The Business Success Everyone Misunderstood: How speed changes enterprise transformation

All airlines follow one of two (failing) strategies

In the early '90s, Southwest Airlines re-defined our understanding of business. Up until then, many business strategists would frame the options as "good, fast, or cheap… choose two." Sometimes known as the ‘iron triangle,’ these tradeoffs represented a kind of physical law that constrained every company's position in the market.

An airline is already, at least nominally, about speed— the plane arrives 10x faster than a car. That left airline executives with a choice between "good" and "cheap."

A cheap flight on a "budget airline" involved a single-propeller go-cart with zero legroom and lots of prayer (the prayer came free with the turbulence). On a "major airline" you got a meal, a checked bag, and a movie, all for half the price of a new computer.

By the late 1980s, both of these strategic options were considered "viable,” at least by the standards of an industry famous for bankruptcy. Then Southwest Airlines came along and decided the iron triangle was more of a suggestion than a rule.

Southwest became a success story that everyone misunderstood

Though it was a budget airline in terms of price, Southwest flew longer legs, more like a major. It also shined on quality, becoming the first airline to win the industry's "Triple Crown" for achieving best baggage handling, on-time performance, and customer satisfaction in one year. It did this again for five consecutive years, from 1992 to 1997. In parallel, Southwest achieved 47 consecutive years of profitability and became the world's most famous business case in business schools.

What was the secret to Southwest's success and how might it be relevant to business today?

Most of the explanations for Southwest's success fall a bit too neatly along departmental lines in an MBA program.

Operations researchers attributed success to Southwest's "point-to-point" approach for selecting routes. Major airlines, in contrast, use a "hub and spoke" model. HR professors pointed to Southwest's unique culture. It operates with a flat hierarchy where pilots are just as likely to help load bags and hand out drinks as the flight attendant or baggage handler. This sense of camaraderie, noted the Marketing professors, contributed to a casual vibe that bred fierce loyalty among customers.

The problem with all these analyses: none of them explained "why" Southwest worked like this.

If pressed, most researchers would retreat to platitudes, touting Southwest's "great culture" or its "cost discipline." But that just pushes the question back a level. We're interested in knowing why Southwest chose that particular culture and this particular set of management decisions. All companies are trying to manage cost, why was Southwest the only one able to do it?

Speed is the common thread that explains Southwest's decisions

Most airlines, big and small, strive to maximize utilization—they fill as many seats as possible on each flight. Utilization has an appeal as airline seats are, famously, perishable. As soon as the plane takes off, that chance for revenue is lost forever. That's why large planes get delayed so often at takeoff. They're either waiting for other passengers to arrive or they're waiting on a plane at the other end who is, in turn, waiting for customers to arrive.

Ostensibly all this waiting will fill the plane which reduces the cost-per-passenger of a flight. That's the kind of metric CFOs love. Sure, the waiting can get expensive. First, the airline is still incurring cost for all the staff, even when they're on the ground. Second, the airline is incurring extra cost at the other end, when it has to accommodate all the people missing their connection. But these are intangible losses, and they’re hard to track. Utilization, in contrast, is easy to measure and manage.

There is, however, another perishable resource that utilization fails to account for: time.

Every hour the plane waits is an hour people aren't traveling. If they aren't traveling, they aren't paying. This doesn't seem like a loss, however, because that customer will eventually reach their destination. It is not a loss in terms of that customer and that trip.

No imagine, at the end of your life, adding up all the hours you spent waiting for planes to take off. You leave for the airport 3 hours early—just in case there's traffic—and wait for two hours at the terminal. You get delayed 30 minutes on the tarmac. Maybe you spend an extra hour on a missed connection. For the average business traveler, this waiting time represents 50 additional flights’ worth of hours across a lifetime. Sure, some of those lost “flights” would get re-invested at the other end of the destination. Some, however, would turn into additional tickets.

In other words, because Southwest's customers don't wait, they fly more. Not in the "customer satisfaction" sense that they are more loyal (though that’s true too). In a mathematical sense, Southwest customers have more lifetime opportunities to take flights and, therefore, buy tickets. That was Southwest's secret.

Speed shapes culture

While everyone else focused on seat utilization, Southwest reduced waiting. That's why they obsessed over turnaround speed at the gate. If one Southwest plane misses out on some customers, that's ok. Southwest's fast turnaround times mean there is another plane coming any minute. It can grab the stragglers.

This obsession with turnaround speed explains all the famous business decisions Southwest made.

Why does Southwest use only one standardized plane model compared to the myriad options under most airlines? It's faster to load, maintain, and repair a plane that everyone is familiar with. It also meant the pilots only had to get familiar with one baggage protocol which, in turn, made it easy for them to help load the bags. They weren't helping because Southwest had a "good culture." Southwest had a good culture because it's faster if everyone trusts each other to pitch in.

Why does Southwest use a point-to-point model? Doing so kept people flowing around the system, thus avoiding congestion at central hubs. Other airlines might be content to wait in a hub like Atlanta International because it guarantees that planes take off full. For Southwest, that waiting is a nightmare. They'd much rather take off from the nearby Peachtree Airport and keep customers moving.

Speed enables better decision-making

Speed even explains Southwest's famous decision to hedge fuel prices with financial derivatives. While many a Finance professor regards this as a savvy cost-management decision, that analysis never made sense. You're as likely to lock in a higher price for fuel as you are a lower one.

What Southwest actually wanted was cost predictability.

Because their planes are constantly moving, Southwest’s data is smooth and predictable. That makes it easy for them to infer the revenue-per-plane achievable for a given level of customer demand. Marry that with cost-per-flight info and you can figure out the exact number of planes needed to maximize profit. This only works if the cost side is as predictable as the revenues. Otherwise the airline will find itself scrambling to remove flights every time fuel prices increase. That’s why Southwest bought the hedge on fuel. They wanted to avoid the frictional cost from adding and removing flights.

It’s worth noting how speed moved beyond operations and into decision-making. The speed itself created a more reliable source of data from which better decisions were possible. We see a similar phenomenon in companies that shrink down their project deliverables items into smaller chunks of work. They use the delivery rate of those small items to anticipate problems and predict delivery dates. In studies, this approach is 4x more accurate than trying to make predictions off mid-project delivery milestones.

Speed is a skeleton key for explaining enterprise performance

What Southwest discovered through experimentation, we've since observed across numerous industries and eras: speed is a master metric that unlocks performance across every dimension of business. When organizations optimize for speed-to-value rather than more traditional metrics like utilization or cost, they create a virtuous cycle that transcends conventional tradeoffs.

SpaceX is able to develop vehicles in ⅓ the time of Boeing while achieving higher revenue, market share, and safety. Alcoa, in the 1980s achieved the highest safety record in their industry while quadrupling their share price, all with an obsession around speed.

In our next article, we'll decode exactly how an obsession with speed-to-value transforms core metrics from revenue, cost, and risk. You'll discover why speed doesn't work the way most executives think it does. We’ll also show how an inattention to speed is the single biggest reason transformations fail 97% of the time. Finally, we’ll share the seven critical shifts leaders must make to achieve the kind of outsized performance that made Southwest rise above the rest.