I think there is hardly a business school student who hasn't studied Southwest Airlines as a case study (read a few here, here, and here). And rightfully so, as we can learn a lot from their strategy. In Jim Collins' latest monograph (which I posted on earlier), Southwest Airlines is mentioned in the same breath as hospital executives. Collins shares about a conversation he had with a group of hospital executives. When Collins asked the group to discuss what was stopping hospitals from being great, many pointed to industry problems and issues - i.e. reimbursement regulations, systemic inefficiencies, and other things outside their managerial control. Collins then asked them what single stock has returned more for their shareholders in the last 30 years (1972-2002) than any other. Surprisingly for everyone, it wasn't some high-flyer in a high-tech or high-growth sector - it was Southwest Airlines.

In an industry where survival is already quite an accomplishment, Southwest Airlines has somehow managed to beat out its competitors - in every industry under the sun. Southwest is a winner. So what's in the secret sauce?

Well, like many secret sauces, it's a perfect blend of many elements:
1. They choose specific, underserviced markets
2. They didn't sweat the small stuff
3. They figured out what the "big" stuff really is
4. They didn't try to do more than they should
5. They differentiated themselves through their culture
6. They drastically simplified operations to do 1-5.

I think the most important aspect is #5 - the fuzzy art of building an organizational culture. Many others have succeeded to copy 1-4, but Southwest's culture is difficult to imitate - making it a point of lasting differentiation. What is this culture? Its a culture that combines fun & compassion - it's a culture that treats employees AND passengers like real people. I know it sounds so basic, but that's it - and it's top to bottom. Want fun? Once the airline was using the same tagline as a rival. Did they settle it with lawyers? No way. A big-event, boxing-ring event where the 2 CEOs arm-wrestled for the use of the tagline.

Of course, a great culture isn't enough. But when you do have one + smart operations (items 1-4), then you've got a sustained competitive advantage. How can your hospital create a compassionate culture that becomes your competitive advantage?