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Current Strategic Potential Essay

The strategic potential of an enterprise (SPE) depends on the ability of an enterprise to take into account and properly assess both the internal and external conditions of its activities (Ginevicius et al. 2010). This means to know the strategic potential of an organisation, in other words ‘what it can do’, one has to analyse how different environments can be more or less rich in opportunities or hostile and how organisational capabilities ( resources and competences) can enable or constrain strategies.

This essay will examine which information & tools are necessary to assess the current strategic potential of Lufthansa. A globally leading aviation group focusing on the core competencies of its five business areas: Passenger Airline Group, Logistics, MRO, Catering and IT Services. The ability to analyse and evaluate the external conditions (environment) & internal conditions (capabilities) is a complex phenomenon and dependent of an organisation’s activities and usage of appropriate tools. The essay will argue that for an organisation like Lufthansa with global presence and complex operations, to assess external environment PESTEL whereas for diagnosing strategic capabilities Value chain & Value network are the most appropriate tools.

Due to the reason that Lufthansa is an internationally operating organisation it faces international challenges. These international challenges govern as well the internal organisation as the external environment. The external environment has huge impacts on the Lufthansa. To conduct external environment analysis of Lufthansa it is essential to have information about the company, its financials, operations, global network, Strategy statement, Markets & customer segment research studies, information about alliances & partnerships, Flight Schedules/Routes, Environmental challenges / studies ( e.g. Noise pollution, energy consumption controls related information), Fleet information (type & aging of fleets), Competitor comparison reports, Legislation and regulations ( e.g. preferential airport rights if any) and Customer satisfaction studies. When it comes to select the tools for external environment analysis, there are quite few tools / technique available but two major / widely used tool / techniques are PESTEL & Porter’s Five forces.

However use of PESTEL provides a wide overview & reveal threats and opportunities presented e.g. by technological changes (i.e. fuel efficient engines, airframes, internet) or shift in market demographic, legal issues such as restriction on mergers, political such as security controls etc. PESTEL analysis helps to uncover issues likely to have major impact upon the future of the industry, regions or markets. The identification of the key drivers in macro environment changes help focus on what is most important and can be used to construct scenarios of alternative possible future. PESTLE-analysis tries to make the future more comprehensible and predictable though we have to take into account that future is something which cannot be forecasted, as unpredictable events might occur.Porter’s five forces framework which helps identify the attractiveness of an industry in terms of five competitive forces is another option to analyse external environment.

However to be used carefully as not necessarily complete even at the industrial level for example, * Defining the “right” industry, most industries can be analysed at different levels e.g. different markets and even different segments within them e.g. airline industry has different geographical markets (Europe, Middle East, China etc.) with different segments (leisure, business freight). The competitive forces are different for each of these markets so must be analysed separately * Converging industries, definition of industry is too difficult because of continuous change of boundaries e.g. high tech area is converging. * Complementary organisation, analysts argue that industry analyses needs to include ‘sixth force’ due to the organisation that are complementary rather than competitors. An example is Microsoft Windows software and McAfee each is better because of others. Complementarity implies a significance shift in perspective. While Porter’s five forces sees organisations as battling against other for share of industry value, whereas complementors may cooperate to increase the total value available.

Others tools / techniques for external environment analysis such as Strategic group analysis, market segment analysis and the strategy canvases. These tools / techniques covers only the inner layer of the environment and help identify strategic gaps or opportunities thus misses the wider view of external environment for a company such as Lufthansa, thus may not be considered for analysis of Lufthansa.Strategic capabilities of an organisation contribute to its long term survival or competitive advantage. Two components of Strategic capability are ‘resources’ (what an organisation has) which includes physical, financial and humans resources and ‘competence’ (what it does well) how well these resources are deployed. The tools / techniques available to diagnose organisational capabilities includes, * Benchmarking, means to understand the relative performance of organisation * The Value chain and Value network, to understand how value to a customer is created and can be developed * Activity mapping, means of identifying more detailed activities which underpin strategic capabilities * SWOT, summarises the strengths, weakness, opportunities and threats likely to impact on strategy developmentTo diagnose Lufthansa’s capabilities (Resources & competencies) ‘the Value chain & Value network’ is more appropriate tool/ technique.

As it helps to understand the Lufthansa’s primary and secondary activities and how company strive to achieve competitive advantage by delivering value to the customer. The value chain can be used to diagnose and create competitive advantages on both cost and differentiation. The value chain is also beneficial to understand the strategic position as ‘generic description of activities’ help managers understand if there is a cluster of activities providing benefit to customer located within particular area of value chain. It also support analyzing competitive position of the organisation using VRIN ( Value, Rarity, inimitability, Non substitutability) criteria, further value chain helps to anaylse the cost and value of the of the activities. Since Lufthansa is part of wider value network (i.e. inter-organizational links & relationship to create a product or services) it will further helps to understand the strategic position of the organisation.

Other tools / techniques available to assess the capabilities of Lufthansa / organisation may not be able to stand simply because the value chain can be used to diagnose and create competitive advantages on both cost and differentiation. Whereas Benchmarking is limited to comparing input & output or outcomes and dose not identify the reason for relative performance in terms of underlying capabilities. Benchmarking may also lead to measurement distortions which mean you get what you measure. Activity mapping useful it is the danger is that, in seeking to explain capabilities underpinning their strategy managers may identify capabilities as too abstract a level. SWOT on the other hand may produce long list of strength weakness opportunities and threat so prioritization remains an issue, it may be used as a summary not as a substitute of analysis, it also lacks of specificity thus making value chain & value network analysis more authentic to produce the needed analysis.

To understand what kind of information is essential to conduct such analysis it’s important to draw a value chain map of the organisation. Below table is a representation of the value chain of an airline and give fair idea of the information needed for such an analysis. Conclusion,To assess the strategic potential PESTEL (for external environment), Value chain & Value network (to diagnose strategic capabilities) tools / techniques are the most appropriate. With PESTEL broad macro environment of the organisation in terms of political, economic, social, technological, environmental and legal factor is analysed.

This leads to identification of key drivers in macro-environment which are used to construct alternative scenarios with regard to environmental changes. The strategic capabilities which provide competitive advantage on the basis of their value, rarity, inimitability and non-substitutability (VRIN) are diagnosed through Value chain & Value network analysis. Thus considering international nature of Lufthansa operations and global presence both tools (PESTEL & Value chain & Value network) to be used to assess its strategic potential.|

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