwest has grown quite large, so based on its size, it is much more like the other large airlines than it was in its earlier days. However, there are still distinct differences between Southwest and the other large airlines, not all of which can be changed. For example, compared with other large airlines, Southwest’s operations are far more focused upon secondary airports. This raises the question of how much Southwest can or should try to be more like the other large airlines.
It is being reported that Southwest’s own surveys find that the majority of its customers favor the new assigned seating that Southwest will soon adopt, making Southwest more like other major airlines. But, Southwest says it will not change its Bags Fly Free policy even though other airlines earn considerable revenue charging for checked bags. This is a good sign since it suggests that Southwest is not just blindly making pressured changes, but instead may be evaluating proposed modifications and choosing those that can actually make sense for its business. This is important because making changes just to be like everybody else is only worthwhile if it is a good fit for your company.
Copying others when it is ill-fitting for your business can lead to major disaster. So, as Southwest works through what it should change, it needs to do so in a way that fits well with its business. It also needs to make sure it doesn’t make too many changes too quickly. The right changes can improve the business, but ill-fitting or excessive change can be a financial disaster.
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