The downfall of Southwest Airlines and management lessons for defense

Here’s a viral Facebook post from 35-year Southwest Airlines pilot Larry Lonero:

Herb Kelleher was the brilliant CEO of SWA until 2004. He was a very operationally oriented leader. Herb spent lots of time on the front line. He always had his pulse on the day to day operation and the people who ran it. That philosophy flowed down through the ranks of leadership to the front line managers. We were a tight operation from top to bottom. We had tools, leadership and employee buy in. Everything that was needed to run a first class operation. When Herb retired in 2004 Gary Kelly became the new CEO.

 

Gary was an accountant by education and his style leading Southwest Airlines became more focused on finances and less on operations. He did not spend much time on the front lines. He didn’t engage front line employees much. When the CEO doesn’t get out in the trenches the neither do the lower levels of leadership.

 

Gary named another accountant to be Chief Operating Officer (the person responsible for day to day operations). The new COO had little or no operational background. This trickled down through the lower levels of leadership, as well.

 

They all disengaged the operation, disengaged the employees and focused more on Return on Investment, stock buybacks and Wall Street. This approach worked for Gary’s first 8 years because we were still riding the strong wave that Herb had built.

 

But as time went on the operation began to deteriorate. There was little investment in upgrading technology (after all, how do you measure the return on investing in infrastructure?) or the tools we needed to operate efficiently and consistently. As the frontline employees began to see the deterioration in our operation we began to warn our leadership. We educated them, we informed them and we made suggestions to them. But to no avail. The focus was on finances not operations. As we saw more and more deterioration in our operation our asks turned to pleas. Our pleas turned to dire warnings. But they went unheeded. After all, the stock price was up so what could be wrong?

Interesting post throughout. Unfortunately this plague of financialization has been apparent in the Department of Defense since the 1960s. The obsession on financial metrics like cost growth rather than operational effectiveness. The complete lack of investment in technical infrastructure. The rise of accountants, lawyers, and Hill staffers at the top echelons of the acquisition enterprise.

As the customer goes, so the industry follows. I blogged a couple years ago on a similar story from the Atlantic which documented the “reverse takeover” of Boeing by McDonnell Douglas. Boeing’s Chief Financial Officer, who came from McDonnell, actually said: “When people say I changed the culture of Boeing, that was the intent, so that it’s run like a business rather than a great engineering firm.” What a terrible thing to do to an amazing engineering firm, and the ramifications are apparent not just with the 737 Max, but with the KC-46, SLS, T-7 Trainer, Air Force One, Orca, Stingray, and other military relevant programs.