2004 IEEE Aerospace Conference Proceedings

Critical Capabilities and Performance in the Aerospace

Industry: a Knowledge Management Approach13
Agostino La Bella
0672597122
labella@disp.uniroma2.it
Daniela Canzano
06 7259 7205
canzano@disp.uniroma2.it
Michele Grimaldi
06 7259 7205
grimaldi@disp.uniroma2.it
Dipartimento di Ingegneria dell’lmpresa
Universiti degli Studi di Roma “Tor Vergata”
Via del Politecnico 1, 00133 Roma

Abstract--This paper focuses on new organizational

systems, structures and processes necessary to strategic INTRODUCTION
resources management in the aerospace sector. In such a
continuously changing business environment, the most
important aspects to take into consideration concern the In a globalizing industry, where the struggle for trade is
identification, the coordination and the allocation of intense, competencies, relations and capabilities are
strategic capabilities and knowledge resources. A new important sources of competitive advantage and profits. As
knowledge management approach is suggested in order to matters of fact, the ability of satisfying customer needs is
identify the appropriate modality for capabilities integration. strictly connected with the integration of technologies,
The analysis has been focused on the strengths and resources, organizational functions and core processes. This
weaknesses of the conventional approach. Reasons for the aspect cannot be considered separately from the emerging
proposed approach to be adopted by aerospace companies new patterns of industrial relations, which have evolved in
to obtain better organizational results are explained. response to changing market requirements: in the last years,
Specific attention is directed to knowledge sharing indeed, mergers, acquisitions, joint ventures and alliances
activities, tools and policies and to their facilitating role in have substituted typical relationship among subcontractors,
improving communication and skills development. The in order to share and combine every kind of resources and
main dimensions of performance, their critical factors and to develop the necessary competencies.
their link with people management practices are also
analyzed. The management in the aerospace sector requires specific
knowledge and capabilities, which represent necessary
factors for companies to reach a distinctive position and to
TABLE
OF CONTENTS achieve business goals: with this aim, human resource skills
development and management represent successful critical
elements. In fact, the employees’ technical and scientific
1. INTRODUCTION 1 skills should be supported by an excellent organization,
2. STRATEGIC MA E connected with the appropriate R&D investments and
SECTOR 2 correctly integrated in a well defined strategic direction.
3 . mCAPABILITIES
~ AND STRATEGY 3 According to Penrose [I], a company should develop and
4. A KNOWLEDGE MANAGEMENT APPROACH
TO include its own knowledge and competencies in a strategic
perspective to improve the economic performance. It should
include these resources in the organizational context [2], in
6. CONCLUSIONS ............................... 7 order to coordinate and re-adapt other productive factors.
.........
REFERENCES ............................... 7
With this aim, it is necessary to integrate the knowledge

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assets and to take them into account in the strategic
planning process [3].
The importance of capabilities integration and its link with
business performance have been always recognized this has
led aerospace companies to spend relevant management
efforts towards this direction. But, within this context,
which is characterized by high competition and where tacit
knowledge assumes a relevant role, it is fundamental to pay
attention to skills development and communication
improvement. Indeed, tacit knowledge needs to be diffused
within the organization and converted into an explicit form:
knowledge management activities should he directed
towards the creation of a working environment in which
knowledge sharing and social interactions are facilitated. It
is argued that “more effective workplaces are likely to be
characterised by high levels of team working, broad grade
structures, more attention to quality improvement, high
levels of communication and involvement, as well as
feedback and rewards linked to employee and
organisational performance” [4].
As a result of that, it is necessary to provide an approach
which enables companies to create a stimulating
environment, able to favour every profitable knowledge
management activity. Thus, it becomes fundamental to
identify and implement particular policies and practices that
allow companies to take the maximum advantage of the
available capabilities.
2.STRATEGIC MANAGEMENT IN THE
SECTOR
AEROSPACE
In the last years, the increase of global competition and
progressive aggregation of multinational groups have made
some operational conditions of hi-tech industries worse.
Specifically, the aerospace sector was heavily concerned.
Aerospace is an industry where new organizational systems,
structures and processes are emerging to transform accepted
models of business operations and strategy [ 5 ] : its typical
characteristics, such as low delivery times, harriers to
market entry, high technological performance standard and
considerable learning economies, should he considered
more critical than in the past. As a consequence, the
business processes have been re-considered in a new
strategic perspective, in order to optimize the resources
utilization and to satisfy market requirements.
The industrial collaborations with suppliers have been
revised to increase knowledge sharing activities, to renew
competences and to improve competitiveness. Focus on
core competencies and trend to outsource other
manufacturing activities have replaced the traditional
tendency for prime manufacturers towards vertical
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integration and limited use of “sub-contractors only to cope
with peaks in workload” [6]. Indeed, for many years,
aerospace prime contractors, assemblers and systems
integrators “have played the dominant role in co-
coordinating the value chain top-down” [SI, because of the
primary function of outsourcing; instead, the most of the
risk associated with R&D activities and technology
innovations was handled exclusively by prime contractors.
At present, partners in supply chain are attempting to share
the risk, involving also other participants and, in particular,
systems integrators.
As a result of that, the most important aspect to take into
consideration is connected with the recognition and the
correct allocation of the strategic available capabilities in
the whole supply chain.
A possible approach to facilitate companies in capabilities
identification is represented by the resource-based view.
According to this theory, a company develops unique
capabilities as a consequence of its own specific activities
and the set of these capabilities represents the source of the
competitive advantage and the main factor at the base of
profitability. This view promotes the development of “core
competences”, which are impossihle to he substituted and
difficult to he imitated by competitors: thus, the competitive
advantage becomes sustainable [7, 8,9].
But, the resource-based view provides only a “static”
representation of the “process by which core competences
are built or lost” [7] and does not take into account the
importance of the continuous development of the
competences neither their reconfiguration. The solution to
these limitations consists in an approach, based on
“dynamic capabilities”, which exceeds the simple utilization
of existing resources and cares for the analysis of their
renewal and development. But this theory is only a dynamic
evolution of the resource-based view: the starting
hypotheses are substantially the same. On the base of these
theories, the knowledge-based view assesses that
competitive advantage depends on knowledge assets
management and, above all, on their particular function of
coordinating each other asset. This approach has led many
companies, and also the aerospace ones, to revise their
strategic planning process.
For decades, in the aerospace industry, the business strategy
was implemented only after having formulated it in the
details; besides, the implementation and formulation
processes were separately considered [lo]: the threat, for
the aerospace companies, is not related only to the difficulty
or the impossibility of reaching business goals, but also to
inaccurate resources allocation. By adopting this particular
strategic planning process, learning activities were limited
the companies operated in a “static perspective” and were
not able to build strategic flexibility or to reconfigure their
capabilities, In this way, the achievement of a competitive
position in an uncertain and complex environment, such as
the aerospace sector, was precluded
It is argued that the strategic planning process should
consider not only tangible assets, but also all the intangible
ones, which allow companies to be competitive in industrial
environments, such as hi-tech and knowledge-intensive
industries. As a matter of fact, possession of tangible and
intangible resources does not guarantee, by itself, the
achievement of the competitive advantage, which requires,
instead, a proper coordination and utilization.
3 . U Y CAPABILITIES AND STRATEGY
In order to define the most appropriate business strategy and
to achieve a distinctive position, aerospace companies
should recognize which resources are critical and important
to be managed. Also, it is important to note that, “while the
term resources usually refer to financial, technological,
physical and human assets, capabilities comprise an
organization’s capacity to deploy its own resources” [ I l ,
121.
Intangible assets have become strategic resources within
many industries, thanks to some of their peculiar features,
applicable also to the aerospace sector. First of all, through
the implementation of the right knowledge management
initiatives, employees’ knowledge and capabilities become
organizational property: in this way, these resources can he
considered non-deteriorable with non-decreasing returns to
scale. In addition to that, the knowledge embedded within
an organization is always different from that belonging to
other organizations, thus making one particular firm well
distinguished from its competitors. Finally, knowledge is a
difficult-to-imitate resource which cannot he purchased in a
ready-to-utilize form [13]. Indeed, people knowledge
capabilities are expressed both by human capital and
organizational structure and assume an essential role in
adapting to the business environment requirements. These
capabilities represent evidence of the organizational
communication and culture; they strongly tend to interface
with the business [5]. Consequently, they can be managed
more strategically only in presence of a clear link to
business strategy.
A brief listing of the most effective capabilities that can be
recognized as key factor to obtain competitive advantage
includes:
- technological capabilities;
- customer and supplier contractual aspects;
- collaborative links with suppliers;
- self-reinforcing capabilities;
- scientific and technological level of personnel
skills.
Certainly, technological capabilities are an essential key
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factor in the aerospace sector, hut they are not sufficient to
maintain high levels of competitiveness [IZ]. It is likewise
fundamental to associate the technological capabilities with
new technical and product solutions as well as the ability of
integrating the product into systems or sub-systems [j].
Another important capability is associated with customer
and supplier contractual aspects, which assume a relevant
role when re-negotiation offers opportunities to redesign
business operations where price, delivery and quantity are
considered. In this situation, indeed, it is necessary the
development of capabilities to design and define mutually
beneficial contracts: through these capabilities, negative
effects generated from the impossibility of formulating
complete contracts and from the asymmetry, due to different
contractual powers, can he reduced.
A relevant capability, strictly connected to the previous one,
concerns the valuation and optimization of collaborative
links with suppliers. In the aerospace sector, supply chain
performance constitutes a key factor: the optimization of the
supply chain structures and the pro-active management of
supply chain relations “are systems skills for managing
flows of information and goods” [ 5 ] .
It is important not to neglect the significance of the self-
reinforcing capabilities, connected to the exploitation of the
past history of the company, in terms of financial and
economic solidity, or of the image and the reputation among
suppliers and customers. This kind of assets represents
skills difficult to achieve, hut very easy to lose.
Another fundamental capability is the scientific and
technological level of personnel skills. It assumes a great
importance in the hi-tech environment in which aerospace
companies operate; moreover, they can be identified as
fundamental strategic assets in each supply chain
relationship. From this point of view, technological
scanning assumes a relevant role in securing the acquisition
and the maintenance of the necessary level of skills and
competencies. Finally, it is important to note that, in the
aerospace context, a sustainable competitive advantage
should be based on the ability to respond to customer needs
and to take advantage of new business opportunities:
therefore, aerospace employers should improve employees’
skills base continuously, taking into account the future
development of their competences [14].
4.A KNOWLEDGE MANAGEMENT APPROACH
TO SUCCESSFUL
PERFORMANCE
Aerospace companies should possess all the above
mentioned capabilities in order to pursue high levels of
performance. The integration of capabilities has been
always recognized as the answer to this requirement.
Modalities for capabilities integration in the last years have
changed: it is possible to characterize this evolution as a
transition from a “conventional approach” to a new one that
will be identified as the “knowledge management
approach”.
Up to few years ago, the integration engine was provided
only by managerial skills, which covered the role of
integrating and combining other capabilities (Fig. I).
Managerial skills significance can be explained in terms of
organization and inteption of every important activity and
in terms of the ability to maintain long term relations with
every stakeholder and, in particular, with customers and
suppliers. Management was severely involved in the
integration process and, consequently, the opportunity for
strategic decisions and initiatives was restricted. Its
engagement was directed in externalising organizational
capabilities and knowledge into explicit form and in
implementing knowledge sharing policies, mainly through
collaborative links with suppliers and, sometimes, with
customers. Directly depending on this, it is possible to make
two considerations. First of all, most of the knowledge in
aerospace companies is tacit and only few of it can be made
explicit and, consequently, transferred into documents and
repositories available for their utilization within the
organization. Secondly, in the conventional approach,
knowledge sharing policies are focused mainly on external
relations. They concern only marginally internal resources
and knowledge embedded within the organization, which,
instead, constitute the distinctive factors for
competitiveness.
\ /
Figure 1 - Capabilities Integration
The “knowledge management approach”, instead, focuses
on a knowledge sharing framework for capabilities
integration. In this approach, even if managerial skills play
an important role, as in the conventional approach,
capabilities integration is primarily realized with the support
of knowledge sharing structures, policies and practices.
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3965
These tools should be able to integrate all kinds of
knowledge, including the tacit component, so relevant in the
aerospace context. The purpose of the knowledge
management approach is that of creating a stimulating
environment for knowledge creation and diffusion, where
informal communication replaces written documents and
favours knowledge sharing, not only among organizational
members, but also with external stakeholders [15].
Through this organizational revision, both managerial
functions and structure evolve towards a more strategic role,
increasing delegation power and de-centralization structure
flexibility. This new organizational focus is pointed to
specific business goals and allows companies to take
advantage of their own core competencies, capabilities and
knowledge: according to Thompson [6], “a more skilled
organisation is a more agile organisation”. In addition to
that, companies can also improve the ability to respond to
market opportunities and fluctuations and in developing
new products.
Many authors underline the importance of knowledge
management in order to achieve business goals more
quickly and efficiently 112, 16, 171 and, therefore,
emphasise the necessity of defining a knowledge strategy. A
knowledge strategy concerns all the initiatives and actions
necessary to align the available knowledge resources to
those required in order to implement business strategy [13].
It is important to consider that the knowledge strategy
should be linked with the business strategy to take the
maximum advantage of knowledge management efforts. In
particular, the former should be led by the latter and not
vice versa [13, 171. Consequently, the knowledge strategy is
focused on the development of the knowledge resources
necessary to support the business strategy. That guarantees
the identification of the necessary “individual and
community knowledge resources, organizational learning,
unique and embedded routines and practices, intellectual
property and intangible capital” [18].
In order to define a knowledge strategy, first of all, it is
essential for the company to perform a knowledge audit in
order to “inventory its intellectual capital assets” [19]. A
knowledge audit enables organizations to identify the
existing knowledge in a specific area and to perform an
internal and external gap analysis. Internally, through this
analysis, it is possible to identify the critical areas in which
knowledge and capabilities require an improvement and a
re-organization. These areas are characterized by the
presence of a knowledge internal gap, which derives from
the difference between the knowledge possessed and that
necessary to achieve business goals. It is also possible to
cany out a benchmark in order to identify the existence of
an external gap, i.e. a divergence between the knowledge
embedded in the organization and the knowledge of
competitors. Through the gap analysis, companies can also
identify both unutilized knowledge and the areas in which
their knowledge resources are superior to those of
competitors (knowledge surplus) [ZO].
Once the company has recognized its knowledge position,
through the knowledge audit, it is able to define the suitable
initiatives to eliminate the gaps and to exploit the surplus. In
particular, these activities should be focused on some
targets, such as:
- identifying future requirements of its industry;
- capturing non-externalized knowledge and
capabilities of organizational members;
- retaining all the available knowledge;
- constituting a repository of organizational
knowledge with individual and distributed
knowledge;
- improving organizational knowledge
dissemination.
Existing knowledge gaps can be closed through the
acquisition from the external environment or the internal
development of new knowledge and competencies. It is
important to consider that it is not always possible to
acquire knowledge externally. First of all, the required
knowledge could not exist at all externally and, therefore,
would need to be developed internally. Besides, if it existed,
competitors could be adverse to disseminate their own
knowledge because of the risk of loosing their competitive
advantage. As a consequence, the available knowledge is
sureIy not useful to reach a competitive position. Therefore,
to eliminate the above mentioned gaps, it is necessary to
acquire, develop, store and catalogue knowledge by
increaqing skill development practices and trainibg.
5.THE DIMENSIONS
OF PERFORMANCE
The above issues should lead companies to promote the
development of employees' attitudes and skills by
facilitating the co-operation of the workforce in sharing

Table 1. Thompson's and Ashton & Sung's Classifications

THOMPSON'S PRACTICES [6] ASHTON & SUNG'S PRACTICES [2 I]

Work desim and employee involvement

High Involvement - Self-directed teams
- Semi-autonomous team working - Teamworking
- Continuous improvement teams - Quality circles
- Responsibility for own work quality - Multi skilling
- lob rotation - Total Quality Management
- Information sharing programs
- Briefing groups Support for performance and trainine;
- Annual/peer/360-degree appraisal
- Personal development plans
Human Resource - Job rotatiodcross training
- Appraisal - Mentoring
- Personal development plans - Training fur trainers
- Performance based reward
- High levels of training on and off the job
- Sophisticated recruitment techniques Rewardine performance
- Broad job grading structures - Group-based compensation
- Profitsharing
- Employee share Ownership
Emplnvee Relations
- Harmonized terms and conditions of
employment
- Formal grievance procedures Communication and information sharing
- Induction programs - Regular individuallteam meetings
- Joint consultative committees - Consultative committees
- Regular social gatherings for employees - Staff attitude surveys
- Same canteen and eating arrangements

3966
knowledge, in increasing innovation rate and in improving
the overall performance. These objectives can be reached
through particular human resources management actions
and practices, presenting different characteristics and
implications. It is possible to classify these practices
through two different approaches: the first one is explained
by Mark Thompson in a recent report for SBAC [6]; the
second one regards Ashton and Sung’s classification [21]
(Table I).
According to Thompson, it is possible for the company to
implement “three distinct but interrelated groups” of
practices: “high involvement” practices, which have the
intent of creating and favouring employee involvement;
“human resource” practices, which encourage the
acquisition and the development of skills, in terms of
motivation and ability; “employee relations” practices,
which allow companies to create a working environment
where relations and human interactions are facilitated.
Instead, the approach of Ashton and Sung moves on from
the debate about the relative merits of individual, focusing
on four dimensions around which business performance is
created, sustained and valuated the first is “work design
and employee involvement”, which underline the strategic
role of quality management initiatives in coordinating
employees efficiently and put into evidence the importance
of their involvement in the decision-making process; the
second is the “support for performance and training”,
through some activities such as mentoring, appraisal, on-
the-job and off-the-job training; the third dimension is
referred to the “rewarding performance”: employees should
receive incentives, either financially or through
acknowledgements by colleagues and superiors; finally, the
fourth dimension is constituted by “communication and
information sharing”, which are fundamental to diffuse
company values and objectives among all employees and,
therefore, to make their performance improved.
Lefebvre and Lefehvre [ I l l have identified five main
dimensions of performance to evaluate and improve
economic results: quality, quality of customer service, time-
based competition, flexibility and costs. Quality represents a
fundamental condition to achieve high standards in every
product and, therefore, to succeed in this competitive
market. Secondly, the quality of customer service is the key
factor to maintain long-term relations with subcontractors.
Also, time-based competition should be considered in the
right way in every manufacturing industry and, therefore, in
the aerospace sector as well. In addition to the above
mentioned dimensions, flexibility is a primary attribute in
adapting quickly to market needs and changes, in terms of
skills and production factors. Finally, the fifth dimension
regards cost advantages, i.e. the ability in realizing cheaper
value generation process than competitors. in this way, it is
possible to obtain and to maintain a distinctive position.
In the current economic context, all these dimensions
constitute only some of the whole set necessaly to reach
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excellent performance. According to Thompson [6],
“human capital is central to successful organizational
performance”: skills development should become the most
significant differentiator for the companies to move from a
“standard” to a “superior” performance, exclusively in
presence of appropriate knowledge sharing activities.
Indeed, knowledge sharing initiatives should be directed
towards the creation of new knowledge: adapting and
altering knowledge (tacit or explicit) to other contexts
modifies the knowledge itself in such a way that it
represents new knowledge and not necessarily re-adaptation
of old knowledge in a new context [22].
As a result of that, it becomes fundamental to realize an
organizational environment in which members are
motivated, involved and encouraged to share knowledge
and competencies. In such a context, the investments in
knowledge management activities enable companies in
reaching a higher performance than that directly dependent
on sustained investments. Therefore, it is possible to assert
that this fertile organizational context is characterized by
growing scale revenues. Figure 2 offers an example of such
a context with an economic performance function
(expressed with P in the figure), for simplicity sake,
depending from two knowledge capabilities; as we can see,
doubling the investment in these capabilities (x,, x2) the
performance will increase more than doubly.
Figure 2 -Knowledge management investments (x,, x2),
performance (P) and growth scale revenues
Figure 3 shows another difference of long-terns revenues
between investments on tangible or technological assets and
knowledge management. Increasing tangible or
technological investments (3a), the ratio between
performance and investment (Pil) will increase. But, from
h i onward, further investments will not generate further
performance improvements: between h i and IT2 the P/1
ratio will be constant. Moreover, from IT2 onward,
increasing investments, the P/1 ratio will necessary decrease.
For knowledge management investments (3b), instead, the
points in which the Pi1 ratio starts to be constant (IKMI)and
starts to decrease (IKMZ) are shifted forward with respect to
the tangible or technology investments (3a). Knowledge
management investments might also he characterized by
always growing marginal revenues (3c): every increment of
investments in knowledge management activities will
conduce to better performance.
Figure 3 - Knowledge management investments
growing marginal revenues
6.cONCLUSlONS
The high rates of innovation and the rapid economic
changes have led companies to improve their business
performance. An aerospace company needs to create work
environments in which people can excel and produce high
quality products to guarantee its future prosperity [6]. With
this aim, skills of people and knowledge capabilities need to
be managed and supported with practices and policies in
order to develop their full potential. These practices and
policies represent the core of the knowledge management
approach, effectively based on knowledge sharing
initiatives and tools. This approach consists in three
fundamental steps: the first one is the knowledge audit,
which enables companies in analysing their knowledge gaps
or surplus; the second one is characterized by the definition
of a knowledge strategy, coherent with the business strategy
and focused on knowledge external and internal gaps.
Through this strategy, companies are able to create new
knowledge and exploit the possessed capabilities, in every
different “knowledge area”. The last step of this approach is
the implementation of the knowledge strategy: through their
organizational structure and infiastructure, companies can
develop and put into practice knowledge leveraging,
knowledge creating and knowledge diffusion processes in
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order to reach their business goals. The implementation of
this approach, indeed, allows aerospace companies to
dedicate their managerial efforts in a more strategic
direction, taking advantages of added value activities and, at
the same time, obtaining capabilities integration.
Companies can also achieve a higher performance investing
in knowledge management tools and practices rather than in
other tangible assets investments. Further researches are
necessary to give empirical support to the above
assumptions.
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BIOGRAPHY
Azostino La Bello received his first class university degree
in Nuclear Engineering and the two-
year specialization degree in
Computing and Control Systems
Engineering from the Universiq of
Rome “La Sapienza”.
Current posts: Dean of Engineering,
Professor of “Industrial Organization“
and co-ordinator of the Doctorate
Programme on Industrial Engineering
at the Universip ofRome ”Tor Vergata“.
His scientific and profbssional interests concern:
Knowledge Management Strategies and Methodologies,
Technology Assessment and Firm Theoiy.
-
Daniela Canzano received her dezree in Industrial
Engineering in 2002 and since
November 2002 she IS attending her .,
Ph.D. in Industrial Engineering at the
Universiiy of Rome “Tor Vergata”.
Her current research field concerns
Knowledge Management strategies and
processes.
Michele Grimaldi received his degree in Industrial
Engineering in 2002 and since
November 2002 he, is attending his
Ph.D. in Industrial Engineering at the
University of Rome ”Tor Vergata”.
His current research field concerns
Knowledge Management strategies and
metria