LUFTHANSA  2000:  MAINTAINING  THE  CHANGE  MOMENTUM    

               

       

 Group  D  

Tilda  Wikner,  921115  Isabell  Hultén,  930329  

Emelie  Karlsson,  930214  Sara  Liljenström,  900424  

Tao  Hemberg  Jankel,  900618  

 

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Executive  Summary  In 1991 Lufthansa was practically bankrupt. Eight years later, the company announced an all time high result. In 1999, Lufthansa was one of the world’s leading airline companies. Lufthansa managed to make every individual in the company aware of the urgency of change. It decentralized its structure and moved from “growth through strengths” to “growth through partnership” and founded the network STAR ALLIANCE. In only eight years the CEO, Jürgen Weber, succeeded in restructuring the company. This paper raises the challenges that Lufthansa faced in the beginning of the 1990s as well as the new strategy to mitigate these challenges. Furthermore, this paper illustrates the challenges still remaining in the late 1990s, how these occurred and how these challenges could be linked to the strategy implemented.  

Our  Conclusion    By the end of the 1990s, Lufthansa had managed vast conversions in organization structure. The renovation of Lufthansa has shown great changes in results. At first, Lufthansa was a fixed and bureaucratic organization with un-profitable outcomes. However, through the renovation it was transformed into an organization with more openness to change and Lufthansa became one of the most profitable airlines on the market. Giving birth to natural incentives throughout the company, creating a more divisional structure, and forming the STAR ALLIANCE have all been parts among many others, which have put Lufthansa in its position today. Remaining challenges for Lufthansa, among others, involve managing external relationships in combination with coordinated strategic aims, continuously envisioning an open culture for the whole company, and preserve efficiency through control systems.      

 

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Table  of  content    

1.  LUFTHANSA  IN  THE  EARLY  1990S  ........................................................  4  1.1  INTERNAL  CHALLENGES  .....................................................................................  4  1.2  EXTERNAL  CHALLENGES  .....................................................................................  4  

2.  THE  NEW  STRATEGY  ...........................................................................  4  2.1  COST  SAVINGS  .................................................................................................  5  2.2  CORPORATE  RESTRUCTURING  .............................................................................  5  

Figure  1.  Corporate  reconstructing  .............................................................................................................  6  2.3  STRATEGIC  NETWORKING  ..................................................................................  6  

3.  THE  IMPLEMENTATION  OF  LUFTHANSA’S  NEW  STRATEGY  .................  6  3.1  THE  UNFREEZE-­‐PHASE  ......................................................................................  7  3.2  THE  MOVE  PHASE  ............................................................................................  7  3.3  THE  RE-­‐FREEZE  PHASE  ......................................................................................  8  

4.  RESULTS  FROM  THE  NEW  STRATEGY  ..................................................  9  4.1  POSITIVE  RESULTS  ............................................................................................  9  4.2  NEGATIVE  RESULTS  ...........................................................................................  9  4.3  SUGGESTIONS  ...............................................................................................  10  

5.  CHALLENGES  IN  1999  ........................................................................  11  5.1  INTERNAL  PERSPECTIVE  ...................................................................................  11  5.2  EXTERNAL  PERSPECTIVE  ...................................................................................  13  

6.  SUMMARY  OF  REMAINING  CHALLENGES  AND  PROPOSED  SOLUTIONS  ....  14  Figure  2.  Summary  of  remaining  challenges  in  1999.  ......................................................................  14  Figure  3.  Proposed  solutions  for  remaining  challenges.  .................................................................  14  

7.  REFERENCES  .....................................................................................  15    

   

 

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1.  Lufthansa  in  the  early  1990s    Lufthansa was founded in 1926 and was almost fully owned by the German state. Historically, the company was characterized by traditional German industry, with its focus on reliability, order, and technical excellence. Being a state-owned company lead to a bureaucratic and inflexible organization.

1.1  Internal  Challenges  In 1991, Lufthansa was monolithic, unprofitable and on the verge of bankruptcy. At this time, Lufthansa was functionally organized with six departments (finance, personnel, sales, marketing, maintenance and flight operations). This structure meant high involvement of top management in operations, slow decision-making, low transparency and an insufficient proximity to the market. Lufthansa could not respond effectively to the emerging competition with its existing functional structure. Lufthansa relied heavily on their state-ownership and immortality was taken for granted. Even when the crisis became obvious, people at Lufthansa still thought that the government would never let the company die. In turn, the state-ownership, lead to lack of motivation among the staff to look beyond their own duties and try to evolve Lufthansa for the better. The pension fund secured by the state was an incentive for the employees wanting the company to stay state-owned. In the late 80s Lufthansa applied a policy of “growth through own strength”. This policy was based on the belief that only the largest airlines would survive in an era of global competition. This altered in a rapid fleet expansion to capture larger market share where Lufthansa expanded its fleet from 120 to 275 aircrafts in 1991. This lead to a high degree of fixed assets and costs, and the number of employees at the time was high.

1.2  External  Challenges  Due to the deregulation in the late 80s, the Gulf War, and the subsequent recession, a fall in air traffic was a fact and an intensive price competition was triggered. As a result, a serious overcapacity for the entire airline industry arose on a global basis. No companies had enough flexibility to adapt to the rapid changes in the industry and the airline companies suffered losses. Because of the German reunification and the fact that Lufthansa was a state-owned company, Lufthansa noticed the serious crisis later than other companies, believing it was invincible. In 1991, when the rest of the industry faced this market downturn, Lufthansa increased the number of passengers by eleven percent. Despite the boom, Lufthansa had a cash crisis and reported losses in 1991. In 1992, none of the outsiders or private banks were completely sure about Lufthansa’s survival. Finally, Kreditanstalt für Wiederaufbau agreed to provide Lufthansa the capital it needed in order to pay its employees.

2.  The  New  Strategy  In 1992, Weber invited a group of the top management to a “Mental Change Meeting” that aimed to focus on the redevelopment process within Lufthansa. Weber had been convinced of the urgency of a redevelopment process by a group of managers called “Samurai of Change”. Prior to the scheduled meeting, Weber became aware of the seriousness of the embarking crisis and changed the name to “Crisis Management Meeting”. The purpose of the meeting was to make managers aware of the serious situation and its threats and urgency, instead of simply inform them about the facts and the needed strategy. This type of meeting was repeated three different times with different groups of 50

 

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people, and afterwards the majority of the senior managers were convinced of the need of a drastic change, which resulted in the development of the following strategies.

2.1  Cost  Savings  The new strategy included drastic downsizing of the fleet and extensive staff cuts due to the overcapacity. In the beginning of the 90s, Lufthansa started to negotiate with the German state to privatize the airline, with purpose of solving the problems of bureaucracy and inflexibility. One stumbling block was replacing the highly valued state-owned pension fund (VBL). In May 1994, however, the problem with the pension fund was resolved and in 1997, Lufthansa became fully privatized. Being a privatized company, Lufthansa experienced increased pressure to focus even more on strategically cost efficiency, but also competition, which resulted in a strategic cost management program called “Programm 15” as a successor to the former “Programm 93”. “Programm 15” was focused on three concrete goals instead of the more wide-spread 131 goals of projects set up in “Programm 93” before the 1990s. The program aimed at improving Lufthansa’s competitive position through cost reduction, create an internationalized cost structure, and making the staff at every level cost-effective and cost-conscious in their daily work. To create incentives for Lufthansa’s middle management to radically improve, a tight monitoring and public sharing of results for each individual manager were used in order to ensure accountability and continuous feedback. This also solved the transparency problem noted earlier. Through Lufthansa’s approach, much alike the Balanced Scorecard originated by Kaplan and Norton (1996), the company administered cost reconstructing. The main idea of the Balanced Scorecard approach is to consider aspects beyond financial, when pursuing a successful strategy (Kaplan & Norton, 1996). Lufthansa used a similar approach when it was focusing on the entire organization in the change process.

2.2  Corporate  Restructuring    Lufthansa, with its existing corporate structure of that time, faced problems with slow decision making, low transparency, high involvement of top management in operations, and an insufficient proximity to the market. The company had realized their lack of efficiency in responding to changes in the market, which lead to difficulties in coping with the emerging competition. The goal with a restructuring plan was to speed up the decision making process and increase both transparency and market proximity. This new corporate structure enabled Lufthansa to overcome some of the previous challenges such as inflexibility, bureaucracy and the lack of proximity to the market. The idea behind the restructuring was that Lufthansa would be more successful as a group of independent units rather than as a closed functional block. After considering various alternatives, three business areas were separated as independent subsidiaries: Cargo AG (logistics), Technik AG (Technik) and Systems GmbH (IT). These three joined the four subsidiaries already existing, shown in Figure 1.

 

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Figure  1.  Corporate  reconstructing   When it comes to the corporate culture, a goal was to make the individuals within the organization more conscious of how their piece of the puzzle affected the whole picture, as well as making the staff on all levels highly cost-conscious and effective. The top management hoped for an outcome where the employees on all different levels felt more responsibility in contributing to the development of the company.

2.3  Strategic  Networking    Apart from the strategic directions mentioned above, Lufthansa continuously worked on its external relationships. The company moved from the philosophy of “growth through own strength” to “growth through partnership”. Lufthansa was one of the founding members of STAR ALLIANCE, an airline network that started functioning in 1997. In 1999 the network included eight members, which together operated in 110 countries. The members of the network cooperated in numerous ways. Apart from the code sharing they also collaborated in joint sales activities, joint marketing, market research, shared facilities, and staff exchange. These efforts in turn lead to increased cost efficiency and cost synergies within STAR ALLIANCE. In 1999 the network started to integrate more challengeable strategic activities such as establish a common global brand and have a shared technology platform. In late 1998 the alliance formed a management team to lead the airlines in the network on a day-to-day basis.

3.  The  Implementation  of  Lufthansa’s  New  Strategy  Kotter (2007) mentions eight errors that can occur when a company applies a strategy of change. By looking at how Lufthansa and Weber acted within the strategy implementation process, connections to Kotter’s theories can be identified and later evaluated. Lufthansa succeeded in adopting the change management methods that Kotter argues for. Kotter’s eight errors can be interpreted in reverse to evaluate how well the strategy of change was implemented. The eight errors, or as we now translate into eight areas of possible success, can in turn be grouped into three phases, the unfreeze phase, the move phase and finally the re-freeze phase.

 

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3.1  THE  UNFREEZE-­‐PHASE  1. Creating an awareness of urgency The whole renovation began with a month-long program aiming at unite various managers to discuss the urgency of change. It was through the group “Samurai of Change”, as mentioned before, the realization of the current urgent situation was intensified among the engaging managers, including Weber. After the program, Weber understood the scope and the severity of Lufthansa’s situation. According to Kotter (2007), the urgency rate is high enough when three out of four managers at a company believe that business as usual is totally unacceptable, which the “Samurai of Change” suggestively succeeded in explaining. 2. Establishing a influential guiding coalition The result of the group “Samurai of Change” was a clear awareness of urgency regarding the issue. Shortly after, a guided coalition followed where Weber established a training network that aimed at 20 managers in higher positions, in order to train their abilities in change management and provide them with capabilities in redeveloping various processes in their divisions. It is necessary, as Kotter (2007) mentions, to have more than just a few managers leading the transformation process. The network was extended into three additional sessions with 50 new participants each time, in order to make them “feel” the situation, and get naturally convinced of the new radical changes. Through the additional sessions an even larger coalition coped with the commenced change. 3. Shaping a common vision Through the workshops that were carried out, several managers became committed to high performance goals, in order to carry out the changes that Weber believed were essential. Having a vision empowers the whole organization to see a common goal and follow one defined direction, as stated by Kotter (2007). Lufthansa succeeded in reducing costs and becoming more efficient by working on projects such as “Programm 15” and arranging employees in new ways. The plan resulted in lower costs in terms of more effective personnel activity and a reduction of former total losses. However, the plan also required Lufthansa to terminate many employee contracts.

3.2  THE  MOVE  PHASE  4. Illuminating the vision The vision continued to be further implemented in Lufthansa’s company and its surroundings. Lufthansa started arranging “town meetings” in the areas where it was active. “Town meetings” were carried out in order to make local management, employees and key customers aware of the changes being implemented and what the results were aimed to be. It seemed that through Weber’s total honesty and informal dialogue he managed to provide the surrounding listeners with great expectations regarding the strategy implementation. Beer and Eisenstat (2000), state that managers best succeed spreading belief and faith when something is articulated well enough to be compelling to the listener, and it is likely that the informal discussion made Weber’s arguments trustworthy. A chief executive mentions that there was a saying describing Weber’s way engaging people, “… ’Schlede’ (previous CEO) is collecting the money, ‘Weber’ is collecting the people”. Through the beliefs that Weber had managed to plant in the surroundings, the organization would accept to ride along the wave of changes that would derive.

 

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5. Emboldening surroundings to perform according to the vision Line managers were through the “Programm 15” given more responsibility for decreasing costs. The program also aimed at spreading the cost structure globally. By censoring activities closely through this program, Lufthansa was able to see that vital control mechanisms were affected harmlessly. Middle managers also succeeded in making employees engaged in the cost management processes. Results of the program were more effective cost management and a change in culture. As Beer and Nohria (2000) argue, reaching a sustainable competitive advantage was easier for Lufthansa as they focused on both economic values and organizational aptitudes. 6. Setting up short-term goals Weber understood the value of keeping employees motivated. Kotter (2007) describes the importance of showing gratitude to short-term-successions in order to make employees aware of how the company has succeeded thanks to the changes. In the “Lufthanseat” magazine distributed to all workers, chosen success stories were published for everyone in the company to view. Kotter (2007) continues explaining that a company lacking in screening short-term achievements to employees will result in employees not understanding the urgency of change. By publishing the success stories in the magazine employees were reminded of what some of the changes had resulted in. However, using extensive methods in reminding the employees of their successes, could keep employees even more motivated.

3.3  THE  RE-­‐FREEZE  PHASE  7. Merging progresses and continuously producing change Lufthansa realized that their first achievements, such as increased profits and other positive results, would not grant future success. The leaders of the company believed that more efforts could be done in the areas of cutting costs. It was supposed that further organizational re-structuring was in need. A more alert management was shaped in order to make them capable of facing greater issues, thus drawing some attention from the short-term scope. The results from short-term achievements can be used in more complex problems, when wanting to restructure organizations (Kotter, 2007). Lufthansa was given a new organizational shape. Going from a functional structure to a multidivisional structure, which concentrated more on each business unit and the intrinsic effectiveness. By giving managers further down the line more responsibility, pressure was not as centered on the top management, which is a state that is highly regarded by Beer and Eisenstat (2000). They point out good effects from spreading authority throughout the whole company, making more individuals capable of taking actions. 8. Maintaining the implemented ways The school that Lufthansa created continued teaching their managers to always be prepared for urgent actions and how to manage their employees to have the knowledge and support needed, when meeting changes. Just like Kotter (2007) argues, it is extremely important to not fall back on old convenient ways of managing, and Lufthansa managed to secure its foundation by creating the business school, where only relevant management approaches according to their situations were taught out.

 

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4.  Results  from  the  new  Strategy  

4.1  Positive  results  Lufthansa fulfilled each of the eight points to some extent according to Kotter’s (2007) theories. The process of change was carried out effectively through smart and attentive solutions. In accordance with Kotter’s (2007) points, Weber’s change strategy had reasons to succeed. 4.1.1.  The  soft  and  hard  management  approach  The impression given through the Staff Manager’s description was that Weber was good at being open and personal in his way of communication, and therefore acting accordingly with Beer and Nohria’s (2000) Theory O. Such a personal approach can lead to cultural and more long-lasting effects. By laying off a number of employees and implementing the cost reducing programs, such as “Programm 15”, Lufthansa and Weber also followed a Theory E approach. Through a mix of hard and soft management approaches social factors were developed along with costs being cut. A combination like such is suggested by Beer and Nohria (2000) to be the most effective, where both Theory E (mechanical cost cutting and impersonal approach) and Theory O (less mechanical cost cutting and more personal approach) methods should be included. The increased profits and equity returns along with the new vision that was reflected further down the hierarchy, demonstrate the success argued for by Beer and Nohria (2000). 4.1.2.  From  a  restructuring  and  cost  saving  perspective  Dividing the company into more subsidiaries resulted in quicker decision-making abilities and higher obligations to the different departments, generating a closer awareness of costs and clearer relations to the goals that had been set. In summary, this new form of autonomy increased the service quality and efficiency. The activities performed at the lower ground could simply be governed easier when spreading responsibility further down the hierarchy. A closer methodology toward consumer preferences and emphasis was achieved. The “LSG Sky Chefs” department, for example, could through this change better adapt to different culture specific taste preferences and comply with them. 4.1.3.  From  an  external  relationship  perspective  Through the network STAR ALLIANCE, Lufthansa shaped a more collaborative market approach in relation to the former highly competitive that existed. The elaborating airlines of the network were all made tougher, including Lufthansa themselves. Making all flight information attainable within the network and performing united marketing plans were two of the actions that created positive cost synergy effects for all participating airlines. Weber’s early wish and vision in reducing costs were at this stage of the strategy process realized even more.

4.2  Negative  results  4.2.1.  From  a  restructuring  and  cost  saving  perspective  Dividing the company into subsidiaries made it harder for Lufthansa to solely focus on the same vision and brand image. Strategic aims were in some situations not enough for each division, as they needed to observe the local markets as well as customers at the same time. Making departments more independent decreased the level of communication between departments and the higher parts of Lufthansa. Thereby, the meaning of the brand was incrementally split and directed towards new

 

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individual areas. As part of the organizational change, collaborations between departments were not as high, and existing synergy effects were damaged, according to Mintzberg’s (1981) theory. The damage of the brand can be echoed through one of the employees who explained how the IT Service department’s ways of working was influenced by the culture of Germany. An example of a department in need of other cultures than the German is the food supplying business, like “LSG Sky Chefs”, who are in need to adjust to various food traditions and preferences. 4.2.2.  From  an  external  relationship  perspective  The formation of STAR ALLIANCE made Lufthansa reliant on the relationships within. Lufthansa’s IT services faced competition from United Airlines’ IT division, which meant that even though a relationship existed between the two, they were also competitors. At the same time, Lufthansa was reliant on the network to keep their existing position on the airline market, and leaving the IT services business could also be harmful. Lufthansa’s IT services became vulnerable and had to face more competition. Without the support and funding that was naturally expected from the STAR ALLIANCE, the IT services business area could perish. The network of airlines resulted in competition between networks rather than competition between airlines.

4.3  Suggestions  A way of preserving positive synergy effects within and between divisions could be to create a middle unit with the purpose of arranging frequent meetings with delegates from each division. Through these meetings, the meaning of the brand could be discussed and the true brand culture could be repeated towards the divisions that are lacking the same beliefs. Preserving synergy effects is essential both for STAR ALLIANCE and the divisions of Lufthansa. Divisions would, through such confrontation, be able to discuss how to best coordinate and work while at the same time practicing in being independent. Research and development issues could in this way follow a more unified path, in all divisions. Collaboration among the different parts of the company would thus grant all parts advantages. However, communication activities need to be organized in a smart way to enable collaboration. Lufthansa has used these methods before, for example as part of their “Programm 15”. Simons (1994) theory explains how management can be looked upon as having different levers of control. There are four categories included in his theory, belief systems, boundary systems, diagnostic control systems and interactive control systems. According to the author, the four features of control need to be approached during both the opening and the continuing phase. Weber has successfully created belief systems and boundary systems. Through town meetings and the management programs, Weber managed to make the company and its surroundings realize the belief needed to influence change. “Programm 15” envisioned managers to be more effective in their managing while at the same time having to follow certain rules and operation declarations. Employees and middle managers also took after management methods through the programs, which would help maintain the philosophy of Weber, and therefore “Programm 15” also worked as a belief system. The founding of Lufthansa School of Business also helps preserve the beliefs being strived for by Weber. The diagnostic control systems and interactive control systems became weaker further in the process of change. These systems were expected to be cultivated easier at the time when the company was more compact and not as divided, as part of the subsidiary process. Measuring performance goals was

 

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not done by the top management to the same extent as before the divisional structure, since each division was meant to take own responsibility. Furthermore, the separation into divisions caused further distance from the top management and discussion. The exchange of information was thus more difficult. If Lufthansa would manage to create a “middle unit” to function as a communication platform between the top management and the leaders of the divisions, diagnostic control systems and interactive control systems could be improved in Lufthansa’s current organization structure. But before such a unit is created, diagnostic control systems and interactive control systems can be seen as areas to further develop (Simons, 1994).

5.  Challenges  in  1999  

5.1  Internal  Perspective    Since 1997, Lufthansa was fully privatized and from being a company facing bankruptcy, it became one of the world’s leading airlines and core element of the strongest worldwide alliance in the airline industry. From a rather conservative organization, believing in immortality, Lufthansa managed to change its corporate culture to become an organization striving for change and improvements. Decentralization was a fact in 1997 and by 1999, the Lufthansa Group Management Board directed activities of the entire Group through three central functions; the Chairman’s Office, the finance, and the Human Resource Management. Lufthansa moved from the functional organizational structure toward a divisional structure with the purpose of achieving a higher degree of decentralization. The divisional structure, according to Mintzberg (1981), is not as integrated and instead a set of rather independent units joined together by a loose administrative overlay. The decentralization process resulted in seven main businesses with different strategies for growth and globalization. This new structure arose challenges and internal tensions regarding the use of Lufthansa as a brand, since the degree of internationalization and use of the brand varied significantly across the different businesses.. This organizational structure also created difficulties for lone business units as they lacked experience in working autonomously. Lufthansa Cargo AG, for example, had never been an autonomous organizational unit before, but a “dependent child” and a mental change was needed in order to sustain as an independent unit. The challenges facing independent businesses, which was now forced to tackle operations by their own, was a result of the decentralization process. As mentioned above, different growth and globalization strategies were undertaken by companies in The Lufthansa Group. As a result, different units had different relationships to the brand “Lufthansa” and internal tension was created within the company. A challenge caused by the new strategy was therefore to preserve the Lufthansa identity, which can be linked to the lack of an overall vision and thus a vital hinder when trying to maintain sustainable change (Kotter, 2007). Internal costs, restructuring, and external relationships were main focus aspects when Lufthansa implemented the new strategy and the change process. However, a clear vision of the overall aviation group was lacking. Grant (2013) points out the sense of a common purpose, shared goals, and values as keys to achieve coherence and cooperation throughout the organization. In order to coordinate the use of the Lufthansa brand, a strong corporate culture is needed and Lufthansa should use control systems and performance incentives to direct division in a coherent manner. Simons (1994) states control systems as tools in order for managers to frame beliefs, norms, values, as well as boundaries on acceptable

 

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strategies and behavior. These control systems can also be used to manage measurements of performance variables and enhance cross-functional dialogues. The Lufthansa School of Business was established at a corporate level in 1998. The school was used as a tool in order to establish a cultural and knowledge platform and can thus be claimed to be a belief system used to control the use of the Lufthansa brand (Simons, 1994). So-called silent killers of implementation, as described by Beer and Eisenstat (2000), can be traced in the organization of Lufthansa and can be stated as blocking learning from being distributed throughout the corporation. As mentioned above, ambiguous strategies and conflicting priorities are silent killers still present in the organization. The autonomous business units of Lufthansa Group entail strategic dissimilarities. The feedback system needs to be more extensive, and include lower-level unit managers, in order to refine and delineate a common strategy into a coherent business direction. One crucial question concerned the influence that the close integration within the STAR ALLIANCE would have on Lufthansa’s companies. Critical issues regarding branding and identity within the Lufthansa Group were connected to the network strategy and cultural integration. STAR ALLIANCE’s influence on the independent companies within Lufthansa was sometimes problematic, particularly due to the planned extension of joint procurement. Several units were highly dependent upon STAR ALLIANCE, which complicated their independent business. Lufthansa Technik, for example, which had a strategy in 1999 that mainly focused on growth through cooperation with the alliance and its partners, faced problems with creating an alliance independent from STAR ALLIANCE. On one hand, Lufthansa Technik was dependent on an alliance with STAR ALLIANCE in order to grow. On the other hand, such an alliance was almost impossible due to the perception within STAR ALLIANCE that “technical maintenance” was not a real business. As a result, Airlines Materials was founded in 1998 by Lufthansa Technik, United Airlines, and Air Canada. Airlines Materials became a trade and service center for spare parts in Chicago and turned out to be a serious competitor to Lufthansa Technik. From this example, we can see that STAR ALLIANCE constituted a serious challenge for the subsidiaries’ operations and market positions. When the radical change process was first implemented, Lufthansa tightened its awareness of weak signals and other features in the environment. The achieved record performance was in large part due to openness for change and the willingness to tackle the crisis. A crucial challenge for Lufthansa is to keep people motivated when the pressure has eased off and prevent them from falling into a comfortable zone. This phenomenon is described by Kotter (2007), where the tendency to declare victory too fast is stated as a common error in change processes. Several managers at Lufthansa imply that a serious crisis was needed in order to motivate people and achieve real change. After turnaround was reached it took ages to realize changes, even small ones. Kotter (2007) explains that a sense of urgency is needed in order to motivate and drive for change. It is important for Lufthansa to maintain an open culture with strive for continuously improvements. It is also important to encourage and empower employees, showing that risk-taking and innovative projects is important regardless of the current market situation. The Lufthansa School of Business is partly used in order to enhance future performance, whereby links are tightened between strategy, organizational and individual development in order to strengthen the key priorities.

 

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5.2  External  Perspective  Lufthansa changed its strategy from “growth through own strength” to “growth through partnership” in conjunction with the creation of the STAR ALLIANCE network. The new strategy constituted focus on external relationships and entailed challenges for Lufthansa. Managing the alliance as a whole was a key challenge for Lufthansa that included several difficulties. STAR ALLIANCE developed collaboration beyond the stage of a committee-based collaboration. However, strategic integration was believed as requiring something more. Organizational changes required mental changes among the network members, in order to get used of the new processes. When trying to manage STAR ALLIANCE, the members, including Lufthansa, were faced with the challenge of forming the corporate culture and coordinate the large network. All companies within the network had different history and cultures. Lufthansa, for example, had a culture based on openness, which enabled change and successfully led them through the crisis. A central question was whether a fusion of the companies’ cultures would improve their success and develop a more coherent corporate culture A crucial challenge, linked to the creation of STAR ALLIANCE, was the change of Lufthansa’s economic structure from competition between airlines to competition between the networks. Due to increased competition from rival networks, an important challenge for STAR ALLIANCE was linked to defending and expanding its leading position. Through integrated network management, STAR ALLIANCE dealt with coordinating and integrating strategic activities. This included tasks aiming at creating an identity of the alliance, setting borders for the network, and creating a global alliance brand. Connected to this, Lufthansa faced problems of keeping its own identity, which was further explained in the above section of internal challenges. STAR ALLIANCE’s integrated network management can be described by the findings of Gadde, Huemer, and Håkansson (2003). The traditional strategic management theory is argued to focus on strategy as winning and strive for independence and power over other actors. In the Industrial Network Perspective, on the other hand, interdependence and coevolution are the most important competitive aspects. The core strategy is stated as the ability to create and maintain relationships with external actors. An important challenge is thus for Lufthansa to manage this new form of competition and importance of network relationships. Other issues connected to the alliance were marketing and sales, information technology, and service and product development. To manage these strategically important issues, STAR ALLIANCE can develop a common information and technology platform. In order to create organizational capabilities, the network needs to effectively integrate the companies’ different recourses, which are largely determined by the structure of the organizations and its culture (Grant, 2013).                

 

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6.  Summary  of  remaining  challenges  and  proposed  solutions     Challenges  caused  directly  by  the  

strategy  Challenges  caused  indirectly  by  the  strategy  

Internal   Strategy:  Lufthansa  Group  • Various  use  of  the  brand  “Lufthansa”    

à  Internal  tension  • Ambiguous  strategies,  particularly  regarding  

internationalization  à  Lack  of  clear  vision  à  Lack  of  cross-­‐division  synergies  à  Conflicting  priorities  

• Difficulties  for  lone  business  units,  since  they  lacked  experience  in  working  autonomously  

 Strategy:  STAR  ALLIANCE  • Difficult  to  preserve  the  Lufthansa  identity  • Lack  of  overall  vision  and  coordination  • Problems  with  creating  independent  

businesses    

• Keep  people  motivated    

External   Strategy:  STAR  ALLIANCE  • Manage  a  mental  change  • Form  the  alliance's  corporate  culture  and  

coordination  • Change  competition  focus  

 

• Defending  and  expanding  its  leading  position  

• Create  an  identity,  brand  and  network  borders.  

 Figure  2.  Summary  of  remaining  challenges  in  1999.    

Figure  3.  Proposed  solutions  for  remaining  challenges.  

  Proposed  Solutions  

Lufthansa   • Envisioned  corporate  culture  understood  by  the  whole  company  -­‐              The  culture  should  also  be  open  and  strive  for  continuous  improvements    

• Control  systems  -­‐ For  example,  Lufthansa  School  of  Business  

• Extensive  feedback  system    

STAR  ALLIANCE   • Coordinate  and  integrate  strategic  activities  through  integrated  network  management  

• Develop  a  common  information  and  technology  platform    

 

15  

7.  References  Beer, M. Eisenstat, R.A (2000) The silent killers of strategy implementation and learning, MIT Sloan

Management Review.

Beer & Nohria (2000) Cracking the code of change, Harvard Business Review

Gadde, L-E; Huemer L, Håkansson H (2003) Strategizing in industrial networks, Industrial Marketing

Management

Grant, R. (2013) Contemporary Strategy Analysis, Seventh edition, Blackwell Publishing

Kotter J. P (2007) Why transformation efforts fail?, Harvard Business Review

Mintzberg, H (1981) Organizational design: fashion or fit?, Harvard business review

Simons R (1994) How new top managers use control systems as levers of strategic renewal, Strategic

Management Journal, Vol. 15