One Innovation At a Time – How Southwest Airlines and IKEA Built Invincible Businesses
One Innovation At a Time – How Southwest Airlines and IKEA Built Invincible Businesses

One Innovation At a Time – How Southwest Airlines and IKEA Built Invincible Businesses

This post is an excerpt from the book Innovation Stack by Jim McKelvey.


IKEA’s Innovation Stack

  1. Catalogue show rooms

As with other entrepreneurial firms, IKEA had to evolve through the innovation stack, in their case, in response to a harsh environment and boycotts. Kampard (founder of IKEA) explained his innovation stack this way: first, use a catalog to tempt people to come to exhibition (which today is their store). Second, IKEA provides a large premise within which customers are free to roam and see sample decorations first-hand, touch the furniture and leave an order which would be put into effect by mail via factories.

But there’s just one problem. They couldn’t make this furniture in their home country. So, they had to consider…

  1. Overseas Manufacturing

Because the factories refused IKEA as a result of the boycott, Kampard had to source the manufacturing elsewhere, ideally a place with low labor costs and rich natural resources. The economy of Poland was a mess back then and IKEA was able to hire Polish workers for a fraction of the cost of Swedish’s.

But there’s just one problem. Polish factories were worn-down and had many quality problems. So, they had to build…

  1. Efficient Factories

The redesign of Polish factories didn’t only solve quality concerns also increased efficiency and lowered costs. In the coming years, Polish factories produced so much furniture that the shipping volumes grew dramatically.

However, there’s just one problem. The furniture packages were mostly empty space. So, they had to create…

  1. Knocked-Down Furniture

In doing so, IKEA saved shipping space as well as reduced property damages. Still, it required workers on the receiving g end to reassemble the properties. Added labor created additional costs. To address this problem, they adopted…

  1. Self-Assembled Furniture

By asking the customers to do their own assembly job, IKEA eliminated labor and delivery overheads. However, the self-assembled furniture comes with one underlying problem.  It was difficult for most people to assemble furniture. And so, they had to…

  1. Custom Design

IKEA built its furniture with its own designers. These die singers worked directly with the production side to design furniture that’s efficient for production, lowering costs even more. Designers were also able to optimize raw materials across IKEA’s entire product line, so they had…

  1. Interchangeable Parts

Customers can use one scree for thousands of IKEA products, and that simplified the assembly job for very different furniture. Standardizing parts also helped IKEA achieved economics of scale. In fact, IKEA grew big enough that it soon exceeded their own production capacity. So, they had to build a…

  1. Global Supply Chain

Efficiencies in supply chain saved IKEA more costs and simplified the logistics that one factory had to perform. But IKEA needed a place to store all these goods. So, they looked into using….

  1. Warehouse Showrooms

Knocked-down and self-assembled furniture was so space-efficient that IKEA was able to store it in their showrooms (which is also their warehouses). This cut down the waiting time for customers to get their products. But with all this success and stores getting bigger and bigger, people were starting to get lost in them. So, they had to build…

  1. Winding Paths

Walk into any IKEA store and you’ll see cleverly spaced winding paths. This helps the stores feel less intimidating and more intuitive, helping customers find their products easier and quicker. As people spend more time in their facilities, IKEA had to think about…

  1. Food and Child Care

Customers can spend the entire day at IKEA, and there’s no reason to leave the store to eat or drop their kids to a playground. IKEA got it all. Plus, these parents have one more main reason to stay in giant stores and look through the wide array of products…

  1. Low Prices

People not only appreciate IKEA’s low prices, they also trust the IKEA brand itself, the value it represents and the quality it brings to their household.


Southwest’s Innovation Stack

1. Maximized Aircraft Utilization.

Herb Kelleher (co-founder and CEO of SWA) began with a crucial insight “Planes make money in the air, not on the ground”. Basically SWA made a bet that the more flights it flew, the more profitable the business would be. At one point, SWA was flying twice as many flights as its competitors. What gives?


2. Ten-minute Turnaround.

From the moment a plan landed, passengers disembarked and the bags were unloaded, the crew starts to clean and fuel and board the new passengers all in ten minutes. Not only did this enable Southwest to accomplish more in less time, it contributed to the airline’s on-time performance, which was soon the best in industry. Turning around a plan in ten minutes in an average industry turn-around time of an hour necessitated thinking and doing differently.


3. Standardized Fleet.

SWA simplified its fleet by flying one type of plane only which is the Boeing 737, while other carriers had an average ten different types of planes. Flying one standard plane means pilots and crew could substitute for each other as needs arise. Southwest also demanded Boeing for customized version of 737 to tailor their special needs.


4. Batch Boarding.

Southwest passengers are boarded on a first come, first served basis. The color-coded boarding passes help airline crew to look at the passengers rather than the tickets and welcome them to the flight. Passengers are then boarded in batches of thirty. While the other airlines boarded in an intricate hierarchy of classes, Southwest decided to treat everyone equally.


5. Open Seating.

Contrary to conventional practice, Southwest passengers choose their seats as they board the plane. This not only saved boarding time, also simplified flight bookings.


6. Single Class.

A single class flight makes the open seating plan possible. While other airlines were spending massive resources sorting people into separate lines, lounges, gates and seats, Southwest reaped the benefits of simplification.


7. Fringe Airports.

Southwest chose airports that were less congested because of their short turn-around time. Fringe airports also had lower landing fees.


8. Direct Routes.

Southwest went for the direct flying rather than hub-and-spoke strategy of most airlines. Southwest realized putting people on two flights is more expensive than taking them nonstop. By going direct and keeping them in the air, Southwest was able to keep its ground crew and baggage handlers busy, getting higher output from both planes and people.


9. No Food.

Southwest knows that in-flight meal isn’t a priority for most of its flyers. Plus, their flights averaged only about an hour, so the airline provided only snacks and drinks.


10. Friendly Staff.

From the beginning, Southwest hires only people with great personalities even if they are not as job ready as the rest. Southwest believes in training the right fit than hiring the wrong ones. Above all, friendliness is a corporate value and management would go to great lengths to preserve it. “It’s not a big mystery. Employees come first. You treat them well, they treat your customers well, the customers come back, and the shareholders love the results.” said Herb.


11. No Stupid Rules.

At the same time the other airlines had dozens of tricks and rule books to maximize profits, Southwest embraced to create maximum value for their customers (even if it lowers their margins). Herb said, “We replaced the rule book with guidelines for leaders and the first sentence was, ‘Always remember, these are just guidelines and you’re free to break them.’ We went from a thousand pages of rules to may be twenty-two of guidelines.”


12. Independent Sales.

Southwest was never a fan of third-party ticketing vendors. So, if you want to fly Southwest, you must buy from them. This saves the airline and their customers extra transaction fees. Herb explained, “We’re the only airline that refused to join the global distribution system for selling tickets. If somebody controls your distribution I think they control you. And what’s the limit in charging us higher and higher fees as we go forward because we become a captive of theirs?”


13. Low Prices.

Here comes the best part, at least from the customers’ standpoint. Affordable flights have long been Southwest’s primary strategy. One study found that the main reason air fares were dropping consistently throughout the industry was due to the Southwest’s low-price strategy.