Updated: Southwest Airlines Would Say Delphi Management is Failing

Updated: Delphi workers in NY rejected the contract proposal.

Updated: It looks like the contract has been accepted by the UAW…

I got caught up on the WSJ during my long trip home from the UK and saw many aspects of Lean and connections. First, looking toward the GM world (I'm temped to quit even writing about their struggles):

WSJ article link | Detroit Free Press article

Wall Street is, of course, pushing for wage cuts for workers. These are the same analysts that sometimes get outsourced to India, so maybe they'll learn eventually.

“We think GM can make a compelling case to UAW members that material wage and/or benefit cuts are needed,” Mr. Barry wrote.

I guess with all of Delphi's accumulated Shingo Prizes for “Lean excellence,” the ONLY remaining waste was those pesky high wages.

The tentative deal appears to give Delphi many of the concessions it sought, including wage cuts, the closure of all but four of its U.S. plants and a big reduction in the number of union workers it will employ in the future. CRT Capital Holdings LLC, an investment company based in Stamford, Conn., estimated Delphi's UAW head count by 2011 will fall to 1,600 from about 18,300.

That's just sad, all around.

According to the agreement, Delphi will cut its wages for current workers to $14.50 to $16.23 an hour from the current $27 an hour. New hires will be paid $14 an hour.

Delphi will offer lump-sum payments, relocation allowances, buyouts and early-retirement packages to soften the blow for workers. In addition, GM agreed to take control of some Delphi plants and open the door for certain Delphi employees to “flow back” to the auto maker, which spun Delphi off in 1999 and once employed a sizable chunk of Delphi workers.

“Softening the blow?” We'd like to cut your pay by half, but be lucky you still have a job at all!! How you could have true Lean and a lean culture in that kind of environment is beyond me. Let's quit giving Shingo Prizes and awards to Delphi, eh? Their business is crumbling, let's not hold them up as an example for others to follow.

Now back to Southwest Airlines. This WSJ article strikes quite a contrast.

Southwest is struggling to keep profit margins up as they grow – they're chasing market share with unprofitable growth, but the CEO says the growth is necessary for the employees' job security (growth is good for that, see Toyota). Their cost advantages compared to other competitors are shrinking. How are the other airlines doing it? Mostly by taking from the Delphi playbook, having slashed wages (well, except for retention bonuses to those precious executives).

What does Wall Street want them to do? It's an easy guess:

Lehman's Mr. Chase says the problem lies elsewhere. “The real problem is labor costs,” he says. “We don't see ancillary revenue as a sufficient fix for the problem.”

But Southwest's leaders (and yes, I think they truly ARE leaders) see it realistically:

Southwest, which prides itself on being employee-friendly, is one of the only airlines that has not sought wage or benefit concessions from its workers. The airline characterizes its work force as ultraproductive and pleasant to passengers. If management seeks pay cuts, it risks alienating employees who Mr. Kelly calls the airline's “greatest weapon.”

Mitch Hall, an in-flight crew-scheduling supervisor who started at Southwest 15 years ago as a mail worker, says he was confident after 9/11 that Southwest wouldn't cut pay or lay off workers. “There wasn't a doubt in my mind,” he says, adding that the company has always treated him well so he's going to “do them right.” Mr. Kelly says he'd consider pay cuts a “management failure.”

I've blogged before about Southwest's continuous improvement programs, employee driven, that sound very “Lean”. But CEO Kelly is honest:

He said he expects managers to find new ways to cut costs. “Communicate with your people…talk about waste continuously…control spending,” he wrote.

Mr. Kelly says that “little bittie incremental improvements aren't going to solve” the airline's problem. “We can't do it overnight.”

I'd be much more positive about Southwest's chances — sure they can't do it overnight, but they seem to have the long-term in mind better than Delphi management has. It's better to work with your employees to reduce waste rather than ganging up on them and slashing their pay.

Maybe Southwest can earn a Shingo Prize this year. Wait, that might just be a predictor of their decline, so maybe they should avoid that!!

What do you think? Please scroll down (or click) to post a comment. Or please share the post with your thoughts on LinkedIn – and follow me or connect with me there.

Did you like this post? Make sure you don't miss a post or podcast — Subscribe to get notified about posts via email daily or weekly.

Check out my latest book, The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation: