09.03.2017, BearingPoint Round Table Zurich FORward> Common Finance Optimization of Steering, Leadership & Planning @ Lufthansa Group Manfred Himmel (LH-Projektleiter), Dr. Frank Tiefenbeck (BearingPoint-Projektleiter), Cathrina Eisenring (BearingPoint-Teilprojektleiter Umsetzung) lufthansagroup.com Agenda Lufthansa – An Overview Planning within a Matrix – A Challenge Projekt Forward – An Optimization Projekt Forward – Projectplan and -organization Slide 1 Some Stats and Facts about the Lufthansa Group… Total revenue 2015 EUR 32.056bn EBIT 2015 Foundation of Lufthansa EUR 1.676bn 1953 (1926) Passenger load factor 2015 Privatization of Lufthansa 80,4% 1997 Passenger 2015 Average Employees 2015 107,7m Total: 119,6k Destinations 2015 Group Fleet 2015 297 destinations in more 600 aircraft than 89 countries Source: Lufthansa Group Annual Report 2015 Slide 2 …the Lufthansa Aviation Group consists of Five Major Business Segments –thus forms Worldwide a Unique Corporation Airlines Aviation Services Hub-carrier Point-2-Point Logistics MRO Catering The carriers of the Passenger Airline Lufthansa Cargo is one of Lufthansa Technik is a LSG Sky Chefs is the world's Group rank among the world’s leading the world's leading cargo leading supplier of largest provider of airline airlines carrier in international air engineering services in catering and integrated in- traffic the airline business flight solutions All of the Lufthansa Group companies are leaders in their respective field Slide 3 Lufthansa defined 7 Action Areas Customer New centricity & concepts for quality focus growth Constant Customer Innovation & improvement digitalization in efficiency #1 Shareholder Employee Effective & Value based Financial stability lean steering organization Culture & leadership Source: “The Lufthansa Group – The Way Forward” by Carsten Spohr Slide 4 Controlling as a Business Partner supports the overall strategic direction of Lufthansa Group Effective & lean organization Culture & leadership Value based steering A groupwide program for Rotation principle and Consider replacing the stronger process compensation based on present CVA*-based orientation achieving group-level targets system with a simpler and for management staff more transparent Flatter hierarchies and Stronger alignment to alternative performance and more faster decision- Adopt new KPIs: responsibility for each making processes Return on individual employee invested capital Strengthen the communal Adjusted EBIT after notion and spirit of an deduction of capital aviation group costs Source of the three boxes above: “The Lufthansa Group – The Way Forward” by Carsten Spohr; *CVA – Cash Value Added Business Partner as Business Partner as Business Partner as 1 2 3 Moderator within Strategy Enabler Performance Keeper Matrix-Organization Slide 5 Agenda Lufthansa – An Overview Planning within a Matrix – A Challenge Projekt Forward – An Optimization Projekt Forward – Projectplan and -organization Slide 6 Controlling as Business Partner fosters Transformation, Strategy Execution and provides Transparency Business Partner as Moderator Effective & Moderate conflicts between Business Units and lean Process Streams organization* Using cross-functional knowledge and network Reconcile conflicts with management Business Partner as Strategy Enabler Connecting strategic targets with operative Culture & measures leadership* Implementing KPIs to measure strategic targets and monitor target achievement Business Partner as Performance Keeper Implementing and managing a group-wide data Value based pool steering* Running data analysis among BUs and Process Streams to align common targets and improve reconciliation *Source: “The Lufthansa Group – The Way Forward” by Carsten Spohr Slide 7 The future steering and planning approach follows the process orientation of the Lufthansa Group Before Reorganization Current Challenge Target Different structures within Development of Planning Planning from July 2017 individual Business Units Units (SBAs*) on Identification of PO and BU Only BU view available intersections BU & PO view available LH LX OS EW LHCLSG LHT LH LX OS EW LHCLSG LHT LH LX OS EW LHC LSG LHT Infra Infra Infr. Infrastructure & Security Netw Netw Netw. Network Flight Flight Flight Flight Ops Common and consistent platform . Individual methods, definition, Based on the Process (Domain) 1. Supports corporate steering processes and systems Owner Responsibility: 2. Controllability for Process The process image differs within Need for an aligned steering Owner possible Business Units process for POs and Bus 3. Coordination between BU and No integrated planning of BU Integrated planning avoids PO and PO possible double effort * SBA = Strategic Business Area Slide 8 Business Partner Role of Controlling and the Matrix Organization provide four main challenges for the project Finance Function Line of Business Business Unit High IT costs because of multiple parallel systems Process orientation leads to a necessity of group- and Process Process Synergies cannot be realized in spite of wide steering ability bundling tasks at LGBS aligned Steering by analysis of events, anticipation of the New Technologies („Digital Boardroom“) mean Matrix future and resultant action prohibitive high costs in both implementation and Organization In today‘s heterogeneous IT landscape, these maintenance requirements are not being fully addressed Challenges for the Project 1 Define Planning 2 Define Planning 3 Define Planning Methodology Content Proceses Identify suitable Matrix aligned Integrate Strategy general Planning planning hierarchy and Planning Process Approach Harmonized CoA, KPI Define reconciliation and Reporting process within of the matrix 4 Define and implement Planning System Slide 9 Agenda Lufthansa – An Overview Planning within a Matrix – A Challenge Projekt Forward – An Optimization Projekt Forward – Projectplan and -organization Slide 10 Planning Methodology, Content, Process and System get optimized in terms of effectivity and efficiency Planning Methodology Is the focus on steering the portfolio (Finance-focused planning): cost units oriented finance planning supplemented by statistical information? A rather operative steering approach (integrated planning): Cost units oriented operative planning is derived out of the financial planning Influence driver based steering possible (Influence driver based planning): Influence driver based derivation of the financial planning Higher Higher steering Validity Planning System relevance Planning Content Are the requirements for a supportive IT-solution steering relevant KPIs already defined? defined? Are planning occasions, planning horizon, and Are the fundamental frameworks for an IT- planning frequency defined? solution defined? Are steering relevant KPIs assigned to planning Is the strategy to support the IT-solution defined? approaches? Is the granularity of the planning output defined? Is the granularity of the planning input defined? Higher Higher Efficiency Flexibility Planning Process Are steering relevant KPIs already defined? Are planning occasions, planning horizon, and planning frequency defined? Are steering relevant KPIs assigned to planning approaches? Is the granularity of the planning output defined? Is the granularity of the planning input defined? Slide 11 Planning Methodology is depended on Market Dynamics and the Complexity of the company Elements for Better and Advanced Budgeting are suitable for Lufthansa + Planning Content was reduced for Mid Innovation Planning & Beyond Budgeting Term Planning (MTP) significantly Accounting Number of planning units and objects Low Cost Carrier of the MTP and of the budget were High-growth internet ventures reduced Dynamics To plan planning year 2 + 3 a Value Driver based Model is used The number of forecasts are harmonized across the group Better Budgeting Planning Consolidation is simplified by using relative consolidation effects Advanced Budgeting within the actuals and extrapolating to planning figures Traditional Budgeting Zero Based Budgeting The concentration on steering relevance of the chosen planning content increases effectiveness through increased business - + focus as well as efficiency through significantly reduced granularity Complexity Slide 12 The reduction of granularity is a key to focus on steering relevance and increase efficiency Planning content is more granular as shorter the planning horizon is Targets for Business Units (BU) and Commercial, Operational and Administrations Processes (PO) are defined for EBIT and Investments BUs To plan Business Units 22 Value Drivers (Airlines), max. 23 selected BU Targets P&L Items (dependent on Aviation PO Targets Service) and 4 Items of the Capital Targets Base are defined in Mid Term Planning (MTP)* Budget is planned on max. 91 Items (dependent on BU) and 33 Items of BUs the Capital Base Influence driver All granularities are strictly mapped Airlines 1 : n to the granularity of actual figures Detail Actual Lufthansa Chart of Accounts (CoA) is based on ~3.500 Accounts MTPfor Basis Local CoA cover ~14.300 Accounts MTP Plan Y1 = Target for Budget SBAs The strong steering relevance of KPI Core Set the chosen planning content Planning Lines increases effectiveness through increased business focus as well Budget as efficiency through significantly reduced granularity *Derivation for Process KPIs currently in discussion Slide 13 To enable steering and planning of the new matrix- organization the Operating