Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis

Case Study SWOT Analysis Solution

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).

Authors :: Urs Mueller, Francis Bidault

Topics :: Strategy & Execution

Tags :: Disruptive innovation, SWOT Analysis, SWOT Matrix, TOWS, Weighted SWOT Analysis

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 - – challanges to central banks by blockchain based private currencies, wage bills are increasing, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing commodity prices, there is backlash against globalization, geopolitical disruptions, there is increasing trade war between United States & China, central banks are concerned over increasing inflation, competitive advantages are harder to sustain because of technology dispersion, etc

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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.

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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

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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 -

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.

Operational resilience

– The operational resilience strategy in the Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.

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.

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.

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.

Organizational Resilience of Germanwings 2002

– The covid-19 pandemic has put organizational resilience at the centre of everthing that Germanwings 2002 does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.

Training and development

– Germanwings 2002 has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.

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.

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.

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.

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.

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 (B): The foundation of Germanwings are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.

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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 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.

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.

Employees’ incomplete understanding of strategy

– From the instances in the HBR case study Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings, it seems that the employees of Germanwings 2002 don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.

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.

High dependence on star products

– The top 2 products and services of the firm as mentioned in the Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Germanwings 2002 has relatively successful track record of launching new products.

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.

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.

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.

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.

No frontier risks strategy

– After analyzing the HBR case study Dealing with low-cost competition in the airline industry (B): The foundation of Germanwings, it seems that company is thinking about the frontier risks that can impact Strategy & Execution strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.

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 (B): The foundation of Germanwings should strive to include more intangible value offerings along with its core products and services.

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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 -

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.

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 (B): The foundation of Germanwings 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.

Identify volunteer opportunities

– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Germanwings 2002 can explore opportunities that can attract volunteers and are consistent with its mission and vision.

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.

Reforming the budgeting process

- By establishing new metrics that will be used to evaluate both existing and potential projects Germanwings 2002 can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.

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.

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.

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.

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.

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.

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.

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.

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.

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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 -

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.

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.

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.

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.

Environmental challenges

– Germanwings 2002 needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Germanwings 2002 can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.

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.

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.

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.

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.

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.

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.

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.

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.

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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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