BY KAREN P. S. YUE                                                                                                                                    
                                                                                                                                                      
MENTION a short-haul, low-fare, high-frequency and                                                                                                    
point-to-point American airline, and the name Southwest Airlines                                                                                      
immediately comes to mind.                                                                                                                            
                                                                                                                                                      
Southwest Airlines began service in 1971 with just three jets.                                                                                        
It has since grown to become the fourth largest US airline (in                                                                                        
terms of domestic customers carried), operating 377 jets (as of                                                                                       
March 31, 2003). Year-end results for 2002 showed Southwest                                                                                           
Airlines' 30th consecutive year of profitability. Quite a                                                                                             
remarkable achievement by any standard.                                                                                                               
                                                                                                                                                      
Today, Southwest Airlines (a member of FORTUNE 500) employs more                                                                                      
than 35,000 employees and operates 2,800 flights a day to 58                                                                                          
cities all over the southwest of the US. Its 2002 financial                                                                                           
results boast of a net income of US$241mil (RM915 million) and                                                                                        
total operating revenue of US$5.5bil (RM29.6 billion).                                                                                                
                                                                                                                                                      
What makes Southwest so successful? The answer lies in its                                                                                            
"uniqueness": being the only short-haul, low-fare,                                                                                                    
high-frequency and point-to-point carrier, thereby choosing to                                                                                        
run a "different" race and sustaining its ability to compete                                                                                          
successfully in a high-cost high-risk industry. It's as simple                                                                                        
as that. This point was hammered home by Michael Porter, the                                                                                          
master of competitive strategy, at a conference in Kuala Lumpur                                                                                       
recently.                                                                                                                                             
                                                                                                                                                      
Southwest has both profitability and growth. These are two real                                                                                       
measures of success. Porter would have us know too that these                                                                                         
are the goals the right goals - for a strategy to begin with.                                                                                         
                                                                                                                                                      
But how does one rate profitability? In the airline industry, as                                                                                      
in other industries, there is an industry average. Between 1998                                                                                       
and 2000, Southwest was bringing in a return on invested capital                                                                                      
(ROIC) of 12.4% compared to the airline industry average 6f                                                                                           
7.5%. Clearly, it is more profitable than the industry average.                                                                                       
To Porter, this spells (positive) strategic economics.                                                                                                
                                                                                                                                                      
We can draw a local parallel in Air Asia. Established in                                                                                              
December 2001 and touted as "Asia's first low-fare no-frills                                                                                          
airline to introduce 'ticketless' travelling" with                                                                                                    
"point-to-point" flights, Air Asia has characteristics similar                                                                                        
to those that have enabled Southwest to compete differently.                                                                                          
                                                                                                                                                      
In Porter's competitive strategy equation, the ability to                                                                                             
compete differently is but one of five conditions that a                                                                                              
business must fulfil in order to have a sure-fire strategy to                                                                                         
compete.                                                                                                                                              
                                                                                                                                                      
What are the five conditions?                                                                                                                         
                                                                                                                                                      
First, a business must have a different value proposition from                                                                                        
its competition.  This is clearly illustrated in the case of                                                                                          
Southwest or even in Air Asia. Other examples abound: BMW with                                                                                        
its value proposition of "Superior-engineered, high performance,                                                                                      
sporty, customised automobiles at a premium price", and                                                                                               
Neutrogena Soap with its "Mild, residue-free soap formulated for                                                                                      
pH balance at a premium price."                                                                                                                       
                                                                                                                                                      
The acid test is not in trying to be "the best" in whatever, but                                                                                      
rather by being "unique" in meeting a need (customers', of                                                                                            
course).                                                                                                                                              
                                                                                                                                                      
Secondly, the business has to employ a different value chain                                                                                          
from that of its competition. If you have the same product, the                                                                                       
same distribution channel, and the same everything else, you're                                                                                       
just competing on best practice, according to Porter. The set of                                                                                      
activities must be distinctively different from that of your                                                                                          
competition. You then compete on a different level.                                                                                                   
                                                                                                                                                      
Thirdly, have specific tradeoffs in your product or service                                                                                           
offerings. This means that in order to offer one unique value,                                                                                        
businesses will have to deliberately choose not to offer other                                                                                        
values. Firm decisions have to be taken on what services you                                                                                          
will not supply and what features you will not offer. The                                                                                             
strategy should define which customer you choose to serve; the                                                                                        
rest you're not interested.                                                                                                                           
                                                                                                                                                      
The problem with many businesses, perhaps because of                                                                                                  
over-zealous salespersons' representations, is that they want to                                                                                      
be everything to every customer. "Unless you add tradeoffs, your                                                                                      
strategy will be easy to copy," warned Porter.                                                                                                        
                                                                                                                                                      
In addition, it is interesting to note that businesses that                                                                                           
customise every product or service to the unique demands of                                                                                           
individual customers face the danger of its cost becoming so                                                                                          
high that it exceeds revenue. It may well be a fundamental goal                                                                                       
to satisfy customer needs by seeking to improve the                                                                                                   
responsiveness to customers.                                                                                                                          
                                                                                                                                                      
However, a business should not offer a level of responsiveness                                                                                        
beyond what its production process can profitably sustain.                                                                                            
                                                                                                                                                      
Fourthly, integrate activities in your value chain together. It                                                                                       
is important to have "fit". "Southwest designed the service to                                                                                        
fit the utilisation of aircraft," said Porter.                                                                                                        
                                                                                                                                                      
Thus, the airline serves no meals on board. There are no seat                                                                                         
assignments, and there is no baggage check-in to other cities.                                                                                        
Its aircraft fly about an average of 7.2 flights per day or                                                                                           
about 12 hours per day-spending more time in the air than on the                                                                                      
ground, seemingly.                                                                                                                                    
                                                                                                                                                      
It sounds much like what Air Asia is doing in this part of the                                                                                        
world but on a much larger scale.                                                                                                                     
                                                                                                                                                      
"It is hard to imitate such a business, because you have to                                                                                           
imitate everything, not just one feature," Porter emphasised.                                                                                         
                                                                                                                                                      
Lastly, there has to be continuity. A business has to be                                                                                              
pursuing the same strategy for a while. How long? It takes about                                                                                      
three to five years for a strategy to manifest. In time,                                                                                              
customers, suppliers and other stakeholders will know and                                                                                             
understand what the business stands for. Consistency in the                                                                                           
unique proposition is the name of the game. Porter opines that                                                                                        
if you just follow the trend, you'll be average, not superior.                                                                                        
                                                                                                                                                      
And that goes against the grain of effective competitive                                                                                              
strategy.                                                                                                                                             
                                                                                                                                                      
Given the importance of integration with traditional ways of                                                                                          
competing and the emergence of the Internet and other pressures                                                                                       
for competitive convergence, it is easy to see why many                                                                                               
companies do not have differentiating strategies to compete                                                                                           
well. Particularly in developing countries like ours, businesses                                                                                      
are more opportunistic in nature and there is a tendency to                                                                                           
compete on price.                                                                                                                                     
                                                                                                                                                      
This is all the more reason for companies to-heed-Porter' s                                                                                           
advice; that strategy should be developed and periodically                                                                                            
reviewed in a formal process rather than being left to occur                                                                                          
spontaneously. Indeed strategy development should not be a                                                                                            
democratic process. The leader must ultimately decide."                                                                                               
                                                                                                                                                      
This is a follow-up to the article "Define strategy to compete"                                                                                       
that appeared in this column on 18 May 2003.For more details on                                                                                       
management development programmes or MIM membership, contact MIM                                                                                      
at 03-21654611, e-mail enquiries@mim.edu or visit www.mim.edu.