Cost-Effective Service Excellence: Lessons from Singapore Airlines

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Cost-effective service excellence: lessons from Singapore Airlines Singapore Airlines is well known as a paragon of in-flight service. It is also a remarkably efficient and profitable airline and has been for decades. Loizos Heracleous, Jochen Wirtz and Robert Johnston explain how it combines service excellence with cost effectiveness.

Singapore Airlines (SIA) has achieved the Holy Grail of strategic success: sustainable competitive advantage. It has consistently outperformed its competitors throughout its 30-year history. In addition, it has always achieved substantial returns in an industry plagued by intermittent periods of disastrous under-performance (see Table 1). Cost-effective service excellence: lessons from Singapore Airlines

SIA has done this by managing to navigate skilfully between poles that most companies think of as distinct – delivering service excellence in a costeffective way. SIA’s awards list is long and distinguished. In 2002 alone it won no less than 67 international awards and honours including “best airline” and “most admired airline” in the world in Fortune’s Global Most Admired Companies survey. Spring 2004 G Volume 15 Issue 1 Business Strategy Review

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Since Michael Porter’s influential suggestion that differentiation and cost leadership are mutually exclusive strategies and that an organisation must ultimately choose where its competitive advantage will lie, there has been fierce debate about whether a combined strategy can be achieved – and sustained over the longer term. SIA is proof that the answer to both these questions is positive. So, how does it consistently deliver premium service to demanding customers in an industry where both price pressures and customer expectations have been continually rising? In common with many other organisations with a reputation for providing excellent service, SIA has top management commitment to service, customer-focused staff and systems, and a customer-oriented culture. However, our research into SIA, spanning many years and at all levels in the organisation, has uncovered a number of insights into developing and maintaining a reputation for service excellence that is applicable to a wide range of service organisations. Ultimately, SIA’s success is attributed to a customer-oriented culture, its recognition of the importance of its customers. “Our passengers are our raison d’être. If SIA is successful, it is largely because we have never allowed ourselves to forget that important fact,” says Dr Cheong Choong Kong, former CEO of SIA.

However, what distinguishes SIA’s culture is that these are not just abstract, “motherhood” statements. The values of cost-effective service excellence are enshrined in a unique, selfreinforcing activity system that makes the values real for all employees. We found that the five pillars of this activity system (see Figure 1) are: G rigorous service design and development G total innovation (integrating continuous incremental improvements with discontinuous innovations) G profit and cost consciousness ingrained in all employees G holistic staff development; G reaping of strategic synergies through related diversification and world-class infrastructure. Rigorous service design and development Twenty years ago Lyn Shostack complained that service design and development is usually characterised by trial and error. Unlike manufacturing organisations, where R&D departments and product engineers were routine, systematic testing of services, or service engineering, was not the norm. Things appear to have changed little since then. SIA, however, has always regarded product design and development as a serious, structured, scientific issue.

Performance metrics Revenues $m

SIA

United

Northwest

Continental

American

Delta

BA

Cathay

KLM

Quantas

5,133

16,138

9,905

8,969

18,963

13,879

12,103

3,903

5,788

5,207

Net income (loss) $m Net profit margin (%) Operational...
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