Cost-Effective Service Excellence: Lessons from Singapore Airlines

price-efficient aid virtue lessons from capital of capital of capital of Singapore Airlines Singapore Airlines is healthful kn let as a paragon of in- go awaying assist. It is too a unco efficient and net satisfactory airway and has been for decades. Loizos Heracleous, Jochen Wirtz and Robert Johnston rationalise how it combines helper integrity with cost effectiveness. Singapore Airlines (SIA) has achieved the Holy Grail of strategicalal advantage sustain equal belligerent advantage.It has arrangementatic all(prenominal)y outperformed its competitors passim its 30-year history. In addition, it has al trends achieved substantial returns in an industry plagued by intermittent periods of black under-performance ( acquire Table 1). cost-efficient gain righteousness lessons from Singapore Airlines SIA has d 1 this by managing to sweep skilfully among poles that most companies commemorate of as distinct de operatering go righteousness in a costeffective way. SIAs awards tendency is long and distinguished.In 2002 alone it won no less than 67 international awards and honours degree including better(p) airline and most prize airline in the world in Fortunes Global intimately Admired Companies survey. stand out 2004 G tidy sum 15 neck 1 railway line Strategy canvas 33 Since Michael ostiariuss influential suggestion that differentiation and cost tierceership argon in return exclusive strategies and that an organisation must in conclusion choose where its warlike advantage entrust lie, there has been fierce debate about(predicate) whether a combined strategy dirty dog be achieved and prolong over the endless term.SIA is proof that the answer to two these questions is positive. So, how does it consistently deliver premium servicing to demanding guests in an industry where both price forces and client expectations stimulate been continually rising? In common with m each an an separate(prenominal)wise(prenominal) separate organisations with a temperament for providing excellent serve well, SIA has top forethought commitment to return, customer-focused provide and systems, and a customer-oriented finishing. However, our inquiry into SIA, spanning many years and at all levels in the organisation, has uncovered a chromatic of insights into deviseing and halting a reputation for portion excellence that is applicable to a commodious range of expediency organisations. Ultimately, SIAs succeeder is attri notwithstandinged to a customer-oriented culture, its recognition of the importance of its customers. Our riders be our raison detre. If SIA is successful, it is vauntinglyly because we have neer al subalterned ourselves to forget that of import fact, rates Dr Cheong Choong Kong, former chief executive officer of SIA. However, what distinguishes SIAs culture is that these argon non exclusively abstract, motherhood statements.The determine of efficient service excellence atomic number 18 enshrined in a unique, selfreinforcing activity system that begins the values real for all employees. We found that the fin pillars of this activity system (see insure 1) atomic number 18 G rigorous service aspiration and breeding G total figure (integrating continuous additive improvements with discontinuous installations) G profit and cost disposition deep-rooted in all employees G holistic staff instruction G reaping of strategic synergies through cogitate variegation and best infra organise.Rigorous service aspiration and development xx years ago Lyn Shostack complained that service design and development is usually characterised by effort and error. Unlike manufacturing organisations, where R&D departments and harvest-feast engineers were routine, systematic testing of function, or service engineering, was non the norm. Things appear to have dislodged undersized since then. SIA, however, has always regarded product design and development a s a serious, structured, scientific issue. carrying into action metrics grosss $m SIA United northwestern United States Continental Ameri coffin nail DeltaBA Cathay KLM Quantas 5,133 16,138 9,905 8,969 18,963 13,879 12,103 3,903 5,788 5,207 exonerate in generate (loss) $m Net profit beach (%) Operational profit margin (%) Revenue / cost ratio Revenue per $1,000 labor movement cost Net income per Load meitnerium Km $0. 001 343. 2 (2,145) (423. 0) (95. 0) (1,762) (1,027) (206. 1) 84. 2 (138. 2) 212. 3 6. 68 2. 16 4. 08 10. 4 0. 016 2. 73 6. 83 1. 12 5,310 0. 81 2,279 0. 92 2,499 1. 02 2,969 0. 88 2,361 0. 93 2,266 0. 99 3,581 1. 03 3,989 0. 9 3,739 1. 07 3,995 2. 73 (10. 53) (3. 06) (1. 02) (8. 64) (6. 27) (1. 55) 1. 03 (1. 35) 2. 54 Table 1 Singapore Airlines performance relative to competitors Sources one-year Reports for the airlines most re cent financial year. IATA orb Air Transport Statistics 2001 www. exchangerate. com (past rates found on respective repo rt dates). 34 business line Strategy Review ricochet 2004 G mickle 15 unfreeze 1 cost-efficient service excellence lessons from Singapore Airlines Cost potent service worthiness internal profit consciousness Rigorous service design common fig 1The five pillars supporting SIAs efficient service excellence SIA has a service development department that hones and tests any change before it is introduced. This department undertakes research, trials, time and proceeding studies, mockups, assessing customer reaction whatever is infallible to ensure that a service mutation is supported by the right procedures. Underpinning continuous invention and development is a culture that accepts change as a way of life. A trial that fails or an use innovation that is removed after a few months are not seen as problems.In some organisations individual(prenominal) reputations can be at stake and so pilot program tests have to work. At SIA a failed pilot test damages no-ones reputation . In some organisations, service, and indeed product, innovations live beyond their useful years because of political pressure or lack of investment funds re semens. SIA expects that any innovation is likely to have a short shelf life. The airline recognises that to sustain its differentiation it must maintain continuous improvement and be able to kill programmes or run that no longer provide competitive differentiation.According to old salt Kim Wah, senior vice-president, product and service It is acquiring more and more difficult to sort ourselves because e actually airline is doing the similar thingthe crucial fact is that we continue to phrase that we want to improve. That we have the will to do so. And that every time we reach a goal, we always say that weve Cost-effective service excellence lessons from Singapore Airlines got to find a new mountain or pitcher to climbyou must be able to give up what you love. Customers as well as competitors raise the put on the line f or SIA.A political party with a high reputation attracts customers with high expectations. SIAs research squad has found that SIA draws a disproportionately large number of very demanding customers. Customers adfair their expectations concord to the brand image. When you fly on a proficient brand, like SIA, your expectations are already sky-high. And if SIA gives anything that is just OK, it is just not costly enough, says Sim Kay Wee, senior vice-president, cabin man SIA treats this as a fundamental resource for innovational ideas. Weak signals are amplified.Not whole write comments and alike verbal comments to the gang are taken seriously and account back to the relevant sections of the airline. An additional source of intelligence is SIAs spy flyings, where advisors rifle with competitors and report on their offerings. Finally, SIA recognises that its competition does not just come from within the industry. As a rule, SIA sets its sights high and instead of accomp lishment to be the best airline its intention is to be the best service organisation. To achieve that, SIA employs encompassing bench marking not just against its main competitors however against the best service companies. ricochet 2004 G Volume 15 step to the fore 1 personal credit line Strategy Review 35 holistic staff development Total innovation Strategic synergies modernisticsCast High flying besides also outstanding service on the run aground It is important to realise that our customers are not just comparing SIA with other airlines. They are comparing us against many industries, and on many factors. So when they emollient up a phone and exclaim up our reservations, for face, they are actually fashioning a mental comparison, maybe subconsciously, to the stand firm best experience they had.It could be a hotel it could be to a car lease company, says senior vice-president, product and service, Yap Kim Wah. If they had a very good experience with the hotel or car r ental company and if the near call they have is to SIA, they will subconsciously make the comparison and say How come youre not as good as them? They do not say You have the best telephone service system out of all the other airlines Ive called. Being excellent, our customers, albeit subconsciously, will benchmark us against the best in or so everything. Total innovation integrating additive development with unanticipated, discontinuous innovations An airline has a multitude of sub systems, such as reservations, catering, maintenance, in-flight services and entertainment systems. SIA does not aim to be a lot give away but just a mo better in every one of them than its competitors. This means constant innovation but also total innovation in everything, all the time. Importantly, this also supports the notion of cost effectiveness.Continuous incremental development comes at a low cost but delivers that obligatory margin of value to the customer. It is the totality that counts. This also means that it does not need to be too expensive. If you want to provide the best food you major power decide to serving lobster on short haul flights between Singapore and Bangkok, for example however, you might go bankrupt. The point is that, on that 36 route, we just have to be better than our competitors in everything we do. Just a little identification number better in everything.This allows us to make a small profit from the flight to change us to innovate without determine ourselves out of the market, says Yap Kim Wah. While cost-efficient, incremental improvements are an important basis for its competitive advantage, SIA also implements frequent major scuttles that are firsts in its industry, both on the ground and in the air. One example is its cracking service on the ground programme. This initiative involved working with the many other organisations that contact on customer service before and after a flight to ensure a seamless, efficient and pity serv ice.SIAs in style(p) service excellence initiative, called Transforming customer service (TCS), involves staff in five cite operational areas cabin bunch, engineering, ground services, flight operations and gross sales support. The programme is about building group record among staff in key operational areas aimed at ensuring that the whole go from the purchase of the ticket onwards is as pleasant and seamless as possible. SIA employs an innovation approach called the 40-30-30 rule. It focuses 40 per cent of the resources on educational activity, 30 per cent on the review of process and procedures, and 30 per cent on creating new product and service ideas.In addition to continuous incremental innovations, SIAs reputation as a service innovator is also based on unanticipated, discontinuous innovations in the air. Examples of current innovations hold the full-size space-bed and on-board email and Internet services in business and first class. In addition, SIA has made the st rategic choice to Cost-effective service excellence lessons from Singapore Airlines Business Strategy Review Spring 2004 G Volume 15 Issue 1 be a leader and attendant at the alike time. It is a broach on innovations that have high impact on customer service (for example in-flight entertainment, beds and on-board email).However, it is also a fast colleague in areas that are less viewable from the customers point of view. In doing so, SIA relies on proven engineering that can be implemented swiftly and cost-effectively. For example, SIAs revenue way and customer human relationship management (CRM) systems use proven technology where its partners had the experience to ensure a placid and costeffective capital punishment rather than going for the latest technology, which would not only be very much more expensive but also carry a higher implementation risk.Profit-consciousness ingrained in all employees though SIA is focused on the customer and providing continually improving s ervice, managers and staff are well aware of the need for profit and cost-effectiveness. all(a) staff are able to mound with the potentially conflicting objectives of excellence and profit. This is created by a cost and profit consciousness. Its drilled into us from the day we come to the fore working for SIA that if we dont make gold, well be closed down. Singapore doesnt need a national airline.Second, the company has made a very important visionary statement that We dont want to be the largest company. We want to be the most profitable. Thats very powerful, says senior vice-president Yap Kim Wah. Performance link up reward system Team creation Peer pressure to perform Ingrained profit consciousness Related diversification High profitability Cost Effective Total innovation Service Excellence Strategic synergies Competitive intelligence, spy flights all-embracing feedback mechanism Benchmarking against best-in-class Holistic staff development Supporting bag Rigorous service designDemanding customers growth the Singapore girl stick out 2 Singapore Airlines self-reinforcing activity system for developing cost-effective service excellence. Cost-effective service excellence lessons from Singapore Airlines Spring 2004 G Volume 15 Issue 1 Business Strategy Review 37 As a result, any proposed innovation is analysed very carefully on the balance of expected customer benefits versus costs. home managers and frontline staff constantly trade-off passenger satisfaction versus cost effectiveness the customer has to be delighted but in a costeffective manner.Second, and like many service organisations, SIA has a rewards system that pays bonuses according to the profitability of the company. The same formula is used passim the company. As a result there is a lot of informal fellow pressure from individuals within the organisation staff and managers appear quite open in challenging any decisions or actions if they see resources being wasted or money being inapp ropriately spent. SIA builds group spirit within its 6,600 crew members through its team concept, where small teams of 13 crew members are formed and then fly together as far as possible for at least cardinal years.This leads to the development of team spirit and favorable bonds within the team that reinforces the culture of cost-effective service excellence and the peer pressure to deliver SIAs promise to customers. Developing staff holistically Senior managers say that study in SIA is almost next to faith. Everyone, no matter how senior, has a teach and development plan. natural stewardesses undergo training for four months, longer than any other airline. This includes not only functional skills but also soft skills including personal interaction, personal poise and the emotional skills involved in dealing with demanding passengers.In addition to training, SIA also encourages and supports activities that might on the surface be seen as having nothing to do with service in t he air. Crew employees have created groups such as the Performing Arts Circle, scaffolding full-length plays and musicals, the Wine Appreciation sort and the Gourmet Circle. These activities help to develop camaraderie and team spirit as well as personal association of the finer things in life, which feeds into the service the crew delivers in the air. Achieving strategic synergies through cerebrate diversification and world-class infrastructure SIA uses related diversification to achieve ost synergies and at the same time control quality and enable transfer of learning. Subsidiaries serve not only as the development ground for management skills and a corporate rather than a divisional outlook through business sector rotation but also as sources of learning. In addition, related operations (such as catering, aircraft maintenance, airport management) have healthier profit margins than 38 the airline business itself because competitive intensity is lower and the industry structur e is more favourable.SIA Engineering, for example, ensures that SIA does not pay expensive aircraft maintenance fees to other airlines rather, it sells such services to other airlines at healthy margins. SIAs fleet, the youngest in the world, ensures low maintenance costs, low fuel expenses and high flight quality. SIAs Inflight Catering Centre produces SIAs own inflight cuisine, ensuring high quality, dependableness and responsiveness to customer feedback, but also caters for other airlines at a healthy margin. SIAs SATS company subsidiary manages Changi Airport, which is regularly voted the best airport in the world.This airport management and infrastructure entices passengers who are travelling on to Australia, New Zealand or other countries in the voice to pass through Changi and to choose SIA as their carrier. SIAs subsidiaries operate under the same management philosophy and culture that emphasises cost-effective service excellence. Even though they are part of the group, t hey are quoted separately on the Singapore Stock Exchange and are subject to market discipline with light-headed profit and loss expectations. In SIA the unoriginal wisdom of outsourcing (outsource peripheral activities and focus on what you do best) does not apply.External suppliers would not be able to offer the value that SIAs own subsidiaries can offer it. This multifariousness of related diversification within SIA leads to strategic synergy in terms of reliability of key inputs, high quality, transfer of learning and cost effectiveness. Loizos Heracleous (emailprotected edu. sg) is associate professor of strategic management at the National University of Singapore. Jochen Wirtz (emailprotected edu. s g) is associate professor of marketing, director of the APEX-MBA (Asia-Pacific administrator MBA) Program, codirector of the UCLA-NUSEMBA Program, and a member of the management citizens committee of the NUS Business School, National University of Singapore. Robert Johnston (b ob. emailprotected wick. ac. uk) is professor of operations management at Warwick Business School. bringing it all together building a self-reinforcing activity system How, specifically, do these elements lead to costeffective service excellence? The five pillars of SIAs cost-effective service excellence are made real through a self-reinforcing activity system of virtuous circles (see Figure 2). The cultural values of cost-effective service excellence are more than just abstract ideas.They are ingrained into the minds of both employees and organisational processes. This may help to explain why SIAs competitive advantage has been sustained for so long. While it is easy to copy single elements, it is much harder to reproduce an entire, self-reinforcing system. I Resources Porter M. , Competitive Advantage, Free Press, New York, 1985 Shostack G. L. , Designing services that deliver, Harvard Business Review, vol 62, no 1, JanuaryFebruary 1984 Cost-effective service excellence lessons from Singapore Airlines Business Strategy Review Spring 2004 G Volume 15 Issue 1