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

LUFTHANSA Going Global but how to Manage Complexity 9/7 LUFTHANSA Lufthansa is a German airline company, considered to be the largest airline in Europe in terms of overall passengers carried. “Lufthansa ranks among the top ten airlines in the world in terms of size and is the second largest European airline. From its Frankfurt and Munich hubs, Lufthansa flies to 202 destinations in 78 countries. Besides its passenger business, the aviation group comprises divisions for cargo, aircraft maintenance, IT and catering”. (LinkedIn) Lufthansa is considered to be the fifth largest airline company in the world in terms of the total number of passengers carried by the company’s fleet. It is a founding member of Star Alliance, the world’s largest airline alliance. The purpose of Star Alliance was to form a union and bond between the member companies in order to pursue their cause towards corporate responsibility, environmental sustainability, connecting people and sharing ideas. 1. Describe the type of international strategy the company has chosen. Lufthansa has played an important and powerful role in air transport. For many years, the company has kept a flexible strategy towards its international operations. The type of international strategy chosen by Lufthansa involves four steps. The first three steps relate to global strategy whilst the fourth step is the strategy monitoring step. The first step involves project definition and mobilization; the company reviews its project, sums up all its assets and strengths for all upcoming projects. The second is to devise a formal strategic plan, while devising the plan, the company properly reviews its internal and external environment and after proper assessment (risk management systems are also updated constantly to address any risks that the company might face), after all these assessment, vision and mission statements are developed along with the formulation of organization’s goals and objectives. The results obtained are abridged in the corporate strategic plan while the implementation plan points out the means and methods of achieving global strategy. The next step is the strategic planning and implementation, where the organization conveys its overall corporate plan and strategy down towards the departmental and the divisional level. The corporate plan is used to design the organizational structure and with the help of this plan, all necessary resources are accumulated together to make the plan work properly. These three steps combine together to form the global strategy followed by Lufthansa. The fourth and the final step involved in the international strategy of the company involve monitoring and control. Proper monitoring and control systems are kept in place to ensure that the corporate plan and strategy formulated at the top level is being followed properly at the divisional and departmental level. 2. Explain what means the company has used to expand internationally. Lufthansa has taken major steps to improve their international competitiveness. The major methods used by the company are to reduce their costs, increase their passengers using different techniques, addressing to the environmental issues and using proper restructuring measures. Lufthansa has a major policy of sustaining and reducing their costs. The aim of this reduction in cost is not primarily a profit making technique; the basic aim for Lufthansa is to achieve the targeted high level of quality in the airline group with greater efficiency. In 2009, the company faced major economic crisis and because of it, Lufthansa launched its Climb 2011 program. The purpose of this program was to maintain earnings and to cut costs in passenger business by one billion Euros by the end of 2011, this reduction in costs has also been supported by ongoing capacity adjustments. Besides this cost reduction technique, the company has focused upon growth efforts to sustain and increase the company’s value; this has been possible because of the Cash Value Added (CVA) concept. This CVA concept is a Value Based Management Technique which aims to achieve long-term and continuous increase in enterprise value in investors’ and lenders’ interests. The CVA has brought financial improvement to the overall financial performance of the company. 3. Identify and describe the elements and objectives of Lufthansas cooperative strategy. A cooperative strategy is a strategy whereby two or more organizations work together to achieve a shared objective. The primary way of achieving a cooperative strategy is through strategic alliances. Many firms enter long-term strategic alliances with others for a variety of reasons. Lufthansa’s membership in the Star Alliance is working as a cooperative strategy for the company. The primary purpose of this alliance is to provide better service to their customers worldwide. Besides this the Lufthansa has benefited a lot for the membership of Star Alliance as all the member airline companies have coordinated with fellow airline companies to reduce the overall journey time of the passenger on connecting flights even if the passengers fly with an airline carrier other than the member of the Star Alliance. This cooperative strategy has helped Lufthansa to integrate their global network, save cost, enable them to achieve synergies and improve their customer services worldwide. 4. Describe the uncertainties and challenges related to operating beyond the companys national boundaries. The major uncertainties and challenges that Lufthansa faces if it was to operate beyond the company’s national boundaries include; The uncertain macro-environment in which it would have to operate. The after effects of the major economic recession faced by the company in the year 2009. The major uncertainty over the payment of dividend to its shareholders. Unpredictable future demand for airline carriers in upcoming years. Uncertain fuel surcharges and costs to be tolerated. 5. Describe the potential risks of cooperative strategies. There many risks that may arise because of cooperative strategies and few of them are; Partner companies not being supportive enough to provide appropriate resources or competencies to other member companies. Poor contract development that may result in one partner taking undue advantage of the other The potential risks that may arise for Lufthansa Airline can be; Some major member airline companies shifting their traffic to some other airline company. Rather than grabbing any benefits from the Star Alliance Lufthansa may face intense competition from within the group. 6. Explain the use of organizational structure and controls to effectively support Lufthansas strategy. Lufthansa’s organizational structure has been recently changed and updated due to some changes in the company. This recent change has been because of new acquisitions made by the company in the year 2009. The company’s organizational structure and controls are regularly reviewed to ensure that they the company does not deviate from its primary strategy. A recent change in Executive Board structure in June 2009 was made to expand the strategic business segment of the passenger airline group. Restructuring changes were made to reduce cost per seat even further. This restructuring aligns with one of the primary objective of the company to reduce costs. The controls kept by the company are forward looking and flexible. Such controls include the risk management system in the company which answers efficiently to any change in the prices of the fuel and crude oil. 7. Describe what strategic leadership actions should be recommended for developing human capital at Lufthansa. The company’s top level management should allow for heavier training for its employees in order to develop better human capital at Lufthansa. Besides the training, proper research and development in the aeronautical industry would help the company to innovate and attract better personnel at Lufthansa. 8. Describe what strategic leadership actions should be recommended for establishing an effective organizational culture at Lufthansa. The control approach of strategic leadership would be highly suited for Lufthansa. The strategic leader should concentrate on setting procedures and control measures at the top and the individual business unit levels i.e. the division levels. After setting up the procedures and control, the performance should be monitored so as to achieve uniform and predictable performance. 9. Describe what strategic leadership actions should be recommended for promoting an entrepreneurial mind-set at Lufthansa. A consultative and collaborating sort of strategic leadership action would be needed to promote the entrepreneurial mind-set at Lufthansa; a decentralized and informal sort of structure would be needed to support this. This supportive strategic leadership action would help in polishing the entrepreneurial thinking in all the business segments of the company. The value based management system at Lufthansa which pays in accordance with the related performance creates incentives for their staff and it creates value in the eyes of the employees as well s the customers. 10. Describe what strategic leadership actions should be recommended for reducing complexity at Lufthansa. To reduce complexity at Lufthansa, it would be ideal for a leader to adopt the strategy approach whereby the leader focuses on the strategic analysis and the formulation of the strategy whilst the other managers and sub-ordinates take responsibility for routine operations and for the management of change. This method allowed each manager and the leader to strictly focus on his/her job and activity and this would help in a better focus towards the job and better results for the company. References Lufthansa Annual Report 2009. (2010). Retrieved from http://reports.lufthansa.com/2009/ar/servicepages/welcome.html LinkedIn. (2010).Lufthansa, Company Profile. Retrieved from http://www.linkedin.com/companies/lufthansa Read More