Scandinavian Airlines and Lufthansa Essays

Scandinavian Airlines and Lufthansa Essays Scandinavian Airlines and Lufthansa Essay Scandinavian Airlines and Lufthansa Essay Lufthansa: Going Global, but How to Manage Complexity Strayer University Business Administration Capstone – BUS 499 #004016 September 5, 2010 Describe the type of international strategy the company has chosen. An international strategy is a strategy through which the firm sells its goods or services outside its domestic market (Hitt, Ireland Hoskisson, 2009). Lufthansa tends to follow a transnational strategy that will help grow the company internationally and in their own country. Since the September 11 terrorist attacks airlines have been struggling to stay in business. The fear that passengers have is slowing diminishing but it is still affecting the airlines. Airlines have been forced to enforce many regulations and fees adding to their financial struggle. With any international strategy comes a risk. Lufthansa seems to have managed to survive many risks all while being one of three airlines where their debt is to the point of bankruptcy if they have not started it already. Since mergers are illegal across country boarders the response from Lufthansa was an alliance with Star Alliance (Hitt, Ireland Hoskisson). Star Alliance is an alliance that is made up of a partnership amongst several airlines, in an effort to offset costs and create value. The alliance has been a constant balancing act. The alliance was done to help reduce Lufthansa’s debt but has come with many challenges in managing the alliance with Star Alliance. The plan was to increase the revenue side of Star Alliance by keeping passengers’ loyalty to fly with them. Since the late 1999, Lufthansa has been running according to the value –based management. The aim of the value-based management approach applies to all planning, steering and monitoring processes in order to achieve a purposeful, long-term and continuous increase in enterprise value in investor’ and lenders interest (Lufthansa Investor Relations). Explain what means the company has used to expand internationally The biggest move that Lufthansa has done to expand internationally and help reduce their debt and increase revenue was to join with Star Alliance. Star Alliance is a group alliance with Lufthansa and airlines like Air Canada, United and SAS Scandinavian Airlines, just to name a few. They are a good option for intercontinental business travel. The alliance helps to reduce costs by coordinated flight schedules, have common lounges and baggage handling. Lufthansa has a few more cost saving strategies in place. While it does affect their employees, they have a cost saving structure resulting from slightly lower wages, they have smaller planes adjusted to the traffic density a reduced services level, an operating base in second-tier airports, and point-to-point-services so that the on time in the air is greater for â€Å"network† airplanes (Hitt, Ireland Hoskisson, 2009). They have also restored antique planes. Lufthansa has some of the newest built planes in their fleet but the rebuilt airplane is for the airplane enthusiast. Enthusiasts wait months and pay C259 ($400. 00) for a bumpy hour long ride on a 1936 Junkers-52 propeller plane (Lufthansa’s Labor of Love). To ensure safety of the passengers the planes are re-built every winter. Identify and describe the elements and objectives of Lufthansa’s cooperative strategy A cooperative strategy is a strategy in which firms work together to achieve a shared objective (Hitt, Ireland Hoskisson, 2009). The alliance that Lufthansa has with Star Alliance is almost by definition a cooperative strategy. The airlines that are in the alliance are all working together to cut costs and develop and grow each of their own airlines. The alliance is a partnership that works for all involved to include the right to leave the alliance. Lufthansa is the leading member in the Star Alliance (Hitt, Ireland Hoskisson). Lufthansa’s value-based management adds viable recognition of cooperative strategy. Lufthansa has a joint venture with Star Alliance that gives Lufthansa strength in its network in the transatlantic traffic. These networks have been used to gain the shared objectives of those in the alliance. Describe the uncertainties and challenges related to operating beyond the company’s national boundaries Having a stable airline is the key to a successful airline. If the airlines in the Star Alliance are not stable they will lose their place in the market. Many think of Lufthansa as the leader and integrator, because the biggest member, United Airlines, was preoccupied for more then three years with emerging from Chapter 11 bankruptcy procedures in the United States. With United Airlines otherwise occupied, Lufthansa was driving the revenue side thus implemented through â€Å"code sharing† leading to higher utilization of planes and infrastructure and sometimes economies of scale in purchasing and sales (Hitt, Ireland Hoskisson). One of the biggest challenges that Lufthansa, actually all airlines, are dealing with is global warming. This is something that most businesses do not need to think about. Airlines claim 3 percent of carbon dioxide comes from the air traffic but because of the higher altitude of the planes they number is rapidly growing and by 2020 the emission from air traffic might increase by 20 percent (Hitt, Ireland Hoskisson). Describe the potential risks of cooperative strategies The decision to be involved in a cooperative strategy is a risk in itself. You are trusting other firms to work with you in order to accomplish mutual goals of financial and organizational stability. One risk is the risk of trust. There is always a risk of one of the firms becoming involved in unethical practices for their own selfish gain. The firms have to trust that the alliance they have developed is based on productive and positive motives. The firms involved in the alliance have to be in it for the good times and bad. Another risk is the entrepreneurial risk. If any of the partners is not making available resources, that can not only bring down that company but it can bring down the value of the alliance. The purpose of the alliance was to develop services and products that would be productive to the alliance. Explain the use of organizational structure and controls to effectively support Lufthansa’s strategy. An organizational structure specifies the firm’s formal reporting relationships, procedures, controls and authority, and decision making processes and organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when difference is unacceptable (Hitt, Ireland Hoskisson, 2009). In any business organizational structure and controls are important. Organizational structure develops a chain of command making everyone involved responsible. Lufthansa is no different. Lufthansa is part of the organizational structure of Star Alliance. The formal organization has the CEO who is in charge of legal, HR/Training and finance and strategy and then the corporate office who runs commercial, products and services, loyalty marketing and information technology (Hitt, Ireland Hoskisson). Lufthansa at one point had an integrated corporation and now has six business lines. The business lines are related in the area of shared products and markets and help develop their economies of scale. Their executive board is responsible for managing the company and their goal is growth and adding value. Corporate Profile, 2009) Describe what strategic leadership actions should be recommended for developing human capital at Lufthansa. Human capital refers to the knowledge and skills of a firm’s entire workforce (Hitt, Ireland Hoskisson, 2009). Human capital is the most important aspect in a business. Any business will essentially fail if t hey do not take time to invest time and energy into improving their employees. Lufthansa should continue to invest time in developing and training staff and the management teams to ensure that they have the highest knowledge and the best developed skills. This will not only help Lufthansa but it will help the alliance because of all the changes, additions of the partnerships and acquisitions. It is important for Lufthansa’s strategic leadership to create a positive culture for the continued training and development to build continued success. The investment of building development programs not only build knowledge and skills but it motives employees to want to learn, it can boost internal core values and morals and promotes Lufthansa vision and organizational goals. Lufthansa is operating in a very diverse area with being part of the Star Alliance. It is important for them to develop their employees to fit the needs of the alliance as well as Lufthansa. Describe what strategic leadership actions should be recommended for establishing an effective organizational culture at Lufthansa. Having a strong and positive organizational culture is important to any business. An Organizational culture consists of a complex set of ideologies, symbols, and core values that are shared throughout the firm and influence the way business is conducted (Hitt, Ireland Hoskisson, 2009). Lufthansa used to be known for a strong culture based on pride, the positive image of the company in Germany, its reputation for engineering excellence and ongoing training and educational activities. However, in 2001 there was a pilots strike that showed the changes within the company and the unhappiness of the employees toward the company was not as good as they thought. The management teams should make sure they are fully aware of the diversity within the segments of the business. They need to make sure they are communicating any messages, training or even promotions to fit the different cultural diversities within Lufthansa. All the employees should be involved in solutions to problems, to include the discovery of them, within their core position. It is also necessary for the leadership to make sure they are leading by example not just in working but in ethical practices. It is the leadership’s responsibility to encourage all employees on all levels to follow their lead. Improving an organization’s culture will do nothing but increase the company’s value and the opinion of its employees; from simply an employee working for a paycheck, to an employee who feels they have worth. The employees then will want to invest time and energy into the company. Describe what strategic leadership actions should be recommended for promoting an entrepreneurial mind-set at Lufthansa. Lufthansa main goal, like any other business, is to maintain financial discipline and health. Because of the crisis from 2001-2004, the gearing increased from 36 percent in 2000 to 85. 4 percent in 2005 and because of that the operating goals are dominant and Lufthansa has learned to focus its cost cutting on the cash flow impact (Hitt, Ireland Hoskisson, 2009). Lufthansa should continue to lead by allowing its acquisitions to keep their identities and brand but operate with limited control. Investing in developing their training of their staff and managers will help in maintaining that financial discipline by having well rounded and educated employees who will limit the mistakes they could be making without the knowledge and training. It is important for Lufthansa to have an entrepreneurial mindset to gain the advantage over its competitors and even for keeping the lead within Star Alliance. With Lufthansa having an entrepreneurial mindset they are showing that they are a committed business that will focus on gaining financial growth and developing more and stronger value to the business. They should be involved in strategic entrepreneurship and focus on opportunities in the external environment of the business. They should make sure that all the segments have the means to grow innovatively and reward them when success is apparent. Lufthansa is one of the world’s largest airlines with 424 aircrafts and 39,500 employees. They transport approximately 55. 5 million passengers every year; they have sales revenue of 39. 1 billion dollars and have been a member of Star Alliance since May 1997 (Lufthansa a Star Alliance Member). This all shows the current success of Lufthansa and that their entrepreneurial mind set is going in the correct and positive direction. Describe what strategic leadership actions should be recommended for reducing complexity at Lufthansa. It is important for Lufthansa to have knowledge of all the segments in the division’s internal operations. Top management must stay well versed in global economics with the fluctuating prices of oil, the competition, and increasing no-frills airlines. Because of the alliance with Star Alliance they have pushed themselves into the center of the world of complexity. It will be important for them to keep a well rounded culture by having diversity in top management to include females in top positions. The top management team must have knowledge of their European counterparts in order to stay on top. Not only will top management have to deal with the complexity but they will have to work hard to remain a part of the world’s leading airline. The top management team can be used to make strategic decisions along with CEO and ensure that the decisions are followed not by just the employees but by members of top management. Maintaining the knowledge and training that Lufthansa had developed is a must. Because of the high priced competitive market, Lufthansa’s segments will need different cost structures and support financially. They will need to monitor the acquisitions, partnership and alliances to make sure that there are no unnecessary expenses and that no one is being non-productive. References Corporate Profile (2009), Retrieved September 3, 2010 from lufthansa- cargo. com/content. jsp? path=0,1,19142,91382,99001 Hitt, M. , Ireland, D. R. Hoskisson, R. E. 2009), Strategic Management: Competitiveness and Globalization, Concepts and Cases. Ohio: Cengage Learning. Lufthansa a Star Alliance Member (2010), Retrieved September 3, 2010 from staralliance. com/en/about/airlines/lufthansa/ Lufthansa Investor Relations (2009), Retrieved August 24, 2010 from http://investor- relations. lufthansa. com/en/fakten-zum-unternehmem/group-strategy. html Michaels, D. (2008). Lufthansa’s Labor of Love: Restoring Some Really Old Junkers, Retrieved August 25, 2010from http://online. wsj. com/article/SB121357457537975947. html? mod=hps_us_inside_today