Lufthansa: Going Global, but How to Manage Complexity - Case Study Example

Lufthansa: Going Global, but How to Manage Complexity Table of Contents International strategy the company has chosen 3 2. Means used to expand internationally 3 3. Elements and objectives of Lufthansas cooperative strategy 4 4. Uncertainties and challenges when operating beyond the national boundaries 4 5. Potential risks of cooperative strategies 5 6. Use of organizational structure and controls 6 7. Recommended strategic leadership actions for developing human capital 6 8. Strategic leadership actions to establish an effective organizational culture 7 9. Recommended strategic leadership actions for promoting an entrepreneurial mind-set 8 10. Recommended strategic leadership actions for reducing complexity 8 References 9 Bibliography 10 1. International strategy the company has chosen Lufthansa is one of those few airlines that have been able to remain profitable through the crests and toughs of time. One of the main reasons behind such success of the company is its effective global strategy. Lufthansa is the most dominating member of Star alliance, the largest airline alliance in the world. The current strategy of the company is to provide service in as many markets as possible. Lufthansa is renowned for adopting aggressive international strategies in order to retain the competitiveness of Star Alliance in this cut throat competition. In 2005, it acquired the Swiss International Airlines with the purpose of saving it from the aggressive takeover by British Airways, which is one of the major competitors of the company. Lufthansa does not prefer to get too much involved with other members in the Star Alliance. This is basically a part of the company’s strategy of creating a perception that it is the dominating member of the alliance. In order to compete with low cost carriers, Lufthansa has created Lufthansa Regional. Almost half of the company’s total German and European flights are carried by Lufthansa Regional. Overall it can be said that the company has been adopting aggressive international strategies that are expected to retain its profitability and competitiveness. 2. Means used to expand internationally Lufthansa is found to be expanding its long-haul and short network partially by organic growth. While carrying out the process of expansion, cost effectiveness is the prime factor that is taken into consideration. Hubs like Munich, Frankfurt and Zurich are mainly used for the purpose of expansion. Lufthansa and SWISS together serve almost 242 destinations located in 87 countries. Furthermore the company is found to be focusing on expansion of its cooperation programs along with its partners. The Star Alliance has been playing an important role for Lufthansa in the process capturing new markets. The alliance is constituted of 21 members that serve more than 1000 destinations in almost 168 countries. For instance Lufthansa has improved its position in the markets of Middle East and Turkey with the help of Turkish Airlines which is one of the newest members in the Alliance. More number of markets is likely to be covered by means of bilateral partnerships (e.g. regional partnerships) (Lufthansa, n.d.). 3. Elements and objectives of Lufthansas cooperative strategy A cooperative strategy is one in which organizations work together in order to attain a shared objective (Hitt Ireland, & Hoskisson, 2007). Firms that are involved in cooperative strategy are expected to cooperate with each other in adopting other strategies that will be used in creating value for the customers and in gaining long term competitive advantages. Lufthansa is also involved in such cooperative strategy as it is one of the most important members of the Star Alliance. Main elements of Lufthansa’s cooperative strategy are code sharing, common lounges, coordinated flight schedules, baggage handling etc. All these factors result in maximum possible utilization of infrastructures and number of planes. The company executives are found to be strong supporters of such strategy as there are hardly any other alternatives that are legally viable. Major objective of Lufthansa’s cooperative strategy is to secure the revenue side of the Star Alliance by increasing the number of passengers. 4. Uncertainties and challenges when operating beyond the national boundaries Airlines that are operating beyond the boundaries of their home country have to face several challenges and uncertainties. A domestic airline is likely to be influenced only by the domestic political, economic and social factors. However a global airline like Lufthansa is expected to be affected by the international policies and economic scenario which is highly unpredictable in nature. For instance, the airline industry was badly affected by the Iraq wars especially the second one. The volume of air passenger went down by almost 3.3% in 2001 and by 2.4% in 2003. Economic events like financial crisis also affect the business of the airlines. In 1997, Asian financial crisis followed by similar type of crisis in Russia and Latin America have badly affected the global air traffic and hence the airline operators like Lufthansa. In fact during the period of 2001-2003 Lufthansa’s traffic turn over fell by almost 4.6%. After that period when the demand just started to improve, dramatic increase in oil prices took place in 2005-06. Moreover issues like queues at the major airports and traffic jams make airway a second option (after high-speed trains) for the passengers. All these factors increase the uncertainties and challenges of the airlines that are operating outside their domestic market. 5. Potential risks of cooperative strategies Several potential risks of cooperative strategies can be identified. First of all, cooperative strategy involves multiple firms that work together with the objective of attaining a shared objective. However, often self interest takes over the common purpose which adversely affects the mutual cooperation among the partners. Furthermore if one member fails to provide the resources that have been committed to it previously, the issues resulting from it can have serious implication in future. Therefore before forming the alliance, the leading firm Lufthansa must ensure that appropriate members are identified. If wrong companies are allowed to form the alliance, it will hinder rather than hasten the process of attaining the common objective within the predefined time period. 6. Use of organizational structure and controls Lufthansa’s strategies are in complete alignment with its structure. Since 1996, there have been six different business lines under Lufthansa Holding Company. Each of the divisions is solely accountable for its own performance. Any interactions among these divisions take place according to market price terms. However like any other decentralized organization these divisions need to be united by the holding company under a single ‘strategy roof’. There are divisions like SWISS Air, Lufthansa regional and Lufthansa’s core fleet under Lufthansa Holding. The strategies adopted by each of these divisions are aligned with the overall strategy and objectives of Lufthansa Holding. Lufthansa’s main objective is to strengthen its position in the global airline industry by covering more regions and serving more number of customers. The company tries to achieve these objectives with the help of these divisions. 7. Recommended strategic leadership actions for developing human capital In large organizations like Lufthansa, the concept of strategic leadership is perhaps the best leadership concept to be applied, as strategic leaders are capable of influencing millions of people. They are responsible for establishing structure, allocating resources and communicating strategic vision (Milum Enterprises, n.d.). So it can be said that strategic leadership actions are likely to be very important in the process of developing the human capital. The present economy is dominated by knowledge workers. Today, value of an organization is measured in terms of its intellectual asset i.e. human capital (Seri & Onn, 2006). In this knowledge economy one of the most effective ways of developing human capital is promoting the concept of life long learning. In this technology driven world it is very important for the employees to be involved in a continuous learning process that will enable them to acquire new knowledge in the most effective way. The constantly changing scenario with continuous arrival of new products, new production processes, and new means of marketing has propelled the necessity for lifelong learning. Top and middle level management must take the responsibility of promoting relevant and effective programs that encourage lifelong learning. They should develop proper training and development programs for the employees. They need to come up with such a system that will encourage the up gradation and transformation of existing employees so that they can cope with the new comers as well as the newly arrived business processes and technologies. 8. Strategic leadership actions to establish an effective organizational culture In order to remain profitable in the Airline industry, airline operators need to have a vibrant organizational culture. Now for an organization of Lufthansa’s size, entrepreneurial opportunities are likely to play a major part in determining the company’s innovation and growth (Hitt, Ireland, & Hoskisson, 2008). As a result it is recommended that strategic leaders should try to build up such a culture in the organization so that entrepreneurial opportunities are identified and capitalized at the right time. The changing nature of the business environment is a major challenge for any organization irrespective of its size. The only way to tackle this challenge is to cope with it as fast as possible. In Lufthansa such a culture should be created or the present culture should be modified in such a way that a new structure or a new system can be adopted at the quickest. Moreover ethical practices should be promoted in the organization. Employees should be told the significance of the ethical practices in the both individual as well as organizational performance. 9. Recommended strategic leadership actions for promoting an entrepreneurial mind-set Promoting entrepreneurial mind-set is very important for a large company like Lufthansa as entrepreneurial mind-set drive innovation and growth. Innovation and growth are the key elements that help an organization to remain profitable and gain sustainable competitive advantage. Strategic leaders should try to build such an atmosphere that will encourage entrepreneurial mind-set. Furthermore, the management should always encourage employees to come up with new ideas and concepts. Entrepreneurship related various workshops can be conducted where employees can present their business ideas in front of the entire organization. Interdepartmental contest can be organized in order to get the best out of the employees. 10. Recommended strategic leadership actions for reducing complexity Complexity is an integral part of any large sized organization like Lufthansa. One cannot remove complexity rather one should make attempt to reduce it. In an organization like Lufthansa that undertakes huge number of global activities, complexity can be reduced by identifying the operational areas that are complex. Once these areas are identified, complexity can be decreased by implementing better and more effective business processes and advanced technologies. Implementation of such new technologies or processes will require high adaptability of the employees. Top management should properly communicate to the employee, the effectiveness that the changes are likely to bring. References Hitt, M. A. Ireland, R. D. & Hoskisson, R. E. 2007, Strategic management: competitiveness and globalization, Cengage Learning Hitt, M. A. Ireland, R. D. & Hoskisson, R. E. 2008, Strategic management: competitiveness and globalization : concepts & cases, Cengage Learning Lufthansa, No Date, Business and strategy, Annual Report 2008, Retreived May 22, 2010 from http://reports.lufthansa.com/2008/ar/groupmanagementreport/businesssegmentperformance/passengertransportation/businessandstrategy.html Milum Enterprises, No Date, Strategic Leadership, Leadership Levels, Retreived May 22, 2010 from http://www.milum.net/strategic_leadership.htm Seri, D. & Onn, F. C. 2006, Developing Human Capital - The Way Forward: Managing Human Capital In The G/obalised Era, [pdf] Retreived May 22, 2010 from http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN028182.pdf Bibliography Child, J. Faulkner, D. & Tallman, S. B. 2005, Cooperative strategy, Oxford University Press Finkelstein, S. Hambrick, D. C. & Cannella, A. A. 2008. Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards, Oxford University Press US Read More