Management of Change in Lufthansa Airlines - Case Study Example

Introduction and Management of Change in Lufthansa Airlines The management of many of business in the world are constantly put under pressure to perform and comply with ethical business practices while keeping abreast competitively. It follows then that leaders of these business and their management teams must strive to formulate and implement new strategies that are geared towards delivering value to the stakeholders of their business (Conway and Monks, 2010, p. 193). Instituting changes or strategies involves several things like the creation of programs that are commonly referred to as change portfolio for delivering strategies (Strebel, P. 1996, p. 142). Secondly, there must be allocation and mobilisation of resources so that the necessary changes may be executed. According to Beer and Eisenstat (2000, p. 32), it is increasingly becoming very critical for the corporate world to excel at strategic change management so that they can outperform their competitors. This paper then will discuss corporate restructuring and privatisation in Lufthansa Airlines. The Type of Change and Why It Was Introduced Lufthansa was almost going under in 1991 owing to accrued large debts. However, in a span of eight years, the company turned around its fortunes to become a world leader in the aviation industry. In order to turn around its fortunes, the company had to institute radical changes. After instituting changes which was the first step in the process, more allied changes had to follow so that the future of the company could be assured. The management of the company decided to execute change at four different levels which was modelled around the concept of renewal sustenance at four levels. However, after the eight years of its turnaround, none of the processes that were started had been completed. The most challenging bit was sustaining the progress introduced through change. It has been pointed out by Boxall (1996, p. 66) that most processes of change do not work because of an absence of attitudes geared towards change. It follows then that irrespective of important or good a change process is the desired goals are not achieved. Similarly, Beer and Eisenstat (2000, p. 35) are of the opinion that those change programs that do not work are usually based on theories of change that are flawed. In this case, it is important for change management to recognise their limitations in terms of ability to institute changes from the top. Instead, change managers should be involved in the creation of climate of change that is in tandem with a company’s development goals without relying on any specific solution (Armenakis and Bedeain, 1999, p. 302; Schuler, R. S. and Jackson, S. 2001, p. 247). There is usually a difference between execution philosophy of change and process management philosophy. On the one hand, the former is of the assumption that leading change is the primary task in the process of change while on the other hand, the latter places emphasis on main task of change as planned implementation (Burnes, B. 2009, p. 76). The Context in Which Change Took Place During the change process, it becomes apparent the basis of principles and values are dictated by underlying cultures (Worren, Ruddle and Moore, 1999, p. 279). The conditions that exist in the American companies are different from those of European continent in relation to criteria that are important for change strategies (Theodorakopoulos and Figueira, 2012, p. 863). This is particularly pertinent to HRM (human resource management), because it is involved with contemporary techniques of management besides primarily dealing with etiquette and values. There has to be a differentiation between strategies HRM and their role during the change process. It has been noted that HRM is deeply entrenched in the American culture which counter runs prevalent culture in Europe of social responsibility, collectivism and pluralism (Saunders, Mann and Smith, 2008, p. 1110). Moreover, European traditions are embedded in strong company regulations. These fundamental cultural differences are very important for consideration during change process (Nohria, Joyce and Roberson, 2003, p. 48). When in ignored during the undertaking of the change process, they ultimately become the stumbling blocks of the desired transformations (Johnson, Scholes and Whittington, 2008, 154). Germany which happens to be the country of origin of Lufthansa is intriguing in relation to the analysis of HRM specifics and change process. As opposed to free market economy of the US, the operating environment of companies in Germany is rigid (Meyerson and Martin, 1987, p. 634). German Model of HRM has been developed by practitioners and human resource academicians which is an equivalent of the US HRM model. It application and success in Lufthansa illustrates that the Germany HRM model is suited for process-oriented change (Balogun, 2007, p. 86). Many studies have shown that leading processes of change through emergent strategies is better than planned approach within the airline industry (McMillan, E., and Carlisle, Y. 2007, p. 577). This is because most of the planned approaches are usually concerned mainly with economic control (Kotter, 1995, p. 63). Many of the major that were planned or undertaken in the airline industry were not successful leading to the conclusion that there are very few successful mergers in the air industry. It follows then that strategic alliances and emerging networks are more successful than planned mergers in the airline industry (Hofstede, 1983, p. 79). In this regards, the airline industry is the pioneer model for an equally balanced approach of change design which may either be top-bottom or top bottom. Moreover, Senge (1992, p. 62) contends that this pioneering approach is a reflection of the roles played by unions or labour councils in through a balanced stakeholder approach (Johnson-Cramer, Parise and Cross, 2007, p. 92). Torrington, Hall and Taylor, 2008, p. 102). It therefore focuses most of its attention on the control of culture as opposed to economic control of organisations (Evans, Pucik and Barsoux, 2002, p. 78). More balanced approaches are important as contributors of solutions to overcome barriers and limitations associated with planned process change. This is because process change is governed by some conditions and challenges (Franken, Edwards and Lambert, 2009, p. 54). The Process of Change and How It Occurred The process of change began in earnest at the restructuring and privatisation. In the start of the 1990’s, Lufthansa used to operate based on six departments which had an executive member of the board as its head. According to Järventie-Thesleff, Moisander and Laine (2011, p. 198), this kind of structural approach is usually very ineffective and plagued with problems such as low transparency, insufficient market proximity, slow process of decision making. For Lufthansa, it came to the logical conclusion that could not remain competitive with the functional structure that was in place at the time. The restructuring goals of this Airline were to reduce time of decision making, increase transparency of costs and market proximity. Boxall (1995, p. 12) is of the opinion that all this was happening under the premise that restructuring Lufthansa to federative group would be successful as opposed to monolithic functional entity. From the onset of the restructuring program, the airliner was not of the idea to sell large chunk of its share but rather give autonomy to different parts of the company to prove their capabilities within competitive business environments. The idea was to outsource within its affiliated companies as opposed to outsourcing the open global market. Many organisational alternatives were considered by Lufthansa in terms of how to fragment operations into smaller self sufficient units and structures which to adopt for administrative purposes. At the end of this restructuring process, three entities had been formed within which the company was going to operate in. These three entities were to operate as independent entities that were independent subsidiaries as well as being separated in terms of autonomy and legal matters. The tasks and undertakings of the executive board were also redefined with emphasis being put on strategic focus geared towards steering the company to profitability. Persistence with decentralisation was the key driving force behind the success story of Lufthansa in 1997 which led to operational interdependence. Alongside restructuring, the idea of privatisation was also serious explored seriously. Negotiations were on going with the Germany government to privatise the company. However, these talks were being hampered by withdrawing of the pension fund. This challenge did not last for long and in 1944; the problem was resolved followed by reduction of government’s holding in the company to 36% by share volume. A separate pension fund was created and in 1994, Lufthansa became a fully pledged private company. The extent to which the change in question was successful In the long run, Lufthansa was able to stand on its feet again from a blink of collapse to return to profitable ways and formed alliances with other airlines based on the HRM Germany Model. During its turnaround period, Lufthansa started a program that it dubbed strategic cost savings (program 15). On becoming a private company, Lufthansa was being pressurised to perform and become competitive in the industry. In a rejoinder and response to this pressure, it pushed on with its transformation agenda and started program 15 as its strategic solution. This program operated using wide strategic cost management plans that were geared towards an annual 4% reduction of cost in the entire units of the company. According to Saunders, Mann and Smith (2008, p. 1099), this approach is based on the need to strategically position and maintain the course of cost of production while reducing cost on other areas. All the areas of operation within Lufthansa were affected but the good of the company. Conclusion The management of many of business in the world are constantly put under pressure to perform and comply with ethical business practices while keeping abreast competitively. Owing to the complexity of many business entities and the constant change occurring in the business environment, strategic leadership teams of the change process are not able to develop change programs by themselves alone. In order for the change process to be effective, middle managers should be involved so that they can contribute in terms of knowledge and areas needing change just like in Lufthansa. References Armenakis, A. A and Bedeain, A. G. 1999, ‘Organizational change: A review of theory and research in the 1990s’, Journal of Management, 25 (3), 293 – 315 Balogun, J. 2006, ‘Managing Change: Steering a course between intended strategies and unanticipated outcomes’, Long Range Planning, 39 (1), 29-49 Balogun, J. 2007, ‘The practice of organizational restructuring: from design to reality’, European Management Journal, 25 (2), 81-91 Beer, M. and Eisenstat, R. A. 2000, ‘The silent killers of strategy implementation and learning’, Sloan Management Review, 42, 29–40. 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