Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
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Case Study Description of Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings
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 (B): The foundation of Germanwings" 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 (B): The foundation of Germanwings 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 (B): The foundation of Germanwings casestudy better are - – increasing household debt because of falling income levels, challanges to central banks by blockchain based private currencies, central banks are concerned over increasing inflation, there is backlash against globalization, competitive advantages are harder to sustain because of technology dispersion, cloud computing is disrupting traditional business models, talent flight as more people leaving formal jobs,
supply chains are disrupted by pandemic , wage bills are increasing, etc
Introduction to SWOT Analysis of Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings
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 (B): The foundation of Germanwings 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 (B): The foundation of Germanwings can be done for the following purposes –
1. Strategic planning using facts provided in Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings 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 (B): The foundation of Germanwings | 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 (B): The foundation of Germanwings Harvard Business Review case study are -
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.
Ability to lead change in Strategy & Execution field
– Germanwings 2002 is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Germanwings 2002 in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Sustainable margins compare to other players in Strategy & Execution industry
– Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings 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.
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.
Learning organization
- Germanwings 2002 is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Germanwings 2002 is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Superior customer experience
– The customer experience strategy of Germanwings 2002 in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Cross disciplinary teams
– Horizontal connected teams at the Germanwings 2002 are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
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.
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.
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 (B): The foundation of Germanwings HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
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 (B): The foundation of Germanwings - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
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 (B): The foundation of Germanwings 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.
Weaknesses Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings | 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 (B): The foundation of Germanwings are -
High operating costs
– Compare to the competitors, firm in the HBR case study Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings 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.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings, 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.
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 (B): The foundation of Germanwings needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Need for greater diversity
– Germanwings 2002 has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Lack of clear differentiation of Germanwings 2002 products
– To increase the profitability and margins on the products, Germanwings 2002 needs to provide more differentiated products than what it is currently offering in the marketplace.
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.
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 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 (B): The foundation of Germanwings, 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.
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 (B): The foundation of Germanwings, 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.
High bargaining power of channel partners
– Because of the regulatory requirements, Urs Mueller, Francis Bidault suggests that, Germanwings 2002 is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Slow decision making process
– As mentioned earlier in the report, Germanwings 2002 has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Germanwings 2002 even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Opportunities Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings | 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 (B): The foundation of Germanwings are -
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.
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.
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 (B): The foundation of Germanwings 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.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Germanwings 2002 can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Germanwings 2002 in the consumer business. Now Germanwings 2002 can target international markets with far fewer capital restrictions requirements than the existing system.
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.
Building a culture of innovation
– managers at Germanwings 2002 can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Developing new processes and practices
– Germanwings 2002 can develop new processes and procedures in Strategy & Execution industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing 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.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Germanwings 2002 to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
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.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Germanwings 2002 to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Germanwings 2002 to hire the very best people irrespective of their geographical location.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Germanwings 2002 can use these opportunities to build new business models that can help the communities that Germanwings 2002 operates in. Secondly it can use opportunities from government spending in Strategy & Execution sector.
Threats Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings 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 (B): The foundation of Germanwings are -
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Germanwings 2002 in the Strategy & Execution industry. The Strategy & Execution industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Regulatory challenges
– Germanwings 2002 needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
Stagnating economy with rate increase
– Germanwings 2002 can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
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.
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.
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.
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.
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.
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.
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 (B): The foundation of Germanwings .
Technology acceleration in Forth Industrial Revolution
– Germanwings 2002 has witnessed rapid integration of technology during Covid-19 in the Strategy & Execution industry. As one of the leading players in the industry, Germanwings 2002 needs to keep up with the evolution of technology in the Strategy & Execution sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
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.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Germanwings 2002 business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings 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 (B): The foundation of Germanwings 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 (B): The foundation of Germanwings 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 (B): The foundation of Germanwings 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 (B): The foundation of Germanwings 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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