Dealing with low-cost competition in the airline industry (A): The case of Lufthansa SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
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Case Study Description of Dealing with low-cost competition in the airline industry (A): The case of Lufthansa
In 2002 the management team of Deutsche Lufthansa AG was considering the upcoming threat from low-cost airlines in the context of an increasingly complex and competitive strategic environment. Finally the decision was taken to respond to the innovation by opening an own low-cost carrier, Germanwings in late 2002. But over time the business model of Germanwings was modified repeatedly. The case series covers * Lufthansa's considerations regarding various options to respond to the competitive challenges brought up by the emerging low-cost airlines such as easyJet or Ryanair in 2002 (Case A), * the foundation of Germanwings in late 2002 and some early successes until 2005 (Case B), and * some more recent changes in the Germanwings business model in the following five years until end of 2010 (Case C).
Swot Analysis of "Dealing with low-cost competition in the airline industry (A): The case of Lufthansa" written by Urs Mueller, Francis Bidault includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Germanwings 2002 facing as an external strategic factors. Some of the topics covered in Dealing with low-cost competition in the airline industry (A): The case of Lufthansa case study are - Strategic Management Strategies, Disruptive innovation and Strategy & Execution.
Some of the macro environment factors that can be used to understand the Dealing with low-cost competition in the airline industry (A): The case of Lufthansa casestudy better are - – challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, increasing energy prices, there is backlash against globalization, cloud computing is disrupting traditional business models, competitive advantages are harder to sustain because of technology dispersion,
technology disruption, increasing transportation and logistics costs, etc
Introduction to SWOT Analysis of Dealing with low-cost competition in the airline industry (A): The case of Lufthansa
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Dealing with low-cost competition in the airline industry (A): The case of Lufthansa case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Germanwings 2002, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Germanwings 2002 operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Dealing with low-cost competition in the airline industry (A): The case of Lufthansa can be done for the following purposes –
1. Strategic planning using facts provided in Dealing with low-cost competition in the airline industry (A): The case of Lufthansa case study
2. Improving business portfolio management of Germanwings 2002
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Germanwings 2002
Strengths Dealing with low-cost competition in the airline industry (A): The case of Lufthansa | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Germanwings 2002 in Dealing with low-cost competition in the airline industry (A): The case of Lufthansa Harvard Business Review case study are -
Ability to recruit top talent
– Germanwings 2002 is one of the leading recruiters in the industry. Managers in the Dealing with low-cost competition in the airline industry (A): The case of Lufthansa are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Low bargaining power of suppliers
– Suppliers of Germanwings 2002 in the sector have low bargaining power. Dealing with low-cost competition in the airline industry (A): The case of Lufthansa has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Germanwings 2002 to manage not only supply disruptions but also source products at highly competitive prices.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Germanwings 2002 digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Germanwings 2002 has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Strong track record of project management
– Germanwings 2002 is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Innovation driven organization
– Germanwings 2002 is one of the most innovative firm in sector. Manager in Dealing with low-cost competition in the airline industry (A): The case of Lufthansa Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
High switching costs
– The high switching costs that Germanwings 2002 has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Sustainable margins compare to other players in Strategy & Execution industry
– Dealing with low-cost competition in the airline industry (A): The case of Lufthansa firm has clearly differentiated products in the market place. This has enabled Germanwings 2002 to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Germanwings 2002 to invest into research and development (R&D) and innovation.
High brand equity
– Germanwings 2002 has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Germanwings 2002 to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Effective Research and Development (R&D)
– Germanwings 2002 has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Highly skilled collaborators
– Germanwings 2002 has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Dealing with low-cost competition in the airline industry (A): The case of Lufthansa HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Analytics focus
– Germanwings 2002 is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Urs Mueller, Francis Bidault can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Successful track record of launching new products
– Germanwings 2002 has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Germanwings 2002 has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Weaknesses Dealing with low-cost competition in the airline industry (A): The case of Lufthansa | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Dealing with low-cost competition in the airline industry (A): The case of Lufthansa are -
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa, in the dynamic environment Germanwings 2002 has struggled to respond to the nimble upstart competition. Germanwings 2002 has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow to strategic competitive environment developments
– As Dealing with low-cost competition in the airline industry (A): The case of Lufthansa HBR case study mentions - Germanwings 2002 takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Products dominated business model
– Even though Germanwings 2002 has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Dealing with low-cost competition in the airline industry (A): The case of Lufthansa should strive to include more intangible value offerings along with its core products and services.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa, is just above the industry average. Germanwings 2002 needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Interest costs
– Compare to the competition, Germanwings 2002 has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Low market penetration in new markets
– Outside its home market of Germanwings 2002, firm in the HBR case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Increasing silos among functional specialists
– The organizational structure of Germanwings 2002 is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Germanwings 2002 needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Germanwings 2002 to focus more on services rather than just following the product oriented approach.
High operating costs
– Compare to the competitors, firm in the HBR case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Germanwings 2002 's lucrative customers.
High cash cycle compare to competitors
Germanwings 2002 has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Germanwings 2002 supply chain. Even after few cautionary changes mentioned in the HBR case study - Dealing with low-cost competition in the airline industry (A): The case of Lufthansa, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Germanwings 2002 vulnerable to further global disruptions in South East Asia.
Skills based hiring
– The stress on hiring functional specialists at Germanwings 2002 has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Opportunities Dealing with low-cost competition in the airline industry (A): The case of Lufthansa | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa are -
Better consumer reach
– The expansion of the 5G network will help Germanwings 2002 to increase its market reach. Germanwings 2002 will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Loyalty marketing
– Germanwings 2002 has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Germanwings 2002 can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Creating value in data economy
– The success of analytics program of Germanwings 2002 has opened avenues for new revenue streams for the organization in the industry. This can help Germanwings 2002 to build a more holistic ecosystem as suggested in the Dealing with low-cost competition in the airline industry (A): The case of Lufthansa case study. Germanwings 2002 can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Manufacturing automation
– Germanwings 2002 can use the latest technology developments to improve its manufacturing and designing process in Strategy & Execution segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Using analytics as competitive advantage
– Germanwings 2002 has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Germanwings 2002 to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Leveraging digital technologies
– Germanwings 2002 can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Learning at scale
– Online learning technologies has now opened space for Germanwings 2002 to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Germanwings 2002 can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Germanwings 2002 is facing challenges because of the dominance of functional experts in the organization. Dealing with low-cost competition in the airline industry (A): The case of Lufthansa case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Strategy & Execution industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Germanwings 2002 can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Germanwings 2002 can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Germanwings 2002 in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Buying journey improvements
– Germanwings 2002 can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Dealing with low-cost competition in the airline industry (A): The case of Lufthansa suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Threats Dealing with low-cost competition in the airline industry (A): The case of Lufthansa External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa are -
Increasing wage structure of Germanwings 2002
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Germanwings 2002.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Germanwings 2002 with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Germanwings 2002 will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Germanwings 2002 can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Germanwings 2002.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Germanwings 2002 can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa .
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Germanwings 2002 needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Shortening product life cycle
– it is one of the major threat that Germanwings 2002 is facing in Strategy & Execution sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Germanwings 2002 in the Strategy & Execution sector and impact the bottomline of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa, Germanwings 2002 may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
High dependence on third party suppliers
– Germanwings 2002 high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Weighted SWOT Analysis of Dealing with low-cost competition in the airline industry (A): The case of Lufthansa Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Dealing with low-cost competition in the airline industry (A): The case of Lufthansa is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Dealing with low-cost competition in the airline industry (A): The case of Lufthansa is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Germanwings 2002 needs to make to build a sustainable competitive advantage.
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