The Issue: A CEO's Call on Customer Service
James Parker couldn't have picked a worse time to become chief executive officer of a major airline. In June, 2001, the former Southwest Airlines (LUV) general counsel was named to the top spot—just three months before the airline industry went into a tailspin following the terrorist attacks of September 11. While airlines all around him were cutting back on staff and salaries, Parker managed to protect Southwest employees' jobs.
Two years later, the Southwest veteran wasn't so lucky. The Dallas discount carrier's passengers had been among the first to embrace e-ticketing, and later, online reservations, when the industry first rolled them out in the 1990s. Initially, the airline thought online booking wouldn't make much of an impact, Parker recalls. In late 2003, Southwest had nine call centers with far more customer-service representatives than the airline needed—as online booking went from being a novelty to "wildly popular."
At that time, Southwest's finance team advised Parker that he could cut the number of call centers down from nine to just three. Parker didn't immediately follow their advice. "I know, according to the management books, that CEOs are supposed to be proactive in making decisions," he says. "I chose not to be so proactive. I wanted to see if the trends continued," and if some losses might naturally occur through employee attrition. As it turned out, Southwest's workers weren't going anywhere—the airline industry was still smarting from the aftershocks of September 11.
Couldn't Face the Firing
Parker knew slashing the ranks—especially among the airline's vaunted customer-service representatives—would be detrimental to the airline's well-known service culture and to morale. And Parker, who was already facing difficult contract negotiations with the airline's flight attendants, didn't want to be the first CEO to enact a mass furlough. While there were some on his team who wanted him to do much more, Parker ultimately decided to cut the call centers by just three, leaving six locations. And all affected employees were given the opportunity to relocate with full pay, seniority, and benefits if they chose.
"We could have saved a lot more money by replacing those well-paid people with low-paid, new-hire people," Parker says. "But that would have been wrong."
Ultimately, about two-thirds of the affected customer-service representatives decided to take Southwest up on its relocation offer; about 700 left and took severance pay. While the decision to reduce the number of call centers was extremely tough, Parker says he remembers well a conversation he had with the union leader at the time. "He told me, 'You've done everything you can do.' That made me feel a little better."
James F. Parker is the former CEO of Southwest Airlines and the author of Do the Right Thing: How Dedicated Employees Create Loyal Customers and Large Profits, which was released by Wharton School Publishing in November.
Southwest Airlines handled call-center cuts in an economically and procedurally fair manner that other companies should emulate
Southwest Airlines provides us with a textbook example of effective organizational downsizing. Of course, CEO James Parker and his team had a few things going for them. The company had already established a culture of trust between employees and management. In addition, the downsizing was prompted by a growth in online bookings, meaning it was a technological event outside management's control that spurred the need for layoffs.
Still, Southwest managed the change with notable effectiveness. First, it focused on both the survivors and the victims and was concerned about retaining the motivation and commitment of the people who remained. Second, there was a shared sense of urgency. Parker didn't act until all employees—and not just management—could see that there was a real need for the layoffs. And third, the airline handled the cuts in a way that was both economically and procedurally fair. It offered severance pay and gave employees the choice of moving to a different call center or taking a severance package and leaving the company.
It's important to recognize that what Southwest went through was necessary, in terms of both the downsizing itself and the way it handled the process. Because so much trust had been built among employees at all levels in the organization, management had to proceed in such a way to keep that trust intact.
Learning from Southwest's Approach
Southwest's approach was quite a bit different from the way downsizings are usually handled, which typically involves informing employees they are going to be downsized, escorting them to the door, and shipping their personal belongings to their home address. There's often no notice, no time to process the information, and no choice given to the employees. That approach, which is driven by management and forced upon employees, doesn't involve any form of employee participation.
And unlike the case with Southwest, the reason many organizations have to downsize is strategic missteps or poor executive decision-making. That naturally causes a divide between employees and top management and can create an adversarial relationship.
However, I believe all organizations can learn from the Southwest case. First, even if the downsizing is spurred by something internal, management can build trust with the survivors. Companies can find ways of creating urgency and getting employees on board with the need for change before it becomes absolutely essential. Managers can do that by sharing information about performance and how it must improve to maintain competitiveness. They can make sure severance pay is at least industry-standard and share information about job leads.
Of course, things such as allowing employees to say goodbye to co-workers rather than escorting them out the door can go a long way. Give people advance notice, treat them with dignity and respect, and provide them with a reason for the downsizing.