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1 Student First Name:Mohammed Student Surname: Tubigi Copyright subsists in all papers and content posted on this site. Further copying or distribution by any means without prior permission is prohibited, except for the purposes of non-commercial private study or research, as defined in the Copyright, Designs and Patents Act 1988, or as otherwise authorised by statute. To obtain permission, please contact the author of the relevant paper in the first instance or with details of your request.

2 The effect of knowledge conversion on firm performance: Case study airlines industry. Abstract In a highly competitive world, the use of knowledge to gain a competitive advantage is a serious concern for corporations. The aim of this research is to analyse the significance of Knowledge Management as a means of creating competitive advantage for airline companies, focusing specifically on the role of Knowledge conversion to improve company performance. In order to achieve this aim, the four modes of Socialisation, Externalisation, Combination, and Internalisation will be utilised to explore the notion of Knowledge conversion. With regard to firm performance, the five indexes of financial performance, market/customer, process, people development, and future will be considered. Finally, a conceptual framework will be proposed to suggest the most effective way of utilising knowledge conversion to enable company performance to improve. 1. Introduction Nowadays, organisations are facing many difficulties and challenges due to a number of factors such as globalisation and tougher competition between firms. This is a particular problem for the aviation industry, in which it is becoming increasingly more difficult for local carriers to run a profitable business as a result of the economic situation. Thus, this current situation is encouraging the use of new management techniques such as knowledge management (KM), that has been recognised as an important tool for aiding the running of their businesses more successfully (Lee & Choi, 2003).

3 In the 21 st century, the main competitive advantage that companies will have is connected to the knowledge they hold and how they utilise this information (Wong and Aspinwall, 2006). Moreover, this advantage over business rivals will be gained by the organisations that are first able to attain and use this new knowledge successfully (Davenport and Prusak, 1998). Drucker (2001) makes the point that knowledge is set to become the most significant factor for industrial production by replacing some of the more traditional elements of economic power such as capital, labour, equipment, machinery and raw materials. Indeed, to attain a long term competitive advantage, knowledge will become the key competence needed by firms (Sherif et al., 2006). Achieving KM has become a key strategy for improving firm performance because suitable management and application of knowledge can assist firms to be more creative, intelligent and better able to adapt to an ever changing business climate (Wong and Aspinwall, 2004). Indeed, KM can be seen as a strategy that assists firms to use knowledge to envisage, make and control the whole decision making process (Kongpichayanond, 2009), and using individual knowledge is a clear strategy to develop and advance organisational learning and performance (Nonaka, 1998; O Dell & Grayson, 1998). The procedure, in which individuals with different information interact and thereby create new knowledge, is known as knowledge conversion. This social process can increase the quality and quantity of both explicit and tacit knowledge (Sanchez and Palacios, 2008.) However, despite there being a number of benefits from utilising KM in the workplace, there have been few studies analysing the way firm performance can be influenced by knowledge conversion. Thus, the aim of this research is to study the importance of KM as a source of sustainable competitive advantages for airline

4 companies and to analyse in what way the introduction of knowledge conversion enables the improvement of firm performance. 2. Background To achieve this research aims it is recommended to highlight different aspects to extensively provide an overall understanding on knowledge conversion, and firm performance. These aspects are: 2.1 Knowledge Conversion Nonaka (1994) claims that knowledge is convertible and proposed four key stages of knowledge conversion known as SECI (socialisation, externalisation, combination and internalisation).nonaka and Takeuchi (1995) claim that this process consists of the transformation from implicit into explicit knowledge, followed by the retransformation from explicit into implicit knowledge. Outlined below are the four modes of knowledge conversion: Socialisation is the method of adapting implicit knowledge into new tacit knowledge. Externalisation is the process of articulating tacit knowledge into explicit knowledge. Combination is the method of transferring explicit knowledge into more intricate and organized sets of explicit knowledge. Internalisation is the process of integrating explicit knowledge into tacit knowledge. Tseng (2010) describes this process as learning by doing in which the explicit knowledge created in the whole organisation is converted it into tacit knowledge for individuals. This knowledge conversion begins with the individual then increases and

5 develops as it proceeds through various interactional communities. In this way, it goes beyond firm boundaries of section, department, division or organisation. Subsequently, knowledge creation across organisations can be generated both horizontally and vertically, creating a constant self-upgrading process (Tseng, 2010). In this research, the four stages of socialisation, externalisation, combination, and internalisation will be utilised to explore the aspect of knowledge conversion. 2.2 Firm performance The idea of performance is a significant concern in areas such as life quality, the economies of nations and for comparing global competiveness (Politis, 2002). Subsequently, for a wide variety of people in the business sector, the analysis of performance is an important concern (Politis, 2002). Chakravarthy (1986) indicated that it is difficult to distinguish the differences between the performance of companies by using traditional financial measures such as ROE, ROC, and ROS. Moreover, conventional financial accounting measures such as ROI and EP can be deceptive when providing indications about continuous progress and innovation (Kaplan and Norton, 1996). This suggests that these traditional accounting practices with their focus on short-term indicators such as share prices, turn over, cash flow and profit are not appropriate for assessing the performance of corporations, whereas non-financial elements such as stakeholders, investors and customers have become more significant (Edvinsson, 1997; Lee et al., 2005). Cotora (2007) claimed that to measure corporate performance, it is imperative that a system takes into account indefinable values such as competencies, partnerships and knowledge along with inter-relationships and the process of conversion in situations. To incorporate both financial and non-financial measures when assessing

6 firm performance. Maltz et al. (2003) put forward five indexes: financial performance, market/customer, process, people development, and future. This research will adopt these five performance indexes proposed by Maltz et al. (2003) to evaluate corporate performance. 2.3 Knowledge conversion and firm performance Much research has highlighted the importance of knowledge in company performance, and firms are increasingly concerned with managing their knowledge effectively to keep ahead of the competition. Yet, according to Kalling (2003), current research into KM does not identify or offer a clear understanding of the role of KM in improving firm performance. Many scholars have tried to assess KM s contribution such as Sua et al. (2006), who claim that knowledge work can lead to new technologies to develop new products and ways of working. Moreover, the knowledge base of a company is commonly viewed as the underlying factor in performance (Lai and Lee, 2007). Subsequently, there would seem to be a strong correlation between knowledge conversion and firm performance. 2.4 Aim and Objectives The aim of this research is to study the importance of KM as a source of sustainable competitive advantages for firms and to analyse how the introduction of knowledge conversion enables improvements in firm performance. Objectives:

7 1-To conduct an extensive literature review on knowledge conversion and firm performance. 2-This research will adopt the four activities: Socialisation, Externalisation, Combination, and Internalisation to explore the aspect of knowledge conversion. 3-This research will adopt the five performance indexes proposed by Maltz et al. (2003), financial performance, market/customer, process, people development, and future to evaluate firm performance. 4-To attempt to propose a conceptual framework for knowledge conversion and firm performance. References Chakravarthy, B.S. (1986). Measuring Strategic Performance. Strategic Management 7 (5), pp Cotora, L. (2007). Managing and Measuring the Intangibles to Tangibles Value Flows and Conversion Process: Romanian Space Agency case study. Measuring Business Excellence 11(1), pp Davenport, T. (1999). Knowledge Management and the Broader Firm: Strategy, advantage, and performance. In Liebowitz, J. (eds) Knowledge Management Handbook.CRC Press: Boca Raton, pp Davenport, T.H. and Prusak, L. (1998) Working Knowledge. Boston: Harvard Business School Press. Drucker, P. (2001). The Next Society: A Survey of the Near Future. The Economist 3(1), pp Edvinsson, L. (1997). Developing Intellectual Capital at Skandia. Long Range Planning 30 (3), pp Kalling, T. (2003). Knowledge Management and the Occasional Links with Performance. Journal of Knowledge Management 7(3), pp

8 Kongpichayanond, P. (2009). Knowledge Management for Sustained Competitive Advantage in Mergers and Acquisitions. Advances in Developing Human Resources 11 (3), pp Lai, M.F & Lee, G.G. (2007). Relationship of Organisational Culture toward Knowledge Activities. Business Process Management Journal 13 (2), pp Lee, H., & Choi, B. (2003). Knowledge Management Enablers, Processes, and Organizational Performance: An Integrative view and Empirical Examination Processes, and Organizational. Journal of Management information System 20 (1), pp Lee, K.C., Lee, S. and Kang, I.W. (2005).KMPI: Measuring Knowledge Management Performance, Information & Management. 42(3), pp Maltz, A.C., Shenhar, A.J. & Reilly, R.R. (2003). Beyond the Balanced Scorecard: Refining the search for organizational success measures. Long Range Planning 36 (2), pp Nonaka, I. (1994). A dynamic Theory of Organizational Knowledge Creation. Organization Science, 5 (1), pp Nonaka, I. and Takeuchi, H. (1995) The Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation. Oxford: Oxford University Press. Nonaka, I. (1998) The knowledge-creating company. Boston: Harvard Business School Press. O Dell, C., & Grayson, C. J. (1998) If only we knew what we know: Identification and transfer of internal best practices. New York: Free Press. Politis, J.D. (2002).Transformational and Transactional Leadership Enabling (disabling) Knowledge Acquisition of self-managed teams: The consequences for performance. The Leadership and Organizational Development Journal, 23 (4), pp Sanchez, M.P.S. and Palacios, M.A. (2008).Knowledge-based Manufacturing Enterprises: Evidence from a case study. Journal of Manufacturing Technology Management 19 (4), pp Sua, C.T., Chen, Y.H. & Shab, D.Y. (2006). Linking Innovative Product Development with Customer Knowledge: A data-mining Approach.Technovation 26, pp Sherif, K., Hoffman, J. & Thomas, B. (2006).Can Technology Build Organizational Social Capital? The case of a global IT consulting firm. Information & Management. 43 (7), pp

9 Tseng, S.M. (2010). The Correlation between Organizational Culture and Knowledge Conversion on Corporate Performance. Journal of knowledge management.14 (2), pp Wong, K.Y. & Aspinwall, E. (2004).Characterizing Knowledge Management in the Small Business Environment. Journal of Knowledge Management. 8 (3), pp Wong, K.Y. & Aspinwall, E. (2006).Development of a Knowledge Management Initiative and System: A case study. Expert Systems with Applications.30 (40), pp.1-9.