Lufthansa Structure and Governance Essay

Pages: 26 (6658 words)  ·  Style: APA  ·  Bibliography Sources: 20  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business

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No commercial banks would lend Lufthansa the money, and only one state-owned bank stepped up, allowing the airline to hobble along for a little bit longer. Because for all of its history to that point Lufthansa had been a state-owned company, observers both inside and out the organization had never truly considered the possibility that it might go under, and as a result serious, systemic problems were allowed to go unchecked. Without the threat of failure posed to private companies, Lufthansa essentially "got soft," and acted as if it need not worry about the political and economic factors influencing its competitors.

However, all was not lost, and the newly elected Weber recognized the severity of the situation. Together with Lufthansa's Executive and Supervisory boards, Weber took rapid action, first organizing "a Lufthansa-specific, four-week change management program," and, after taking the advice of the attendees, set up a meeting between twenty of Lufthansa's senior managers at their training center in Seeheim, Germany.

The meeting quickly evolved from a general change management seminar into planning for crisis response, and the result was "Program 93," a set of dramatic changes set to be instituted at every level, from reducing staff and fleet sizes to cutting waste wherever possible.

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In addition to these shorter-term, emergency measures, Weber and his associates also instituted longer-term changes, including, most notably, the privatization of Lufthansa in 1997. Although the privatization would have been practically unimaginable only a few years earlier, the drastic financial situation that the airline found itself in coupled with the dedication of its management team was enough to make the transition a successful one, to the point that by 2001, Lufthansa was once again one of the most profitable airlines in the world. The transition is practically unprecedented, and it is a testament to Weber's skill as a leader that he was able to organize the process so effectively.

TOPIC: Essay on Lufthansa Structure and Governance. Performance Assignment

Since the nineteen-nineties up until today Lufthansa's efforts have largely been towards implementing the changes and modifications first instigated by the crisis of the early nineties. Part of the reason Lufthansa was able to recover from near-destruction was that the changes implemented by Weber and his associates were never intended to be short-term, emergency measures, but rather a complete overhaul of how the company does business. Thus, while there were short-term measures taken to ensure that the company could continue operating, these were aided by more fundamental changes that would preclude the need for another crisis management scramble.

Structure and Governance

Aside from privatization, the biggest change Weber made to Lufthansa was to the structure of the organization as a whole, and a look at the structural changes Weber instituted will provide instructive insight into how important it is for an organization's structure and governance to adapt to contemporary challenges in order to more effectively achieve its mission and goals. Prior to the near-bankruptcy crisis of 1991-1992, Lufthansa was governed by an Executive Board and a Supervisory Board. The entire company was organized into six largely discrete divisions "(finance, personnel, maintenance, sales, marketing, and flight operations), each headed by a member of the Executive Board."

The problems with this set-up were manifold.

Firstly, the separation between each division was so strong that each Executive Board member was essentially the head of a small fiefdom, a situation that encouraged bad behavior throughout simply because accountability and transparency were practically non-existent. As a result, top-level management of each division frequently inserted itself into the lower-level operational decisions of that division, rather than allowing managers at each level to coordinate among themselves, resulting in micromanaged divisions that nevertheless failed to address issues that affected more than one division.

At the same time, the company was exceedingly slow to respond to problems, because systemic issues within divisions would rarely come to the knowledge of other board members, meaning that those individuals responsible for governing the organization at a whole were largely unaware of the goings on of that company.

This faulty organizational style helps to explain why Lufthansa's financial situation was able to deteriorate so far. Aside from the false sense of security offered by its being a state-owned corporation, the stark separation between divisions meant that bloat, waste, and inefficiency could build up within each division, and so long as the board members responsible kept these problems from reaching the ears of their peers, they could continue on largely unmolested. Thus, as part of the larger movement towards privatization, Weber began a process of reorganization that saw:

three business sectors […] formally separated as legally autonomous and economically independent subsidiaries: LH Cargo AG (airfreight), LH Technik AG (technical maintenance service), and LH Systems GmbH (IT services). These joined the existing subsidiaries Cutyline (regional flights), Condor (charter flights), and LSG Sky (catering).

By splitting of these divisions of the company, Weber was able to make the main organization more agile and efficient while allowing those divisions that did not need such central oversight, such as maintenance and IT services, to become their own entities. This allowed management to have greater control over areas like sales, marketing, finance, and personnel that were more susceptible to inefficiency and bloat while freeing Lufthansa from the direct financial responsibility for those divisions that could largely support themselves. This plan was exceedingly successful, and now Lufthansa has expanded to include over twelve different airline subsidiaries, including wholly-owned subsidiaries and airlines in which Lufthansa hold a plurality of shares.

The break-up of the nineteen-nineties and the separation of Lufthansa's different businesses into separate entities was a continuing process that has culminated in the organizational structure and governance that exists today. As of 2012, Deutsche Lufthansa continues to have an Executive and Supervisory Board, but each member of the Executive Board is no longer responsible for a single division. Instead, the Advisory Board selects the members of the Executive Board, which oversees the entire company, while subordinate executives oversee specific areas of the operation, including its subsidiaries.

Currently Christoph Hanz is Chairman of the Board and CEO of Deutsche Lufthansa, while Carsten Sporh overseas Lufthansa's passenger airlines as CEO of Lufthansa German Airlines. Meanwhile, the Chief Office Group Airlines and Human Resources Stefan Lauer oversees Lufthansa's subsidiary airlines, which include SWISS, Austrian Airlines, Germanwings, Brussels Airlines, and Sun Express. Finally, the Chief Financial Officer Simone Menne overseas the rest of Lufthansa's businesses that are not directly related to passenger travel, including its cargo, maintenance, IT, and catering subsidiaries.

The current organization structure and governance has shown itself to be far more effective than the old model, as evidenced by the organization's success. Although Lufthansa once found itself on the brink of bankruptcy, by 1997 it had become a founding member of the STAR Alliance, the world's first global airline alliance, which as of this writing has expanded to include twenty-eight different airlines.

The alliance serves to coordinate operations between member airlines, including (but not limited to) shared marketing, coordinated customer reward programs, and other special certifications and events that might arise as needed.

Furthermore, the current upper-level management appears well suited to its task, as each of the chief officers are longtime Lufthansa veterans, having worked their up from within the company. In many ways the current executives represent the direct successors to Jurgen Weber's team of transformational leaders, because they all began working for Lufthansa around 1990, and thus began their tenure at the company just as it was in the throes of a potential collapse.

Thus, they are a natural fit for the project of ongoing development and streamlining that has been Weber's legacy, and the recent

One sign of Lufthansa's growth is the degree to which it maintains robust accounting and performance metrics. Not only do its annual reports contain the usual information required, but the company's investor resources section of its website includes robust analysis tools, allowing investors and researchers alike to compare crucial data points over time.

Thus, in addition to the somewhat optimistic language that tends to be used in investor reports, both external and internal observers can easily see the effects of any given decision or external event, a sea change from the lack of transparency and accountability that characterized the company's operations prior to its privatization.

Aside from the robust tools available for examining the company's financial data, in the wake of its near-collapse Lufthansa was careful to institute more robust internal controls, and in particularity instituted an Origin and Destination revenue management system in order to better manage its "inventory," meaning available seats.

Although ideally all seats on any given flight will be sold, for an airline such as Lufthansa the most profitable seats are those in first and business class, and thus a crucial part of managing the business involves maximizing the sale of these seats without unwittingly ignoring or otherwise losing those "economy" passengers that still make up the bulk… [END OF PREVIEW] . . . READ MORE

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