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Structural Change

From the whole change process, structure has really changed at Lufthansa.  The main objective for the structural change is to change the units that compose the company, and therefore change the patterns of responsibility and control within and across the company as a whole.  Therefore, structure is the central to the overall change process.  It is also the hope of Lufthansa¡¦s management that once the system is in place, the actions and behaviours will follow.  Action and behaviours include the responsibility and accountability, culture, management process, etc.  Bartlett and Ghoshal¡¦s typology is used to compare how Lufthansa in 2000 is different from Lufthansa 1991.  There are four types of different firms according to Bartlett and Ghoshal (1989): multinationals, international firms, global firms, and transnational firms.

Lufthansa in 1991

The structure of Lufthansa was functionally organised with six departments in 1991.  It was inefficient due to high involvement of top management in operational problems, slow decision processes, lack of accountability, low transparency and insufficient market proximity.  The inefficiency caused slow response to external environment, which was more confronted with time-based and price competition, as well as a need for transparency of products and services. 

Using Bartlett and Ghoshal¡¦s typology (1989), it was a global firm structure.  Global firms offered limited number of global products for standardisation.  The global products could be made and sold with only minor variation in any particular country to achieve economies of scale.  It was well conformed to the problem of Lufthansa for its inflexibility, low transparency and insufficient market proximity.  Moreover, global firms were highly centralised with all key decisions taken in the home office (top management in Lufthansa) of the company.  Subsidiary (the six departments of Lufthansa) autonomy was low.  Therefore, Lufthansa suffered problems including: top management was engaged with daily activities; lack of accountability within departments; and therefore decision-making process was slow and less effective.

This structure did not so deeply embedded in the contexts Lufthansa was in.  Hence, it was slow in responding to the performance standards that was required from the dynamic environments.  Change process was usually encouraged by top management through benchmarking activities or transferring managerial expertise across departments.  However, increasing competition ultimately pushed Lufthansa towards improved performance and productivity, with a focus on cost reduction and improved customer services.  That meant a structural change was required to achieve these new objectives.

Lufthansa in 2000

The structure of Lufthansa in 2000 is more as a federative group of independent small units than as a monolithic functional block.  The goals are to increase both market proximity and transparency of costs and proceeds, and to reduce the fragmentation of decisions processes.

Using Bartlett and Ghoshal¡¦s typology (1989), it was a multinational structure.  Multinationals are highly decentralised and adapted to local market conditions.  This is highly conformed to the new structure with legally autonomous and strategically independent subsidiaries in Lufthansa.  Subsidiaries are only loosely linked together, because they have different strategic focus and aims.  Local managers (different subsidiaries from Lufthansa) have high autonomy to develop new products (aim at achieving profitable, sustainable growth and a leading position in its world market segment) adapted to the local context.  The headquarters (top management of Lufthansa) is mainly concerned with the performance and profitability of each individual unit.  The advantage of this structure is to clearly separate the business from day-to-day influence of corporate top management.  So that subsidiaries can respond faster to the dynamic environments.

This structure is deeply embedded to the contexts the subsidiaries of Lufthansa are in.  As the subsidiaries is highly autonomy, the decision-making processes are faster than the original global firm structure to meet the performance standards set by the top management and external environments.  However, these subsidiaries are often viewed as a set of limbs of the headquarters.  They can be added or lopped off through merge or acquisitions.  It implied that the autonomy of the subsidiaries is also vulnerable to the decisions of the headquarters.  The ultimate change force would therefore come from top-down driven by profitability.  Yet, when dealing with same change as the global firm, this structure needs to concern with different national patterns of monitoring, control and measuring in different contexts.  So it would be more complicated and might involve an even longer change process.

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