Southwest Airlines and Koch Industries Organizational Cultures Case Study

Introduction

Organizational culture is “a system of shared meaning held by members that distinguishes an organisaion from other organisations” (Rao 292). In this paper, we will discuss the organizational cultures of two successful companies, “Southwest Airlines” and “Koch Industries”. We will compare these two cultures, investigate the cultural challenges that the companies would face if they decided to merge, and offer a way to avoid the possible clash between them.

The Organizational Culture of “Southwest Airlines”

The organizational culture of “Southwest Airlines” is built around three core principles: “Warrior Spirit, A Servant’s Heart, and Fun-LUVing Attitude” (Klein 36). These include perseverance, innovation, egalitarianism, family relationships between the company’s employees, passionate teamwork, high-quality customer service, and an easy-going, informal attitude to work (Klein 36-37). Therefore, “Southwest Airlines” can be evaluated according to Rao’s list of features of organizational cultures in the following way (Rao 292-293):

1. Innovation: is encouraged.
2. Attention to Detail: more attention to general results than to details of working process is paid.
3. Outcome Orientation: more attention to the performance of a team rather than of a single individual is paid (Klein 37).
4. People Orientation: is people-oriented, provides light atmosphere at work and cares about its employees, e.g. by giving them salaries that are among the highest in the industry, and constantly organizes training and learning opportunities; never practices layoffs, even during crises (Klein 37-38).
5. Team Orientation: is team-oriented, encourages evaluating teamwork rather than individual work (Klein 37).
6. Aggressiveness: the atmosphere is not aggressive; employees are expected to have family-like relationships.
7. Stability: is not aimed at maintaining traditional values and hierarchies, preferring innovation, informality and egalitarianism.
8. Radical Change: innovation is encouraged, but no stress on radical change is present.
9. Customer Orientation: aims to provide customers with very low-cost, high-quality service.

The company’s culture is dominant; its “core beliefs and values… are widely embraced and demonstrated by employees and are a key factor in its success” (Klein 36). Therefore, the company, according to Rao’s definitions, has a strong organizational culture, is organic (workers are allowed to adjust themselves to the environment) and participative (communication flows not only downwards, but also upwards) (Rao 294-295).

The Organizational Culture of “Koch Industries”

The organizational culture of “Koch Industries” employs Charles Koch’s philosophy of “five integral parts: vision, decision rights, knowledge processes, virtue and talents, and incentives” (qtd. in Hornsby and Goldsby 417). We can evaluate it according to Rao’s model in the following way (Rao 292-293):

1. Innovation: is strictly innovation-oriented (Hornsby and Goldsby 417; Koch 80).
2. Attention to Detail: pays attention to each employee’s general performance and results (Hornsby and Goldsby 417-418).
3. Outcome Orientation: is outcome-oriented; rewards “people according to the value they create for the organization” (“Koch Industries, Inc.” par. 5).
4. People Orientation: is not strictly people-oriented; rewards for individual performance and professional qualities (Hornsby and Goldsby 417-418).
5. Team Orientation: is not team-oriented, pays attention to a single employee’s performance; important decisions are made by staff members with the highest “comparative advantages” (Hornsby and Goldsby 417).
6. Aggressiveness: encourages high competition among staff members, rewards them according to their effectiveness (Hornsby and Goldsby 417-418).
7. Stability: holds to traditional values; maintains hierarchies; unequivocally states the role and standards of behavior for each employee; promotes “humility” and “respect” towards superiors (Hornsby and Goldsby 417-418).
8. Radical Change: supports radical change. The company’s CEO C. Koch advises to “embrace change, envision what could be, challenge the status quo, and drive creative destruction” (Koch 80).
9. Customer Orientation: aims towards “customer focus” (Hornsby and Goldsby 417).

The company is likely to have various subcultures inside it, for it is a conglomerate of many different organizations. According to Rao’s definitions, the culture is mechanistic (includes supervision, control and flow of authority) and authoritarian (decisions are made by those who have “the highest comparative advantage” (Hornsby and Goldsby 417)) (Rao 294-295).

“Southwest Airlines” and “Koch Industries” Merging

Comparison, Probable Challenges, and Possible Solutions

Now let us compare the two organizational cultures and consider what could happen if “Koch Industries” decided to purchase “Southwest Airlines”.

Here is what the cultures have in common according to Rao’s scheme (Rao 292-293):

1. Innovation: both organizations encourage innovation;
2. Attention to Detail: both companies are inclined to pay attention to an employee’s general performance rather than details of their work (although in both businesses at least some positions require high level of attention towards details);
3. Customer Orientation: both companies are customer-oriented.

On the other hand, there are more aspects of organizational culture which differ in these two companies:

1. Outcome Orientation: the airlines company pays more attention to results of teamwork, whereas the industrial one keeps an eye on each employee’s performance.
2. People Orientation: “Southwest Airlines” is directly people-oriented, providing its employees with the highest salaries in the industry, encouraging family-like relationships between workers and caring about them; on the other hand, the personnel in “Koch Industries” is highly hierarchized, cared about and paid strictly according to their performance.
3. Team Orientation: the first organization focuses on teamwork, the second one demands individual success;
4. Aggressiveness: the airlines company encourages light relationships and mutual support between workers; the conglomerate promotes tough rivalry.
5. Stability: the first company is much more value-innovative than the second one.
6. Radical Change: the airlines encourage only innovation, but the other company’s CEO advises to practice “creative destruction”.

We should also point out that “Southwest Airlines” has a dominant organizational culture which is strong, organic and participative, whereas the organizational culture of “Koch Industries”, in Rao’s terms, is likely to be not dominant, and is mechanistic and authoritarian (Rao 294-295).

Therefore, if “Koch Industries” decides to purchase “Southwest Airlines”, significant clashes between the two cultures are probable to happen. The airlines team is likely to be frustrated with rules of “Koch Industries” imposed on them. These rules would turn a friendly, easy-going atmosphere into an atomized, strictly hierarchized, highly competitive environment of the “war of all against all” (the new ambience appears to be likely to be perceived as such), where the employees would have to cope with the sudden rivalry of their yesterday’s friends.

Piccolo and Bardes observe that culture “is generally a pervasive and important determinant of employee behavior and the most common reason otherwise attractive mergers fail to meet even modest expectations for sustainable financial performance” (n. pag.). A strict imposition of “Koch’s” rules is, therefore, likely to result in a failure. On the other hand, there often exist several different organizational cultures within the same firm (Piccolo and Bardes n. pag.). We believe that, for the merger to be successful, “Koch Industries” should recognize that “Southwest Airlines” is already one of the most successful companies in the airlines industry (Klein 35) and show flexibility by allowing its organizational culture to exist as what Rao calls a subculture (293).

Conclusion

As we have seen, the organizational cultures of “Southwest Airlines” and “Koch Industries” differ substantially: the first one, in Rao’s terms, is strong, organic and participative, whereas the second one is mechanic and authoritarian (293-294). On the other hand, “Koch Industries” allows for existence of subcultures; therefore, it is possible to take advantage of this feature to avoid a cultural clash that is probable to result from the merger of these two companies.

Works Cited

Hornsby, Jeffrey S., and Michael G. Goldsby. “Corporate Entrepreneurial Performance at Koch Industries: A Social Cognitive Framework.” Business Horizons 52 (2009): 413-419. ScienceDirect. Web.

Klein, Gerald D. “Creating Cultures that Lead to Success: Lincoln Electric, Southwest Airlines, and SAS Institute.” Organizational Dynamics 41 (2012): 32-43. ScienceDirect. Web.

Koch, Charles. The Science of Success: How Market-Based Management Built the World’s Largest Private Company, Hoboken, NJ: John Wiley & Sons, 2007. Print.

Koch Industries, Inc. – The Five Dimensions of MBM. n.d. Web.

Piccolo, Ronald F., and Mary Bardes. “Chapter 13: Cultural Due Diligence.” The Art of Capital Restructuring. Ed. H. Kent Baker and Halil Kiymaz. Hoboken, NJ: John Wiley & Sons, 2011. n. pag. Web.

Rao, P. Subba. Organisational Behaviour, Mumbai, India: Himalaya Publishing House, 2010. Print.