January 10th, 2018
Lufthansa’s Financial Strategy|Financial Strategy Improvement: Recommendations
The Financial strategy of Lufthansa, though based on adept assessment of both internal and external environments, could be bettered through various approaches. One of these is to have the long-term strategies structured into short term achievable targets. Targets such as achieving the required annual revenue increase could be pegged on quarterly or monthly targets that allow the company to identify and institute corrective measures to any obstacles that may curtail the achievement of the overall strategy in good time.
Secondly, for the financial strategy to succeed, there needs to have good inter-departmental communication. Since the financial strategy involves the setting of targets for different departments, these departments need to be adequately linked so that the formulation of targets can be informed by the resources controlled by individual departments hence attainable. Such communication may not be effectively provided through a hierarchical type of information flow which curtails timely receipt of feedback to amend any unreasonably high targets.
Corporations are faced with challenges that necessitate effective strategic plans for successful performance. To acquaint with strategic challenges for global corporations the paper focused on the financial strategy of Lufthansa – the German flag carrier in the aviation industry. The strengths of the financial strategy have been noted in setting of various financial targets through the CVA value creation measurement process that have helped generate a high financial discipline at the company. The weaknesses of the strategy are advanced to lie in the unfavourable company performance in the recent past and following a continuous dividend policy that distributes a significant portion of the annual earnings to the shareholders (30 to 40 percent).
In respect to external environment, a number of opportunities can be identified. Revenues can for instance be increased by expansion into emerging markets while technological advancement could help the company reduce its operating costs. Threats that the external environment could pose to the entity include adverse economic environment, adverse climatic conditions and terror activities that curtail the number of people using the company’s transport services; and fluctuations in oil prices and foreign exchange rates that increase the firm’s operating costs.
The role of financial and accountant department in Lufthansa is to generate reports both for external users and for management decisions support. The department also would help in generating reasonable budgets against which individual department performance can be evaluated. Through such a role the department could help formulate short-term targets that would provide the basis for achievement of long-term performance targets that the organization has set.
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