The Power Of Strategic Thinking
Welcome back to the Mid Market Insider!
Let’s jump in…
This week I want to take a break from the complex topic of how to value your company and instead explore the power of strategic thinking through Southwest Airlines.
Southwest Airlines is a very popular airline in the US that operates on a low-cost carrier model.
The founder had a plan for a new airline to operate in the Texas area. He wanted to offer travelers an aviation option that rivalled the cost of transportation via automobile.
His original plan called for 4 planes, but he could only get 3. Because of this he had to rework the schedules and had to make it work by turning planes in 20 minutes.
Which funnily enough is now a core piece of their service offering.
Throughout this edition, I will break down and display the power of strategy by using the Southwest Airlines model as an example.
What is strategy?
According to Michael Porter, it is defined as performing different activities from rivals or performing similar activities in different ways.
Here are some examples of Southwest Airlines putting it into practice:
1. Instead of allocating seats to passengers for boarding (an example of a common activity) Southwest Airlines has assigned boarding numbers.
2. Early on Southwest avoided large airports and focused on second-tier cities because second-tier cities are less busy than major airports meaning more timely departures and smaller airports are less costly meaning they can keep costs and fares down.
3 generic strategies
Michael Porter also believes there are 3 types of generic strategies:
1. Cost leadership: A great example is Walmart (and Southwest Airlines) who is notorious for squeezing suppliers to sell goods for lower and lower prices over time allowing them to offer reduced prices for their customers.
2. Differentiation: Companies that demand a price premium i.e. Apple, and Starbucks.
3. Focus: Going after a specific target market e.g. Peter Millar targeting the high-end golf apparel market.
Whichever strategy is chosen, all other decisions should support and reinforce that broad choice.
Southwest Airlines has a cost leadership strategy. Their efficient use of planes and choice of lower-cost airports support this decision.
Now let’s move on to the nitty gritty and get specific on how to craft strategic plans.
Strategic Plan
(A formal declaration of a company’s goals as well as how the company plans to achieve those goals)
There is more to unpack but I need to explain why having a strategic plan in place is so important.
1. Alignment
You want everyone on the same page nothing can be lost in translation.
2. Intentionality
Performing activities for a reason not just for the sake of doing.
3. Accountability
If goals and initiatives are structured effectively it will establish the person or people responsible and how to measure success.
Now I would love to go into more detail on how to build and execute a full strategic plan but I don’t think I have enough space.
So instead here is a YouTube video that gives you a more comprehensive overview:
https://www.youtube.com/watch?v=zJu2Us7nF3k
Southwest Airlines stands as a testament to how a well-executed strategy can transform limitations into advantages.
What began as a constraint – operating with three planes instead of four – evolved into a cornerstone of their operational excellence.
This illustrates a crucial lesson: strategy isn't just about making perfect plans, but about adapting intelligently to circumstances while maintaining a clear vision.
As you develop your own company's strategic plan, remember to start with your mission, clarify your vision, and embed your values deeply into your operations. But most importantly, be prepared to turn your constraints into opportunities, just as Southwest did with their 20-minute turnaround times.
After all, strategy isn't just about where you want to go – it's about making the countless small decisions that will get you there, one flight at a time.
The Lessons:
1. Constraints can become competitive advantages What initially seemed like a limitation for Southwest – having to operate with three planes instead of four – forced them to innovate their turnaround process. This 20-minute turnaround became a cornerstone of their efficiency and profitability.
2. Strategy must seep throughout the business Southwest's commitment to cost leadership wasn't just a high-level strategic choice – it influenced everything from their choice of airports to their boarding procedures. Their success demonstrates that effective strategy isn't about making isolated decisions at the top, but about ensuring every operational choice reinforces the core strategy.
3. Different, not just better Southwest succeeded not by trying to outperform traditional airlines at their own game, but by fundamentally rethinking how an airline could operate. By choosing to be different (secondary airports, no assigned seating, rapid turnarounds) rather than just trying to be better at conventional practices, they created a unique market position.
📅 Next Week:
In next week's newsletter, we will discuss the importance of thinking critically about WHO should be running your business.
Keep building,
Nick
P.S.
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