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APPLICATION OF KNOWLEDGE MANAGEMENT IN THE MALAYSIAN AIRLINE INDUSTRY: A CRITICAL REVIEW Rain Low Swee Foon and Lum

Soo Eurn SEGi University College 9, JalanTeknologi, Taman Sains Selangor, Kota Damansara PJU5, 47810 Petaling Jaya E-mail: rainlow@segi.edu.my

ABSTRACT

Knowledge has been perceived as the key strategic asset of an organization in the current competitive and unprecedented business environment, particularly in the vulnerable airline industry which has been tremendously affected by the soaring world oil price. As the future success of airlines comes to depend on how quickly and flexibly airlines respond to changes in customer demand, an uncertain business environment as well as competitors’ challenges, greater emphasis needs to be placed on how knowledge management can bring competitive advantage for the organization in the form of superior operational effectiveness and strategic positioning. Knowledge management covers broad and multidimensional aspects like ICT, organizational learning, intellectual capital (human capital, relationship capital and structural capital), organization design (complex knowledge), and e-commerce. The literature review conducted shows that the application of knowledge management in the industry focuses mainly on the four major constructs, namely ICT, organizational learning, intellectual capital and knowledge sharing. The objective of this paper is to analyze the current use of knowledge management in the Malaysian airline industry and to provide a strategy for the future use of knowledge management in the industry.

1.0 INTRODUCTION Knowledge is a shared collection of principles, facts, skills and rules embodied within a firm’s knowledge assets through which competitive advantage is achieved (Stonehouse and Pemberton, 1999). Managing knowledge is a prerequisite for companies operating in today’s hyper-competitive and ever-changing environment whose survival and performance is dependent on their relative speed and ability to develop durable and adaptable knowledge-based competencies (Nonaka, 1991). Knowledge, while difficult to manage, is a strategic organizational asset (Shepard, 2000) and according to Nonaka (1991), is the only lasting source of competitive advantage. Knowledge can be specific or generic to varying degrees (Stonehouse and Pemberton, 1999). Specific knowledge is unique to the firm and as such, is a more likely source of competitive advantage and the basis of core competences compared to generic knowledge which is necessary for operating the business (Stonehouse and Pemberton, 1999).

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It comprises human resources (skills. suppliers. 2001). 2007). adaptable. Intellectual capital refers to intellectual materials that have been formalized. stored and disseminated to the right people at the right time. and leveraged to produce higher-valued assets (Klein and Prusak in Stewart. intellectual property. 1.The airline industry with its scale. web-based interfaces. Examples of KM-friendly organization culture are being innovative. partners. complexity. corporate culture. 1. tolerant of failure and supportive of superior performance. sharing information freely.2 Organizational Learning Organizational learning represents a conscious effort of the organization to develop and is a continuing and continuous process aimed at acquiring skills and knowledge (Pemberton and Stonehouse. 1. 13 . team-oriented. management style. and infrastructure context in which it takes place. Organizations learn as their individual members learn (Argyris and Schon. brands). But the willingness to share knowledge is dependent on organizational culture which is embedded within a firm’s structure. processed. in order to transfer and apply such knowledge to solve specific tasks better. flexible. stakeholder relationships (customers. and its dependence on knowledge and information as a source of competitive advantage makes an excellent case for demonstrating how Knowledge Management (KM) is used to gain competitive advantage. highly competitive and volatile nature. with appropriate rewards and incentives.1 Information and Communication Technology (ICT) ICT enables KM by allowing vast amounts of data to be captured. processes. the context can hasten or hamper the learning process (Pemberton and Stonehouse. structure. enthusiasm for the job. government). 1996) and individual learning is dependent on the organization’s cultural.4 Knowledge Sharing and Culture This process of KM identifies existing and accessible knowledge. the new business paradigm of knowledge is power and a knowledge-era global phenomenon has made intellectual capital more crucial than financial capital. problem solving. risk taking. This study specifically explores the following KM-related aspects in relation to the current and potential use of KM within the Malaysian airline industry. captured. 1. 1997). performance-oriented. trusting. and organizational resources (systems. stories and spaces (McDermott and O’Dell. 1999). competence). intranets. know-how. 1999). Internet technology. KM-friendly organization culture is a necessity for successful KM implementation. and portals are key KM infrastructures (Pemberton and Stonehouse. faster and cheaper than they would otherwise have been solved (Christensen. 1999).3 Intellectual Capital In the competitive business landscape of the 21st century.

extending to tour operations. where it consists of one full service carrier (FSC) Malaysia Airline System (MAS) and two no-frills carriers. 60-70 percent cheaper than MAS’s fares One product: low fare Small pitch. offers reliability Complementary extras Medium to high: union contracts Low turnaround: congestion/ labor Multiple types: scheduling complexities Focus on the primary product Extensions: e.g. MAS follows a differentiation strategy and charges a fare premium. cargo 14 . 2005) Product Seating Class segmentation Check-in Airport Distribution Connections Ticketless Secondary (mostly) Online and direct booking Point-to-point Customer service Inflight Aircraft utilization Turnaround time Aircraft Ancillary revenue Operational activities Generally underperforms Pay for amenities Very high 25 minutes Single type: commonality Advertising. AirAsia uses a cost leadership strategy. cargo Table 1: Product Features of Airasia and MAS (O’Connell and Williams.0 INDUSTRY ANALYSIS The Malaysian airline industry is in an oligopoly market structure. global alliances (hub-tospoke) Full service. MAS and AirAsia operate on different business models. seat assignments Two class (dilution of seating capacity Ticketless. Due to their different strategic positioning. financial services. travel agent Interlining. namely AirAsia and Firefly. Product features Brand Fares AirAsia (LCC) One brand: low fare Simplified fare structure. The Malaysian airline industry is tightly regulated by the government and was dominated by the state-controlled MAS before the government’s domestic liberalization exercise opened up the market to allow AirAsia to join the industry. In contrast. Table 1 provides a summary of the main differentiating characteristics between MAS and AirAsia. As a full service carrier (FSC). code share. AirAsia and MAS differ in their customer value propositions as well as target market segments.2. IATA ticket contract Primary Online. on-board sales Core (flying). direct. Following Porter’s (2001) generic competitive strategy. free seating One class (high density) MAS (FSC) Brand extensions: fare+service Complex fare: structure+yield management Multiple integrated product Generous pitch. maintenance.

Competition between the two is intensifying as both begin to move into each others’ core markets and engage in price-cutting measures. 2001). has struggled financially in the past and has only recently completed its business turnaround exercise. 2007). declining yields and increased foreign competition paints a long and difficult road ahead for both airlines. AirAsia has set up a new franchise airline.2 million to 7 million passengers within 2 years) and minimize costs as a direct sales engine by eliminating commissions paid to travel agents and ticketing and handling costs (AirAsia. AirAsia X to service long-haul routes and as a defensive move MAS has set up its own LCC. improve data management and increase its HR division’s efficiency (MAS. 3. and knowledge sharing are also employed within the industry. See Appendix 1for on how ICT enables connectivity to multiple direct sales channels in the aviation industry. Its low cost strategy and successful positioning strategy in Asian market that has putting it as the market leader in the Asian airline industry. 2007). AirAsia had successfully stimulated and captured the growth of discretionary air travel traffic by targeting mostly first-time travelers and budget leisure travelers. in addition to the airline industry’s turbulent operating conditions. 2007). mobile work. MAS’s new Integrated Human Resource Management System has helped it to reduce administration costs.5 million passengers compared to MAS’s 5. The systems also play a pivotal role in generating and integrating information assets into organizational decision-making and a knowledge building process which helps to improve airlines’ value chains and operational efficiency. AirAsia has realized increased revenue (3-4%) for the same number of aircrafts by leveraging on computer forecasted high/ low demand patterns that effectively shift demand from low to high periods and by charging a premium for late bookings (Kho et al. business process management (BPM). 2005). Competitive advantage will have to be gained through operational effectiveness and strategic positioning (Porter. The CRS helps to fuel AirAsia’s dramatic growth (from 2. and enterprise resource planning system (ERP). AirAsia is currently the leading domestic carrier with 6. computer reservation system (CRS). The business expansion was tremendous and has since captured a significant market share in South East Asian countries. MAS. MAS’s e-ticketing is to save it RM 19 per ticket and e-CRM is helping it to manage its frequent flyer loyalty program and utilize customer database more effectively (MAS.4 million. Firefly (Thomas.0 CURRENT USE OF KNOWLEDGE MANAGEMENT IN THE MALAYSIAN AIRLINE INDUSTRY 3. Moving on. business intelligence. Other KM technologies such as collaboration.1 Information Communication Technology The modern airline industry is dependent on ICT for its operations. Meanwhile. despite being an award-winning airline. content management. MAS is embarking on a business transformation to secure its future competitive position.. 15 . namely the yield management system (YMS). YMS helps airlines to maximize revenue for each flight and is instrumental in improving MAS’s previously poor yields. This. 2008).In year 2001.

AirAsia and MAS have emerged from their respective double-loop (Argyris and Schon. MAS is using its knowledge from the recently ended business turnaround exercise to improve its future competitiveness. Through Firefly. Going further. 2005). 2007). current. Meanwhile. 2007). will lead to improved organizational performance. AirAsia is generating new competences centered on industry learning by adding financial services. performance targets and adopting best practices. they are learning to cope with the difficult operating conditions faced by many global airline companies. Staff is a key aspect of knowledge management as knowledge is developed and controlled by them.2 Organizational Learning MAS and AirAsia are continuously learning to gain knowledge. MAS. after its successful business turnaround is learning to internalize the new ways of working whereas AirAsia is learning to cope with its market expansion and cost efficiency. people.3. and tour and accommodation to its product offer. It has clear policies and guidelines covering all areas of flight operations. Both airlines are now engaging in a promotional price war via their company websites. Together. Efforts are aimed towards improving the cost structure through more effective yield management and better fuel hedging strategies. MAS’s internal division facilitated the replacement of its severely inadequate legacy accounting system to result in improved quality and timeliness of information for management decision-making and significant reduction in manpower (MAS. It is also expanding into long-haul flight operations through a new franchise airline. 1992) with new ways of doing things and new business opportunities. It has set up Firefly. standards. 16 . AirAsia. that when applied. MAS’s e-learning portal provides it with personalized. MAS also intends to learn the knowhow of managing a low-cost operation before adopting Firefly’s processes into MAS (MAS. the organizational learning context consists of three elements. Technology also forms the basis of airlines’ distribution model. According to Ingram and Baum (1997). resulting in rapid learning and greater intelligence that will lead to the generation and sustenance of competitive advantage. with its aim to become the lowest cost airline in every market that it serves is relentless in cutting costs. KM has helped both airlines to continuously improve their operational effectiveness by setting procedures. organizations can learn from their own and their industry’s experience which MAS did with its diverse business committee team. Its pilots have managed to lower fuel consumption by 20 % and doubled the landings it gets from the tires (Ricart and Wang. Both airlines use an integrated performance management system to improve staff competency and secure future talent. a new budget airline to compete more effectively with AirAsia. Pemberton and Stonehouse (1999) assert that only those businesses that keep abreast with technological developments will be able to manage knowledge effectively. processes and technology. and user-centric educational activities via consolidated access to learning and training resources from multiple sources. MAS and AirAsia both own training academies as part of their human capital development plans and have made leadership development a priority. timely. Technology plays a major role in KM. 1978) and generative learning (Senge.

4 Knowledge Sharing and Culture Airlines share knowledge with both internal members and external parties such as financial institutions. Through code-sharing and inter-linking 17 . MAS has taken a more proactive approach in engaging its stakeholders (government. and performance management across its global workforce.3 Intellectual Capital Analysis on the intellectual capital in the Malaysian airline industry can be grouped into three different perspectives. Both leverage on their respective expertise in training and development (AirAsia) and aircraft maintenance and services (MAS. which is low-cost. MAS is moving towards greater employee empowerment and involvement and is using web-based talent management solutions to support compliance training. especially in the airline industry. As a result. AirAsia trains its employees to be innovative multitaskers and team players. tour and accommodation. AirAsia regards its AirAsia brand as a valuable asset and has been aggressively promoting it using bold branding strategies such as high-profile sports sponsorships (such as Formula One racing and Manchester United Football Club). commercial partners. and charity and community projects to raise brand awareness in both its current operating and non-operating markets. indeed started its business by tackling the basic flight passengers’ need. It has also leveraged its powerful brand and branding expertise to diversify into financial services. and customers to establish a powerful network which they can leverage to their advantage. Meanwhile. In terms of the human resources aspect. government. In other words. international partners and suppliers have been critical success factors to the company especially in supporting its business development and planning strategies. reporting. issues and plans using a variety of means such as the media and intranet to raise their company profiles and improve communication with employees.3. Both airlines also actively engage their stakeholders in their performance. AirAsia’s excellent negotiation and lobbying skills with governments. AirAsia also stresses internal recruitment and relies on its Human Resources Department for this. airport authorities. They are human resources. Both airlines have taken steps to protect their intellectual capital in the event of staff turnover by having succession plans for key personnel. 3. AirAsia) to perform third party work to generate additional profit streams. AirAsia’s people play a key role in the success of its low-cost business model. 2007b). MAS has entered into various new code-sharing partnership agreements with other airlines as well as establishing a Suppliers’ Forum for supplier relationship management. AirAsia possessed the knowledge capabilities of identifying what customers want. suppliers. AirAsia. stakeholder relationship and organizational resources. MAS is using its established premium airline brand to attract and retain more passengers. partners and suppliers) through a new External Relations Department to help meet its various interests. and offered the routes which were not effectively served competitors. Maintaining favorable relationships with stakeholders is paramount for any businesses. as well as efficiently increasing flight frequencies in established and high growth markets. creating profitable routes under-served by other airlines within South-East Asia. Meanwhile. where stakeholders yield considerable power. MAS’s revenue from third party work grew from RM 100 million in 2005 to RM 300 million in 2007 (MAS.

effective consensus building and teamwork. improve customer-based knowledge and value-driven relationship building. AirAsia has always practiced open management and provides above average industry disclosure (AirAsia. 2006). airlines face critical problems and serious challenges (Doganis. value-added customized products and services. process. store and disseminate knowledge to organization members and other authorized parties. Competitive advantage as mentioned by Porter (2001) can be achieved through operational effectiveness and strategic positioning. MAS has stressed on open and honest communication.. (2004) are imperative factors for knowledge sharing to take place. It is believe that ICT will continue to be the central element in most knowledge management implementations in this competitive market. 2004). flatter organization structures and supportive information systems are evident in the corporate culture of both airlines and according to Al-Alawi et al. New knowledge (especially strategies) has to develop regularly in order to stay competitive in the industry. since its takeover. constant communication and disclosure of business plans to employees. Instant messaging. This will enable employees to locate a network 18 . to make better informed decisions. The firm’s unique knowledge provides the main source of its competitive advantage. Meanwhile. Communication. cross-functional business committee teams. allowing it to combine conventional resources in distinctive ways and provide superior value to customers (Saito et al. helps to facilitate knowledge sharing. Its CEO heads the special committee tasked with transforming MAS’s corporate culture and sends emails to employees in his effort to communicate his new vision for the company’s culture. Moreover. AirAsia’s informal team culture also helps organizational members to bond.0 STRATEGIES FOR THE FUTURE USE OF KNOWLEDGE MANAGEMENT Effective implementation and application of KM among organizations are critical in the current knowledge-based economy. ICT will assist airlines in enhancing their transaction-data processing. 2007). which according to Nonaka (1994). provide individuals with tailored learning for more effective knowledge transfer. and expertise location applications for example. chat rooms. Silo mentality is counterproductive to the sharing of knowledge as the focus is inward and information communication is vertical. Social networks that form the basis of an online corporate-wide directory are embedded with instant messaging and e-mail links that provides a valuable resource for employees that go beyond the corporate directory (Powers. Through the integration of knowledge management system and customer relationship management system. memos and bulletin boards to breakdown communication barriers. MAS and AirAsia are using their intranet and other informal communication channels such as email. 4. capture. ICT will support both codification and personalization knowledge management strategy which it is used to create. 2006). The future success of airlines will be largely dependent on how quickly and flexibly airlines respond to both competitive and market changes (Franke. Acknowledging this.with other airlines MAS has established a well-balanced network that covers all of its key markets and this has had a direct positive impact on its bottom line. 2007). in the current climate of continuous change and uncertainty. ICT will help airlines to automate and streamline processes to reduce complexity and costs as well as to provide greater convenience to the transportation of passengers and freight. trust. This includes setting up a formal whistle-blowing policy.

strategic alliances. Acquiring knowledge workers is also the core factor for airlines to achieve and sustain competitive advantage. training and development. knowledge sharing. According to Honey and Mumford (1989). and learning from direct experiences. shares and distributes the knowledge (knowledge diffusion) as well as regularly monitoring and accessing the necessity of new knowledge development. identifies and refines various ideas and principles into specific outcomes (knowledge conversion). This can be achieved through many means such as acquiring more knowledge workers. The CKO identifies the organization’s knowledge needs (knowledge sourcing). and discussion forums that all support the business and provides a place for staff to access and retrieve knowledge. organizational learning must be carefully charted and be given a strategic perspective by knowledge experts such as a Chief Knowledge Officer (CKO). during and after any event (Science Applications International Corporation (SAIC). This however will not truly give airlines the competitive advantage that they seek from their learning processes. Successful KM leaders like BP use the framework to capture lessons before. corporate intelligence. Knowledge workers are value creators and value adders to organizations. It is highly useful for airlines to adopt a learning cycle framework which combines both active and passive stages of learning. However. The learning process can be supported by simple process tools embedded within the company’s intranet with lessons arising from the learning loop agreed and distilled by a community of peers across the organization that has a stake in agreeing and defining organizational best practice (SAIC. where they represent a living focus for the company’s experience around strategic and operational areas (SAIC. the learning process will help organizations to learn more effectively.. Organizational learning is vital as airlines seek to acquire new knowledge and upgrade their core competences in order to give them competitive advantage over rivals. finds ways to meet that need (knowledge abstract). achieve competitive advantage. Promising technologies like radio-frequency identification (RFID) when realized will also bring significant improvements to FSC’s baggage handling system (MAS. and their major contributions come from their abilities to process and apply knowledge and information (McFarlane. 2007). 2008). 2008). communication and collaboration technologies like video conferencing and groupware will assist knowledge creation at the group level (Saito et al. Another ICT device. In order to achieve this. Continued advancements in pricing and revenue optimization system will help airlines to maintain their competitiveness and increase their profit margin. local airlines need to assign dedicated experts such as a CKO to leverage organization-wide knowledge. ICT based knowledge management system needs to be combined with learning from direct experience. Both specific and generic lessons are then incorporated into special folders on the corporate intranet. benchmarking. e-learning. 2007b). In order to fully capitalize on the vast amount of knowledge captured within their knowledge repositories. 2008).of experts to collaborate with or get help from better informed people to solve business problems or form communities of practice. In short. 2008) to create distinctive advantage for organizations and thus. for strategically important knowledge to be distributed rapidly around organizations. key resources. the asset management solution is a knowledge sharing program which has a series of repositories that contains intellectual capital. The creation of a CKO position also sends an important signal to 19 .

live chat rooms.friendly organization structure with an existing strong knowledge culture. the practice of knowledge sharing is still at an early stage. focusing on the speed and manner in which information is being collected. The amount of information created is overwhelming and the knowledge produced has become more complex and complicated. 1999). employee education. at the right time and right place and how airlines will best respond to such information in competitive terms. processed and disseminated to the right people. flexible organization structure and motivate their people to share knowledge by rewarding those who contribute useful information into the system. airlines need to preserve their corporate memory by capturing knowledge and facilitating the transfer of both explicit and implicit knowledge between staff (Al-Hawamdeh. meetings.0 CONCLUSION The knowledge era business environment has made businesses heavily reliant on knowledge to stay competitive in an industry. airlines will also need to maintain their lean. and podcasts will help to breakdown hierarchical barriers and promote informal communication channels. 1998). KM will continue to play a critical role in managing customer relationship and competitive intelligence (Al-Hawamdeh. trust and teamwork. Knowledge repositories will continue to be of importance to airlines and in the near future should include lessons learnt from best and worst practices and other relevant information. and appropriate reward systems. This paper discusses the basic. 2002). this can only be implemented effectively within a knowledge. Their oblique approach to KM does not necessarily mean KM is being perceived as of low importance in the industry. Social networks whose features include message boards. learning logs. and transfer organizational knowledge. Hence future KM efforts will see the implementation of groupware that will promote greater collaborative efforts and assist in creating and supporting communities of shared interest and information need. Although the industry has been promoting a culture of transparency. Great concern has been raised regarding the protection of potential intellectual capital lost due to staff turnover (DeLong. leadership by example. coordinate. This can be done through various means such as corporate-wide campaigns. mentoring. blogs. but rather as something that 20 . Airlines will also be looking into how to encourage knowledge sharing within the organization and build a supportive culture to enable this. As most KM models are formed in the context of Western framework and management practices. yet important aspects of KM for the airline industry. Our literature studies concluded that generic knowledge is necessary to run the industry’s complex daily operations whereas specific knowledge is imperative for airlines’ competitive advantage. 2004) and to ensure continued organizational effectiveness. However.the organization that knowledge is an asset to be shared and managed (Stuller. local airlines may need to raise awareness and understanding of KM in order to reduce people’s reluctance to share their knowledge (Chowdhury. 5. 2006). This will in turn help to create. MAS and AirAsia. 2002). A knowledge transfer department or other infrastructure should also be considered to oversee the development and maintenance of the organization’s knowledge base (Liebowitz. In order to ensure a knowledge sharing culture. which operate in an oligopoly market structure in Malaysia practice KM to support their respective competitive business and strategies. Possible KM tools and techniques to deal with this problem include the use of ICT. and job profiling.

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5 April 2005) 24 .Appendix 1 (Centre for Asia Pacific Aviation.