Category: Economics Essay
Quantitative Techniques in Business

Objectives and Brief Description of the Companies

Running a business is not an easy task to manage appropriately and this statement is nearly impossible to debate. Business requires intelligence, creativity, being rational, sometimes risky, and even friendly (speaking about efficient team work). Meeting all aforementioned these requirements means to obtain a wide range of various skills, appropriate and effective use of which is important to achieve any success in a certain sphere of business. By different occasions of using these skills, a particular experience is formed. Taking this into consideration, it is needless to say that skills and experience are important to the performance of the company. Consequently, a profitability rate of the company depends on these factors. These aspects can be regarded as internal ones, while there are a lot of factors, which do not belong to the company, but still can affect the profitability and quality of the performance of the company. It may be economical instability, inflation, strong level of competition, unpredicted problems with logistics, political situation in the country, and so on.

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Therefore, there is a link between experience and skills and external factors. It is obvious that experienced and skilled management is more able to resist any outer influence. In order to identify how two companies of the same sector should plan their strategy, a short survey has been carried out among the employees of both companies. The survey has been held in a form of a questionnaire and has been aimed at distinguishing how strong the employees opinion about importance of skills and experience in coping with external pressure on the company is. The results of the survey will be discussed further, but first it is necessary to give a brief description of the companies under analysis.

The first company is Lufthansa that is a well-known German airline famous for being the biggest airline in Europe. It is regarded as an experienced company in this sphere due to its long history and route network, which has spread all over the world. Actually, Lufthansa is powered by national industry enterprises, so it saves costs on export and customs taxes, and estimates accurate demand. Thus, it is reasonable for the German industry to support this airline. Furthermore, Lufthansa has developed a rational strategy about division of sections inside the company. Lufthansa Cargo, Austrian Airlines, and Germanwings are not the same company, though belonging to Lufthansa, but they perform their business separately from each other. Such a structural approach helps the management to see clearly how each segment of the enterprise works.

In addition, it is necessary to say that the company is a member of the Star Alliance, which includes as well such airlines as Air Canada, Scandinavian Airlines, Thai Airways International, and United Airlines. It is to be regarded as an intention to establish reliable international partnership, which has anyway put Lufthansa on the right side of this field of business. It is needless to say that the company does not accept the challenge to take power over other airlines and set the monopoly because any monopoly sooner or later leads to losses. In such a way, by sacrificing its chances to obtain the monopoly in the sphere, Lufthansa has a sufficient number of partnerships and has kept itself going for many years.

Speaking about one of the strong competitors of Lufthansa that is famous for its commercials with Lionel Messi and Kobe Brayant, i.e. Turkish Airlines, it is worth saying that this company has an advantage of location. Turkey is regarded to be one of the popular resort countries, especially during holiday seasons; hence, the airline has a lot of customers. In addition, Turkish Airlines provides its clients with various services connected to the travelling and resort infrastructure like hotels, restaurants, and so forth. Moreover, Turkish Airlines has launched a series of advertising videos with a football star Lionel Messi and an NBA famous player of Los-Angeles Lakers Kobe Brayant. The commercials have produced a huge impact on the target audience and actually affected Turkish Airlines achievement of the title of the airline number one in Europe.

Withal, both companies have to get advice for the further and more apt development because even though they obtain beneficial positions in this section of business, it is important for both of them to keep thriving. It is needless to say that there is no universal model for a constant strategy, so it is necessary to develop new strategies in order to remain on the leading positions among other airlines.

Conceptual Model

Before developing a certain model for each of the companies, it is necessary to design a conceptual model, which will reflect general approaches according to the coincidences and differences of the surveys carried out. To begin with, it is worth mentioning that the diagram has a higher coincidence character. In other words, employees of both companies have similar viewpoints to some extent. This similarity is not crucial, but it is distinct; so, it would be reasonable to take it as a basis for a conceptual model. In contrast, it is necessary to explain what a conceptual model is in order to understand its significance for developing models for the companies.

In terms of decision-making and strategies, the conceptual model can be defined as a means of comprehension of main objectives and important steps of the strategy of meeting these objectives. The conceptual model gives a manager an understanding what is to be done and how. It shows the basic principles, according to which the future model should work. Developing understanding is an important part of planning, but the conceptual model implies some extra functions. It generalises all already existing concepts according to a particular criteria, describes how they are related to each other and with which degree. Speaking about this function more specifically, the following activities are to be mentioned. The conceptual model identifies weak sides and in such a way outlines the main objective or probably a target audience. It also describes relationships not only inside the model, but with external factors as well. As a result, the conceptual model suggests general scenarios of decision-making and important actions to be taken. In addition, the conceptual model suggests various structures of data according to its type or importance.

Since the idea of the conceptual model is clear, it is reasonable to say that the main approach, which the conceptual model has to shape in this case, is further development of skills and gaining more experience. To be more exact, new experience can be faced in establishing a partnership with partners, which are focused on other issues in this field of business or totally do not concern the business of airlines directly. The main reason for that is the lack of confidence in those segments. It is known that there are two ways of developing of the company (through skill and ability understanding): to increase the power of strong sides or restore the weak ones. It this very case, development of the strong sides is nearly useless because companies have gained the peak of their strong abilities by now. Consequently, both airlines have to try themselves in segments of business, in which are they not as good as in others. By coping with new strategic tasks, both companies will learn how to work in those segments. As a result, the airlines will get a new experience and obtain new skills. Therefore, as it has been previously mentioned, this is a basis for being resistant to external factors and getting stronger on the worldwide market.

As mentioned previously, the conceptual model makes a prediction about outcomes in terms of some non-business factors. Taking this point into account, both airlines will have to consider a possibility of a global crisis, inflation, or natural disasters. Taking into consideration the fact that the airline business is a weather-dependent sector, it is first of all important to consider a threat of natural disasters. The conceptual model suggests a general plan for keeping expenses and incomes of the experimental segment on the average level. It outlines a plan, which requires the airlines to launch a non-airline related brand or just a project in order to widen and connect the target audience to the main source of business. Instead of attempting to get over the losses from a bad weather, it would be reasonable to spend these costs on something, which will have at least a double effect: new waves of customers and, as a result, higher incomes.

As the conceptual model has been defined and has suggested its general advice about the further approach of both airlines, it makes sense to go into more specific aspects, like design of the model for a sector in general and for each of the companies in particular. It is important to remind that the main approach, according to the results of the survey, is to enlarge the experience and skills variety.

Regression Analysis

It is necessary to justify the usage of the linear model and discuss its applicability to the case. In fact, the linear model has a universal character, it has restrictions, which can be expressed in conditions of any other model, and in such a way it makes possible to apply other techniques that are not typical of the linear model. Moreover, it is easy to transform the linear model into some other in case of some unpredicted outcomes. It gives an opportunity to guide the management just following the basic principles, so the linear model also provides simplicity for the management. Consequently, it allows to design a plan for a strategy and a decision-making scenario, even though there is no accurate data, or if the linear model has to deal with several companies at the same time.

To be more exact, in this case the linear model is focused on the precise analysis of the data, which are to be picked in the process of dealing with the experimental segment of the business section, which has been mentioned previously. In this situation, the linear model is to be designed in a way, which prevents the companies from the losses. In contrast, it is not the most profitable way, but the main aim of expansion on this segment of business is a gaining new experience and learning new skills. That is why, the companies should have losses safety in their field of experiments. As the general approach of the linear model has been described, it is worth discussing the linear model for each of the companies.

Speaking about Lufthansa, it is necessary to admit that it should try to achieve some success in low-cost flights because it is not only a hardly known sphere for it, but a source of additional profits, especially in a situation with employees who are not satisfied with their salaries. Therefore, Lufthansa has to launch a range of low-cost flights with an adequate maximum of prices. The linear model explains it as a simple balance between costs and profits: less costs mean more profits in this case (Clarke 2008). In addition, it is important to say that the company has to take into consideration selective targeting of the advertising. This point is justified by the fact that customers who use regular Lufthansa services may switch to a low-cost agency of the airline and, as a result, the major stream of business will suffer from losses. However, Lufthansa is to expand to the segment of low-cost flights and take into consideration target customers, so that customers using regular services of the airline would not switch to the low-cost flights.

In case with Turkish Airlines, it is necessary to say that the airline has to try itself in a sphere of cargo airlines in order to establish a partnership with them. Moreover, it is important to emphasise that it will be more reasonable for Turkish Airlines to get an experienced cargo airline partner. Such a partnership helps Turkish Airlines to learn more about this segment and it is beneficial for its partner due to sufficient financial support and increase of ratings because of the partnership with Turkish Airlines. The linear model takes into account the estimated costs spent on those partnerships, so that it prevents the partner from putting pressure on Turkish Airlines cargo and regulating the activity of the airline according to its aims and objectives. To be more exact, the linear model has to identify whether the partner exceeds the norms of demands to the airline or maintains them on an adequate level (Christensen 2011). Though Turkish Airlines is to establish some partnership with the experienced cargo airline, it is crucial for Turkish Airlines to be scrupulous at checking what the partner company demands lest allow it to take power over the airline.

All things considered, both airlines are to expand to new for them segments of business as a source of new experience and skills. In contrast, both companies should be aware of possible mistakes and financial traps.

Recommendations

First of all, it is recommended that both airlines should regard their new spheres of business as a field for experiments, but not as a source of additional profits. That is why, models should be built in a way that allows both companies to take as many actions as possible (of course within the extent of the losses safety). It is necessary to add that both airlines are able to launch some non-airline business in order to advertise themselves and reimburse possible costs in case of their failure at experimental business. In fact, developing a new brand or network, the companies will gain extra experience and probably learn some new skills. In addition, it is to be mentioned that, in case of success of the first planned period of experience, it would be reasonable to continue working on these segments of business because they are a fresh and constant source of experience and gradually may become one of the major parts of the companies.

Furthermore, even though experimenting will lead to some losses, it still brings experience and knowledge to what consequences a particular set of actions can lead. It is also highly recommended to consider a strategically clever and informative advertising because customers may just not know about new services, which the airlines have started providing. It is worth mentioning that in case with Lufthansa it is necessary to create a commercial, which will be aimed at a certain target audience in order not to attract their current customers to the cheaper services.

It is as well to be recommended that the linear models for both companies focus on accurate statistic analysis. As the airlines are going to learn and experiment, it is necessary to watch every single detail, define its connections with the other ones, by what principle they are related to each other, and so on. Moreover, the linear model in this case has to be generalised, first of all, because of its requirement to be applicable to more than one company and due to the possibility to transport some techniques and methods from other models. In addition, the generalised model is easier to convert into any other model. It is also a hint for experimenting: in case of failure, it would be reasonable to try another model and, as the current is flexible in terms of transportability, the objectives and variables will remain the same. Additionally, as the linear model has a universal character, it is likely to be used in dealing with other segments of the business, even with the major ones. Therefore, designing of the linear model should be present some ways for different cases, so that even a situation of loss can be turned to be beneficial.

In conclusion, it is to be said that both companies are well-known airlines Lufthansa and Turkish Airlines that, according to the result of survey, should concentrate on their development and on leaning and gaining new skills. It has been justified by the general similarity of the results of the survey and, taking into consideration these similarities, the conceptual model suggests a concept, which allows both of the airlines to be focused on experience and skill rather than on ways to get more profits. Therefore, it is suggested that both companies switch to the segments of business, which they are not familiar with. For Lufthansa, it will be low-cost flights, and for Turkish Airlines, it will be establishing a partnership with an experienced cargo airline. According to the designed linear models, both companies will be prevented from making crucial mistakes, which lead to big losses. In addition, the linear models suggest strategies, which can be useful in case of failed experiment or losses due to unpredictable events, especially natural disasters because of the weather-dependent type of the business. Finally, it is to be said that a field for a successful experimenting has been formed. The airlines will be able to take as many actions as it necessary for them to define the most appropriate and rational way of dealing with such segment of business, comprehending main rules of relation of various aspects to each other, predicting possible losses or profits, estimating costs, which are to be spent on a certain activity, and in a special case attracting new customers to their companies.

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