Managing Change – Lufthansa
Lufthansa is one of the world’s most successful airlines. The company’s existence started way before the 90’s era and today, it is still amaze many business observers. The company started with a smooth growth until the 90’s. Afterwards, the company experience repeated near-bankrupt experience which required it to made significant changes on the way it performed its operations. Observers have repeatedly believed that Lufthansa would not make it into the 21st century, but against these comments, the company grew and changed itself along the way.
Most of the challenges faced by Lufthansa is externally caused in nature. The gulf war, the increasingly tense competition atmosphere and the 9-11 tragedy were some of the larger challenges that have passed Lufthansa’s path. Nevertheless, Lufthansa survived while others generally roll in their carpets. It has certainly proven the world that it is one of the best performers in terms of change management.
II. Statement of Problem Issues
The present airline industry however is filled with new challenges and furthermore, Lufthansa have displayed notable signs of burnout. These conditions would put a lot more burden for Lufthansa if they are to maintain their superiority in the global airline industry, or even to survive. The purpose of this short paper is to perform a simple analysis on Lufthansa’s present condition and to define the best way to deal with their current issues.
III. Identification of Cause Problem
As mentioned previously, the firm has gone through serious changes within the history of their operations. Nevertheless, they are asked to continuously maintain the momentum of change and overcome the upcoming challenges in the global airline industry. In this chapter, I will list the problems that caused the need for a change within Lufthansa.
III.1. External Factors
This subchapter consists of the external factors that generated the need for a change, along with the required corrective actions:
1. Strategy creation created based on false assumption
In 1980’s, the company was under the leadership of Heinz Ruhnau. The CEO proposed that Lufthansa pursue a strategy of rapid expansion, based on the believe that the global airline market will continue to grow and eventually, only the largest airlines, the ones that are able to take the most advantage of market of scale that will survive. The proposal was well accepted and thus, Lufthansa pursued the strategy which led to significant enlargement of Lufthansa’s fleet. From 1980 to 1991, the airline purchased 120 aircrafts, to a total fleet of 275 aircrafts.
Unfortunately, the sharp decline in air traffic during the Gulf war, combined with the recession, created a serious overcapacity in the worldwide airline industry. This is depicted by a seat load factor (SLF) of only 57% in 1991. Although Lufthansa was one of the latest companies that took the effects of the phenomena, the company did report a DM 444 million of lost in 1991.
Nevertheless, it is clear that despite the downward going condition, there was still a strong sentiment that Lufthansa will survive even the upcoming storm. Passengers still prefer to use Lufthansa’s services and new recruits are still lining to join Lufthansa.
Required Corrective Actions:
Because of the extensive fleet-building activity performed previously, Lufthansa would suffer from highly increased cost of operations, therefore the needed corrective actions are efficiency programs. Moreover, Lufthansa was already low on capital thus an additional investment of fresh fund is required. Both the down going market condition and the resilient confidence toward Lufthansa’s survival strength contributes to the planning and implementation of change within Lufthansa. The down going market condition act as a push-factor toward the need to perform changes, and the presence of sufficient confidence from the market acted as a pull-factor to perform changes.
2. Openness to members of the firm generated commitments and fresh ideas
The 4 week redevelopment workshops program performed to discuss the need for a change have changed Weber (the new CEO)’s perspective on the matter. He instantly summoned dozens of senior managers and performed a crisis management meeting where he elaborate to the fullest extent of the crisis Lufthansa was facing. This meeting was repeated three more times with fifty managers present in each. Afterwards, most of these managers agree to commit on numerous very demanding targets to improve corporate performance.
Furthermore, once obtaining a full understanding of what they are facing, managers and employees united to generate decisions that would benefit the company as a whole. For instant, Lufthansa’s managers and employees have collectively learned that a superficial recovery would be insufficient to sustain success in the future. They recommended a structural change for Lufthansa, one that will avoid more instances where all corporate resources are invested to a single business and a single strategy that does not go as plan.
Required Corrective Actions:
As revealed, Lufthansa need to divide its business risks into a set of portfolios. Thus, management performed serious actions that involved the government of Germany and Lufthansa’s partners. In quite a short period of time, Lufthansa was privatized and the airline was changed to an aviation group handling a portfolio of businesses, instead of managing all activities within a single management.
3. 9-11 Tragedy
Before the 9-11 occurred, Lufthansa has a strategy called the D-check program. The name is originated from the routine check of an aircraft, suggesting that the program is about an organizational check-up performed periodically to ensure that the company remains in its course of direction, considering the short and long term goals established previously. When it was first introduced there were many doubts regarding the necessity of the program, the 9-11 tragedy however, transform those doubts into complete commitment in planning and implementation of the D-check program. In other words, the knowledge that Lufthansa would face one of the largest challenges in its history of operations convinced most members of the company about the need for a change.
Needed corrective actions:
Extreme reduction in passenger numbers needs to be faced with extreme measures also. The company must be ready to cut all unnecessary operations and segments. In short, Lufthansa need to re-evaluate all its business lines and determine which line should be preserved and which are secondary in nature. I believe that the properly performed D-check program is sufficient to address these requirements.
4. Changing Business Model
In recent years, the low-cost carrier (LCC) phenomenon has impacted the global airline industry significantly. After the l9-11 tragedy, the global airline industry has been reported to develop in an unpredictable direction. The market has increasingly chosen LCCs over premium services which were previously the spearheads of various legacy airlines. Facing this reality, Lufthansa is challenged to change its business model considerably.
Needed Corrective Actions:
There are several choices on how the company would like to deal with this new condition. To ensure survival, most legacy airlines prefer to create a segment to address the low cost market and to compete with the LCC. Others however, prefer to maintain their position in the premium segments under the believe that once the economic conditions turn to normal, premium services will get back its superiority among certain customers again.
III.2. Internal Factors
1. Pilot’s Strike
The pilot’s strike was one of the most painful -if not the most painful- incident experienced by Lufthansa and its CEO. In this particular incident, the pilots of Lufthansa are very much decided and even strong-headed in negotiating their terms. It seemed that the pilots, because of their separate workplace with other professionals at Lufthansa, have grown their own perspectives on how they were treated in Lufthansa. They compared their salaries, facilities and working hours to US pilots and other pilots with international standards, and discover that they are within the medium class earners. This feeling of being undervalued actually started back in the 90’s when they were asked to make certain ‘sacrifices’ for the long-term survival of Lufthansa. Sadly, these negative feelings and sentiments were little known by management and CEO of Lufthansa, until the pilots deiced to ‘put the bomb’ in Lufthansa’s board of directors office.
Corrective Actions Required:
The strike occurred because the pilots no longer have any confidence toward management of Lufthansa. The needed corrective action is to win back their trust using operational transparency and organizational restructuring. These pilots began to develop their separate perspective toward management because the structure of the company does not design them to be a part of the organization. Changing this structure, along with addressing their questions regarding corporate strategies will help recover trust within the environment.
2. Organizational Burnout
Another obstacle that demands a change in the way the company managed its operations is what known as an organizational burnout. Lufthansa have been demanding its employees and managers to cope with constant changes and business reforms since the late 90’s. Apparently, this constant effort brought a sort of weariness for change in Lufthansa.
Corrective Actions Required:
Despite various problems Lufthansa have endured, future events are not less challenging than those in the past. It is clear that further strength is required to face the changing industry. Lufthansa need to discover a strategy to rejuvenate the spirit of its managers and employees. A combination of recognition and the right reward strategy should be the core ingredient of this strategy (Senior, 2006).
IV. Alternative Solutions or Approaches
There are several alternative approaches to deal with changes and the threat of change resistance. Largely, they are divided into two, which are: individual change management and collective change management. These approaches will be elaborated within the following sub-chapters.
IV.1. Kurt Lewin’s Theory
Kurt Lewin’s theory of change is generally classified as a member of the individual change management approach. According to Lewin, changing a person requires at least three steps, which are: unfreezing, changing, and refreezing. Lewin;s theory is considered to be the leading theory on change management. According to Lewin, before any new information or any new believe could be ‘installed’ within a personality the old ones need to be addressed first. This is the point that usually never discussed by other change management theory (Bettelheim,, 1943).
The first thing a manager should do is addressing the fault of previous knowledge of belief held by the manager or the employer. This is known as a process of disconfirmation. Disconfirmation can be achieved through education, information, consultation, etc. Before management can put in new perspective or new information however, management must be careful not to upset or destroy the manager’s or employee’s cognitive grounds. This is important because generally the disconfirmation stage results quilt or survival anxiety. Management must provide sufficient psychological safety to allow the subject to secretly acknowledge his/her mistake without feeling too much ashamed of that mistake. Only after this condition is achieved, the ‘changing’ stage can begin (Argyris, 1990. Lewin, 1951)
The changing stage consists of activities that contain cognitive redefinition or imitation to a role model. Subject will be motivated to experience this stage due to the feeling of quilt produced in previous activities. This is where management can put in new values and considerations to cope with new business circumstances. Key activities within the ‘changing’ stage include training, leading, empathy and recognition and encouragement.
After the new values have been accepted by the individual, the third stage is ready to take place. Within this stage, management should find errors where the new values are incoherent with the subject’s individual values. This can be achieved through interviews and consultation. Other activities that will create a stronger foundation for the new values are: setting performance indicators and evaluating them, establish a system, establishing reward and punishment strategy, etc (Coetsee, 1999).
Lewin’s theory is often used by professionals because of its strong logic that captures realities that are missed by other theories. The largest advantages of the theory are that management does not need to struggle their way, forcing subjects to adopt management’s new values. The un-freezing stage has took care of that issue so that in the next stage, trainers can focus more on discussing new ideas rather than struggling to explain the errors of the old values.
IV.2. System Thinking
Systems thinking on the other hand, is categorized as a member of the collective change management theory. Within this theory, it is revealed that a company is only a single part of a larger organism, which is the society. System thinking is a concept that invites people to think about the interrelated condition between a firm and external parties when making a decision. This means, acknowledging a firm as an open system. An open system is a condition where members of a system cannot do anything without influencing others. It is the opposite of a closed system, like a personal computer, which is largely unaffected by the surrounding environment (Bridges, 1991. Charlotte, 1999)
Acknowledging a company as an open systems means that all member of the company realized that whatever happens to: competitors, customers, the technological sector, the regulatory sector, the economic sector and the sociocultural sector, the company must take the necessary actions as responses to whatever effects those occurrences might have toward the company. Thus, in the case of Lufthansa and its problems, all member of the company should be prepared for the necessary changes that would be performed in response to those problems. Developing an organizational community with such a culture is however, quite a challenging task (Hirschhorn, 1988. Schon, 1974).
V. Final Recommendation
Creating a systems thinking culture within an organization is a time and resource consuming activity. A systems thinking require robust internal participation, where all managers and employees of an organization are already adopting its values before problems arise. Thus, when problems really appear, all components of the organization can act as one in dealing with the problems (Senior, 2006). Therefore, creating a systems thinking culture when the company is already having critical problems is virtually impossible.
Adopting Lewin’s individual change management theory on the other hand, is quite what Lufthansa is required at the present time. The company is facing various issues, some are even more challenging that what it has faced previously, like the organizational burnout and enhanced competition from LCCs. After years of struggling against the 9-11 tragedy, the pilot strike and international competition, managers and employees of the company are exhausted and demanding for a moment of stability within Lufthansa. On the other hand, the intense competition with Low Cost Carriers demands that Lufthansa perform considerable efficiency efforts to be able to compete in the same market.
The unfreezing stage, can help managers and employees of Lufthansa to leave their old and costly values without losing the safety of organizational routines. Afterwards, it would be easier for management to introduce new values and systems to the organizations. The individual scope can be shifted to include all members of the organization.
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