Principles to Cost Effective Service Excellence

In the Times NewsLink Bestsellers list for the period 30 January to 5 February 2006, “Flying High in a Competitive Industry”, the latest book by Associate Professors Jochen Wirtz and Nitin Pangarkar, occupied Top 3 spot in the Business category. Number 6 on the list is “Winning” by Jack Welch and “The Apple Way” by Jeff Cruikshank (8th spot).

Published by McGraw-Hill, the book hit the marketplace in early January. NUS Business Leads catches up with all three authors, including co-author Dr Loizos Heracleous of Oxford University, to learn more about the subject of the book: the “secrets” of Singapore Airlines’ success.

1) Why did you decide to collaborate on this book? What was each of your contribution?

Jochen: Service businesses are incredibly complex, and this was a unique opportunity for conducting some truly cross-functional research. Loizos is an expert in organizational strategy, Nitin in corporate strategy, and I in service management. Furthermore, all three of us have had many years of experience in consulting work and executive education with SIA, and therefore know the company very well. It is rare to find three researchers and authors who complement each so well.

Nitin: There were clearly many strategic dimensions to consider and we expected strong synergies due to our diverse backgrounds and perspectives. The actual synergies were even greater than we expected—in the form of critique of each other's ideas as well as synthesis of our diverse approaches.

Loizos: At some stage we realized that we were all doing research related to airlines and to competitive advantage. We all see the issues from different lenses, that are complementary and additive. These different perspectives have helped us shed light on the basic question of strategy: why do some firms outperform the rest? What principles can we learn that can be applicable to other companies and industries?

2) What are SIA's secrets of success in a very difficult industry, and despite setbacks (not least, an air-crash)?

Nitin: SIA's resilience can be attributed to the clarity of its vision and strategy and the unwavering commitment of the top management to stay the course even in the face of adversity. In the middle of the Asian crisis (1998), SIA spent S$500 million on an overhaul of all classes of service. Explaining the bold decision, SIA's marketing manager had said: Crisis or no crisis, customers expect the best from SIA and that's what they well get. After the Taiwan crash, SIA was quick to offer generous compensation to the affected people and its efficient handling ensured that the brand name was not tarnished in any way.

Loizos: We found that many of SIA's "secrets" are based on sound principles of strategic management and effective organization that most companies are aware of, but very few practise effectively. These include strategic alignment, development of competencies and capabilities that are central to what stakeholders value and to being competitive in specific industries, creation of virtuous, self-reinforcing circles of activities that operationalise these competencies, flexibility and ability to change, constant innovation, and creation and sustenance of a culture that supports all these. Almost all senior managers, if asked whether their company has these, answered positively. It takes determination, skill, hard work and seamless execution however to move from a situation of simply espousing these principles to actually adopting them.

Jochen: Bouncing back means the company needs to have a sound long term strategy with a great value proposition for its target markets. It needs to be resilient, to have a great management and service employees, and the necessary financial resources.

3) How can these success factors be applied to other companies in various sectors and environments?

Loizos: Our study has the aim of helping us learn principles relevant to sustainable competitive advantage that can extend beyond airlines to other industries. Many such principles indeed apply across industries, as is the assumption for example of MBA courses, aiming primarily to teach students to think strategically and analytically, rather than to learn the details of particular industries.

We can consider the principle of the need for effective strategic alignment, one of SIA's success factors, as an example. Effective strategic alignment entails coherence, consistency, and integration among four levels of analysis (organisation, core competencies, strategy and competitive environment); and at each inter-level juncture the kind of inter-connections that are needed are different but crucial. This principle is indeed applicable across industries, and careful analysis of most organisations will reveal certain mis-alignments that if addressed will improve that organisation's competitiveness.

The task for senior managers is to take a hard, objective look at their organisation, discover these misalignments, and address them.

Jochen: As economies develop, and fully join the global market space, competition will be getting tougher and tougher. Hitherto at least partially protected industries will have to face the full brunt of best practice competitors. SIA had to face them from day one, and therefore had to compete and adopt best practices as well as innovate all along.

Other industries in Asia, for example like the banking sector, have not been exposed to full competition yet – they will have to learn, adopt and outsmart, or face declining rates of return.

Nitin: While the airlines industry has been extremely competitive for some time, industries such as electronic gadgets (including computer hardware) and automobiles have already moved in that direction and many others are expected to do so.

The successful players in the new hypercompetitive environment will be multi-dimensional – highly skilled at balancing (seemingly) conflicting strategic imperatives such as being innovative as well as low cost. Toyota, for instance, is a low-cost producer of automobiles. But it also has the fastest growing luxury car brand as well as a strong position in the new technologies such as hybrids. Increasingly, the winners in a variety of industries will resemble SIA and Toyota.

4) How can Asian and Singaporean companies create cost-effective service excellence?

Loizos: In brief, we found that some aspects of this achievement relate to structural environmental factors that can make it cheaper to do business in some countries than others (e.g. lower labour costs, largely accounting for the current phenomena of outsourcing and off-shoring). This is something that many companies view as the easy answer; jumping on the bandwagon for example and opening factories in cheap locations. This action may at some point be necessary, but will not grant sustainable success because competitors will do the same thing.

Beyond these structural environmental factors, there are more complex, and hard to imitate company-related factors that are crucial. The details of these will vary with each company, but they entail an integration of a concern with high quality with a very efficient organisation and processes. Any organisation would need to take a holistic approach to this, and address its culture, structure, people and process dimensions to create this. In chapters 2 and 3 of our book, we explain in detail how SIA achieves this feat. It is not impossible to achieve it, but very difficult, which explains why SIA has had sustainable competitive advantage in its industry for over three and a half decades.

Nitin: SIA has adopted several strategies that enable it to simultaneously achieve this objective. Its young fleet, for instance, ensures a more comfortable cabin, less unscheduled maintenance (fewer flight cancellations and delays) and on-time arrival. Its usage of a high degree of automation reduces errors as well as leads to high productivity and value added per employee at SIA has historically shown a strong uptrend.

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