Singapore Airlines innovating transcontinental air travel
Flight SQ 21:
Singapore Airlines innovating transcontinental air travel
Andrew Buks, Uwe Hartmann, Gustavo Ban Miranda,
Georgios Rossidis, Michiel van Schravendijk
Since its creation in 1972, innovations like flight SQ21, the worlds longest non-stop flight, and a unique flight experience contributed to Singapore Airlines' (SIA) reputation for being one of the most innovative companies in its industry and one of the worlds leading airlines.
Through constant innovation SIA has been able to add value for its stakeholders. Customers are surprised and impressed by the service quality; employees are proud to work at SIA and benefit from its excellent reputation and training opportunities; and shareholders appreciate the company's sustained growth and the fact that the airline has never had a loss, although being in a highly competitive industry.
In order to achieve these results SIA employs a Play-to-Win strategy focusing on both radical as well as incremental innovation. Strong leadership, partnerships with companies like IBM and a mix of technology and business model innovation have helped Singapore Airlines to maintain its competitive advantage. Its ability to act as a fast follower as well has also been an important factor in staying ahead of the competition.
Singapore Airlines uses both formal and informal processes for innovation. It has a Product Development department, solely focused on technology and service innovation, but Singapore Airlines' leadership also encourages a culture that allows everyone to contribute to the innovation process. Decentralized networks play an important role facilitating this company-wide involvement. A stage-gate process is used to move innovations through the pipeline, but this process has a lot of flexibility such that it does not inhibit informal innovations.
Together with the innovative culture, Singapore Airlines' leadership has created a set of versatile incentives to improve performance. These incentives are not specifically tailored to promote innovation, but motivate the innovation process through a strive for increased profitability. The company measures innovation performance through (financial and human) resources used, consciousness of the execution of the project, the performance compared to other airlines and industries and the increase in profitability caused by innovation projects.
Globalization primarily affects Singapore Airlines through the need to access globally dispersed knowledge and through the demands of their global customer base. Extensive partnerships with technology providers, passenger feedback and the use of international service consultants ensure success in this field. Organizational complexities are limited, since most of the corporate infrastructure is in Singapore, but global management complexities will grow as SIA tries to increase diversity among its employees.
We have learned to know Singapore Airlines as a truly innovative company that leads the field in its industry. Its strong leadership and the culture it encourages, combined with a versatile innovation process are important factors in sustaining this advantage. However, as the company increases the diversity of its employees, it will face the challenge how to maintain its innovative culture that is so strongly rooted in company traditions. Including economic incentives that are specifically tailored to innovation is a possible solution to this issue.
When the British left the Malayan Peninsula and Singapore became an independent state in 1965, the economic outlook for Singapore was bleak. The country was still impacted by the Japanese occupation and the subsidies received during its colonial days were no longer available. Luckily for the people of Singapore, the government of this small city-state was led by a young, energetic and charismatic Prime Minster - Lee Kwan Yee.His ambition was to transform the "little red dot on the map" into a vibrant economy and a leading example for other nations in South East Asia.Lee felt that Singapore had to continue on its path not only as a leading trade center, but also reinvent itself as a provider of reliable services (Lee, 1999). The services industry was to become one of the major economic engines of Singapore and Singapore Airlines (SIA) was going to be one of its prime examples.
When in 1972 Singapore Airlines started its operation in Singapore, its main strategy goal was not only to provide superior customer service, but also to establish a prominent presence and distinct identity in the competitive airline industry. SIA considers innovation as one of its core ingredients in assuring its continued success in the global carrier market.
In this paper, Singapore Airlines' innovation strategy will be examined, often using their flight SQ21, the world's longest flight from Singapore to New York (Newark), as an example. In the first section, the company and its history of innovation will be discussed. Next, the influence of innovation on SIA's stakeholders will be examined. In the third section, SIA's innovation strategy will be examined more closely, followed by a section on how SIA's leadership creates the necessary structures and culture for innovation. Section five will deal with the way Singapore Airlines measures and rewards innovation, while section six will touch on the consequences of globalization for SIA's innovation process. Finally, the conclusion will cover the most important lessons learned during our research.
History of Singapore Airlines
The history of Singapore Airlines dates back to 1 May 1947, when a Malayan Airways Limited Airspeed Consul took off from Singapore's Kallang Airport on the first of three scheduled flights a week to Kuala Lumpur, Ipoh and Penang. Over the next two decades, the Airline steadily acquired more planes. In 1963, the Federation of Malaysia was born and the Airline became known as Malaysian Airways. In May 1966, it became Malaysia-Singapore Airlines. Later, the new look of the airline evolved further with its first Boeings - three B707s, then a fleet of B737s (SIA, 2009a).
In 1972, Malaysia-Singapore Airlines split up to become two entities - Singapore Airlines and Malaysian Airline System. At its inception, SIA had a small fleet of 10 planes, 6000 employees and flight service to 22 destinations in 18 countries. The government made it clear to SIA's executives that their goal was to generate profits as the Republic of Singapore didn't need its own national carrier simply for prestige or to emphasize its presence as a country.SIA grew rapidly and by 1989 it flew to 57 cities in 37 countries. By the end of the 20th century it serviced 119 cities in 41 countries and its global destination network continues to grow.Today, SIA's network spans over 43 countries (SIA, 2009a).
In terms of expanding its fleet, the airline has consistently retained its impressive reputation.In the 1980's, SIA's fleet was the first to include the Airbus A300 Superbus, theBoeing 747-300 Big Top, the Boeing 757 and the Airbus A310-200. It was also the first airline to fly a commercial flight across the Pacific using the Boeing 747-400 Megatop (SIA, 2009a).
In the 1990's SIA revolutionized in-flight communications by introducing the KrisFone. This feature provided passengers with global telephone service while cruising at 35,000 feet. At the same time, SIA was seeking to improve its fleet by placing a US$ 10.3-billion order for 22 Boeing 747-400s and 30 Airbus A340-300s, a US$12.7-billion order for 77 B777s in 1995, and a US$2.2-billion order for 10 Airbus340-500s in 1998 (SIA, 2009a).
In 2000, the Airline placed 19 Airbus A380s on firm order and a US$4-billion order for 20 more Boeing 777-200s in 2001. In 2004, Singapore Airlines was the first to operate the world's longest non-stop commercial flight between Singapore and Los Angeles in February on the A340-500, surpassing the record (in terms of distance) later that year with the non-stop service to New York (Newark) in June. The A380, the world's largest commercial plane, entered service with Singapore Airlines on 25 October 2007, making it another world's first (SIA, 2009a).
Singapore Airlines and its Subsidiaries
SIA's business is broken into 2 types: travel & services.Apart from operating Singapore Airlines, SIA also operates Silk Air which flies to 30 Asian-only destinations. Another SIA subsidiary – Tradewinds - offers a wide range of tour and travel packages to multiple global destinations. SIA Engineering Company provides top-notch engineering services to over 85 air carriers and aerospace equipment manufacturers from all over the world. Another SIA company, SATS, provides services including catering, passenger, baggage, cargo and ramp handling, aircraft interior cleaning, aircraft security, and linen laundry. Finally, SIA Cargo operates to destinations around the world with its large fleet and most technologically advanced commercial freighters - the B747-400 Freighter (SIA, 2009a).
The name of Singapore Airlines has become synonymous with in-flight firsts. The airline made history again when, in 2004, it introduced the longest non-stop flight (SQ-21) from Singapore's Changi International Airport to New York's Newark Liberty International Airport. The flight path takes passengers on an over 18-hour long journey over the North Pole and the in-flight experience is far from a typical transoceanic flight.According to Michael Tan, SIA's Commercial Senior Vice President (VP), the airline considers product and service innovation as extremely important: "We are really dedicated to product innovation. We have a department that looks at nothing but new products, new services, and new types of services. We are driving towards inculcating a very strong innovation culture throughout the company" (Sutherland et al, 2003).
The highest quality of service is one of SIA's goals and flight SQ-21 from Singapore to Newark serves as an excellent example. When boarding flight SQ-21, passengers can only expect in-flight service of the highest order which provides passengers with unforgettable cabin, gourmet, wining & dining, and in-flight entertainment experiences.
SIA certainly redefined transcontinental air travel when it introduced the SQ-21 daily all Business Class service to Newark. This innovation to the original SQ-21 was introduced in July of 2008.The Airbus 340-500 was fitted with 100 Business Class seats. The seats are 30- inches-wide and are arranged in a forward facing, 1-2-1, layout. This provides every passengers with direct access to the aisle. The seats also convert into a fully flat bed.
In-flight comfort is extremely important to SIA.For the comfort of the Business Class passengers the airline provides soft terry-cloth socks and eyeshades. Also, a wide selection of branded toiletries such as eau de cologne, aftershave, and moisturizing lotion are available in all lavatories. In addition, toothbrush sets, combs, disposable razors, and shaving cream are also available (SIA, 2009a)
Moving around the cabin is easy and is certainly encouraged.Passengers can get up and help themselves in the Passenger Lounge to pick up small meals and drinks or to socialize during the flight.
The SIA World Gourmet Cuisine offers a wide selection of signature dishes designed by a panel of internationally renowned chefs like Wolfgang Puck, Gordon Ramsay, Alfred Portale or Georges Blanc. The wine & beverage list is equally impressive and features items selected by the world's most selective beverage consultants (SIA, 2009a).
KrisWorldis SIA's award-winning in-flight entertainment system. The system offers passengers a wide range of entertainment options. Passengers can choose from a variety of 500 movies, TV programs, music CDs and entertainment channels. Furthermore, the system provides a selection of video games and even language learning tools provided by Berlitz.The system also allows passengers to entertain themselves with their personal audio/video by connecting their iPods or MP3 players to the 15.4-inch LCD monitor (SIA, 2009a).
There are many definitions of stakeholders, but the one that will be considered for this paper is: "The stakeholders in a corporation are the individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and that are therefore its potential beneficiaries and/or risk bearers" (Post et al., 2002). This part will focus on three types of stakeholders: customers, employees, and shareholders.
Singapore Airlines has positioned itself as a premium carrier that differentiates on service, not on ticket cost (Heracleous et al, 2009). It aims to provide its customer with a unique experience, so that it can charge a higher, though still competitive, price. This strategy of differentiation requires it to have excellent customer service. It is possible to state undoubtedly that SIA does a great job in that area. It is routinely voted the 'best airline', 'best business class', 'best cabin crew service', 'best in-flight food', 'best for punctuality and safety', 'best for business travelers', 'best air cargo carrier', even 'Asia's most admired company' (Wirtz et al., 2001).
According to Wirtz et al. (2001) the key factor for the company's success is the fact that they are always surprising their customers with new features, creating a wow effect for them. The wow effect doesn't only occur with edgy new gadgets on the seats, it also occurs with the service of the flight attendants and others employees. For instance, on flight SQ21, the flights attendants are encouraged to call the passengers by their names just to try to make the flight more pleasant and personalized (Hanks, 2006). Another thing that makes SIA's flights different from other airlines is the extensive entertainment system and the personalized food service on-board. This high level of service adds a lot of value for SIA's customers, especially when they are on an 18-hour flight.
Usually, costumer satisfaction is very closely linked with employee satisfaction, and this case is no different. In service business the employees that interact with the costumers, the front-line staff, are frequently seen as the company itself (Wirtz et al., 2007), as if they were the face of the company. So if the costumers, for any reason whatsoever, don't appreciate the way they have been treated by any of the staff, they will certainly come out with a bad impression of the company. Also, human assets are the hardest quality for a competitor to imitate, because of the complexity of the company's culture, so SIA's employees play an important part in its strategy of differentiation.
The Human Resources department clearly plays its role in making SIA incredibly successful in staff performance. Besides the very rigorous recruitment process and initial training program (Heracleous et al, 2009), the employees participate in frequent training to continuously improve their skills. This is very important since this is one of the things that adds the most value to a worker. Yap Kim Wah, senior VP Product and Services, said in an interview (Wirtz et al., 2007): "We believe that there is no moment, regardless of how senior a staff is, when you cannot learn something. So all of us, senior VPs included, are sent for training regularly. We all have a training path. You can always pick up something. If you have completed quite a number of programmes, then you go for sabbatical. You go and learn a language, do something new and refresh yourself."
The reward and recognition system is also important to keep the employees motivated: "SIA employs various forms of reward and recognition including interesting and varied job content, symbolic actions, performance-based share options, and a significant percentage of variable pay components linked to individual staff contributions and company's financial performance" (Wirtz et al., 2007). A more detailed review of SIA's reward system can be found in section five.
In addition to winning the Business Traveller Awards for Best Cabin Staff for many years, SIA's flights attendants have their share of glamour in their home country, just like their colleagues in the U.S in the 1960s. "Singapore Girl has become synonymous with the airline and the personification of quality service while most other airlines have not managed to "brand" and promote their cabin crew as successfully" (Wirtz et al., 2007).
As mentioned before, the shareholder is one of the most important stakeholders. One of the best ways to indicate the added value to the shareholders is by the company's results. SIA is the only airline company that has never had a loss on a yearly basis and according to Datamonitor (2008) forecasts, in 2012 Singapore Airlines industry will have a value of $11.2 billion, an increase of 73.7% since 2007. The compound annual growth rate of the industry in the period 2007-2012 is predicted to be 11.7%.
When analyzing SIA's annual report of 2008/2009 (SIA, 2009b) it is possible to observe a few things. Apart from 2008, which was an atypical year due to the global economic crisis and heavy fluctuations in the oil price, SIA has always had a remarkable growth. For instance, the closing price of its stocks went from SG$7,20 to SG$13,16 in the last twelve years (1997-2009). Total revenue went from 8.2 billions to 13.05 billions in 9 years (1999-2008).
In the meanwhile, SIA's competitors have not been performing nearly as well. Continental Airlines saw it stocks drop from US$34,81 to US$8,76 in the same 12-year period, while British Airways stocks declined from GB£6,86 to GB£1,25 (Reuters, 2009). As can be seen in Figure 1, Singapore Airlines has had significantly better net profit margins that the average of the top 20 airlines (Heracleous et al., 2005).
Figure 2: Net profit margins of Singapore Airlines compared to top 20 competitors (Heracleous et.al., 2005)
3.Singapore Airlines' Innovation Strategy
Traditionally, there are two innovation strategies that a company can follow. The first one is a "play-to-win" (PTW) strategy, which involves a company investing in innovation to stay ahead of the competition. Essentially, the PTW strategy is focused on producing a significant competitive advantage that competitors will not be able to match. When implementing the PTW strategy, the company invests a lot of money in technological and business model changes, so that it can outpace its competitors through radical innovation.
The second strategy is labeled as "play-not-to-lose" (PNTW), which is more suitable for a company in a high uncertainty environment with a lot of strong competition. A company should also explore the PTNL strategy if it has many constraints that do not allow innovation to flourish, making the PTW strategy not a viable option. Typically PNTL includes more incremental innovation (Davilla et al., 2006).
As the examples in the previous sections show, Singapore Airlines has always been a leader in innovation. Singapore Airlines was the first to operate the world's longest non-stop commercial flight between Singapore and Los Angeles in February of 2004 on the A340-500. The company again surpassed the record in terms of distance in June of that year with a non-stop service to New York.The A380, the world's largest commercial plane entered service with Singapore Airlines on 25 October 2007, making it another world's first (SIA, 2009a). With these radical innovations, Singapore Airlines has become a powerful company, while the competition is still trying to match their competitive advantage. These are all clear examples that SIA has chosen a Play-to-Win strategy. In the next paragraphs the internal and external factors, as mentioned by Davila et al. (2006), that lead to this conclusion will be discussed.
When examining the internal factors that affect the choice between PTW and PNTL, it can be seen that even though SIA lacks in its level of technological advancement, the partnerships that SIA has developed help to improve this situation. Two examples are the partnership with Goodrich for the component and system maintenance (Airline Industry Information, 2007) and the seven year agreement with IBM for IT services (Business Wire, 2004). SIA's use of information technology is an essential enabler of its innovation strategy, by enhancing not only customer service but also communication within the company (Heracleous et al., 2009).
Regarding organizational capabilities and top management vision, SIA has proven that it has the innovational qualities that a PTW strategy requires. The leadership of the company is very strong and Chew Choon Seng has proven to be a very successful businessman (Fahmy, 2008). The need for innovation is clearly articulated by the leadership. With such a strong leadership, it is easy for the airline to evolve its strategy and shift to a more radical innovation approach when needed.
The last internal factor is the success of the current business model. SIA has proven to be a very successful company that can adjust its existing business model to increase profits. For example, SIA decided to change all the seats on flight SQ21 to business class, (Airline Industry Information, 2008) becoming the first company to provide all-business class from North America to Asia. From the history of the company we have seen that it constantly seeks to be the best and to maximize its profits (SIA, 2009a).
Looking at the external factors that affect the choice for PTW or PNTL, SIA has had many good partnerships that have helped a lot with the growth of the company, as was mentioned before. By outsourcing those services that are not a core competency – that is, those services that are not so visible to the customer, SIA has saved money that has been used to reach very high service levels at a profit. This is characterized by the fact that it has been voted numerous times as the world's best airline (Fahmy, 2008).
The airline business is a very dynamic industry, so SIA does not sit comfortably waiting for its next big innovation. It expects that any of its innovations have a limited shelf life, and so it is constantly adjusting in order to sustain its differentiation and maintain continuous improvement. When dealing with its competition, SIA is a leader and a fast follower at the same time. (Heracleous et al., 2009).
The innovation mix describes the combination of radical, semi-radical and incremental innovation a company has. As we stated above, SIA pursues radical innovation in order to boost up profits and the level of competitive advantage compared to other companies. In addition, SIA is constantly searching for a higher goal to achieve. Interestingly enough, even though SIA is a company that looks actively to reduce costs (SIA, 2009a), it still maintains its marginal value to customers. This is achieved with small incremental innovations, as well as sustained differentiation from its competitors. Singapore Airlines has a Product Innovation Department that does research on why people behave in a certain manner. The department studies their reactions and then makes a three-to-five year projection of what is likely to happen, so that they can better understand the customer needs. Some of this research has led to the development of internet and phone check-in for all classes, and the full-size SpaceBed. Furthermore, SIA not only is good at innovation, but also is a very fast follower to areas that are not so visible to the customer, such as revenue management or CRM systems. (Heracleous et al., 2009).
Near to the existing
Near to the existing
Figure 2: Innovation Matrix with the locations of SIA's innovations (Davilla et.al., 2006)
Figure 2 shows SIA's innovation matrix. SIA is primarily located on the areas labeled incremental and radical innovation, because of its clear strategic choice of being a leader and a follower at the same time (Heracleous et al., 2009). These focuses help to achieve customer satisfaction and help to earn profit.
4.Leadership: Structuring and Cultivating Innovation
SIA tries to employ many different sources of innovation. Therefore, SIA has both a business unit with the task to find new innovations as well as a leadership that encourages the whole organization to contribute ideas in order to create value for the customer.
The Product Development department is a business unit constantly looking for the next big thing for Singapore Airlines. Davila et al. suggest that a company should implement a mix of technical and business innovation (2006). That is exactly what SIA does: Tan, Senior Executive VP at SIA says that they look at "new products, new services, and new types of services" (Sutherland et al., 2003). They "tend to undertake major, discontinuous innovations" (Heracleous et al., 2005). Heracleous indicates that employees in SIA's PD department focus especially on radical and semi-radical innovations. Such innovations include long-distance flights like SQ21. The Product Development department is responsible for highly expensive innovations like the SpaceBed, which cost $100 million. Leadership gives all members of the research department the freedom to pursue less orthodox ideas, which will possibly enter the formal process later or will be refined by operational units (Heracleous et al., 2005).
Figure 3: Schematic of innovation process
The product development department employs a sequential, formal innovation process akin to a stage-gate process which is described by Heracleous et al. (2005) and displayed in Figure 3. SIA regards the development process as a "serious, structured, scientific issue" (Heracleous et al., 2004).The first step is "having inspiration or making discoveries". As most ideas build upon existing ones the innovators read magazines or websites to look for ideas, inspiration as well as new technology. The most important sources of ideas might be the service staff and customer feedback (Heracleous et al., 2005). But they also conduct so called spy flights, where SIA researchers fly with competor airlines to unclose their innovations (Heracleous et al., 2005). They compare themselves to other service industries too (Heracleous et al., 2004).
The second step is to save the ideas on the e-log (Heracleous et al., 2005). The e-log constitutes a kind of internal marketplace and platform for innovation (Davila et al., 2006). The next step is a number of the so called war cabinet meetings. These meetings take a closer look at the idea and try to determine details and the feasibility of the idea. The next stage of the process involves winning over a Senior VP to support the idea. This executive has to fulfill a function similar to an innovation champion. He will support and protect the idea against innovation antibodies. The fifth stair is the user conference. Frequent customers are invited to give their feedback. This is one of several ways SIA tries to involve customers in the innovation process. The PD department is therefore not an ivory tower developing ideas that are only believed to be useful by the inventors themselves.
The last three steps transform an invention to an innovation and are concerned with business aspects and viability. In these steps, value is created. First, a detailed business case is developed including costs and returns. If the idea is approved by senior management the innovation will be further enhanced and finally implemented. The entire process is flexible, but the steps preliminary endorsement, business case and costing and senior management approval are mandatory (Heracleous et al., 2005). This ensures acceptance and viability.
Innovation is of vital importance to the company's leadership. It is not only part of SIA's general mission statement but also part of each departments own mission statement (Heracleous et al., 2005). In this way an innovative spirit pervades the organization and innovation is recognized as everyone's responsibility, not only the responsibility of a specific subsidiary or the board. Leadership allows everyone to come up with ideas, no matter whether he or she is CEO, senior manager, flight attendant, cook or service engineer. The people who come up with the idea can implement and constantly improve them in their department with its budget without involving the PD department, or they can hand it over to the PD department (Heracleous et al., 2005). The second approach is always required when the idea involves major changes and high budget. This kind of highly distributed, decentralized and informal innovation process allows the people who know the day-to-day business best to create the most useful innovations. Moreover, Heracleous et al. note that it prevents the company from embracing purely technological innovation (2005).
The more diversity, the more different views and the more innovation will occur. Recently, SIA has started recruiting more employees from different counties, (Sutherland et al., 2003). They also rotate crews and management (Deshpande et al., 2003). People get to know different people, countries, departments and jobs. Networks and new views and consequently also new opportunities for innovation are created.Cultural values and the leadership encourage continues improvement (Sutherland et al., 2003). People are empowered by the board to make decisions and not only follow the guidelines. Sutherland et al. (2003) note that workers are supported to use common sense instead of blindly following guidelines, to achieve the best results for the customer. Leaders motivate employees by giving them a mission instead of a job, unleashing creative potential. This self-responsibility does not only increase the employees' satisfaction with their job, it makes it also more likely that they come up with new ideas. Dr. Cheong, former SIA CEO, said that "everbody is involved in the discussion at the top" (Sutherland et al., 2003). The involvement of several people reduces the effects of the "Not Invented Here" syndrome, as the involved people buy into the idea more easily (Berdrow, 2009). SIA emphasizes education and learning. Mistakes are not frowned upon (Heracleous et al., 2005). As described by Farson and Keyes (2002) this is a necessity to overcome employees' fear of failure, allowing them to experiment with new ideas. SIA has a management development center (Sutherland et al., 2003) and the workforce spends an average of 17.2 training days per year (Deshpande et al., 2003). This well educated workforce ensures that the necessary knowledge base and comprehension to create new ideas is available (Berdrow, 2009).
SIA values customer feedback, and all feedback is recorded no matter whether it is positive or negative, collected in a central department and distributed to the responsible managers and employees (Deshpande et al., 2003). The value of customer feedback is communicated through leadership, for example through a companywide newsletter containing good and bad customer feedback. Thus SIA can utilize customer feedback to continuously and incrementally innovate their services according to customer needs.
Networks are an important part of Singapore Airlines innovation process. SIA's leadership has created a framework for companywide, decentralized networks for innovation. It has acquired IT solutions, such as the previously mentioned e-log, to facilitate knowledge sharing throughout the company (Heracleous et al., 2005). By allowing departments to develop an innovation on their own or to turn it over to the Product Development department it has improved interaction between the different departments. Furthermore, by allowing any Senior VP to endorse an innovative idea, the decision-making process has been decentralized. All these factors promote improved collaboration and innovation performance (Barsh et al., 2008).
Singapore Airlines also employs external networks. Some services are outsourced, such as IT services to IBM (Business Wire, 2004) or component and system maintenance to Goodrich (Airline Industry Information, 2007). SIA also cooperates with its subsidiaries, suppliers and partners in the Star Alliance. In the meantime, various divisions of the SIA Group have been investing in China and India through strategic alliances with local organizations to acquire key knowledge about these markets. ( Heracleous et al., 2009).
The way a company measures and rewards innovation is essential to the success of the innovation strategy. "What gets measured gets done" is a well-known adage that underlines the need to use metrics that are related to the desired behavior (Davila et al., 2006). Rewards, both through monetary incentives or through recognition, can provide a major impetus for these behaviors (Davila et al., 2006).
According to Davila et al. (2006), a successful innovation measurement system requires an innovation business model. They suggest the model input-process-output-outcome, which will be used to assess SIA's innovation metrics. This innovation model was used to look at metrics for four associated categories: resources, execution, performance and value added.
Regarding the resources, SIA uses two metrics. The first metric is the involvement of employees with the innovation process, measured by the amount of feedback and comments that the employees give. The second metric is the so-called 40-30-30 rule, signifying that SIA spends 40 percent of its resources on training and invigorating employees, 30 percent on review of processes and procedures and 30 percent on creating new products and services (Wirtz et al., 2001).
The major execution metric for SIA is the real versus expected progress of their innovations. Often, they depend on partners for the development of new cabin facilities or the delivery of a new airplane, such as the Airbus A380. Depending on the project, SIA will have more or less influence to ensure the on-time completion of the innovation.
Innovation performance is primarily measuredthrough comparison with other airlines and service companies. Industry awards, such as IATA's Global Airline Performance survey and Skytrax World Airline Awards, are some of the metrics that SIA uses to measure its innovation performance (Wirtz et al., 2001; Johnston et al., 2006). SIA also benchmarks its customer service against other airlines and other best-in-class service companies (hotels, car rental companies, etc.), using for example mystery shoppers, to identify where their service innovation process is lagging behind (Johnston et al., 2006).
Value added is measured using a variety of financial metrics. Sales growth is one of these metrics and is especially useful to measure the added value of innovations such as flight SQ21 through the increase in passengers transported. The most important measure used, however, is profitability. Yap Kim Wah, Senior VP Product & Service, has made this very clear by stating: "We don't want to be the largest company. We want to be the most profitable." Hence, all innovations are evaluated based on their effects on profitability (Heracleous et al, 2009).
According to Davila et al. (2006), there are four elements of motivation: passion, recognition, vision and economic incentives. Singapore Airlines use all these elements to motivate its employees to display innovative behaviors.
Passion is truly engrained in the culture at SIA. Choo Poh Leong, Senior Manager Crew Services stated: "I think a very important ingredient is the overall culture … the fact that you have people that are very proud of the tradition. And I think a lot of senior people – and it rubs of on the junior crew – take pride in the fact that they helped build up the airline." This pride ensures that SIA's employees continue to strive for a profitable company with superior service (Wirtz et al., 2007).
Recognition is another important element of SIA's reward strategy. Company newsletters are used to share and recognize good performance and there is the Deputy Chairman's Award, the highest recognition of excellence (Wirtz et al., 2001; Johnston et al., 2006). As Sim Kay Wee, Senior VP of Cabin Crew stated: "We recognize our heroes and heroines" (Johnston et al., 2006).
SIA's vision that all innovations should lead to improved cost-effectiveness and profitability also is an important motivator for employees to produce only those innovations that have an impact on these measures (Heracleous et al., 2009).
SIA uses economic incentives to reinforce the feeling that personal fortunes are tied to company fortunes. Flexible rewards based on the results of the company are part of this effort, giving employees an incentive to think innovatively (Heracleous et al., 2005) by injecting a sense of ownership (Johnston et al., 2006). Bonuses given based on the profitability of the group are the same percentage for everyone, regardless of their position (Heracleous et al., 2009). This system results in informal peer pressure to perform (Johnston et al., 2006). Singapore Airlines also rewards its employees based on their individual performance and those that have an excellent performance are rewarded with increased pay and positions (Johnston et al., 2006; Wirtz et al., 2007).
All the rewards systems mentioned above do not apply exclusively to innovation. Instead, the company leadership has designed them in such a way as to motivate everyone to work for a more profitable and cost-effective company. Using a balanced mix of incremental and radical innovations has proved to be such an effective way to achieve this goal, that the reward system produces the desired innovative behaviors without being specifically designed for this purpose.
6.Globalization and Innovation at Singapore Airlines
According to Berdrow (2009) globalization can be characterized as complexity. When this complexity is combined with innovation, three focus areas appear: organizational complexity, global innovation complexity and global management complexity.
Because most of the company infrastructure, specifically the product and service development departments, are located in Singapore, organizational complexity at SIA remains limited. Still, the company has made sure that employees at overseas service or maintenance offices communicate their ideas as well as customer feedback to headquarters (Sutherland et al., 2003), and they are eligible for the same rewards.
Global innovation complexity, which is characterized by tapping globally dispersed pools of knowledge and serving globally distributed customers (Berdrow, 2009), is an important issue for SIA. As mentioned in the section on SIA's innovation strategy, the company uses a large network of external suppliers for the development of new technologies, such as new aircraft or customized seats. To ensure the satisfaction of its global customer base, SIA employs, for example, international top chefs (Chan, 2000b) and wine experts (Chan, 2000a). SIAalso collects feedback from a random sample of customers (Johnston, 2006) and weights this data to obtain a representative mix of nationalities (Deshpande et al., 2003). This information is then fed back to the relevant department as an input for their innovation process.
Global management complexity deals with the implications of managing diversity in the working environment. Until a few years back, most of SIA's employees were from the Asia Pacific region and most of the promotions came from within the company, resulting in a strong company culture. In recent years, SIA's leadership has started to increase diversity by hiring more people from abroad and from outside the company. Loh Meng See, Senior VP of Human Resources, stated: "I believe that diversity … is going to make us better because chances are we will be better able to adapt" (Sutherland et al., 2003). However, diversity at SIA for now seems to be too limited to warrant a structured approach to managing it.
We have learned to know Singapore Airlines as a truly innovative company that leads the field in its industry. It has a strong Play-to-Win strategy that focuses on cost-effectiveness and profitability and achieves this through a balanced mix of incremental and radical innovation, both in their business model as in their technology. Throughout the years, this strategy has delivered constant added value to Singapore Airlines' customers, employees and shareholders.
During our investigation, the importance of a culture that encourages innovation has become ever more clear to us. In combination with the structures and processes that remove innovation antibodies and facilitate company-wide innovation, such a culture can easily compensate for slight flaws in other parts of the innovation approach. An example of this can be found in SIA's reward structure. Although SIA's does not have any specific rewards linked to innovation performance, we have found that the current reward system that rewards overall profitability and performance is still very effective to encourage innovation. Clearly, the culture at Singapore Airlines provides such a strong link between profitability and innovation, that specific economic incentives for innovation are not necessary at this moment.
However, as the company increases the diversity of its employees, it will face the challenge how to maintain this innovative culture that is so strongly rooted in company traditions. As the proportion of foreign employees rises, the company will have to evaluate the need for specific economic incentives to encourage innovative behaviors.
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Autor: Gustavo Ban Miranda
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