The Role of Knowledge Facilitators and Inhibitors::: Lessons from Airline Reservations Systems

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long range planning Long Range Planning 34 (2001) 115-138 www.lrpjournal.com The Role of Knowledge Facilitators and Inhibitors: Lessons from Airline Reservations Systems George H. Stonehouse, Jonathan D. Pemberton and Claire E. Barber Strategic frameworks seeking to explain how an organisation may generate superior performance are numerous. Earlier approaches centred on the competitive position of an organisation within its industry, with subsequent attention focused on an organisation’s core competences. More recently, research has concentrated on knowledge and organisational learning. By reference to a study of airline-developed computer reservation systems (CRSs), this article explores the strategic importance of information in creating knowledge to generate superior performance. By examining developments in the use, management and control of information derived from CRSs, evidence is presented to explain how CRS-owning airlines have circumvented regulatory controls and increasingly competition to sustain competitive advantage through the development of their information and knowledge systems. This research demonstrates the need for organisations to develop ‘knowledge facilitators’ that foster the creation of new knowledge. Equally, managers must develop ‘knowledge inhibitors’ that help to sustain competitive advantage by limiting the abilities of competitors to create knowledge themselves. c 2001 Elsevier Science Ltd. All rights reserved. Introduction The factors that determine how and why one business outper- forms another have been the subject of considerable research and theorisation. Broadly speaking, the debate has centred on ‘com- petitive positioning’, ‘resource or competence-based’ and ‘knowl- edge-based’ approaches. 1 The first of these approaches, the sub- ject of much of Porter’s work, concentrates on developing strategic frameworks by viewing a firm in the context of its environment. 2 The second sees superior performance resulting 0024-6301/01/$ - see front matter c 2001 Elsevier Science Ltd. All rights reserved. PII:S0024-6301(01)00021-8 George H. Stonehouse is Principal Lecturer in the Division of Strategic Management, Newcastle Business School, University of Northumbria, UK. E-mail: [email protected]

Transcript of The Role of Knowledge Facilitators and Inhibitors::: Lessons from Airline Reservations Systems

long range planning

Long Range Planning 34 (2001) 115-138 www.lrpjournal.com

The Role of KnowledgeFacilitators and Inhibitors:Lessons from Airline Reservations Systems

George H. Stonehouse, Jonathan D. Pemberton and Claire E.

Barber

Strategic frameworks seeking to explain how an organisation may generate superiorperformance are numerous. Earlier approaches centred on the competitive position ofan organisation within its industry, with subsequent attention focused on anorganisation’s core competences. More recently, research has concentrated onknowledge and organisational learning. By reference to a study of airline-developedcomputer reservation systems (CRSs), this article explores the strategic importance ofinformation in creating knowledge to generate superior performance. By examiningdevelopments in the use, management and control of information derived from CRSs,evidence is presented to explain how CRS-owning airlines have circumventedregulatory controls and increasingly competition to sustain competitive advantagethrough the development of their information and knowledge systems. This researchdemonstrates the need for organisations to develop ‘knowledge facilitators’ that fosterthe creation of new knowledge. Equally, managers must develop ‘knowledge inhibitors’that help to sustain competitive advantage by limiting the abilities of competitors tocreate knowledge themselves. �c 2001 Elsevier Science Ltd. All rights reserved.

IntroductionThe factors that determine how and why one business outper-forms another have been the subject of considerable research andtheorisation. Broadly speaking, the debate has centred on ‘com-petitive positioning’, ‘resource or competence-based’ and ‘knowl-edge-based’ approaches.1 The first of these approaches, the sub-ject of much of Porter’s work, concentrates on developingstrategic frameworks by viewing a firm in the context of itsenvironment.2 The second sees superior performance resulting

0024-6301/01/$ - see front matter �c 2001 Elsevier Science Ltd. All rights reserved.PII: S 0 0 2 4 - 6 3 0 1 (0 1 ) 0 0 0 2 1 - 8

George H. Stonehouse is

Principal Lecturer in the

Division of Strategic

Management, Newcastle

Business School, University of

Northumbria, UK. E-mail:

[email protected]

Dr Jonathan Pemberton is a

Senior Lecturer in the Division

of Business Modelling,

Newcastle Business School,

University of Northumbria

Newcastle, Northumberland

Building, Newcastle-upon-Tyne,

NE1 8ST, UK. E-mail:

[email protected]

Dr Claire Barber is a

management consultant for P3

(Productivity Performance

Profit) in Auckland, New

Zealand.

Knowledge Facilitators and Inhibitors116

as a consequence of unique features of an individual organisationwhich are often termed “core competences”,3 with the morerecent knowledge-based approach centring on the importance ofknowledge management and organisational learning in buildingand maintaining competitive edge.4 Although each of theseapproaches provides a means by which superior performance canbe investigated, it is the knowledge-based approach that currentlyoffers the best perspective from which to analyse the determi-nants of an individual firm’s competitive edge within an industry.

While issues surrounding competition in a number of indus-tries have been of interest to many practitioners and academics,the airline industry, the focus of the research presented in thisarticle, has received particular attention in the published litera-ture over the last two decades.5, 6 Such interest has invariablycentred on the introduction of computer reservation systems(CRSs), originating in the 1950s but now an integral part of whatare now termed global distribution systems (GDSs), and theirimpact on competition within the airline sector.7

Ostensibly, while investment in, and development of, CRSsarose largely in response to a desire for improved operationalefficiency, the utilisation of CRS-generated information hasbecome a powerful means of creating new knowledge to enhancecompetitive performance.8 The sensitivity surrounding the issueof CRS information, exemplified by the reluctance of airlines todivulge details of activity in this area, has, however, ensured thatlittle material has been previously published.

This article presents, for the first time, the findings of adetailed study investigating the ways in which airlines owningCRSs have sought to maintain an advantage over their competi-tors in relation to CRS data, and the subsequent information andknowledge created from it, when other forces, notably regulationand legislation, have contrived to erode their earlier competitiveadvantage. Evidence arising from a variety of sources and metho-dological approaches is presented to demonstrate how the evol-ution of airline CRSs has become an integral element of creatingnew knowledge to generate superior performance in dynamiccompetitive circumstances. In particular, the means by whichCRS-owning carriers have sought to capitalise on their invest-ment by controlling certain knowledge assets to the detrimentof competing airlines is explored.

This research represents a departure from the usual emphasison technology per se and focuses on the uses and conversion oftechnology-generated information into knowledge, methods ofknowledge dissemination, and the influence of CRS-owning air-lines in controlling the flow of commercially important knowl-edge to competing airlines. The investigation illustrates themeans by which CRS-owning airlines have adapted to new chal-lenges by the creation of knowledge through organisationallearning. This strategy has prevented the erosion of existingknowledge assets that previously provided competitive advan-tage, but also involved employing measures to prevent competi-tors from creating similar knowledge.

The concept of competitive advantageThe notion of competitive advantage is neither easy to describenor easy to explain. Indeed, relatively few commentators haveattempted to define the concept formally.9 Grant argues that,over a period of time, competitive advantage arises from theability of a firm to outperform rivals on the primary performancegoal of profitability.10 Yet, although long-term profitability is themost commonly used indicator of superior performance, it rep-resents a rather simplistic view of what constitutes evidence ofcompetitive advantage. A firm may, in fact, possess competitiveadvantage even when its profits are not significantly higher thanthose of rivals. For example, a company may choose to foregocurrent profits in order to invest in new technology, to gain mar-ket share or to increase customer satisfaction. In each case, theinvestment is likely to assist in generating and sustaining com-petitive edge in the future.10 Alternatively, a firm may beregarded as having a competitive edge when the economic valuegenerated from its resources exceeds the expectations of theowners of those resources.11 This provides an alternative perspec-tive of the concept which is valuable in understanding the viewof organisational stakeholders, particularly managers and share-holders, concerned with business performance.

Just as there are differences of opinion over its definition, thereare significant differences of opinion over what factors create andsustain competitive advantage. It is important to attempt tounderstand why one firm is able to gain an edge over its rivals,and what determines its ability to continue to outperform them.Competitive advantage initially arises from external or internalchange. A change in the business environment can give rise tocompetitive advantage by changing the circumstances in whichfirms compete. For example, developments in information andcommunications technology have created new potential sourcesof superior performance. Yet competitive advantage ultimatelydepends upon the ability of a firm to change the way that it doesbusiness. According to the competitive positioning school, it isthe generic strategy of the firm, and the way in which it con-figures its value-adding activities to ‘fit’ with its environment,which give rise to superior performance.2 Alternatively, theresource or competence-based school views advantage as derivingfrom the ability of the individual firm to develop core com-petencesa that create superior value for customers.

Rumelt lays the foundations of resource and competence-based strategy, arguing that a firm’s competitive position isdefined by a “bundle of unique resources and relationships”, withcompetitive advantage arising from “sources of potential rents”ranging from changes in technology and consumer tastes toinnovation and legislation.13 The ability of a firm to develop andsustain competitive advantage from these ‘sources’ depends uponits ability to develop ‘isolating mechanisms’. These can take theform of specialised assets and resources, particularly those thatprovide specialised information, enhance brand name, image andreputation, and restrict entry. It is evident that core competences

Long Range Planning, vol 34 2001 117

a Core competence can be defined

as “combinations of resources and

capabilities that are unique to a

specific organisation and which are

responsible for generating its

competitive advantage”.12

Sustaining a

competitive edge in a

dynamic and volatile

environment relies on

an organisation

generating new

knowledge more

rapidly than its

competitors.

Knowledge Facilitators and Inhibitors118

and isolating mechanisms are heavily dependent on uniqueorganisational knowledge.

Baden-Fuller and Stopford argue that competitive edge arisesfrom strategic innovation that focuses on creating customer valuethrough a combination of performance attributes, previouslyviewed as conflicting.14 They cite the example of Toyota, whichachieved success by combining low cost with high quality. Ineffect, strategic innovation, or knowledge creation, leads tosuperior performance in a dynamic environment by changingthe rules of the game in favour of a particular business.

Knowledge facilitators and inhibitorsIn recent years, attention has shifted to the role of knowledge ingenerating and sustaining competitive advantage.15 Indeed, Non-aka argues that “knowledge is the one source of lasting competi-tive advantage.”16 In effect, sustaining a competitive edge in adynamic and volatile environment relies on an organisation gen-erating new knowledge more rapidly than its competitors.

Knowledge can be broadly classified as explicit or implicit. Theformer is tangible and identifiable, and consists of details thatcan be recorded, catalogued, stored and transmitted relativelyeasily. As a consequence it can be incorporated into an organis-ation’s strategy relatively easily, particularly through the use ofinformation and communications technology. Implicit, or tacit,knowledge is difficult to identify, quantify, record and store asit is personal and resides in the minds of individuals guidingtheir values, behaviours and actions. Both types of knowledgeare complementary, as explicit knowledge without tacit insightquickly loses its meaning.16

Nonaka et al. develop a model of dynamic knowledge creationcomprising three elements:

� the ‘SECI’ process involving the creation of knowledge by theconversion of tacit into explicit knowledge;

� ‘ba’, the shared context for knowledge creation; and� knowledge assets consisting of the inputs, outputs and moder-

ators of the knowledge creating process.17

Similarly, Stonehouse and Pemberton stress the importance ofthe organisational learning context by reference to the organis-ational culture, structure and infrastructure, and the means bywhich an organisation continuously increases the effectivenessand the efficiency of its learning to create new knowledge morequickly than its competitors.18 Learning is treated as a cognitiveprocess, with the organisation ‘learning about learning’ anddeveloping conditions which foster individual and organisationallearning, with emphasis placed on knowledge assets and the sup-porting knowledge management systems. Such embodied knowl-edge can be regarded as constituting an organisation’s knowledgeassets through which competitive edge is achieved.19

From a knowledge-based perspective, competitive advantage

arises from the ability of a business to create new knowledge andto protect its knowledge assets from competitors. To understandthis further, it is necessary to develop and clarify some basicterminology that can be used to describe the phenomena underconsideration. Firstly, features that support the creation of newknowledge through organisational learning are termed knowledgefacilitators. Facilitators promote and support the generation ofknowledge within organisations and essentially correspond to theconcepts of ba17 or “organisational learning context”.18 Thus,knowledge facilitators are aspects of an organisation incorporat-ing its culture, structure and infrastructure (including infor-mation technology) which play an important role in fosteringorganisational learning and knowledge creation. Features thatcan be used by an organisation to limit the ability of competitorsto emulate its own knowledge are termed knowledge inhibitors,allowing organisations to protect the knowledge that they havecreated, thereby sustaining competitive advantage. Furthermore,knowledge inhibitors can be viewed as creating isolating mech-anisms permitting stable and defensible competitive positions.13

In short, the concepts of knowledge facilitators and inhibitorsdraw upon existing concepts but also incorporate additionalideas, providing an alternative framework within which to assessand re-evaluate knowledge-based competitive advantage. In turn,this duality of focus provides the opportunity for a more robustanalysis of the dynamics associated with the generation andmaintenance of superior performance.

By reference to the airline sector, the ways in which CRSs haveevolved and altered the organisational learning context of theindustry, and hence the rules of competition within it, providean attractive vehicle to examine how CRS-generated knowledge,whether facilitating or inhibiting, has continued to createsuperior performance for CRS-owning airlines.

Technological developments, knowledge creationand competitive advantage in the airlineindustryThe ability to operate in geographically dispersed markets,coupled with the information-intensive nature of the airline busi-ness, give some clue as to why carriers have been at the forefrontof developing and exploiting new technologies designed to createand sustain competitive advantage.6, 20 Furthermore, CRS tech-nology has been a critical element in shaping the industry’s stra-tegies and operations to the extent that industry and governmentwatchdogs have imposed regulatory safeguards in recognition ofCRSs’ potential to influence airline competition.6, 21

Over the years, CRS-owning airlines have generated competi-tive advantage by various means. Broadly speaking, these corre-spond to three main phases in the development of CRSs, sum-marised in Figure 1, and represent the shifting focus frominformation technology to the competitive use of informationand knowledge during this period.

Long Range Planning, vol 34 2001 119

features that support

the creation of new

knowledge through

organisational

learning are termed

knowledge facilitators

Knowledge Facilitators and Inhibitors120

Figure 1. Phases of CRS development and the sources of competitive advantage

In response to inefficient manual administrative systems,phase one was characterised by the development of real-time sys-tems which resulted in internal operating efficiencies and newmarket opportunities.22 However, high development and invest-ment costs ensured that only a handful of the larger US airlinesproceeded to develop their own in-house seat inventory systems,essentially the forerunners of the CRS.23 Recognising the costreduction and efficiency benefits of these automated systems,smaller carriers without the resources to finance such develop-ments began to contract out their seat inventory and reservationfunctions to the CRS-owning airlines. Such contracting was thefirst example of CRSs being used to generate external revenuefor their owning carriers. At this stage, the information gatheredfrom internal seat inventory systems helped CRS-owning airlinesto form new knowledge and generate value-adding activitiesthrough which they developed administrative efficiencies whichwere not matched by their non-CRS owning counterparts. Intime, however, as competing airlines developed and access toreservations information improved, much of this knowledge asa source of competitive advantage was eroded.

Phase two saw the development of subscriber products whereCRS owners allowed other airlines to display information ontheir systems, for which a charge was made. This provided CRS-owning airlines with an opportunity to regain their earlier com-petitive lead, which had been eroded by increased competitionfollowing deregulation in the US.24 Revenue generation from theCRS, via booking fees for competing airlines, allowed CRS-own-ing airlines to increase profits, at the same time as increasingcompetitors’ costs. Differential pricing policies based on chargingdiscriminatory fees to competing carriers, weighting fee struc-tures inequitably between distributors and subscribers, chargingexcessive fees for the services rendered, and structuring prices sothat high initial costs prevented smaller carriers from accessingservices were all contributory factors in ensuring that CRS-own-ing airlines capitalised on their investment.

Two contentious issues also surfaced at this stage:

� Screen display bias—a deliberate ploy to display the CRS-owning airline’s flight information ahead of that of its com-petitors in an attempt to distort consumer choice. Such biaswithin CRSs was highly significant, leading to legislation toprohibit bias of primary screens (those screens designed foruse by the majority of travel agent subscribers).25

� The ‘halo effect’—incremental bookings achieved for an own-ing carrier via its CRS because of its status as systems providerand the natural tendency of travel agents using the CRS tobook flights of the carrier providing the system.

Various regulatory and other initiatives have attempted to dealwith the issues of unfair advantage given by screen bias and thehalo effect. However, while many of the more blatant examples

Long Range Planning, vol 34 2001 121

high development

and investment costs

ensured that only a

handful of the larger

US airlines proceeded

to develop their own

in-house seat

inventory systems

incremental revenues

have proved an

enduring form of

advantage for CRS-

controlling carriers

Knowledge Facilitators and Inhibitors122

of discrimination have been eliminated by legislation, incremen-tal revenues have proved an enduring form of advantage forCRS-controlling carriers. During phase two, non-owning airlinesand travel agents were obliged to subscribe to systems of CRS-owning airlines, with competitive advantage arising for the latterthrough the creation of knowledge inhibitors in the form ofincreased costs and by the manipulation of product informationthrough screen bias and the ‘halo effect’.

In phase three, the period covered by the research presentedin this article, strategic airline alliances and the creation of globaldistribution systems (GDSs) resulted in new technologies, as wellas the opportunity to create new knowledge facilitators byimproving the intelligence available to CRS-owning airlines inrelation to their competitors’ activities.6, 26 Hopper provides aninteresting insight into the role of knowledge in generating andsustaining superior performance at American Airlines, emphasis-ing the value to the airline’s strategy and operations of infor-mation derived from the Sabre CRS. Furthermore, CRS-owningairlines were able to develop knowledge inhibitors with respectto non-owning airlines in the form of practices and mechanismsdesigned to limit their ability to exploit potentially competitiveCRS information. Throughout this phase, the emphasis placedon the value of CRS information and its management by owningairlines led them to develop an organisational context or ‘ba’favourable to knowledge creation. Evidence for this is providedin the remainder of this article.

Research studyThe potential advantage to CRS-owning carriers brought byaccess to data relating not only to their own bookings but alsoto the activities of competing carriers distributed via the CRS hasbeen a source of acrimony between CRS owners and non-owners.

Hard evidence relating to how information and knowledgederived from CRSs has been used to affect competitive pos-itioning is difficult to quantify. However, both US and Europeangovernments have recognised the seriousness of the issuesinvolved and have agreed to incorporate clauses relating to theuse of competitive data within CRS rules, policed by the regulat-ory bodies of the Civil Aeronautics Board, the US Departmentof Transportation and the European Commission Aviation Com-mittee.

However, despite such controls, CRS-owning airlines havebeen adept at overcoming regulatory loopholes and have devisedways of creating different knowledge facilitators and inhibitors.This research, covering the period from 1992 to 1997, presentsin particular new evidence to illustrate how CRS-owning airlineshave concentrated predominantly on disadvantaging their com-petitors through the exploitation and manipulation of CRS-gen-erated information and knowledge. Evidence arises from a varietyof sources and is based on a research methodology (described inAppendix A) covering:

� participatory observation,� the establishment of a key informants network,� a questionnaire-based survey, and� interviews with key players in the industry.

The following issues emerged as being of particular relevanceduring the participatory phase of this research:

� The availability and use of billing support, an industry stan-dard term referring to the information provided by a CRSvendor to an airline with respect to details of fee status basedon reservations taken, as well as lease of hardware and softwa-re.

� The availability and use of management information derivedfrom CRSs to help create new knowledge (for instance, theinformation provided by a CRS vendor to an airline inrelation to details of the volume of business taken can be usedin knowledge creation).

� The influence of ownership status on access to billing outputand management information, and hence the ability to cre-ate knowledge.

These issues form the basis of the examination, analysis anddiscussion presented in the following sections.

ResultsThe results and discussion offered here relate predominantly tothe questionnaire survey and interview programme, linking theresponses together as the various issues arise. However, referenceto the exploratory phase, notably the participatory observationand the key informants network, is also made at appropriatejunctures.

The response rate for the questionnaire was high with 64 ques-tionnaires returned, representing over 65 per cent of the mem-bership of the CASMA network. The profile of respondents con-firmed a bias in favour of carriers with CRS interests. Morespecifically, 90 per cent of respondents indicated participation inat least seven of the nine CRSs. North American based systemswere represented most strongly, with European CRSs having ahigher level of uptake than their Asian counterparts, reflectingthe dominance of US CRSs in airline product distribution.

Analysis of the questionnaire survey reinforced, by and large,the impressions gained over the period of participatory obser-vation and as a result of interactions with key informants. Inparticular, the findings provide strong evidence that CRS-owningairlines have exploited their control of CRS-generated infor-mation in order to gain competitive advantage from it in fiveways:

� providing information to non-owning airlines participating in

Long Range Planning, vol 34 2001 123

the ownership stake

ensured that

information was

provided in the

format requested,

rather than having to

accept the ‘standard’

format

Knowledge Facilitators and Inhibitors124

their systems in a format which makes it difficult to accessand use;

� restricting the frequency with which information is providedto participating carriers;

� charging participating airlines high fees for access to thisinformation;

� providing only selective information derived from their CRSsto participating airlines; and

� managing and controlling the information generated by theirsystems more effectively than non-owning airlines.

The first four are knowledge inhibiting, as CRS-owning air-lines have restricted the access of non-owning airlines to CRSdata and information thereby limiting their ability to create newknowledge. The fifth can be termed as knowledge facilitatingsince it reflects the greater ability of CRS-owning airlines to cre-ate new knowledge through organisational learning.

Information format and knowledge creationCRSs generate considerable information relating to bookings thatcan be of value in developing new knowledge. The format inwhich such information is provided to an airline can facilitateor impede its use in the process of organisational learning. Atthe time of the survey, formats for such billing support includedthe use of magnetic or electronic media, and microfilm/fiche andpaper output. In the case of electronic media, access to data isrelatively swift due to the inherent compatibility of the mediumwith computer suystems. Microfilm/fiche output must be con-verted to paper output, and then transcribed into appropriatecomputer format via optical character recognition or manualkeying. This clearly limits the ability of an airline receiving datato analyse it in a timely fashion and hence to form commer-cial knowledge.

The survey results show that, when aggregated, nearly 90 percent of participating carriers received their data output fromNorth American vendors in microfilm/fiche format with only 11per cent of owning carriers receiving output in this form. Formagnetic tape or cartridge the trend was reversed, with twothirds of owners receiving it in this format compared to just 8per cent of participating carriers. One interviewee confirmed thisdirectly, emphasising that the ownership stake ensured thatinformation was provided in the format requested, rather thanhaving to accept the ‘standard’ format offered to participatingcarriers. At the other extreme, a non-owning airline respondentemphasised the time value of CRS-generated information, withCRS vendors deliberately supplying non-magnetic media in anattempt to delay and dilute their competitor’s ability to utilisesuch data effectively.

Furthermore, three carriers remarked that CRS vendors fre-quently changed the format in which the data were supplied inan attempt to hinder competing carriers in their attempts to ana-lyse and make use of it in knowledge creation. One respondent

made specific mention of frequently changing codes and formatswhich, in their opinion, represented a deliberate ploy by CRSvendors to delay a competitor’s ability to respond in a timelyfashion. Incomplete data sets also prevented participating carriersfrom analysing data to best effect. The regulatory safeguards werealso called into question, with one interviewee commenting, “It’svery difficult to get across the significance of what’s missing …even to people in the business, … so it’s safe to say regulatorsdon’t stand much of a chance.” When presented with this state-ment, the US DOT interviewee conceded that media and formatof presentation were potentially causing difficulties for participat-ing carriers.

This suggests that, in spite of continual regulation, CRS-developing carriers, while technically adhering to legislation, mayhave sought to find alternative ways of capitalising on theirinvestments by limiting competitors’ access and inhibiting theirability to create knowledge.

Frequency of information provisionThere was also evidence to suggest that the majority of participat-ing carriers received their billing support on a monthly basis,with only a third of owning carriers in this situation. On theother hand over two thirds of owning carriers, but less than 2per cent of participating carriers, received billing support on an‘as requested’ basis. Breaking this down further by individualCRS, there was a positive association between distribution statusand frequency of provision of billing support across eight CRSs(all values of p�0.001 with n ranging from 54 to 61, dependenton the CRS). Note that one CRS was omitted as only 11 airlineshad participating or owning status, the remaining 53 having dis-play status only.

With timing a key factor in the airline sector and the abilityto respond quickly a vital feature of the industry, potentialadvantage for owning carriers is again apparent. One intervieweeconfirmed this explicitly, stating that as an owning airline CRSdata were available in any format desired and on an ‘as required’basis, a facility not offered to non-owners and greatly inhibitingtheir ability to generate new knowledge.

Information costsInterviewees, while keen to emphasise their adherence to govern-ment regulations insisting that CRS vendors make data availableto all participating carriers on a non-discriminatory basis,acknowledged that providing CRS data output was costly. Onecarrier that had a CRS ownership stake but participated in otherCRSs quantified this as nearly $700,000 per annum. With mostCRS vendors charging a flat rate for magnetic media output,many small to medium sized airlines, with considerably smallervolumes of business than those of larger airlines, were unable toafford to access potentially useful information about their ownbusinesses. Interviewees from non-owning airlines commentedthat fees were designed to “price everyone out of knowing their

Long Range Planning, vol 34 2001 125

CRS vendors

frequently changed

the format in which

the data were

supplied in an

attempt to hinder

competing carriers

Knowledge Facilitators and Inhibitors126

own business”, and one European carrier described the activitiesof North American CRS vendors as ‘anti-competitive’.

The huge sums required to secure large amounts of data, oftenin a form that made analysis and interpretation difficult, effec-tively acted as a barrier to anyone other than the owning carriers,even though vendors had technically acted in observance ofgovernment regulations and guidelines.

Information contentBilling support provides access to different types of data andinformation of potential use in planning and trend analysis, andsubsequently in organisational learning. Table 1 gives a break-down of the degree of detail provided to carriers and their own-ership status.

Virtually all carriers, irrespective of ownership status, receiveddetails of their own airline’s business taken through the system.However, a quarter of non-owning and half of owning carriersreported that they also received details of other airlines’ businesstaken through the system on competing routes. Statistically, own-ership status and each of the two types of billing support men-tioned here were not found to be significant. However, where adetailed summary of all other airlines’ business is provided, astatistically significant result is observed with owning carriersadvantaged over their non-owning counterparts. Access to infor-mation on other airlines’ business greatly assists CRS-owning air-lines in the development of competitive intelligence, while lack ofaccess for non-owning airlines again inhibits knowledge creation.

Information control, organisation context and knowledgecreationRespondents were asked to indicate their perceived level of con-trol (low, moderate or high) over the nature of the data received.As shown in Table 2, nearly 90 per cent of non-owning carrierscompared to 8 per cent of owning carriers perceived a low degreeof control. Conversely, 2 per cent of non-owning carriers butnearly 60 per cent of owning carriers indicated they had a highdegree of control over data received.

Statistically, a significant result is observed in relation to own-ing status and the higher degree of perceived control by owningairlines (p=0.0000, n=62). A similar result is apparent when look-

Table 1. Billing support detail by CRS ownership

Billing support detail Owners (%) Non-owners (%) p-value (n=64)

Detailed summary of own airline’s business taken 100 96 0.7501

through the system

Detailed statement of other airlines’ business taken 50 23 0.0615through the system only on routes on which own

airline operates

Detailed summary of all other airlines’ business taken 33 6 0.0006through the system

Table 2. Perceived degree of control by CRS ownership status

Non-ownersPerceived degree of control Owners (%)

(%)

Low 8 86

Moderate 33 12High 58 2

ing at the level of involvement variable and perceived control(p=0.0000, n=62). Collectively, these results lend weight to thenotion that opportunities for potential advantage appear bal-anced in favour of CRS-owning carriers. This was confirmed byone airline executive who stated that despite regulatory rules thatall airlines should be provided with the same type of CRS infor-mation, and in a similar format, “When you own it [the CRS]then you can get what you want.”

Table 3 gives a breakdown of the differences in approach ofowning and non-owning airlines to the dissemination of CRSinformation throughout their organisations. There is a statisti-cally significant association between ownership status and theexistence of a specialist department, but no statistical differencein the way in which owning and non-owning CRS carriers makesuch data available to authorised individuals within the organis-ation or provide general departmental access. The figures suggest,nevertheless, that owning airlines are more likely to disseminatethis information to any department requiring it, rather than lim-iting access to certain authorised individuals. On balance, wideraccess to analysed CRS data appears more prevalent amongstowning carriers, indicative of the learning culture pervadingthese organisations. In essence, CRS-owning airlines haveattempted to create an organisational learning context or ba, tofacilitate the creation of new knowledge.

Further analysis also indicated that CRS-owning carriers weremore likely to supply an analysis of reservations data to membersof their senior management teams than their non-owningcounterparts. Table 4 shows this breakdown more explicitly, anda statistically significant result (p=0.0000, n=62) is observedbetween ownership status and the frequency of supply of CRSdata to senior managers. Indeed, during the interview phase,

Table 3. Distribution of CRS data and ownership status

Distribution of CRS data Owners (%) Non-owners (%) p-value (n=62)

Specialist department exists to supply management 75 8 0.000

with information derived from CRSsInformation derived from CRSs may be accessed 67 42 0.1241

directly by any department requiring it

Information derived from CRSs may be accessed by 34 44 0.5013only a few authorised individuals

Long Range Planning, vol 34 2001 127

owning airlines are

more likely to

disseminate this

information rather

than limiting access

to certain

Knowledge Facilitators and Inhibitors128

Table 4. Frequency of supply of CRS analysis to senior managers byownership status

Frequency of supply of CRS analysis Owners (%) Non-owners(%)

Routinely supplied, with additional 50 3information available on request

Routinely supplied 25 10

Supplied only when requested 17 56Never supplied 8 32

interviewees from owning carriers consistently emphasised theimportance they attached to ensuring senior managers had accessto timely CRS information to assist in effective decision making.

Interviewees offered conflicting views on CRS data and infor-mation management. One respondent, perceived by the otherinterviewees as at the forefront of developing competitive appli-cations of CRS information, played down its benefits, preferringto focus on the problems of analysing vast amounts of tech-nology-generated data. However, acknowledgement was given toits ability to assist in yield management and pricing strategies ona flight-to-flight basis. The other carriers interviewed were cleareron its strategic importance, emphasising the role of CRS-gener-ated information in understanding a competitive market andenabling carriers to respond as quickly as possible. As one seniorairline executive stated, “Using CRSs as leverage is not new …to do a better job in the future depends upon how well we utiliseinformation and how well we train and mould this informationinto something that helps us to be … more competitive.” Inshort, the ability to use CRS-generated information to createcompetitive knowledge is closely linked to the airline providingan organisational learning culture or ba that is knowledge-facilit-ating.

ImplicationsThe study of airline-developed CRSs illustrates how the continu-ous development of new knowledge is fundamental to buildingand sustaining competitive advantage. In particular, the researchfindings emphasise the way in which its creation, visible at allthree phases of CRS development, has shifted from knowledgerelating to improved operations and the (now regulated)attempts to manipulate product and booking information viascreen display bias, to a more covert strategy designed to inhibitcompetitors’ ability to create knowledge through the owning car-riers’ control of the frequency, timeliness and form in which CRSinformation is communicated to rivals. While a changing regu-latory environment has resulted in an apparent transparency forall carriers, the actions, efforts and activities of CRS-owners haveensured that different groups of users have gained markedly dif-ferent value-added advantage from CRS-generated information.

The terms knowledge facilitators and knowledge inhibitors, intro-duced in this article, assist in explaining how CRS-owning air-lines have circumvented regulatory intervention and more soph-isticated competition to sustain competitive advantage throughthe dynamic nature of their information and knowledge systems.

Clearly, the ability of CRS-owning airlines to inhibit competi-tors’ capability to create new knowledge is closely linked to thecapacity of non-owning carriers to negate or counteract theimpact of the inhibitors. Previously, legislation has counteractedsome of the more explicit inhibitors, like screen bias, butdeveloping regulations to govern the use of knowledge as a com-petitive resource is a more complex issue, a view supported byseveral interviewees and confirmed by the US DOT representa-tive. Furthermore, as knowledge is context-specific in competi-tive terms, CRS-owning airlines have constantly sought todevelop new knowledge in order to sustain their superiority. Theability of CRS-owning airlines to develop an organisational learn-ing context or ba which is knowledge-facilitating while simul-taneously developing knowledge inhibitors, typically throughtheir control, manipulation, dissemination and management ofCRS information, has been a key element of their strategy andhas assisted in sustaining a competitive edge. This complementsexisting research suggesting that competitive advantage does notarise as a consequence of IT ownership alone, but as a result ofits application in a way that supports knowledge creation.27

The framework of knowledge facilitators and inhibitors is avaluable means of investigating the mechanisms that allow anorganisation to influence the creation and protection of sourcesof knowledge that give rise to competitive advantage. In this arti-cle, it permits a greater understanding of the complexities of oneaspect of competition within the airline industry by examiningthe increasing role played by CRS information and complemen-tary technologies in generating competitive advantage throughknowledge creation. Equally the value of the framework goesbeyond the airline industry and can be extended into mainstreamstrategic thinking on knowledge-based competitive advantage.

The creation and protection of knowledge is the key to deriv-ing and preserving competitive edge. While many of the featuresof the airline industry are unique, in particular that of screendisplay bias and the ‘halo’ effect, other regulated industries, forexample the financial services sector, rely heavily on third partycomputer-based information systems. Here, the potential forsuperior performance arises from an ability to create new knowl-edge more quickly than competitors by developing an organis-ational context that is knowledge-facilitating. This is highlydependent on management commitment and vision, togetherwith the organisational culture that exists within the company.Equally, an organisation can create knowledge inhibitors byrestricting competitors’ access to the information upon which itscompetitive advantage is based. For example, the capacity toinhibit competitors may arise where the provision of infor-mation, typically technology-generated and offered as part of a

Long Range Planning, vol 34 2001 129

the ability of CRS-

owning airlines to

inhibit competitors’

capability to create

new knowledge is

closely linked to the

capacity of non-

owning carriers to

negate the impact of

the inhibitors

The extent to which

competitive

advantage is

sustainable is closely

linked to the

importance attached

to information and

knowledge

Knowledge Facilitators and Inhibitors130

subscription service, is infrequently communicated to organis-ations and provided in a format that makes interpretation andanalysis difficult. Such inhibitors are particularly critical in sus-taining competitive advantage over time.

The extent to which competitive advantage is sustainable isclosely linked to the importance attached to information andknowledge within the organisation. Only then does discussion ofknowledge facilitators and inhibitors provide a means of examin-ing competitive performance. However, when referring to infor-mation, whether technology-generated or not, competitiveadvantage only arises when an organisation is able to generatenew and distinctive knowledge, which is heavily dependent uponthe organisation’s ba or learning context. More specifically, fourelements are central to the discussion of sustainability:

� the ability of an organisation to develop knowledge facilitatorswhich allow it to develop new knowledge more quickly thanits competitors;

� the ability of an organisation to develop knowledge inhibitorswhich limit the capability of competitors to develop newknowledge;

� the ability of competing organisations to develop or acquirethe knowledge which is the source of competitive edge; and

� the extent to which government regulatory or legislative inter-vention protects or disables the competitive potential of theknowledge.

Finally, while the research findings presented here provideweighty support for the ideas and inferences introduced in thisarticle, a number of potential limitations should be noted. Firstly,the data arising from the interview stage of this research reliedon senior executives and was highly dependent on respondents’understanding of the competitive applications of CRS-generatedinformation. While the results provide a rich and valuable insightinto this area, it is conceivable that there were variable levels ofcomprehension and understanding of the sensitive issues dis-cussed in this phase. Secondly, for reasons detailed in AppendixA, interviews were conducted solely with US airlines and, apartfrom the participatory phase and questionnaire survey, Europeanand Asian carriers were not included in this programme. Thirdly,the complex legislation surrounding the airline industry, andcompetitive advantage in particular, has proved a minefield forboth observers and regulators. Consequently, an article of thisnature can only highlight the pertinent issues of relevance tothe research conducted at various junctures, without offering adetailed discussion of the finer points of the regulatory safegu-ards governing the use of CRSs in the airline industry (see Exhi-bit 1).

ConclusionThe changing technological sources of advantage, characterisedby the three phases of internal seat inventory systems, subscriber

Exhibit 1. A Manager’s Guide to Ways of CreatingKnowledge Facilitators and InhibitorsIn general, the following features are relevant when developingknowledge facilitators and inhibitors. The structure of the sector and,in particular, the extent to which an organisation depends on othersin respect of information interchange and knowledge transfer, has agreater bearing on the ability of an organisation to create inhibitors.

FacilitatorsKnowledge facilitators, the means by which new knowledge iscreated through organisational learning, are developed byensuring the following.� Senior executives recognise the value of knowledge within an

organisation and its potential to influence competitive behaviour.� There is regular dissemination of relevant information to senior

managers to aid operational and strategic decision-making.� An organisational structure incorporating specialist departments

and knowledge specialists exists to analyse potentially useful datato support knowledge creation and sharing.

� An infrastructure is in place to assist the organisation inmanaging and exploiting its knowledge assets, thereby ensuringa faster reaction to market conditions than its competitors.

� Integrated technological systems are designed to allow intra-and inter-organisational knowledge transfer.

� A culture exists that empowers individuals and teams togenerate and share relevant knowledge in the workplace.

InhibitorsKnowledge inhibitors, the means by which an organisation’sknowledge assets are protected and a competitor’s ability toemulate this knowledge is limited, may be developed from:� creating financial barriers for other organisations by, for

example, charging (high) fees to access key information ofrelevance to their competitive performance;

� influencing the timing with which potentially usefulinformation is disseminated to other organisations;

� ensuring that the format in which information and knowledgeis transferred presents transcription and interpretationdifficulties for competitors;

� being selective with the information provided to other organisations.In more general terms, inhibitors are developed by:� devising knowledge dissemination and transfer procedures

designed to slow a competitor’s ability to respond in a timelyfashion;

� seeking alternative, but legal, ways to circumvent governmentor regulatory intervention;

� ensuring that knowledge developed within an organisation isprotected by retention of key personnel;

� developing innovative technological and organisationalknowledge systems that are difficult for competitors to replicate.

Long Range Planning, vol 34 2001 131

owning airlines

developed an

organisational context

favourable to

knowledge creation

Knowledge Facilitators and Inhibitors132

products and global distribution systems, have facilitated andinfluenced the way in which CRS-generated information hasbeen exploited to create knowledge to sustain competitive advan-tage.

In response to regulatory assaults on earlier advantage enjoyedby CRS-owning airlines, during phase three, the period coveredby the research presented in this article, airline alliances and thecreation of global distribution systems spawned new ways ofderiving a competitive edge. By recognising the value of CRSinformation in providing intelligence about their own and com-petitors’ activities, CRS-owning airlines became knowledge facili-tators. Equally, by devising practices and mechanisms designedto inhibit competing airlines’ abilities to exploit potentially valu-able CRS information, owning airlines were able to developknowledge inhibitors in an attempt to sustain their lead. Further-more, with emphasis placed on the exploitation of CRS infor-mation, and its management, owning airlines developed anorganisational context favourable to knowledge creation. Thisknowledge-facilitating context is evidenced by the greater pro-pensity of owning airlines to have a specialist departmentdevoted to the area of information and knowledge management,further leveraging competitive advantage.

The knowledge facilitator and inhibitor framework offers anattractive mechanism through which to analyse competitiveadvantage, since such an approach not only complements exist-ing ways of examining competitor behaviour but also adds a newdimension to evaluation. Furthermore, in the context of theknowledge-intensive and technology-dependent airline industry,it provides an opportunity to review existing approaches to strat-egy while, by reference to the research presented in this article,further enhancing our understanding of competition in a highlycomplex and dynamic sector.

As an analytical tool, such a framework encourages organis-ations to consider how they might protect attributes that contrib-ute to their distinctive knowledge by:

� developing a context which facilitates knowledge creationthrough organisational learning, and

� assessing their competitors’ potential to create similar knowl-edge and devising inhibitors that limit their ability to com-pete effectively.

Finally, advances in information and communications tech-nology, notably the Internet, digital television and mobile tel-ephony, herald the birth of a new phase, not only in the airlineindustry but also in other information-intensive sectors, by pro-viding an opportunity for organisations to develop competitiveknowledge through improved communication and identificationof their customers’ needs. Such developments are altering thetraditional channels of airline product distribution and new waysof interacting with potential customers are developing. In termsof capitalising on the information and knowledge derived from

technological systems, the ability to bypass traditional intermedi-aries and gain direct access to customers represents anotherpotential opportunity for CRS-owning airlines to create newadvantage by adding to previous evolutionary developments inthe dynamic applications of CRS information. In effect, the chal-lenge for airlines and other organisations is to ensure that anorganisational context exists that facilitates knowledge creationthrough organisational learning, as well as developing isolatingmechanisms or knowledge inhibitors that limit the capability ofcompetitors to replicate such knowledge.

Appendix A. Research methodA six-week period of participatory observation at a leading Euro-pean CRS vendor provided access to senior managers and directexposure to many of the major and complex issues affecting theairline industry. In turn, interaction with airline representatives,legislators, other CRS vendor organisations and travel organis-ations resulted in the creation of an industry-wide ‘key inform-ants network’, giving first hand exposure and face-to-face contactwith industry personnel and helping to establish the credibilityof the research team with an often-sceptical industry reluctantto discuss areas of commercial sensitivity.

Based on the observations and findings arising from the par-ticipatory phase, together with issues discussed with key inform-ants, a questionnaire survey was conducted to validate the con-cerns raised and assess the extent to which CRS-owning airlineshad exploited CRS-generated knowledge to gain competitiveadvantage. The questionnaire was distributed to 145 of the 217airlines registered with the International Civil Aviation Organis-ation at the time of the survey, covering those airlines with suf-ficient volumes of business to necessitate a technology-based res-ervations function.28

The questionnaire included a range of system-specific and gen-eral (non-system-specific) questions. More fundamentally, analy-sis centred on the distribution status adopted by the respondingcarrier, classified as:

� Display Schedule Only—details of the carrier’s schedules areavailable on the CRS but on-line reservations cannot be madethough the system.

� Participating—details of the carrier’s schedules are availableon the CRS and on-line reservations can be made throughthe system.

� Ownership Stake—the carrier indicated that they eitherwholly-owned or held an ownership stake in the CRS inaddition to participating in it.

A pilot survey was conducted and the sampled airlines cross-checked to ensure owning, participating and displaying carriers

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The authors would like toexpress their sincere thanks tothe various airlines thatparticipated in this research andthe senior executives whoprovided a candid and valuableinsight into the complex andsensitive issues surrounding thecompetitive applications of CRSinformation. We would also liketo thank the Editor and refereesfor their constructive commentsand supportive stance during thewriting of this article.

Knowledge Facilitators and Inhibitors134

were represented on the major CRSs. This resulted in a poorresponse which, upon investigation, was attributed to the sensi-tive area under discussion. After some amendments, and withthe aid of key informants, the questionnaire was distributed viaa meeting of the Civil Aviation Systems Management Association(CASMA), a group of senior personnel representing over 100international airlines with interest in CRSs. While reducing thenumbers in the original target group and acknowledging a biastowards airlines with CRS involvement, analysis showed rep-resentation of airlines adopting various different distributionoptions across the range of available CRSs. At the time of thesurvey, nine CRSs with a substantial foothold in the marketplaceexisted, namely Abacus, Amadeus, Apollo, Fantasia, Galileo,Gemini, Sabre, SystemOne, and Worldspan.

A further breakdown centred on:

� the general level of involvement the responding carrier heldacross all of the CRSs covered by the survey; and

� ownership (categorised as owning or non-owning).

The general level of involvement of a carrier was assessed byexamining the respondent’s distribution status across each of thenine CRSs. A carrier with an ownership stake was considered todisplay a higher level of involvement than a carrier with displayschedule only. An eleven-category ordinal variable, representinghigh to low involvement, was utilised for the purpose of analysis.A less sophisticated measure of the involvement of the respon-dents with the CRSs was based upon ownership alone. This sim-ple categorisation differentiated between ‘owners’ and ‘non-owners’, with the ensuing analysis treating this variable as dichot-omous. An owner was considered to be any carrier who hadindicated an ownership stake in any of the CRSs covered by thequestionnaire, regardless of its size.

Closed-ended questions were used predominantly, but respon-dents were given the option to add additional comments towardsthe end of the questionnaire, common concerns being followedup in the interview programme. Responses were coded appropri-ately and analysed using MINITAB software. As most variablesconsisted of two or three categories, tests of association werebased on the chi-squared distribution, with parametric tests con-sidered inappropriate. Both p-values and sample size (n) arereported here, the latter occasionally varying due to incompleteor missing data. Significant results are reported using a 0.1 percent significance level. To avoid excessive use of contingencytables for all the CRSs under consideration, summary tables aris-ing from the aggregation of the data were also utilised to clarifythe trends apparent in the data.

In the light of the questionnaire analysis, the key issues surfac-ing from the survey—specifically the link between CRSs and theadvantage derived for their owning carriers—were pursued infurther detail in the final phase of the research programmethrough face-to-face interviews. Having already gathered infor-

mation relating to a European CRS vendor, the interview pro-gramme centred on US CRS-owning carriers, responsible for themajority of developments in world CRS distribution. Six majorUS airlines (American, Continental, Delta, North West, Unitedand US Air) were selected, reflecting their ownership stake insome or all of the US CRS vendors (Covia (Apollo), Sabre, Sys-temOne and Worldspan). Asian CRS vendors were not includedas developments were in their infancy at this stage. However,Abacus, the largest Asian CRS vendor, subsequently formed linkswith Worldspan, operating its core through Worldspan’s CRS,which was covered in the interview programme.

Interviews were conducted with senior personnel at the levelof chairman, CEO, director of marketing and of distribution ateach of the six US carriers mentioned above. Interviewees weresent a list of topics of interest to the research team and, forcommercial reasons, anonymity guaranteed. In addition, aninterview with a senior adviser on CRS-related issues at the USDepartment of Transportation (DOT) was arranged to providefurther insight and an alternative perspective on the effect ofCRSs on airline industry competition.

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