Strategic Plan Introduction The strategic plan is established by analyzing alternative solutions through tools and matrices designed to develop a strategic direction. The stacked EFE/IFE matrix is initially studied to establish the best airline to work with. After this, various tools are utilized to reveal strengths and weaknesses, competitive positions, best objectives, and optimal tactics that will put the airline in the best strategic position. The QSPM will then reveal the specific direction that the company should focus their resources. Next, a plan for strategy implementation is established. This proposal will take into consideration changes that need to be made to all aspects of the company's business. Finally, objectives will be established to monitor and evaluate the strategy over the next five years. External Factor Evaluation (EFE)/ Internal Factor Evaluation (IFE)Matrix The stacked External Factor Evaluation (EFE)/Internal Factor Evaluation (IFE) Matrix is a tool that is used to assess the current external environment and internal business factors of companies. When analyzing a company, the EFE and IFE Matrix can be used independently. This type of strategic tool helps companies see how they rate in different categories that affect the overall state of their business. The EFE/IFE matrix also shows a comparison between its competitors. The EFE portion focuses on external forces such as social, economic, legal, and political.1 The IFE portion focuses on internal factors, such as financials, timeliness, human resources, and leadership/management. EFE MATRIX Factors Growth in Asia Pacific, Middle East, Africa markets Fuel Costs Alternative Fuel usage Organized Labor Environment Sustainability Terrorism Economy Deregulation/Antitrust Laws Demographics Stock Market Product differentiation Cultural Impacts Waste Management Globalization Alliances EFE Total 1 Impact Rating Score American/US Airways Wtd. Rating Score United Wtd. Rating Score Delta Wtd. Rating Score Lufthansa Wtd. Rating Score 11 2 22 4 44 4 44 3 33 11 5 6 2 2 4 22 10 24 2 2 4 22 10 24 3 2 1 33 10 6 4 2 2 44 10 12 7 10 9 4 3 4 28 30 36 3 3 4 21 30 36 3 3 4 21 30 36 3 2 2 21 20 18 4 3 9 7 4 6 5 3 100 3 3 1 2 4 3 2 3 12 9 9 14 16 18 10 9 67 3 3 4 2 3 3 4 4 12 9 36 14 12 18 20 12 80 3 4 4 2 2 3 3 3 12 12 36 14 8 18 15 9 76 4 3 2 4 3 3 3 4 16 9 18 28 12 18 15 12 71.5 Maxi-Pedia. (2012). EFE Matrix (External Factor Evaluation). Retrieved April 4, 2014 from Maxi-Pedia: http://www.maxipedia.com/EFE+matrix+external IFE MATRIX Factors Fuel, Wages, Salary, Benefit Expense as a % of OE Leadership/Mgmt Human Resources/ Employee Satisfaction Customer Satisfaction Fuel Management/Fleet Efficiency Route Network On-Time Arrivals, Delayed Flights, Cancelled Flights Price Competitiveness In-Flight Quality Technology Net Income Current Ratio Debt-to-Equity Ratio Share Price Dividends IFE Total OVERALL TOTAL OVERALL RANK Impact Rating Score American/ US Airways Wtd. Rating Score United Wtd. Rating Score Delta Wtd. Rating Score Lufthansa Wtd. Rating Score 11 4 3 3 33 12 3 3 33 12 3 3 33 12 4 3 44 12 6 7 3 2 18 14 3 2 18 14 4 4 24 28 2 4 12 28 10 8 4 3 40 24 4 4 40 32 3 3 30 24 2 2 20 16 7 4 6 4 11 6 7 6 3 100 200 2 3 2 4 1 2 1 2 1 14 12 12 16 11 12 7 12 3 60 127 4 2 3 2 3 2 2 3 4 1 14 12 12 12 22 12 21 24 3 70.3 150 3 4 3 3 4 3 2 2 3 3 28 12 18 16 33 12 14 18 9 77.8 154 1 2 4 4 3 4 3 4 3 4 14 16 24 12 44 18 28 18 12 79.5 151 2 Figure 1- Stacked EFE/IFE Matrix There are many factors that can help determine potential strategies for each airline. Looking at these factors together is the most accurate way to determine the airline's overall rank. After looking at the internal and external factors as a whole, the group has decided to focus their strategic planning on Lufthansa. Because of their strong financial position and dedication to quality and customer service, Lufthansa ranks number one internally. However, the company ranks third externally, following both United and Delta. Lufthansa has the resources and capability to grow their operations and the opportunity to improve their position within the global market. SWOT Analysis The SWOT analysis is an internal examination of Lufthansa's strengths and weaknesses and an external examination of the threats and opportunities in the industry. Lufthansa's strengths will help to maximize opportunities and minimize threats. Lufthansa's weaknesses are also addressed in the strategy with the external environment. Strengths/Opportunities, Strengths/Threats, Weaknesses/Opportunities, and Weaknesses/Threats are combined to formulate a plan of action for sustainable success in the industry. Strengths Airline Industry Analysis Page 2 Weaknesses SWOT Matrix Lufthansa Group Opportunities 1) Asia-Pacific leading economic growth 2) Growth of Chinese tourists 3) Growing markets of Middle East, Africa 4) Global passenger airline market growth 5) Utilize IT segment to integrate technology into customer experience 6) Push for improvement in current German labor laws 7) Increase global presence of MRO & Catering Threats 1) Price competitive market driven by low-cost competitors 2) Volatile price of fuel 3)European economy climbing out of recession 4) Emissions and noise pollution 5) Labor unions 6) Taxation and regulation 7) Terrorism 8) SkyTeam and oneworld alliances 1) Founding and largest member of the leading airline alliance, Star Alliance 2) Diversification of synergistic business segments 3) Financial stability and long-term vision 4) Most profitable and largest long-haul network in Europe 5) Strong liquidity 6) Positive customer experience 7) Leader in biofuel trials 8) Industry leading MRO and Catering S-O Strategies 1) Continued labor union strikes halt operations and cause significant financial losses 2) CEO turnover in midst of SCORE restructuring strategy 3) Relatively small low-cost structure 4) Low operating profit margins 5) Cyclical nature of airline industry 6) Fuel and labor costs 7) Route network smaller compared to global leaders 1.(S1-O1/2/3) Maximize partnerships with Star Alliance members in emerging markets to increase route network 2.(S3-O4) Increase investments in Information Technology to improve operational efficiency for growing market demand 3.(S1-O7) Expand mutually beneficial MRO and Catering partnerships with alliance members in exchange 4.(S8/O7) Introduce MRO and IT contracts to airlines in growing markets 9.(W5/6/-O5) Increase customer value by integrating technology into customer experience 10.(W1/2-O6) Put a motion forward for government protection of essential corporations from labor union strikes 11.(W3/4/5/6-O1/2/3/4/5) Improve technology in operations to capitalize on emerging market trends and improve operational efficiency 12.(W7-O1/2/3/4) Improve route network through maximizing subsidiaries and investing in new international hubs W-T Strategies S-T Strategies 5.(S4/6-T3) Increase marketing emphasis to business travelers in Europe 6.(S7-T2/4) Increase involvement in industry wide sustainable long term alternative fuel sourcing 7.(S3/4/5-T4) Invest in fleet upgrades to maximize fuel efficiency 8.(S1/4-T1/8) Push for additional carriers to join Star Alliance and increase route network W-O Strategies 13.(W6/7-T2) Investment in vertical integration of fuel procurement in value chain 14.(W4/7-T1/3) Increase route network and short-haul fleet of LCC subsidiaries to increase competition with major LCCs 15.(W1/2-T5) New CEO Spohr start initiative to increase communications and relationship with union representatives Figure 2- Lufthansa SWOT Matrix SO Strategies 1.) Lufthansa Airlines is one of the founding members of Star Alliance, the largest airline alliance in the world. Alliance members benefit from the largest number of code sharing routes in the world, more than both SkyTeam and oneworld. The vast code share agreements of the Star Alliance allow Lufthansa to offer customers easy connections between the 18,043 flights per day to over 1,269 destinations and 193 countries. Economies of scale constrict Lufthansa from covering the entire planet with their planes, so the benefits of the Star Alliance lie in the capacity to connect customers on a worldwide scale without risking significant capital. 2.) Lufthansa Systems provides considerable IT competencies through their profit and revenue maximizing ticket sales software. Steady profitability and liquidity allow Airline Industry Analysis Page 3 Lufthansa to increase the investment necessary for state-of-the-art technology to increase operational efficiency. Increases in the global air travel market will require efficient operations to handle growing traffic. Increasing technologies that handle passenger traffic and customer processing will help to maximize sales in a growing market. Improving operations can lead to higher profit margins in a market where demand is steadily increasing, following the Eurozone financial crisis recovery and Asia-Pacific market growth. 3.) Lufthansa benefits from industry leading MRO and Catering segments, which strengthen their core segment. These divisions have helped Lufthansa maintain profitable business relationships across the global industry. Star Alliance maintains the largest membership base in the industry, and expanding the services of the MRO and Catering segment will help to improve both domestic and foreign relationships. 4.) Contracting their MRO and IT divisions to other members of the Star Alliance will enable Lufthansa to become increasingly diverse in their portfolio and expand business relationships into different markets. The MRO and IT services will bring in additional revenue and increase brand recognition throughout the industry. ST Strategies 5.) The European economy is emerging from a recession, and businesses are looking for ways to increase their profits. Lufthansa can appeal to businesses by offering companies deals on transportation to increase their network. Marketing their industry leading services and promotional upgrades to some of the fastest growing companies in Europe will allow them to get leverage over LCCs and gain brand loyalty in an economy set for recovery. 6.) Biofuel investment in the PureSky initiative resulted in significant savings in fuel costs. However, supply chains for renewable fuel sources are scarce. Lufthansa must continue initiatives to expand the supply chains for renewable fuels to improve social, environmental, and economic sustainability for the future. 7.) Lufthansa keeps a considerable amount of cash on hand and has maintained profitability through their diverse business segments and vast subsidiaries. They must improve their fuel efficiency and customer service by upgrading planes throughout their long-haul and short-haul markets. Investment in state-of-the-art planes will decrease fuel costs and improve customer service in the long term. 8.) Code sharing with alliance members already allows Lufthansa to provide additional revenue generation from markets outside of their direct route network. Star Alliance membership growth will allow Lufthansa to maintain low cost commitments but improve their customers' global route access. WO Strategies 9.) Teamed with Microsoft, Lufthansa is in the process of implementing an In-flight entertainment system, called BoardConnect to help improve the customer experience. However, they have yet to implement this technology across all long-haul flights. Airline Industry Analysis Page 4 Lufthansa should continue to invest in technologies that help improve customer interactions and establish a plan to make BoardConnect a staple of their long-haul market. Increasing convenience and value for customers will help Lufthansa achieve a competitive position against low-cost carriers. 10.) Recent strikes have caused several thousands of Europeans to reschedule their travel arrangements due to cancelled flights. Most Germans are not happy with the impact the unions are having on a service that is necessary for so many business travelers on a regular basis. Lufthansa should form alliances with other corporations to protect themselves from the damaging effects of union strikes. These companies could then put a motion forward for government protection of essential corporations from labor union strikes. 11.) Technology has the power to capture customers through the efficient use of marketing, customer data retrieval, and connectivity to customer. Industry trends in operational efficiency through technology should be a focus of Lufthansa Systems. Investing in research and development to decrease costs and improve services will improve profit margins in the long term. 12.) The emerging markets in Asia, Middle East, and Africa must be evaluated for a costbenefit of expanding international hubs. Lufthansa Group's current route network does not reach as many destinations as the global industry leading American companies. Expanding operations into new markets will help them develop a more global reach within the industry. Cost-benefit analysis of joint ventures, code sharing, and hub expansion should be a point of emphasis for continued relevance throughout the global industry. WT Strategies 13.) Fuel costs continue to be volatile in the industry. While plane engines and travel routes are becoming more fuel efficient, the cost of fuel remains unpredictable. Hedging can reduce risks associated with fuel costs, but only on a short-term basis. Delta has invested in an oil refinery and made deals with major oil companies to supply their new subsidiary with crude oil. Vertically integrating the fuel supply chain into Lufthansa's business profile will help reduce future price fluctuations. Investing in equity of the German oil companies will help maintain the importance of national company pride while also minimizing risk. 14.) Germanwings and Eurowings allow Lufthansa to provide service to the domestic, shorthaul network in Germany and regionally throughout Europe. Improving their infrastructure and aircrafts will help them compete with the much larger LCCs Ryanair and Easyjet. 15.) Christoph Franz did not find favor when negotiating with labor union representatives. It will be important that Carston Spohr, newly appointed CEO, establishes favorable communications with these representatives to minimize the impact of union strikes in the future. Spohr must explore additional alternatives to appease the several unions that represent the majority of the workforce. Airline Industry Analysis Page 5 Balanced Scorecard (BSC) The Balanced Scorecard (BSC) helps define an organization's performance and measures whether or not management is achieving desired results. It translates the mission and vision statements into a comprehensive set of objectives and performance measures that can be quantified and appraised. These measures include financial performance, customer value performance, internal business processes, and learning and development.2 The following balanced scorecard depicts a number of objectives that are important for Lufthansa to strive to achieve, along with targets and initiatives that the group has deemed necessary to accomplish for the company to grow and thrive within their current market. Strategy Map Performance Targets Initiative Measures Financial Expand flight Market value operations 20% market share Expense as a % of Revenue Expenses 75% of revenue per year Available seat per mile 99% ASM <10% customer Number of Customer Complaints Number of On Time Arrivals Revenue Passenger Miles Fuel efficient aircrafts, technologies and methods Cut underperforming routes 10% average increase per year Customer complaints 92% on-time arrivals (less than 15 minutes late) Al a carte pricing Strengthen loyalty programs Ongoing training in customer service Total Quality Management Internal Improve % of engaged employees On-Time Departure On Ground Time Learning Number of employees enrolled in career advancement programs Number of training sessions conducted 98% engaged employees Industry leader 53 minutes or less enrolled in career advancement programs 100% training of ground crew http://www.bain.com/Images/MANAGEMENT_TOOLS_2013_An_Executives_guide.pdf Page 6 optimization program 98% employees 2 Rigby, D. (2013). Management Tools 2013. Retrieved April 6, 2014, from Airline Industry Analysis communication Share vision Cycle Vocational and professional training programs Figure 3-Balanced Scorecard The BSC for Lufthansa indicates under Financial that the ultimate goal is for the company to increase net income, which is achieved by increasing revenue and/or reducing costs. Lufthansa can achieve this goal through various initiatives, such as expanding flight operations, cutting underperforming routes, and employing fuel efficiency equipment and operations. To increase net income, Lufthansa must be able to please their customers. Low fares, service excellence, and reliability are among the things that Lufthansa's customers value. To increase customer approval, the company should strive to lower ticket fares using the a la carte pricing model, strengthen loyalty programs, improve customer service with training, and engage in total quality management. In order to have the ability improve customer relations, Lufthansa must first focus on internal business processes, learning and development. Identifying logistical and staffing issues by setting targets with various initiatives to ensure maximum effectiveness sets the foundation to achieve customer excellence and increase profitability. SPACE Matrix The Strategic Position and Action Evaluation Matrix (SPACE) can be used to determine which type of strategy a company should use. This type of matrix plots a single point on a Cartesian graph in one of four quadrants to determine if the company should use an aggressive, conservative, defensive or competitive position.3 To develop the position, a SPACE matrix takes into consideration two internal and two external strategic dimensions. Internal Strategic Dimension o Financial strength (FS) o Competitive advantage (CA) External Strategic Dimension o Environmental stability (ES) o Industrial strength (IS) Within these categories, there are many different factors that can be evaluated.4 The company's worth is measured through numeric values on a scale of 1 to 6 based on performance. Both FS and IS have positive values; a higher numeric value indicates a better company position. CA and ES carry a negative value; on a scale of -1 to -6, -1 would be the best number. Once these values are determined, CA and IS total values are added together to form the X axis and FS and ES total values are added together to form the Y axis. These axes are then plotted on a graph to indicate which strategic position the company should take.5 Quadrant I - Aggressive 3 Maxi-Pedia (2012). Space Matrix Strategic Management Method. Retrieved April 4, 2013 from http://www.maxipedia.com/SPACE+matrix+model+strategic+management+method 4 ibid 5 ibid Airline Industry Analysis Page 7 Quadrant II - Conservative Quadrant III - Defensive Quadrant IV - Competitive Internal Strategic Position Competitive (CA) External Strategic Position Industry (IS) Leadership/Management -4 Human Resources/ Employee Satisfaction Customer Satisfaction Fuel Management/Fleet Efficiency Route Network -6 -1 -5 -6 On-Time Arrivals, Delayed Flights, Cancelled Flights -5 Growth in Asia Pacific, Middle East, Africa markets 4 Fuel Costs 5 Organized Labor 2 Terrorism 3 Economy 1 Deregulation/Antitrust Laws 6 In-Flight Quality -1 Product differentiation 6 Technology -3 Alliances 5 Average Average -3.88 Financial (FS) Fuel, Wages, Salary, Benefit Expense as a % of OE Price Competitiveness 4 Environmental (ES) Alternative Fuel usage 5 -5 5 Current Ratio -3 6 Net Income Environment Sustainability Demographics -2 -4 5 Stock Market performance Debt-to-Equity Ratio 6 Cultural Impacts -3 Share Price 5 Waste Management -4 Dividends 6 Globalization -2 Average Average 5.43 -3.29 Figure 4- SPACE Matrix According to the SPACE matrix, Lufthansa should be implementing an aggressive strategy. Because of Lufthansa's robust financial position and strong competitive position, the company is in good a place to pursue market penetration or market development. This strategy includes product development, product diversification, and pursuance of integration with other companies, including merger-like agreements. Airline Industry Analysis Page 8 BCG Matrix The BCG matrix was created by the Boston Consulting Group and is used to determine a good strategy based on relative market share and market growth rate.6 The purpose of this type of matrix is to determine which \"brands\" a company should invest in or divest from. This BCG has four categories setup in a Celestial graph with a point for each \"brand.\" The size of the point is relevant to the amount of revenue brought in by the company under that \"brand.\"7 For this analysis, the group has chosen to compare market regions across the globe and use RPMs as the measurement for market share. Quadrant I - Question Marks o Low unstable earnings o Negative cash flow o Invest if there is potential Quadrant II - Stars o Low stable earnings o Neutral cash flow o Invest for growth Quadrant III - Cash Cows o High stable earnings o High stable cash flow o Invest to maintain Quadrant IV - Dogs o Low unstable earnings o Neutral or negative cash flow o Divest Europe America Asia/Pacific Africa Latin America Relative Market Share (X Axis) 0.27 0.14 0.3 0.02 0.05 Market Growth Rate (Y Axis) 4.9% 1.3% 6.9% 6.7% 8.4% Lufthansa Revenue by region 64.5% 14.1% 13.7% 1.8% 2.9% Middle East 0.08 16.8% 3% Region Figure 5- BCG Matrix 6 8 Strategic Management Insight (2012). BCG growth-share matrix. Retrieved April 5, 2014 from http://www.strategicmanagementinsight.com/tools/bcg-matrix-growth-share.html 7 ibid 8 IATA. (6 February 2014). Passenger Demand. Retrieved April 13, 2014 from IATA: http://www.iata.org/pressroom/pr/Pages/2014-02-06-01.aspx Airline Industry Analysis Page 9 Figure 159- BCG Matrix According to the BCG Matrix above, the Asia-Pacific region is an excellent market for Lufthansa to pursue. The Asia-Pacific market maintains stable earnings in a high growth environment, making them very attractive for investors. Other regions such as Latin America/Caribbean, Middle East, and Africa, have the potential to become \"Stars\" given the strong growth rates they are experiencing, but lack higher earnings and stability. Make or Buy Analysis A make or buy analysis helps a company determine whether a particular task should be performed in house (make) or outsourced to a company that specializes in that particular area (buy). There are various reasons companies will decide to make things happen in-house, particularly for cost concerns, external environment reasons, suppliers being unable to fulfill their duties, and supplier unreliability. A company may decide to buy or out-source a particular task for reasons like strategic partnerships, lack of experience within company, or inability to produce in-house with given resources.9 Criteria Make Buy Expand network map Increase number of flights, add new Acquire or merge smaller routes, hire more employees, create airline companies a joint venture with another airline Fleet upgrades Updating current fleet with different Start replacing older amenities aircrafts with newer Fuel cost management Weight reduction, flight pattern Buy oil refinery or partner adjustments, technical with a fuel distribution improvements company Staff/union strikes Revamp HR department Invest in outside professional training Figure 6- Make or Buy Analysis While the criteria listed are concerns for the entire industry, each airline handles their operations differently. The passenger airline segment of Lufthansa currently operates companies such as Germanwings, SWISS Air Lines, and Austrian Airlines. Lufthansa also has equity investments in Brussels Airlines, jetBlue, and SunExpress. Lufthansa has taken on a hybrid approach for both the fleet maintenance and fuel cost management criteria. New aircrafts are being implemented into the fleet, and the company is updating the current fleet by equipping their aircraft with inflight amenities, installing sharklets on aircraft wings, and analyzing ways to reduce weight on each flight to save on fuel. While capitalizing on these current processes is a viable option for Lufthansa, fuel costs remain volatile, leaving much to be unknown about the future of their fuel efficiency programs. Within the past few years, Lufthansa has experienced a plethora of employee relations issues. Because of certain German restrictions on treatment of unions, the company has limited options when it comes to resolving these conflicts. Lufthansa has the opportunity to resolve these issues 9 Tutorialspoint. (2014). The Make or Buy Decision. Retrieved April 3, 2014 from Tutorialspoint: http://www.tutorialspoint.com/management_concepts/the_make_or_buy_decision.htm Airline Industry Analysis Page 10 in-house through changes within the human resources department or out-source vocational and professional training.10 Based on the buy or make analysis, it seems that Lufthansa has the most potential to expand their network map because of the current state of European airlines and the company's strong alliances with other airlines. Because the Asia-Pacific region is growing at such an exorbitant rate, it would behoove Lufthansa to expand their presence within that region. To avoid the tedious work involved with an acquisition or merger, Lufthansa could complete this task in-house by teaming up with an airline that has a strong presence in the Asia-Pacific area. QSPM Matrix The Quantitative Strategic Planning Matrix or QSPM is a tool that is used to objectively select the best strategy to move forward with.11 The QSPM takes information gathered from the beginning stages of the analysis and uses it to develop a strategic direction. At this point in the analysis, the group has narrowed the strategy selection down to two options: form a joint venture with Air China or expand into the Chinese market by developing new routes through internal means. To develop the QSPM, the group has taken information gathered from the EFE and IFE matrix and used it to establish an attractiveness score for each of the alternative options. The option with the highest attractiveness score will be selected for implementation.12 Quantitative Strategic Planning Matrix (QSPM) for Lufthansa Alternative 1 Alternative 2 Air China Joint Venture Expand Internally Total Total Attractiv Attractive Attractive Attractive Key Factors Weight e Score Score Weight Score Score Strengths Fuel, Wages, Salary, Benefit Expense as a % of OE 11% 0.00 11% 0.00 Leadership/Management 4% 0.00 4% 0.00 Customer Satisfaction 7% 4 0.28 7% 2 0.14 Price Competitiveness 4% 0.00 4% 0.00 In-Flight Quality 6% 0.00 6% 0.00 Technology 4% 0.00 4% 0.00 Net Income 11% 0.00 11% 0.00 10 Lufthansa Annual Report 2012, op cit. 11 Maxi-Pedia (2012). Quantitative Strategic Planning Matrix (QSPM). Retrieved 4/5/2014 from http://www.maxipedia.com/quantitative+strategic+planning+matrix+QPSM 12 Ibid Airline Industry Analysis Page 11 Current Ratio Debt-to-Equity Ratio Share Price Dividends Weaknesses Human Resources/ Employee Satisfaction Fuel Management/Fleet Efficiency Route Network On-Time Arrivals, Delayed Flights, Cancelled Flights Sum Weights Opportunities Growth in Asia Pacific, Middle East, Africa markets Fuel Costs Environment Sustainability Deregulation/Antitrust Laws Demographics Product differentiation Cultural Impacts Waste Management Globalization Alliances Threats Alternative Fuel usage Organized Labor Terrorism Economy Stock Market performance Sum Weights Sum of Attractiveness Score 6% 7% 6% 3% 2 2 4 - 0.12 0.14 0.24 0.00 6% 7% 6% 3% 4 4 1 - 0.24 0.28 0.06 0.00 6% - 0.00 6% - 0.00 10% 8% 4 - 0.40 0.00 10% 8% 1 - 0.10 0.00 7% 100% 4 0.28 7% 100% 3 0.21 11% 11% 7% 4% 3% 7% 4% 6% 5% 3% 1 4 4 4 4 0.00 0.00 0.00 0.04 0.12 0.00 0.16 0.00 0.20 0.12 11% 11% 7% 4% 3% 7% 4% 6% 5% 3% 4 2 3 3 1 0.00 0.00 0.00 0.16 0.06 0.00 0.12 0.00 0.15 0.03 5% 6% 10% 9% 9% 100% 1 4 4 0.00 0.06 0.00 0.36 0.36 5% 6% 10% 9% 9% 100% > 2 2 1 0.00 0.12 0.00 0.18 0.09 2.88 1.94 Figure 7-QSPM for Lufthansa Strategy Selection MOST Analysis The MOST Analysis is an internal, strategic planning tool that helps clarify where a business wants to position itself, the key goals that will help it accomplish this mission, the strategy that is needed to accomplish the mission, and a plan for how these actions are going to be implemented. The operations section of Lufthansa's mission statement is as follows: Our target is to grow profitably and maintain a healthy financial structure, to enable investment in the development of our business, fleet, products and people. Airline Industry Analysis Page 12 We are committed to sustainable development and assume our ecological, civic and social responsibilities.13 There are key objectives that Lufthansa has identified as crucial in achieving its mission. These, include increase revenue, reduce costs, and increase net income. They believe these will only be realized through implementing the right strategy. The MOST analysis featured below shows the strategies and tactics needed to efficiently accomplish these objectives. Mission The mission is to grow profitably and maintain a healthy financial structure, to enable investment in the development of the business, fleet, products and people. Objectives Increase revenue, reduce costs, and increase net income Strategy Expand flight operations into new markets Tactics Add destinations and routes between Europe and China, strengthen alliances and create new partnership with other airlines, enter into revenue sharing agreement Train employees in service excellence, diversification and Total Quality Management Acquire fuel efficiency airplanes Figure 8- MOST Analysis Strategy Implementation Because of rapid economic growth in the Asia-Pacific market, the group believes that Lufthansa should focus their resources on strengthening their route network in China. Lufthansa and Air China, founding members of the Star Alliance, are some of the biggest players in the growth of the Chinese route network. The Star Alliance controls nearly half of the seats on the route network between Europe and China. Air China controls 22% of the seat capacity between China and Europe, while Lufthansa controls 15%. Lufthansa and Air China have had a codeshare agreement since 2000 and became members of the Star Alliance in 2007.14 The group proposes that Lufthansa develop a joint venture with Air China in order to solidify their position as the strongest European carrier to Chinese destinations. This joint venture would include revenue and facility sharing. Both companies would experience many of the advantages of a merger, without the added risk of significant capital. 13 Lufthansa Annual Report 2012, op cit. 14 CAPA Centre for Aviation. (October 21, 2013). Lufthansa: a joint venture with Air China could mean almost half its ASKs are covered by JVs. Retrieved April 3, 2014 from CAPA: http://centreforaviation.com/analysis/lufthansa-a-joint-venture-with-airchina-could-mean-almost-half-its-asks-are-covered-by-jvs-133981 Airline Industry Analysis Page 13 Figure 9-Scale to Merger 15 Objectives Integrating operations within a joint venture takes time and resources. It will take Lufthansa and Air China many years to assimilate every aspect of each other's business. Unlike a merger, a joint venture allows two businesses to operate independently of one another. However, the companies will be working very closely, and many aspects of their business will need to mirror each other. For this reason, the group has developed both long and short-term objectives for Lufthansa while implementing this strategy. Short-Term (1 Year) Increase flight efficiencies Strategy Coordinate and integrate schedules; shared lounge access; shared human resources; shared frequent flyer programs Long-Term (3-5 years) Reduce ticket prices through network integration and fare alignment Full network optimization Develop common ticket prices; capitalize on special fares and reductions on interlining flights Objective and decrease economies of scale Mid-Term (2 Years) Develop one, fully-integrated network; combine segments to complete the customers' itinerary; offer the maximum number of route options at multiple different flight times Figure 10- Lufthansa's Objectives In the short-term, Lufthansa will begin combining resources that are less complex to integrate, such as employees, lounge access, frequent flyer programs, and ticketing websites. These items can be integrated fairly easily and should be operating uniformly in one year or less. In addition, Lufthansa and Air China will begin coordinating their flight schedules. The companies will instantly reap the benefits of combined schedules by increasing flight efficiency and increasing economies of scale and density. 15 ibid Airline Industry Analysis Page 14 Within two years, Lufthansa should see their ticket prices reduced. As the route network continues to integrate, passenger flows will become denser. As this happens, both Lufthansa and Air China will be able to fly larger jets to more obscure locations, increasing the profit per flight and decreasing the ticket price. In addition, as the companies engage in fare alignment, they will be able to capitalize on special promotional fares. In the long-term, Lufthansa and Air China will experience full network optimization. As the companies merge their networks into one fully-integrated route system, they will be able to offer the best possible itinerary for their customers. By using each other's hubs, the airlines can provide more direct routes at lower prices than ever before. Additionally, Lufthansa and Air China will be able to offer flights to different locations at multiple different flight times. Mission Statement We are Europe's Airline Powerhouse connecting Europe with the world and the world via Europe with our global services. The customer is the center of our attention: we provide reliable services for passengers and air-cargo. Seamless cooperation with our partners strengthens us in a volatile environment. Our target is to grow profitably and maintain a healthy financial structure, to enable investment in the development of our business, fleet, products and people. We are committed to sustainable development and assume our ecological, civic and social responsibilities.16 Lufthansa is focused on connecting their passengers with the rest of the world. Expanding and strengthening operations in the fastest growing region of the world falls directly in line with the company's mission statement. Furthermore, Lufthansa's mission statement capitalizes on the fact that their partnerships strengthen their competitive position. Therefore, nothing needs changed in the current mission statement to support the strategy. Operations Lufthansa and Air China would accept the idea of \"metal neutrality\" in which both parties would be indifferent as to which fleet operates the flight between China and Europe.17 Therefore, both airlines would begin sharing a lot of their resources. Primarily, all routes provided by Air China and Lufthansa would be available for customers, allowing them to combine flights and take advantage of newly developed connections. This gives Lufthansa a huge advantage as the AsiaPacific region's total passenger traffic is projected to grow at 6.7% over the next three years. 18 16 Lufthansa. (2013). Group Strategy. Retrieved March 9, 2014, from Lufthansa: http://www.lufthansagroup.com/en/responsibility/economic-sustainability/group-strategy.html 17 CAPA Centre for Aviation, op. cit 18 CAPA Centre for Aviation. (March 27, 2013). Lufthansa's long-haul, low cost Asian operation. A range of partner options. Retrieved March 9, 2014, from CAPA: http://centreforaviation.com/analysis/lufthansas-long-haul-low-cost-asian-operation-arange-of-partner-options-part-1-102605 Airline Industry Analysis Page 15 Figure 11- Air Traffic Growth by Region 19 Aircrafts would be free to fly back and forth between all Lufthansa and Air China destinations and can dock and be serviced by either airline at any time. Air China will benefit from sharing these aircraft as Lufthansa has recently made huge strides to increase their flight capacity. In 2013, Lufthansa acquired 34 new jets from Boeing and 25 from Airbus and have announced that they are going to purchase over 100 more aircrafts within the next decade.20 Both companies would begin sharing terminals, lounges, and other facilities for their customers in each of their airports. Additionally, both airlines will align their flight schedules. This will enhance network depth for their passengers, giving them the opportunity to fly to more destinations at times that are convenient for the customer. This will particularly benefit those passengers who need to fly to destinations beyond hub airports. Marketing Shared Ticketing Lufthansa and Air China would immediately merge their ticketing processes, allowing consumers to purchase flights from either company in one convenient location. Consumers will have the ability to purchase a ticket online, over the phone, or in person from Air China or Lufthansa and have access to all of the flight options that both airlines offer. Within the first two years, Lufthansa and Air China will also adopt common ticket prices. This benefits both the airlines and the consumers for multiple reasons. Engaging in cooperative pricing allows the airlines to price their tickets so that both the airline and consumer benefit from the overall itinerary. This eliminates high fares charged for interlining flights.21 In addition, the increased demand for more obscure locations will allow Lufthansa and Air China to operate larger jetliners to most destinations. This will increase economies of scale, allowing the airlines to decrease their ticket prices. Shared Rewards Programs Lufthansa's rewards program, Miles and More, has over 23M members. The rewards program is the largest in Europe, encompassing 37 airline partners and 350 commercial partners.22 Air China has the oldest reward program in the country called, PhoenixMiles. PhoenixMiles also partners with numerous airlines and other companies across the globe. Both companies would immediately begin sharing benefits between rewards programs. Frequent flyer miles can be 19 ibid 20 Julie Johnson, Robert Wall, and Richard Weiss. (September 19, 2013). Lufthansa splits $19B Order between Airbus, Boeing. Retrieved April 9, 2013 from Bloomberg: http://www.bloomberg.com/news/2013-09-19/lufthansa-splits-19-billion-aircraftorder-among-airbus-boeing.html 21 IATA (2014). IATA Economics Briefing. Retrieved April 9, 2014 from IATA: http://www.iata.org/whatwedo/Documents/economics/Economics%20of%20JVs_Jan2012L.pdf 22 Lufthansa Group. (6 March 2013). 2012 Annual Report. op cit. Airline Industry Analysis Page 16 accrued on flights provided by either airline. Similarly, points can be redeemed on either airline, including points that were accrued prior to the joint venture. Human Resources Unlike a merger, a joint venture allows two companies to operate independently of each other but still benefit from shared resources. For this reason, a joint venture does not require employee restructuring, layoffs or massive hiring. However, because this joint venture will increase flight traffic at Lufthansa, the company may need to hire additional employees. The passenger airline division currently employs 117,000 employees. The company will likely need to hire more pilots, flight attendants, and air traffic controllers to cover the surge in demand. In addition, customer service representatives, ticket agents, and maintenance employees will need to be hired to cope with the increase in passengers. In addition to the increase in demand, the company should develop a new department and management position to oversee and act as a liaison in the joint venture process. Chinesespeaking German citizens or foreign nationals will need to be a part of this new department to ensure a smooth transitioning process. Additionally, members of this new department will need to be well-versed and mindful of both Chinese regulations and market forces in China that could affect their business. An organizational chart for the new department is shown below. Figure 12- Update to Organizational Chart Airline Industry Analysis Page 17 Strategic Plan Strategy Selection MOST Analysis The MOST Analysis is a powerful tool used to break down the inner workings of an organization and incite change or direct to a predetermined goal. MOST is an acronym meaning Mission, Objectives, Strategies, and Tactics. This tool funnels in starting with upper management then discovering individual motivators and tactics. The mission of an organization is usually a straightforward answer to the question \"what do we do\" and phrased in relation to its stakeholders.1 LinkedIn's mission is as follows: \"LinkedIn provides a social networking platform for professionals and organizations in efforts to advance careers and opportunities."2 It is important to understand the mission of an organization is not is vision. The mission of LinkedIn is strictly about what their everyday functionality, not what they strive to do in the future or how they will get there. LinkedIn's official mission as stated in their 2014 Annual report states, "Our mission is to connect the world's professionals to make them more productive and successful. We believe that prioritizing the needs of our members is the most effective and, ultimately, the most profitable means to accomplish our mission and create long-term value for all stakeholders. We design our solutions to empower professionals to achieve greater professional success, while simultaneously enabling customers to identify and connect with the world's best and most relevant talent."3 The objectives of an organization are quantifiable goals that aid in achieving and maintaining the organization's mission.33 These objectives will allow an organization to provide specific information to shareholders to show goal attainment, company growth, and a chronological order of events. The key objective for LinkedIn is to obtain global market share and maintain its status as the number one professional social networking site. Secondly, LinkedIn must evolve its platform to maintain its domestic user group. This strategy must be done within the next year to avoid user defection to other networking sites. Lastly, LinkedIn must LinkedIn's strategy to take the global market by storm is being spear headed in China. As stated in the Make or Buy Analysis, Linked in has banded together with China Broadband Capital and a Chinese affiliate of Sequoia Capital in efforts to achieve this goal. These coalitions will allow 1 MOST Analysis. (n.d.). Retrieved July 18, 2015, from http://www.syque.com/quality_tools/tools/Tools78.htm 2 LinkedIn's Mission: Remain Top Site For Professionals. (2014, October 17). Retrieved July 18, 2015, from http://www.nasdaq.com/article/linkedins-mission-remain-top-site-for-professionals-cm403433 3 LinkedIn (2014). Form 10-K 2014. Retrieved from LinkedIn Investor Relations at http://investors.linkedin.com/sec.cfm 1 LinkedIn to grab a foothold of the Chinese market like never before and start its continental expansion. To maintain its domestic appeal, LinkedIn must continually improve its current offerings while creating new products. Since Kevin Scott joined the LinkedIn team in 2011, a new process of updating software hit the table. Scott calls the process "continuous deployment" where all updates/improvements from technicians are loaded to LinkedIn almost immediately rather than bundling updates and releasing them all at one time. 4 The "continuous deployment" allows for an ever-changing system that keeps users interested rather than waiting and frustrated. This strategy may already be employed but cannot be forgotten. LinkedIn must continue this process to remain competitive and current. The tactics that LinkedIn must use to penetrate the Chinese professional networking market are complex. Marketing teams must determine the best way to introduce LinkedIn, mobile or desktop. After deciding a platform, marketing must determine the right message to send. This will likely involved a partnership with a local company or expatriating a team to China to immerse themselves for a cultural and social training. LinkedIn should also invest more into product development. To have a competitive edge, LinkedIn must remain on the forefront of technological advances and implement feature and graphic-rich sites to attract attention. The current IT group should be expanded in-house or partner with another networking IT organization. Error: Reference source not found below illustrates a breakdown of the MOST analysis for LinkedIn. MOST Analysis Mission - Provide networking platform for the career advancement of professionals Objectives Objective - Obtain global market share; maintain number one status domestically Strategy Strategies - Break into Chinese market; maintain \"continuous deployment\" strategy Tactics Tactics - Partner with marketing team or use ex-patriots for global expansion; product advancement before competition by investing in IT group Figure 1- MOST Analysis Break Down 4 Tate, R. (2013, April 10). The Software Revolution Behind LinkedIn's Gushing Profits. Retrieved July 15, 2015. 2 Strategy Implementation I need help writing Strategy Implementation for LinkedIn. ONLY I need you to write in the section of Strategy Implementation (Operations , Marketing & Human Resources?? ( if you think it is relevant to include) I_ Highlighted in Yellow) . Your write these sections based on the MOST analysis (Strategy Selectins) I included it above the question. Which is to gain a better understanding of Chinese culture and global implications of establishing a market in China, as well as staying up to date with current technological trends in the IT field through partnerships. I also highlighted in describes the strategy selection. The paper is based on that strategy selection. PLEASE make sure to follow the example attached about Lufthansa Airline on page 15 to 18. Use the SAME concept and format for Linkedin. All I need is to write for these sections. 1- Please include graphs as shown in the example on Lufthansa Airline, any graphs pertinent to the topic if possible. Operations Marketing Human Resources ??? Figure 2- Update to Organizational Chart ??? 3 1 Strategic Implementation Objectives In order to achieve the selected strategy of expanding into emerging markets, CEMEX will need to have primary objectives. These objectives include the promotion of its presence and sales, the enhancement of operating and manufacturing efficiencies, the effective management of assets and value, the continued dedication to sustainability efforts, and the continued emphasis on the development, safety, and satisfaction of employees. The successful implementation of the objectives displayed in the following figure will allow CEMEX to incorporate the suggested strategy successfully and become an even more recognized global leader within the cement industry by increasing the strategic footprint in Asia. Figure 1: Primary Objectives Mission, Vision, and Strategy Incorporating a strong mission, vision, and business strategy will allow CEMEX to recognize increased growth within the cement industry. It is important to incorporate a variety of objectives to ensure strategies and results are in line with the organizational mission and vision. Effectively managing finances, assets and value added, and sales in emerging markets, CEMEX has the potential to achieve significant growth and profit from its actions. As internal processes play key roles in manufacturing and operating efficiencies, it is important for CEMEX to strive for decreased costs and increased productivity throughout its business chain. The management of human resource areas such as safety, growth, and education will allow the staff to achieve job satisfaction and work diligently towards meeting the company's goals and objectives. In addition, focusing on learning and growth is imperative for CEMEX as it will allow them to achieve first-mover advantages and continue to highlight its devotion to protecting the environment and communities, enabling CEMEX to be recognized as a leader within the cement industry. Commitment to philanthropic activities, such as helping to reduce poverty, creating a positive and rewarding work environment, and minimizing environmental waste are all activities 2 which will promote positive interactions between CEMEX and the communities in which it operates, and will enable the company to foster a positive consumer perspective. Overall, the successful alignment of these objectives with the organizational mission and vision will enable CEMEX to build a foundation which will contribute to achieving successful implementation of its strategy and objectives. Figure 2: Mission and Objectives Philanthropic Activities Improve Conservation Standards Increase Sustainable Manufacturing Increase Profits Decrease Operating Expenses Decrease Operating Expenses Financial Perspective Perspective Mission Statement As a global leader in the building materials industry, we aim to serve the needs of our consumers and create value for our stakeholders by becoming the world's most efficient and innovative building materials company. Vision Statement We seek to continue to strengthen our global leadership by growing profitably through our integrated positions along the cement value chain and maximizing our overall performance. Talent Management Talent Management Increase Presence in Market Provide Efficient and Effective Products Develop Knowledgable Employees Develop Knowledgable Employees Create Positive Work Environment Satisfy Consumer Needs It is important to provide clear, concise, and measurable objectives. The financial objectives for CEMEX can be measured by examining the data contained in its financial statements, such as sales revenue and operating expenses. The current sales data for CEMEX indicates the potential to increase sales in the Asian market. The following figure shows the 2013 net sales for CEMEX by geographical location. Asian sales were the lowest of all geographical locations representing only $577 million of the $15,227 million total sales, only followed by an aggregate of other miscellaneous and intercompany eliminations which are mostly internal adjustments. The highest sales generated for geographical location was earned in The US with total sales of $3,314 million.1 1 CEMEX. (2014). Reports. Retrieved from http://www.slideshare.net/PWC/advertising-and-mediaspending-trends?qid-b5411692-9593-472f-8e2c-b581a07fa014&v=qfl&b=&from_search=6 3 Figure 3: CEMEX Sales by Geographic Region, 2013 4% 2% 21% 15% MEXICO UNITED STATES NORTHERN EUROPE MEDITERRANEAN 10% 22% SOUTH, CENTRALAMERICA & THE CARIBBEAN ASIA OTHER AND INTERCOMPANY ELIMINATIONS 27% The ratio of sales by geographical location demonstrates a severe deficit in Asian sales when compared to sales percentages of other geographical locations. Asian sales only accounted for 4% of total sales. To achieve expansion into emerging markets, CEMEX should strive to increase sales in the Asian market to $605.85 million within in 5 years (5% increase), and work towards a long-term goal of $634.7 million in net sales within 10-years (10% increase) in order to achieve a sales percentage that is consistent with other geographic locations in an effort to maintain balanced operations worldwide. Industry analysts expect cement sales to continue growing as the industrial and residential construction markets continue to provide increased outputs. Since the Chinese cement market experienced an average growth of around 8% per year from 2000 to 2013, it appears the sales objectives set for CEMEX to be reasonable just within the Chinese market. 4 With no indication of change, the historical trends indicate a prime market for cement manufacturers to increase sales to construction consumers.2,3 Emerging Market Expansion To gain greater market share and increase revenue, CEMEX must expand into the emerging market of Asia. This vast market continues to experience demand growth for cement products, aggregates, and ready-mix concrete. As Asia continues to grow in population, so does the need for cement in this area. The four phases of geographic expansion allow CEMEX to strategically plan its actions as it moves into emerging markets in Asia. These locations must be ranked accordingly in which an in-depth research of the areas will provide guidance to the business as they prepare for market entry. This will include understanding the culture, costs, communities, businesses, and overall potential partnerships that provide value to CEMEX. In addition to the planning, CEMEX must complete an analysis of logistical concerns, such as land, staff, and overall presence within the community. These key areas will allow successful integration of CEMEX into emerging markets.4 2 Ibid. 3 CementChina (2014, November 17). China's construction market will continue to grow. Retrieved from http://www.cementchina.net/newsdetail.aspx?id=7693216723152 4 Frost & Sullivan. (n.d.). Growth Process Toolkit: Geographic Expansion. Retrieved from http://www.frost.com/prod/servlet/cpo/178146003 5 Figure 4: Four Phases of Geographic Expansion5 Strategic Review - In an effort to successfully integrate more of its operations in Asia, CEMEX would benefit by strategically expanding from its six operating facilities in this market; including their locations of Tianjin, Qingdao, Philippines, Thailand, Malaysia, and Bangladesh. 6 The company executives should agree to gradually increase the number of its locations to adequately maintain expenses, earn revenues, and recognize growth. Country Prioritization - CEMEX would benefit by slowly increasing its operations in Asian territories, including India, Thailand, Vietnam, Japan, China and Russia, as these locations are forecasted to experience an increase in demand for cement products to build infrastructures for their growing populations. Although there already is a natural demand for the products being provided and manufactured by CEMEX in these areas, the business must continue to reach out and establish relationships with other professionals within the industry, including vendors and community programs surrounding their facilities. CEMEX needs to integrate itself into the market, working with other professionals within the construction and manufacturing industries to secure commercialized work, establish partnerships with local politicians, pair with homeimprovement retail chains, and market directly to consumers. In addition, CEMEX must continue to highlight its ability to provide added value for partners and consumers, such as their 5 Ibid 6CEMEX. (2012, May 31). CEMEX supplies ready-mix concrete for urban complex in Qingdao, China. Retrieved from http://www.cemex.com/MediaCenter/PressReleases/PressRelease20120531.aspx 6 abilities to provide ready-mix concrete, design projects, offer financial assistance through lenders, and effectively collaborate with local builders.7 By slowly and strategically expanding its operations, establishing positive relationships with professionals, politicians, and community members, and marketing its added-value services, CEMEX will earn greater market share, increase assets, and continue to grow and develop its positioning within the cement industry. Entry Assessment - As CEMEX moves forward with expanding its operations into emerging and developing markets, the company should develop short-term and long-term strategies. This effort will help the business identify opportunities and threats, as well as provide them due diligence to make sure they are able to successfully integrate themselves into the new markets. In regards to developing short-term and long-term strategies, CEMEX will want to generate a team of specialists to evaluate the territory, available land for manufacturing and operations, labor pool, potential language barriers and the overall culture of the area. These groups of specialists will focus on analyzing and recommending ways to lower expenses, increase profits, identify optimal opportunities, and help CEMEX minimize the risk of the expansion. In addition, CEMEX will be able to increase their level of strategy by understanding these critical areas and incorporating social norms and expectations into their business structure according to specific areas of operations. This team of specialists should also recommend any infrastructure changes in the information technology (IT) and human resources (HR) departments that would benefit the firm. Based on this analysis, process templates should be created and communicated to the expansion teams for long-term use, so CEMEX can effectively implement best practice techniques exercised by all employees within the firm. Most importantly, these specialists will be able to equip CEMEX accordingly so they can maximize their presence in each location, allowing them to become an even greater competitor within the cement industry. From a financial perspective, CEMEX would greatly benefit by looking into forming strategic alliances with major banks so that acquisitions can be financed, similar to its operations in other countries. CEMEX should structure their deals to make sure that it benefits their company from a tax perspective, such as an alternative method of financing that would minimize any exchange rate risks. In addition, as CEMEX focuses on expanding into emerging Asia markets, it should secure capacity shares to increase their assets. In addition, CEMEX should form joint ventures with firms in established areas so that its business can gain visibility and presence in these markets. They should also partner with firms who are also exploring similar interests to pool their resources together in an effort to earn a greater return on investment. Considering a longer term strategy, CEMEX should consider restructuring their acquisitions and align resources that will best fit their needs. This might include segregating markets based on the long-term vision and the roadmap for the company. A company, such as CEMEX, with internationalization foothold would be faulty to ignore the local differences and local culture that it wants to operate in. This includes drafting local policies and regulations, and as well as socio-cultural differences. The scope of future business plays a big difference in a company's long-term road map and should be reconsidered throughout its duration of manufacturing and operating in different territories. Local Office and Staff Planning - Emerging into expanding markets also requires the initiative to incorporate innovation in the culture. In an effort to encourage participation and new ideas 7CEMEX. (2014). Services. Retrieved from http://www.cemexusa.com/ProductsServices/Services.aspx 7 through all areas of the business, CEMEX would benefit by introducing an internal collaboration platform called Shift8. This method is designed to help make the company more innovative, efficient, and agile by letting employees or groups of employees with similar objectives share opinions, thoughts, information, experience, knowledge and best practices. Allowing participation of all employees throughout the company will help CEMEX improve its operating functions, providing a greater opportunity for achieving a sustained competitive advantage. Policies CEMEX's policies will need to be modified to support the expansion strategy in Asia. The merger and acquisition operations should be modified based on the emerging markets' situations. Policies will need to be put into effect to ensure that the expansion is handled correctly, allowing the business to grow and the employees to prosper. Prior to entering into the new market, CEMEX's marketing department should do comprehensive research on each location and modify the marketing plan to adhere to the target market in terms of product, promotion, price and packaging. The marketing budget for the Asian market should be increased to support the promotion of sales. The human resources department should also review its structures including pay, benefits, vacation, and review the laws concerning labor within the new markets of expansion. In addition, their human resources department will need to support all of the divisions within CEMEX accordingly by means of adequate employee recruitment and training. The organization's culture should be shifted to adapt to the new market and incorporate innovativeness into all areas of the business. In order to effectively integrate its business into the emerging markets, CEMEX needs to integrate itself into the communities to establish and maintain partnerships with local governments, industry associations, and local media. These forward-moving actions will allow CEMEX to effectively establish its internal and external policies, allowing the business to operate smoothly and more efficiently. Human Resource Changes In order to implement the expansion strategy effectively, CEMEX should make changes in its organization and involve other departments into the strategy, especially the human resource department. Spector suggests four steps to implement changes in the organization after a shared diagnosis completed. In the shared diagnosis, employees should be mutually engaged and involved in the processes to build commitment. Broad-based participation helps overcome defensiveness and resistance to change.9 8 Garcia, G. (2011, July 15). SHIFT CHANGES THE WAY CEMEX WORKS. Retrieved from http://www.managementexchange.com/story/shift-changes-way-cemex-works 9 Spector, B. (2013). Implementing organizational change (3rd ed.). Pearson Education, Inc., Upper Saddle River, NJ: Prentice Hall 8 Figure 5: Sequential Model of Effective Change Implementation10 In the redesign stage, CEMEX should help employees in the target market to redesign their roles, responsibilities, and relationships to align behavioral pattern with the competitive realities facing CEMEX, the company's values and goals, and the requirements of outstanding performance. HR managers, as well as other functional managers in this process, should help the employees understand the situation and redesign employees' roles, responsibilities, and relationships. In the help stage, functional or department managers, with the help of the HR department, should decide content and training methods to offer employees assistance with enacting the new behaviors. Based on the target markets' conditions, different training contents and methods should be offered in order to help employees to adapt to market circumstances. In the talent management stage, supervisors and the HR department should consider the attributes of employees and match the employees into fit strategic positions commonly based on the training consequences in the last stage. The recruitment process should also be conducted and completed by the HR department and functional mangers to meet the shortage of employees. It would be beneficial for CEMEX to hire local individuals who have high talents and abilities from local colleges and universities to take on multiple positions within the company. This will help CEMEX to earn business and integrate itself into local communities. 10 Ibid 9 In the last systems and structures stage, CEMEX should put the right systems and policies in place to reinforce the new strategy and the behaviors the employees should possess. However, CEMEX must acknowledge the cultural diversity and national conditions when preparing the new system and structures, including employee management techniques and employee incentives. The existing six operating facilities in Tianjin, Qingdao, Philippines, Thailand, Malaysia, and Bangladesh are all in high power distance countries which means the employees would be likely to respect hierarchy and rank in organization.11 HR mangers and functional mangers should redesign the routine operations in the organization to fit local cultures. Most of the target countries are still developing countries with low income levels12, in which external incentives could be successfully used to motivate employees. Marketing As CEMEX moves forward with expanding into emerging markets, it is extremely important to develop marketing strategies to fully incorporate the business into the new areas. The cement company will need comprehensive techniques to introduce itself to the community, surrounding businesses, and direct consumers of its products and services. Understanding the gradual integration into new territories, CEMEX should begin its marketing campaign by building its relationships with the area by hosting community events and speaking at conferences to better understand the needs of the people and educate them about the company of CEMEX. In addition to hosting community events and conferences, the business will want to employ direct mailing to key players that exhibit a high need for cement, read