Encourage Unconventional Thinking

James F. Parker

Prepare yourself for a shock: Not everything has already been invented. Not every great idea has already occurred. Not every valuable innovation has already been implemented. And nobody knows everything there is to know.

The world advances through change and new ideas. The twenty-first century economy is changing at breakneck speed due to a combination of macroeconomic forces, including:

• Profound technological changes, touching every business

• Instantaneous worldwide communication and information gathering capability

• Deregulation and privatization of previously regulated industries, including telecommunications, banking, trucking, and airlines

• A worldwide movement toward a competitive, free enterprise business model

• Consumer empowerment, which is driven by all the previous factors

The world is becoming more globally competitive. Businesses are becoming leaner and more efficient. Customers are demanding better quality at a lower price. Those who stand still will be overtaken and will ultimately perish.

In the classic bureaucratic business model, employees were just required to “do their jobs.” The task of thinking, visioning, and innovating was entrusted to a separate department. After due deliberation, the Research and Development department might decide to add tail fins next year, more chrome the following year, and optional seat belts some time in the future, for example. Companies that still think that way today are being left behind.

Today’s consumer-driven world does not allow such a structured or sluggish approach to change. Long-term planning is certainly still appropriate and necessary, especially with respect to financial planning and projects requiring a long lead time. At the same time, long-term planning must be undertaken with the knowledge that the world will change continuously as we go along.

How will we know when to change and how? Will the R&D department tell us? Perhaps, but it is just as likely our employees and customers will tell us first, if we just listen.

Unconventional thinking by employees can be trying. Leaders may occasionally feel uncomfortable and even threatened by what they hear. If you listen, you will probably encounter many of the same ideas you have heard before. Sometimes, for reasons not obvious to employees, these ideas simply do not fit your company’s business model. Frequently, the uncertain benefits of a promising idea simply do not justify the costs.

And dealing with unconventional thinking is time consuming. You must give new ideas a fair hearing and let employees know their thinking is valued and appreciated, even if their ideas are not accepted.

Every once in a while, however, an employee will tell you something that lights up your eyes. For example, if you are in the airline industry, an employee might tell you exactly how you could use existing technology to eliminate the need for paper tickets, saving millions of dollars a year. This happened to me.

In 1994, Southwest Airlines faced a crisis that would define the future of the company. At the time, all airlines sold a majority of their tickets through travel agencies. Most airlines sold about 90 percent of their tickets that way. Southwest sold less—about 60 percent—because many of our customers simply preferred to call us directly. But travel agency sales still accounted for a majority of our business.

Virtually all travel agents used computer reservation systems to book travel and print tickets. These systems were owned and controlled by our larger competitors—primarily American, United, Delta, Northwest, TWA, US Air, and Continental. Smaller airlines, such as Southwest, were expected to pay the owners of the computer reservation systems in order for travel agents to issue the smaller airlines’ tickets. Most smaller airlines reluctantly agreed to pay the price, feeling it was their only way to gain access to the market.

At Southwest, we had a different view. We viewed the computer reservation system fees as an unnecessary expense. It was simply a scheme to divert revenue from our bottom line to the bottom lines of our competitors—simply because they had the market power to demand it.

As the competitive threat from Southwest’s low fares began to spread, our larger competitors decided it was time to put an end to the matter once and for all. They launched a two-pronged attack.

First, several larger airlines started their own low fare “airline within an airline,” with the express purpose of preventing further growth by, or destroying, Southwest Airlines. United Shuttle tried to retake California for United; Continental Lite popped up in the Southeast; US Air and Delta had their own brands. All of these “airlines within airlines” lost massive amounts of money, and all were ultimately dismantled when it became clear how much this folly was costing the big airlines.

The second prong of the predatory attack involved the computer reservation systems that the large airlines owned. Despite the fact that Southwest had historically refused to pay, all the systems nonetheless allowed our tickets to be printed—because customers and travel agents demanded it. But now the long knives came out. Virtually simultaneously, our competitors announced that they were locking Southwest out. Travel agents would no longer be able to print tickets on Southwest. Suddenly, Southwest faced the threat that we would be cut off from a huge portion of our customers—and our revenue.

It was another seemingly insoluble conundrum. If we refused to pay, we knew that we could lose massive amounts of revenue, threatening our financial viability. But if we paid, we knew that it would begin a continuous transfer of wealth from Southwest to our competitors, as we would be required to pay them every time we sold a ticket. In studying the issue, we noticed that every independent airline that had agreed to the wealth transfer had ultimately gone out of business or been acquired by one of the big airlines: Midway, Ozark, Piedmont, Frontier, Western, PSA, Air California—all proud names in the history of aviation that no longer existed. We didn’t want Southwest to join the list.

So we made our decision. In essence, we defiantly said to our competitors, “Millions for defense, but not one cent for tribute.” We wouldn’t pay.

Gulp. That was brave. What do we do now?

Faced with the imminent loss of a huge portion of our business, we tried a number of stopgap measures. If travel agents would sell our tickets, we would send the tickets to them by mail. If the travel agent or customer needed the ticket sooner, we would send it by Federal Express for overnight delivery. We experimented with putting some of our own computers and ticket printers in travel agents’ offices. All the solutions were expensive, costing us more money than if we had just caved in and paid the fees our competitors demanded. And none of the solutions really satisfied all our customers. We were in a real bind.

And then one of our employees, named Mike Golden, stopped me in the hall and pulled me into an empty office. Mike headed a small department in our company called technical services. They mostly fixed broken computers and helped install technical equipment when we opened service to a new airport. They were a hard-working, highly dedicated group who exemplified the culture of Southwest Airlines. But their area of work did not really involve marketing decisions or software development. Because I was General Counsel at the time, these areas were well outside my realm of responsibility as well.

I knew Mike well. He was another one of the geniuses whom I theoretically supervised but knew to be a lot smarter than I was. Once we were out of the public hallway, Mike started talking to me in a low but excited voice. I didn’t understand much of the technical things he was telling me, but when he got to the punch line, my eyes lit up. His team had figured out how we could implement ticketless travel, using our existing equipment and technology. It would take some relatively simple software adjustments and could be accomplished within a few weeks.

This was the answer to a prayer. Ticketless travel would allow travel agents to sell seats on Southwest without having to use ticket printers. Travel agents could simply book seats over the telephone and take a credit card number. They could do this without using our competitors’ systems.

We knew ticketless travel could work. When we acquired Morris Air at the end of 1993, Morris had already developed its own ticketless system, which had been well received by customers. I had come to know and respect David Neeleman, who was the president of Morris, and David told us that ticketless travel had worked great at Morris. (David would later start JetBlue Airlines.) With a ticketless system, travel agents would be liberated from the ticket printers owned by our competitors’ computer reservation systems and would once again be able to sell seats on Southwest with relative ease. But Morris was much smaller than Southwest, and our computer systems were not compatible.

The problem was time. Adapting the Morris system to our needs or developing our own ticketless system was projected to take months or years, with no assurance of success. Now Mike Golden was telling me we could use our existing technology and hardware to go ticketless in a matter of weeks instead of months or years. It was a miracle.

Mike and I quickly split up assignments. Mike would talk to our executive vice president, John Denison. John was very smart and would understand the technical issues I couldn’t. He also supervised the systems department, which would be necessary to implement the software changes that Mike’s idea would require. Incidentally, after John retired from Southwest a few years later, he became the chairman and CEO of ATA Airlines, which was in bankruptcy at the time. Against seemingly insurmountable obstacles, he saved ATA and brought it out of bankruptcy as an independent airline. As I said, he was very smart. On this occasion, he was smart enough to understand Mike’s ideas, and he personally spearheaded the ticketless developmental program.

My job was to talk to Herb Kelleher, our chairman and CEO at the time, who would need to authorize the development effort. I don’t think Herb initially understood many more of the technical details than I did, but he quickly saw the business potential.

Within weeks, Southwest became the first major airline in the world (Morris was far too small to be classified as a “major” airline according to government standards) to implement ticketless travel. The day was saved. After appropriate testing, ticketless travel was introduced nationwide by Southwest Airlines in January 1995.

Because we had developed ticketless travel, Southwest was able to revolutionize the airline industry once again in 1996, when it became the first major airline to offer seats for sale through its own Internet site. Internet sales would not have been feasible at the time without ticketless travel. Once again, the entire project was conceived, developed, and implemented internally by rank-and-file employees who simply had the courage and the vision to think unconventionally.

By listening to our employees, we beat the competition by several years in these endeavors and saved hundreds of millions of dollars in distribution costs over the next decade.

By the way, Mike Golden, the guy who dared to think outside the box, was asked to become the chief technology officer of the United States Transportation Security Administration, where he has been tasked with overhauling and modernizing the entire technological foundation for our nation’s aviation security. I have great confidence that our nation will benefit tremendously from his creative thinking.