BUSINESS AVIATION AND COMPETITIVE ADVANTAGE A THESIS …
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BUSINESS AVIATION AND COMPETITIVE ADVANTAGE A THESIS Presented to The Faculty of the Department of Economics and Business The Colorado College In Partial Fulfillment of the Requirements for the Degree Bachelor of Arts By Keir William Myers May 2010
Transcript of BUSINESS AVIATION AND COMPETITIVE ADVANTAGE A THESIS …
BUSINESS AVIATION AND COMPETITIVE ADVANTAGE
A THESIS
Presented to
The Faculty of the Department of Economics and Business
The Colorado College
In Partial Fulfillment of the Requirements for the Degree
Bachelor of Arts
By
Keir William Myers
May 2010
BUSINESS AVIATION AND COMPETITIVE ADVANTAGE
Keir William Myers
May, 2010
Economics
Abstract
Despite the fact that business, or “corporate,” aircraft use has grown rapidly in the past
decades, there fails to be a sound case for justification rooted in business theory.
Simultaneously, current strategy literature neglects a body of thought concerning how an
external factor, such as business aviation, could affect a firm‟s core competencies and
ultimately competitive advantage. As such, nine firms were interviewed using a business
strategy lens in order to understand the justification and mentalities surrounding business
aircraft assets. The interviews generated data that suggests a secondary or tertiary link
between business aviation and competitive advantage while more importantly exposing
the importance of intangibles for competitive advantage generation.
KEYWORDS: (business aviation, intangibles, core competency)
ON MY HONOR, I HAVE NEITHER GIVEN NOR RECEIVED
UNAUTHORIZED AID ON THIS THESIS
/S/ Keir William Myers
TABLE OF CONTENTS
ABSTRACT ii
ACKNOWLEDGEMENTS ix
I INTRODUCTION 1
Introduction to Business Aviation Industry Environment…… 1
Research Focus………………………………………………… 7
Theory Overview……………………............................................. 8
Overview of Methods………………………………………… 9
II REVIEW OF LITERATURE 11
Strategy Overview.......................................................................... 11
Industrial Organization Theory…………………………………… 13
Resource Based View………...……………………………… 15
Value Chain…………..................................................................... 17
Intangibles…………………………………………………….. 19
Human Resource Development.................................................... 22
Core Competency Literature……………………………………. 25
Core Competency Identification……………… 26
Core Competency Implementation…………………………… 31
Conclusion……………………………………………………… 34
III METHODS 35
Research Overview……………………………………………… 36
Sampling……………………………………………………… 37
Data Procedures and Collection……………………………… 40
Analysis Methodology…………………………………… 44
IV RESULTS 47
Tangible Benefits………………………………………………… 48
Time Savings…………………………………………… 49
Productivity…………………………………………… 51
Essentiality to Business Model……………………………… 52
Intangible Benefits………………………………………… 54
Core Competence Leveraging……………………………… 54
Reputation………………………………………………
57
Business Aviation as a Perk…………………………………… 59
Experience………………………………………………… 60
Conclusion………………………………………………………. 61
V CONCLUSION 62
Contributions……………………………………………………… 62
Commoditization……………………………………………… 65
The Intangible Link………………………………………… 66
Conclusion………………………………………………………… 68
SOURCES CONSULTED 70
LIST OF TABLES
2.1 RESOURCE BASED VIEW LITERATURE ……………………… 16
2.2 CORE COMPETENCY LITERATURE………………………… 26
3.1 SUMMARY OF SAMPLE………………………………………… 39
3.2 INTERVIEW QUESTIONS……………………………………… 41
4.1 SUMMARY OF RESPONSES TO INTERVIEW QUESTION 8 51
4.2 SELECTION OF RESPONSES REGARDING AVIATION AS A
PERK
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LIST OF FIGURES
1.1 BUSINESS AIRCRAFT UNIT SHIPMENTS 1996-2008……… 2
1.2 HAWKER BEECHCRFAFT ADVERTISMENT………………. 5
1.3 BEECHCRAFT ADVERTISEMENT…………………………… 6
3.3 DESIGN OF RESEARCH PROCESS…………………………… 46
ACKNOWLEDGEMENTS
I would like to thank Dr. Julie Chesley for her extraordinary help and guidance on
this project. Additionally, I would like to thank Francesca Desmarais for her technical
assistance. Lastly, I would like to acknowledge the interview participants who gave their
time and shared their experience for the benefit of this research. Without the
aforementioned, this study would not have been possible.
CHAPTER I
INTRODUCTION
Business aviation, defined as a firm‟s use of proprietary or hired aircraft for in-
house transportation, has become a prevalent yet controversial tool for businesses.
Despite the fact that there are over 10,000 domestic firms utilizing business aviation,
there fails to be a sound analysis of the asset‟s use rooted in business strategy theory.
This coincides with a lack of strategic research concerning the effect of external factors
upon a firm‟s core competencies. The term external factor will be used in this study,
despite the fact that an aircraft may be proprietary, due to the fact that aviation was
generally added to address a need after a firm‟s core business model was established. A
review of the utilization of this asset through a business strategy framework is relevant in
the face of negative populist sentiment and a tight macroeconomic cycle.
Introduction to Business Aviation Industry Environment
Business aviation has grown rapidly in its prevalence in the past decade. The rise
of firm profitability, globalization, and increased competitiveness have all contributed to
firms‟ decisions to utilize this type of asset. Figure 1.1 illustrates shipment figures in
units for all business aircraft from 1996 to 2008.
FIGURE 1.1
Business Aircraft Unit Shipments From 1996-2008
Source: General Aviation Manufacturers Association. Shipment Database Site. [cited 16
November 2009]. Available from http://www.gama.aero/media-center/industry-facts-and-
statistics/shipment-database.
Additionally, the evolution of the business jet industry has been responsible for increased
use. In the 1990‟s, fractional aircraft ownership, which allows one company to buy a
fraction of an aircraft and its associated operating fees while gaining access to an entire
fleet, became popular by allowing customers to utilize private aviation at a much lower
cost and even increased convenience. Technological improvements in engine, avionics,
and airframe design have also decreased acquisition and operating costs drastically since
the original models of the 1960‟s, allowing for easier cost justification. Industry
improvements combined with higher demand associated with affordability and necessity
have led to this increase in use.1
In order to understand business aviation‟s effects upon a firm, one must fully
understand what business aviation is. Business aviation grew rapidly with the
accompanying economic boom following WWII. Originally consisting of converted
airliners made by established transport category manufacturers, a dedicated business
aircraft industry began to form quickly and by the 1960‟s, several firms such as Gates
Learjet, Gulfstream, and Beechcraft were exclusively building dedicated business
aircraft.2 Currently, there are dozens of firms producing aircraft for the business transport
market in addition to multitudes of supporting firms.
The scope of business aviation includes proprietary or hired aircraft, regardless of
size or mission length, for business-related, non-recreational use. This could include sales
trips, customer service and support, cross functional integration of a firm‟s value chain,
or critical parts, equipment, or document delivery. The types of aircraft used range from
small, piston aircraft not much larger than a compact car to converted airliners seating
dozens of passengers. As the operating costs of these aircraft range from several hundred
dollars per hour to thousands, user firms should be generating significant strategic
benefits from its use. Yet, in an accounting cost comparison to commercial airlines it is
rare, except on certain short haul routes, to come close to equaling even first class airfare.
However, the intangible benefits, organizational improvements, and capability creation
1 Arman Motiwalla, “The History and Development of Corporate and Business Aviation,”
Paramount Business Jets, 11 February, 2009.
2 Motiwalla, 2009.
often cause the scale to tip in business aviation‟s favor. Now that business aviation‟s
scope has been discussed, the current macroeconomic forces will be reviewed to provide
further background and research justification.
In 2008, business jet orders reached a record $24.8 billion dollars; however, the
slowing economy and negative populist sentiments have caused forecasts to be mixed.3
Honeywell International, a bellwether of the U.S. aviation manufacturers, initially
forecast growth in the business aviation market well into 2011; a new prognosis indicates
that orders will begin to fall in 2009.4 At the same time, congressional lambasting and
negative media attention have made business aircraft use increasingly skeptical. 5
Current
advertisements for smaller, more fuel efficient aircraft flaunt statements such as,
“Sensible enough to impress any Congressional Committee.” Figure 1.2 and 1.3 depict
the current negative social and political effects upon the industry.
3 General Aviation Manufacturers Association. 2008 Statistical Review. [Cited 13 April, 2009].
Available from www.gama.aero.
4 Kate Sarsfield, “Forecasts 2009- Business Aviation: From Boom to Gloom,” Flight
International, 13 January 2009.
5 Wilson Benet, “New Hawker Beechcraft Ad Defends BizAv,” AviationWeek, 13 February 2009.
FIGURE 1.2
Hawker Beechcraft Advertisement
Source: Daylife Publishers, Photo Database Site, February 2009, available from
www.daylife.com/photo/0dJO4we8PaeCF; Internet; accessed 15 November 2009.
FIGURE 1.3
Beechcraft Advertisement
Source: Daylife Publishers, Photo Database Site, February 2009, available from
www.daylife.com/photo/0dJO4we8PaeCF; Internet; accessed 15 November 2009.
These examples illustrate the relevance of a theory based discussion to review the use of
this asset.
Through a macroeconomic lens, business aviation deserves a legitimate analysis
because it significantly impacts the whole economy. General aviation contributes 1.2
million jobs and $150 billion in economic activity per year.6 In addition, the U.S. is the
largest producer of business aircraft and supporting technologies; the U.S. is home to
6 No Plane No Gain. Quick Facts. [Cited 13 April 2009]. Available from
http://www.noplanenogain.org.
aerospace giants Honeywell, Textron, Gulfstream, Boeing, Goodrich, and General
Dynamics. As such, exports of business aircraft and related materials reached $5.8 billion
in 2008, which benefits the balance of trade and domestic industry.7 Yet the economic
benefits resulting from firms‟ proprietary and habitual use of business aviation are much
larger than the one time production benefits; as such, an evaluation stems from the users‟
level. Overall, aviation could represent a beneficial activity to users in the form of
competitive advantage, increased opportunity, and increased revenues. An analysis using
value chain and resource based theory will reveal whether or not business aircraft use
leads to a competitive advantage through core competency maintenance and protection.
Research Focus
In order to examine business aviation, the specific use of this strategic asset will
be analyzed on the firm level at nine companies. In order to carry out this analysis, the
following question will be asked: How does business aircraft use affect core
competencies and ultimately competitive advantage at user firms? In this case, theory
will create an outline for an effective analysis by identifying how business aviation fits
into a user firm‟s strategies. By focusing the research around theory, a detailed
explanation of business aviation‟s impact upon strategic operations can be created.
Specifically, we should be able to address “why” corporate aviation shapes core
competencies and “how” it affects strategy at user firms. As such, the desired findings
will be “how” and “why” this external factor impacts firms.
Theory Overview
7 General Aviation Manufacturers Association, 2008.
The backbone of the relevant theory emanates from the value chain, resource
based view, and core competency approaches to explaining competitive advantage. The
value chain consists of the “collection of activities that are performed to design, produce,
market, deliver, and support its product.”8 Furthermore, value activities are connected
through “linkages,” which explain how different internal actions are related for the
creation of a competitive advantage.
An additional analysis framework comes from the resource based view (RBV)
body of literature. Lockett et al describe the RBV as “the relationship between the
opportunity set facing the firm, the strategic behavior to be implemented by managers
and the outcome in terms of competitive advantage or performance.”9 This broad and
adaptable framework has been used to analyze the occurrence of “„core competence,‟”
“„organizational capability,‟”10
and “doing capabilities.”11
The RBV framework also
includes a thread connected to human resource development (HRD), which describes
how firms can better execute the development of their employees. Lastly, core
competence theory will be analyzed in order to understand specifically what aviation use
has the potential to affect.
8 Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New
York: The Free Press, 1985), 38.
9Andy Lockett, Steve Thompson, and Uta Morgenstern, "The Development of the Resource-Based
View of the Firm: A Critical Appraisa," International Journal of Management Reviews 11 (March 2009):
9.
10
James W. Dean, Jr. and Scott A. Snell, "The Strategic use of Integrated Manufacturing: An
Empirical Examination," Strategic Management Journal 17 (June 1996): 459-480.
11
Richard Hall, "A Framework Linking Intangible Resources and Capabilities to Sustainable
Competitive Advantage," Strategic Management Journal 14 (November 1993): 607.
The above theory does not address aviation or external impacts upon core
competencies directly; this dearth of specific analysis represents a research opportunity.
Additionally, there has been little research performed on firms utilizing a particular
outside industry for core competence maintenance and protection. Thus, the literature
allows for a valuable framework with which to analyze something new.
Overview of Methods
Firm case studies consisting of interviews and record reviews will be used to
gather the necessary qualitative data. Interviews are valuable because they provide
critical “why” and “how” answers to the business aviation analysis problem.
The data used to support any conclusions will be qualitatively formed from
interviews. The subjects for review are three small and six large firms with ideally
several personnel contacts at each business. The benefit of this structure is that it allows
for a cross sectional view at how aviation alters differing firms‟ advantages.
Chapter two reviews relevant literature in order to frame an effective analysis of
business aviation use patterns. Specifically, value chain, resource based view, and core
competency literature will be analyzed in order to review the basis of firm strategy and
also create an effective methodology for this investigation. Chapter three will explain the
methodology used in this study. Chapter four will discuss the findings at specific firms
interviewed and chapter five will synthesize these findings with theory and draw a study
specific conclusion.
CHAPTER II
REVIEW OF LITERATURE
Business strategy writings will be reviewed and used as a framework to analyze
business aviation‟s affect upon strategy, core competencies, and competitive advantage.
Broadly, strategy and its implementation can be viewed through the industrial
organization or resource based view lenses. Industrial organization theory, which
originates from the middle of the 20th
century, will be briefly discussed to give a
background for the resource based view literature. While industrial organization‟s
arguments stem from an external, environmental focus to determining strategy, the
resource based view grew from industrial organization‟s dearth of organizational
specificity and takes a more detailed, internal focus. Specifically, resource based view
literature includes firm specific strengths and weaknesses (resources) and includes value
chain models, intangibles, human resource development, and core competency literature.
Strategy Overview
First, an understanding of basic strategy literature is necessary to comprehend the
context of the related bodies of literature. Strategy is the collection of activities a firm
partakes in to increase performance. Michael Porter has conducted significant academic
research upon this subject. Porter claims that strategy is about making
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tradeoffs in competitive choices, creating a unique, strong position, and creating a fit
across all of a firm‟s activities.1 Porter asserts that operational effectiveness is not
strategy; “in contrast to [operational agenda], the strategic agenda is the right place for
defining a unique position, making clear trade-offs, and tightening fit.”2 This exemplifies
the difference between operational effectiveness, in one activity, and a focus on overall
strategy, which encompasses a broader, more complex approach.
As previously discussed, strategy literature diverges over the correct scope of
analysis required for strategy formulation. Specifically, should a firm perform internal,
external, or a hybrid analysis to determine appropriate positioning? Both the industrial
organization and resource based view are important to understanding strategy, especially
because many of their main points are used in a hybrid strategy. For example, Depperu
and Gnan (2006) performed a study on Italian firms and found that market demand and
customer needs drove strategy in combination with internal limitations and positioning.3
Thus, it is evident that in order to fully understand strategy formulation, a review of both
industrial organization (external) and resource based view (internal) literature is
necessary.
1 Michael E. Porter, “What is Strategy,” Harvard Business Review (November-December 1996).
2 Ibid, 78.
3 Donatella Depperu and Luca Gnan, “The Role of Competitive Context in the Business Strategy-
Formulation Process,” International Studies of Management & Organization 36 (Fall 2006).
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Industrial Organization Theory
Industrial organization literature holds the general view that an external focus is
necessary for strategy formulation; industrial analysis is at the root of formulating firm
strategy. As such, firms should study the external environment, locate an industry with
above average returns, identify strategies in use, develop or acquire necessary assets or
capabilities, and utilize firm strengths to enact an appropriate, proprietary strategy. The
Learned, Christensen, Andrews and Guth (LCAG) framework is one such model that
provides a broad background for external analysis. The LCAG framework states that
strategy should be formulated by performing a Strengths, Weaknesses, Opportunities, and
Threats analysis in combination with personal values and societal expectations. This
model‟s details are useful as background information, while also highlighting the
importance of firm self-awareness within a competitive space. However, there are
significant limitations to LCAG because it fails to explain how detailed analysis of
external industries or firms should be performed. Specifically, there is no discussion on
identifying the capabilities, resources, or competencies (or lack-thereof) that build the
SWOT analysis.4
On the other hand, the Bain-Mason Model fills part of this gap by explaining how
the analysis of external opportunities and threats should be carried out. The Bain-Mason
Model is somewhat helpful in filling in the gaps by presenting the Industry Structure-
Conduct (Strategy)-Performance model, which states that industry structure is the sole
dictator in performance. Mason (1939), originally used a public policy discussion to
4 Michael E. Porter, “The Contributions of Industrial Organization to Strategic Management,”
Academy of Management Review 6 (1981): 610.
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argue that industry situations could have particular influence upon pricing and therefore,
public welfare; he uses monopolies as examples.5 As such, Bain-Mason aids in the
analysis of LCAG‟s external opportunities and threats, representing a complimentary
addition to the limited LCAG frame. Despite this, the combined value of Mason and
LCAG is limited due to the weak explanation of external opportunities and threats. The
link to firm specific analysis improves with Porter‟s Five Forces Model.
Porter‟s Five Forces model improves the external analysis of LCAG, while
suggesting a need for subsequent internal analysis. According to Porter (2008), the five
industry forces are: rivalry, buyer power, supplier power, substitutes, and threat of entry.6
Additionally, the Five Forces Model is valuable for strategy formulation because it
includes detailed provisions for assessing industry factors. For instance, threat of entry
can be measured by barriers to entry such as economies of scale, absolute cost advantage,
governmental factors, switching costs, cost conditions, and brand loyalty. Furthermore, a
factor such as rivalry could be determined by size and quantity of competitors, demand
conditions, cost conditions, switching costs, capabilities of competitors, and exit barriers.
By providing a detailed analysis methodology, the Five Forces model grows from
previous industrial organization writing. Secondly, the Five Forces model recommends
strategy formulators look internally following an external survey of industry conditions to
develop complimentary internal capabilities. This hybrid approach signals the
significance of internal analysis for strategy formulation.
5 Edward Mason, “Price and Production Policies of Large-Scale Enterprise,” American Economic
Association (1939).
6 Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business
Review 86 (January 2008).
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The above literature demonstrates the utility of industrial organization theory for
strategic analysis, especially when used in conjuncture with internal analysis. Despite this
perceived value, several studies such as Rumelt (1991) claim that industrial membership
really does not significantly impact economic rents.7 In contrast, Mahoney and Pandain
(1992) support a dual internal and external analysis and find that while “[the resource
based view] correctly suggests that focusing on firm effects is important…. To achieve
competitive advantage….analysis of the environment is still critical since environmental
change „may change the significance of resources to the firm.‟”8 These conflicting views
dictate the need for a review of other determinants of strategic success and competitive
advantage. Thus, a review of resource based view theory will demonstrate the
complementary nature of these two bodies of literature.
Resource Based View
The resource based view states that internal analysis is relevant for strategy
formulation because it allows policy makers to assess the feasibility of enacting a
strategic choice. Additionally, specific strengths and weaknesses may be identified,
allowing for improvement or capitalization. This viewpoint, as summarized by Lockett et
al, describes “the relationship between the opportunity set facing the firm, the strategic
behavior to be implemented by managers and the outcome in terms of competitive
7 Richard P. Rumelt, “How Much Does Industry Matter?” Strategic Management Journal 12
(March 1991): 167-185.
8 Joseph T. Mahoney and Rajendran J. Pandain, “The Resource-Based View Within The
Conversation of Strategic Management,” Strategic Management Journal 13 (June 1992): 371.
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advantage or performance.”9 The resource based view is a broad and adaptable
framework, and it is important to restate that it is capable of providing an analysis based
on performance results, as measured through competitive advantage. Table 2.1 reviews
three resource based view bodies, which internally pinpoint the basis of competitive
advantage.
TABLE 2.1
Resource Based View Literature
Resource Based
View
Summary Sources
Value Chain Value chain aggregates what activities
go into turning inputs into outputs:
“Inbound Logistics, Operations,
Outbound Logistics, Marketing and
Sales, and Service”
Porter (1979),
Porter (1985), Pugh
et al (2002), Stabell
and Fjeldstad
(1998)
Intangibles “Doing Capabilities,” networks,
reputation, and organizational
capabilities; Management skill is
considered to be an intangible
Hall (1993), Hall
(1992), Aaker
(1989), Kaplan and
Norton (2004),
Peteraf(1993)
Human resource
development
Connects the valuable role human
resource development plays in
improving firm‟s core competencies
How a firm can improve employees so
they improve the firm‟s competitive
advantage
Clardy (2007),
Clardy (2008),
Ulrich, et al (1991),
Ulrich (1992)
Value Chain
9Andy Lockett, Steve Thompson, and Uta Morgenstern, "The Development of the Resource-Based
View of the Firm: A Critical Appraisal," International Journal of Management Reviews 11 (March 2009):
9.
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First, value chain theory must be analyzed in order to provide a background of
firm resources. The value chain is the firm‟s collection of activities which turn inputs into
outputs. Thus, the value chain, by design, typically includes all firm resources and
activities.
Porter describes the value chain as a firm‟s “collection of activities that are
performed to design, produce, market, deliver, and support its product.”10
Firms are
constantly attempting to improve their value chains through value activities, which
ultimately provide a competitive advantage. The five primary value activities are
“Inbound Logistics, Operations, Outbound Logistics, Marketing [&] Sales, and
Service.”11
Porter refers to value activities utilizing inputs such as “technology” to
improve upon a firm‟s competitive situation. Stabell and Fjeldstad further describe
“alternative value chain creation technologies” and their effect on the “Value Chain,
Value Shop, and the Value Network.”12
The improvement of value activities, as outlined
by Porter, Stabell, and Fjeldstad, provides a lens to analyze the effects of outside,
supplemental assets upon strategy implementation and competitive advantage.
Value chain literature also discusses supporting factors, such as indirect activities,
linkages, and technological influences. For instance, linkages describe how different
value activities interact within a firm. Porter describes how the “performance of direct
10 Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance
(New York: The Free Press, 1985), 38.
11
Ibid, 38.
12 Charles B. Stabell., and Oystein D. Fjeldstad, "Configuring Value for Competitive Advantage:
On Chains, Shops, and Networks," Strategic Management Journal 19 (May 1998): 413-437.
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activities [are] improved by greater efforts in indirect activities.”13
Linkages can also
expose connections between a firm‟s internal capabilities and an interacting force such as
customer outcomes. Pugh, et al outline a linkage research model that examines the
relationships between internal factors, such as employees, and results, exemplified by
customer perceptions and profits.14
One of their main arguments is that “service
capability,” or a firm‟s ability to meet customer needs, improves employee productivity
and thus, “service value.” Unique capabilities and service value can lead to the
differentiation of value activities and the value chain.
From a strategic perspective, differentiation can also lead to brand identification
and thus create significant barriers to entry. Such a strategy is practiced by inducing
customer loyalty through high quality delivery of products or services. Engaging in
certain activities could lead to a superior reputation by offering reliability, ultimate
flexibility, and aid in strategy implementation. In terms of advantageous positioning,
Porter refers to formulating a firm‟s strategy “so that its capabilities provide the best
defense…. and/or anticipat[e] shifts in the factors underlying the forces and [respond] to
them.” 15
Certain firms possess strategic assets that are powerful enough to allow for
rapid responses to issues within a competitive landscape. The value chain provides a
constructive framework to analyze firm resources. Specifically, it allows researchers to
determine how particular resource use improves value activities, linkages, differentiation,
13
Porter, Competitive Advantage, 49.
14
S.D. Pugh, Joerg Dietz, Jack W. Wiley, and Scott M. Brooks, "Driving Service Effectiveness
through Employee-Customer Linkages," Academy of Management Executive 16 (November 2002): 73-84.
15
Michael E. Porter, "How Competitive Forces Shape Strategy," Harvard Business Review 57
(1979): 137-145.
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and positioning for the purpose of generating an overall better firm strategy and
competitive advantage.
In summary, the value chain is relevant because it maps out firm activities and
demonstrates how resources are used. While the value chain demonstrates how particular
resource use improves value activities, linkages, differentiation, and positioning for the
purpose of generating an overall better firm strategy and competitive advantage, its value
and influence upon strategy and competitive advantage can be broken down even more
by examining intangibles, human resource development, and core competency literature.
Intangibles
Intangible resources within a firm, such as organizational capabilities, have the
power to generate a competitive advantage. Despite not being measured on a balance
sheet, these firm specific capabilities can differentiate a firm from its competitors and
positively affect strategy formulation by allowing for more flexibility.
Hall states that intangibles include “personal and organizational networks, the
know-how of employees, the reputation of products and company, and the culture of the
organization.”16
Reputation is an important facet of firm positioning and strategy; it
allows for differentiation or barriers to entry. Hall argues that, “reputation, which
represents the knowledge and emotions held by individuals about, say, a product range,
can be a major factor in achieving competitive advantage through differentiation.”17
16
Richard Hall, "A Framework Linking Intangible Resources and Capabilities to Sustainable
Competitive Advantage," Strategic Management Journal 14 (November 1993): 607.
17
Richard Hall, “The Strategic Analysis of Intangible Resources,” Strategic Management Journal
13 (February 1992): 138.
20
Thus, strategic activities focus greatly upon reputation due to its powerful role and
simultaneous fragility. In a study of 847 CEO‟s from the United Kingdom, Hall found
that “company reputation, product reputation, and employee know-how [were ranked] as
the most important contributors to overall success.”18
He continues to describe the value
of “Doing Capabilities,” which benefit a firm‟s strategic position. Hall ultimately finds
that intangibles affect “capability differentials,” such as “positional capability,” “cultural
capability,” and “an ability to change,” which can improve upon a competitive
advantage.19
Differentials are valuable intangible benefits stemming from organizational
capabilities. Hall affirms that, “when know-how can be utilized to produce product which
will maintain, and preferably win, market share, then it can be said to be creating a
relevant functional differential.”20
These unique capabilities can come in many forms
within a business. For instance, Aaker (1989) claims that management skill and
experience can itself be an intangible resource capable of leading to a competitive
advantage since it is often difficult to replicate. As such, the management of such firm
specific, intangible resources is key: “The essence of strategic management is the
development and maintenance of meaningful assets and skills and the selection of
strategies and competitive arenas such that those assets and skills form SCAs
[Sustainable Competitive Advantages].”21
Aaker defines assets and skills as intangible
18
Hall, “The Strategic Analysis of Intangible Resources,” 143.
19
Hall, “A Framework,” 609.
20 Hall, “The Strategic Analysis of Intangible Resources,” 136.
21 David A. Aaker, “Managing Assets and Skills: The Key To a Sustainable Competitive
Advantage,” California Management Review 31 (Winter 1989): 92.
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benefits such as quality reputation, name recognition, or customer service and support.
Aaker recognizes the difficulty of leveraging intangible resources and claims that
management‟s control over particular skills and assets can lead to a competitive
advantage.
Despite the value of intangible resources, measuring these off balance sheet
resources can be difficult. Intangibles are hard to measure because they are worth
different values to different organizations and they are often worthless unless combined
with other assets. Considerable work has been done to confirm the immobile, firm
specific value of intangibles. Peteraf (1993) claims that “because immobile resources are
nontradeable or less valuable to other users, they cannot be bid away readily from their
employer. They remain bound to the firm and available for use over the long run.”22
Thus, the importance of devoting resources to foster intangible resources becomes clear;
they are firm specific and most importantly, “can be a source of sustained advantage.”
Kaplan and Norton (2004) create a systematic approach to measuring intangible assets in
order to assess “strategic readiness” across a firm. These creators of the Balanced
Scorecard allege that “if managers could find a way to estimate the value of their
intangible assets, they could measure and manage their company‟s competitive position
much more easily and accurately.”23
Kaplan and Norton assert the connection between
intangibles and strategy by measuring the readiness of human capital, information capital,
22
Margaret A. Peteraf, “The Cornerstones of Competitive Advantage: A Resource-Based View,”
Strategic Management Journal 14 (March 1993): 184.
23
Robert S. Kaplan and David P. Norton, “Measuring the Strategic Readiness of Intangible
Assets,” Harvard Business Review 82 (February 2004): 52.
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and organizational capital. They suggest that improving these three metrics can improve
firm strategy and lead to a competitive advantage.
In conclusion, intangible resources are precipitators of competitive advantage and
strongly rooted in organizational capabilities. The study of outside industries‟ facilitation
of intangible asset development will be valuable in demonstrating intangibles‟
contribution to competitive advantage and overall strategy. Next, human resource
development literature will be reviewed in order to further understand how organizational
development leads to competitive advantage.
Human Resource Development
Within the framework of resource based view analysis, there is a movement to
describe the influence of human resource development (HRD) on a firm‟s core
competencies. Human resource development looks at how human resources and
individuals can positively affect strategy. Clardy points out that front-line execution of
HRD includes “operating in fast-cycle…. delivering products and services at world-class
standards…. flexibility in organizing resources…. [and] maintaining close relationships
with customers.”24
Ulrich continues the HRD thread and further discusses the value of
customer and employee linkages.25
Ulrich argues that when effective relationships occur
between customers and employees, a “shared mindset” forms. In this scenario, employees
can act on the key values of a firm and customers are aware of said values. For example,
24
Alan Clardy, "Strategy, Core Competencies and Human Resource Development," Human
Resource Development International 10 (September 2007): 341.
25
Dave Ulrich, "Strategic and Human Resource Planning: Linking Customers and Employees,"
Human Resource Planning 15 (June 1992): 47-62.
23
a firm providing a service capitalizes on the shared mindset by having employees who
can be dedicated in their execution and customers who perceive enough of the dedication
and dependability to create differentiation.26
These examples demonstrate the effect
particular HR activities can have on creating a competitive advantage.
Clardy continues to argue for the strategic role of HRD by finding a link between
HRD and the management of organizational core competencies. He argues, “capabilities
that provide sustained superior organizational performance are core competencies; they
are skilled organizational routines that create superior performance.”27
By identifying a
connection between HRD and competitive advantage, the strategic imperative of focusing
upon the organization itself becomes evident. Clardy argues that to be strategically
important, HRD within a firm must provide particular resources and perform certain
tasks, such as informing the strategic planning process or protecting existing core
competencies.28
Clardy also states that human resources should recognize that “some are
simply more critical and valuable than others” and that energy should be spent on
“establishing tight couplings across sub-systems by integrating skills.”29
By protecting
and managing core competencies on the organizational level, Clardy ultimately uses the
resource based view to demonstrate an effective link between human resources and
26 Dave Ulrich, Richard Halbrook, Dave Meder, Mark Stuchlik, and Steve Thorpe, "Employee and
Customer Attachment: Synergies for Competitive Advantage," Human Resource Planning 14 (June 1991):
89-103.
27 Alan Clardy, “The strategic role of Human Resource Development in managing core
competencies,” Human Resource Development International 11 (April 2008): 186.
28
Ibid, 187.
29 Ibid, 192.
24
competitive advantage through the core competence mechanism. Human resource
development writings are relevant to the discussion of strategy because human
development can impact core competencies and competitive advantage. Furthermore, this
thread of literature discusses strategy implementation.
Overall, the resource based view is significant for strategy discussion because it
provides a toolkit for detailed firm analysis. The resource based view literature builds a
theoretical framework for the purpose of analyzing the value of external factors upon
competitive advantage, core competency maintenance, and overall strategy. Peteraf
(1993) claims that the resource based view, “explains long-lived differences in firm
profitability that cannot be attributed to differences in industry conditions.” However,
there is a stronger mechanism for linking resources to competitive advantage: such a
linkage can be found by analyzing core competencies due to the fact that resources
ultimately develop into core competencies at a firm. Peteraf continues, “the model may
prove useful to managers seeking to understand, preserve, or extend their competitive
advantage.” 30
This link from resources to competitive advantage is ultimately created
through core competencies; as firms evolve, grow, and move down the experience curve,
their firm specific capabilities and resources become central to their method of
competition. In conclusion, the discussion of the resource based view provides ample
background for the discussion of core competencies.
Core Competency Literature
30
Peteraf, “The Cornerstones of Competitive Advantage,” 186.
25
Core competencies are firm specific skills and strengths that are central to
competitive strategy. They develop from firm resources and over time become a
significant driver of competitive advantage. Drejer argues that in many industries, “it is
necessary to develop the existing competencies strongly while at the same time identify
and develop the replacements for the existing competencies…. Competency development
should be part of management practice.”31
Core competency literature, and its limitations,
will be reviewed in order to assess its value in aiding a strategic analysis. Table 2.2
provides an overview of the core competency literature to be reviewed.
TABLE 2.2
Core Competency Literature
Core Competence
Literature
Summary Sources/Researchers
31 Anders Drejer, “How we can define and understand competencies and their development,”
Technovation 21 (March 2001): 138.
26
Core Competency
Identification
Core competency is a firm
specific skill set and
strength central to the way a
firm competes
Maintaining core
competencies is key; they
can diminish, be imitated,
and become obsolete
Hamel and Prahalad (1990),
Hamel and Prahalad (1994),
Porter (1985), Lahti (1999),
Harvey and Lusch (1997),
Gallon, et al (1995), Drejer
(2001)
Core Competence
Implementation
Focuses on identifying
where core competence
maintenance efforts should
focus, while also touching
on core competence
development
Collis (1991), Dean and Snell
(1996), Srivastava (2005)
Core Competency Identification
Nearly all core competence literature highlights the difficulty, and importance, of
correctly identifying core competencies. Hamel and Prahalad define core competence as
“a bundle of skills and technologies rather than a single discrete skill or technology…. [a]
sum of learning across individual skill sets and individual organizational units.”32
Core
competencies form as the individual intricacies of each firm, as identified and organized
initially by industrial organization and then by resource based view theories, combine to
form a competitive advantage. In an effort to aid in proper identification of competencies,
Hamel and Prahalad state that three tests must be satisfied in order to be a genuine core
competence: provision of customer value, competitor differentiation, and extendibility
(leverage). By ensuring that these three pre-requisites are filled, core competencies can be
properly identified, exploited, and protected.
32
Gary Hamel and C.K. Prahalad, Competing for the Future (Boston: Harvard Business School
Press, 1994), 223.
27
Core competency literature also raises issue with the mismanagement of core
competencies, especially at large corporations with independent small business units
(SBUs). To aid in classification, Lahti argues that there are in fact two types of core
competencies: Individual Level Core Competencies (ILCC) and Organizational Level
Core Competencies (OLCC).33
ILCCs “are the key strengths that each individual within
an organization possesses and demonstrates.”34
Essentially, these are the building blocks
each individual contributor offers; the “success of an individual within an organization.”
While they play a critical role, as argued by HRD and corporate strategy scholars, we
must also identify OLCCs and their higher level position. An OLCC, as defined by Lahti,
is a “collection of knowledge, skills, abilities, and other characteristics of an organization
as a whole that are the organization‟s strengths.”35
In this instance, the focus is upon
synergy within an organization to create a corporate level core competence. The synergy
of individual level core competencies to create organizational level core competencies
can ultimately create a competitive advantage through increased performance based on
low cost, differentiation, or focus capabilities. Hamel and Prahalad (1990) argue that “in
the long run, competitiveness derives from an ability to build, at lower cost and more
speedily than competitors, the core competencies that spawn unanticipated products.”36
In
essence, firms compete on the higher, core competence level versus purely on products.
33
Ryan K. Lahti, “Identifying and Integrating Individual Level and Organizational Level Core
Competencies,” Journal of Business and Psychology 14 (December 1999): 59-75.
34
Ibid, 64.
35
Ibid, 61.
36
Gary Hamel and C.K. Prahalad, “The Core Competence of the Corporation,” The Harvard
Business Review 68 (May-June 1990): 81.
28
Despite this valuable insight, Hamel and Prahalad argue that at a large, diversified firm,
core competence competition is difficult. Hamel and Prahalad (1994) converse, “where a
competence is spread across facilities…. new projects are difficult.”37
The two would
claim that Lahti‟s ILCCs are difficult to leverage across SBUs in order to create OLCCs;
this is especially true in the face of inhibiting corporate strategy.38
The neglect and
underinvestment of core competencies occurs due to a focus on capital allocation versus
competence allocation; Hamel and Prahalad argue that SBUs should compete for people
(and ILCCs), just as they do for capital for certain projects.39
Their main argument is that
corporate strategy should be viewed as utilizing and stewarding a portfolio of
competencies, not just business, because “unlike physical assets, which do deteriorate
over time, competencies are enhanced as they are applied and shared.” 40
Duly noted,
however, is the fact that “knowledge fades if it is not used.” Hamel and Prahalad continue
the corporate, core competence stewardship thread by offering several suggestions for
firms with SBUs. First, they claim that “divisional managers should be assigned cross-
corporate stewardship roles for particular competencies.” This is relevant because it
promotes synergy, while also protecting existing competencies by ensuring they do not
fade or become obsolete. Hamel and Prahalad‟s second suggestion states that “the
mobility of competencies is also aided when the employees who comprise a particular
37
Gary Hamel and C.K. Prahalad, Competing for the Future, 257.
38
Gary Hamel and C.K. Prahalad “The Core Competence of the Corporation,” 82.
39
Ibid, 87.
40
Ibid, 82.
29
competence meet frequently.” 41
Frequent, in person, collaboration would increase the
effectiveness of a core competency, while also leveraging ILCCs across SBUs.
Porter would describe Hamel and Prahalad‟s disillusion with current corporate
level strategy as the failure of synergy combined with a move towards portfolio
management.42
Porter states, “decentralization, coupled with disenchantment with
synergy, has reinforced the view that portfolio management is the essential task of
portfolio strategy.”43
As the core competence body of literature collectively agrees that
current portfolio management is often irresponsible and not conducive to creating a
competitive advantage, there is a common consensus that business policy makers need to
“identify and exploit inter-relationships” between business units and individuals. This
view-point regarding inter-relationships connects directly to the third key fact of a core
competence: its ability to be leveraged across multiple business units. If firms can
successfully complete this task, they are more likely to secure a competitive advantage.
The main point of this thread of literature is that core competencies should be the
central thoughts of strategy formulation. Since there is competition for competencies,
firms should move forward in that competitive space and mindset, lest they become
obsolete and fall out of competition. According to Hamel and Prahalad, this can be
condensed into the “Core Competence Perspective.” In order to compete effectively,
firms should:
•Identify Existing Core Competencies
41
Gary Hamel and C.K. Prahalad, Competing for the Future, 257.
42 Michael E. Porter, Competitive Advantage, 318.
43
Ibid.
30
•Establish Core Competence Acquisition Agenda
•Build Core Competencies
•Deploy Core Competencies (Leverage them across SBUs)
•Protect and Defend Core Competencies44
While many of these points have been discussed in existing literature, protecting and
defending core competencies remains a formidable task, blocking competitive advantage
creation. In this sense, core competencies must be protected from a literal, security
standpoint as well as competitive and obsolescence threats. Harvey and Lusch argue that
firms should protect core competencies with a similar urgency and effort as they do with
physical, corporate assets due to their incredible value. Despite the fact that this is
difficult, mainly due to the intangible, off-balance sheet nature of core competencies,
effort should be expended so as to defend the resulting competitive advantage. Harvey
and Lusch claim that core competencies have a “time value” due to the fact that static
competencies can only differentiate a firm from its competitors for so long.45
As such, to
prevent obsolescence or imitation, security and maintenance of core competencies is
necessary. Additionally, Clardy ties the HRD thread into core competence security as
well. By creating “tight couplings across sub-systems,” HR can make core competencies
unique and complicated from an outsider‟s perspective. As such, HR can play a critical
role in protecting human capital‟s core competence contributions to a firm‟s competitive
advantage.46
44
Gary Hamel and C.K. Prahalad, “The Core Competence of the Corporation,” 45.
45
Robert Lusch and Michael Harvey, “Protecting the Core Competencies of a Company:
Intangible Asset Security,” European Management Journal 15 (1997): 371.
31
Core Competency Implementation
The maintenance of core competencies is critical in order to sustain the key facets
of customer utility, competitor differentiation, and leveragability. If even one of the three
building blocks of the core competency erodes, a firm‟s competitive advantage is at stake
due to their strong inter-relationships. Despite the imperative nature of this task, it
remains difficult to enact. Many firms have turned to outside help, such as consulting, for
aid in core competence maintenance. The question remains, however, if there are
structural capabilities or factors which increase the effectiveness of core competence
implementation.
Existing case studies have analyzed the presence and importance of core
competencies at several firms. Collis performed a review of manufacturing practices in
the ball bearings industry.47
He describes “„core competence‟” and “„organizational
capability‟” and the effects certain resources have upon them. Collis‟ work is valuable
because it provides an existing RBV analysis with which to view the impact of resources
upon a business‟ competitive positioning and outlines a methodology for management‟s
review of their core competence maintenance practices. Dean and Snell also conduct a
study on integrated manufacturing firms.48
They directly analyze the effect of different
manufacturing lines upon competition and performance. One of Dean and Snell‟s main
46
Alan Clardy, “The strategic role of Human Resource Development in managing core
competencies,” 192.
47
David J. Collis, "A Resource-Based Analysis of Global Competition: The Case of the Bearings
Industry," Strategic Management Journal 12 (Summer 1991): 49-68.
48
James W. Dean, Jr. and Scott A. Snell, "The Strategic use of Integrated Manufacturing: An
Empirical Examination," Strategic Management Journal 17 (June 1996): 459-480.
32
findings is that resources cannot “reach their potential except as components of an overall
competitive platform.” This “competitive platform” follows the same characteristics of a
core competence and similar to Collis‟ findings, outlines important areas of focus for core
competence implementation. The limitations of these studies are that they only focus on
existing, internal resources versus external factors. Furthermore, they fail to discuss core
competence development specifically, while just purely outlining pertinent areas of focus.
The current literature remains weak in its description of external factor support for
firms attempting to maintain their competitive advantage through a core competency
focus. However, Srivastava (2005) discusses several aspects of core competency
development. While outlining the importance of core competencies, Srivastava points out
that the “possession of core competencies is not an end in itself. The ability to leverage
core competencies for the benefit of the firm is of greater importance.”49
This implies
that firms should focus resources on their ability to leverage core competencies.
Srivastava continues and describes “critical competencies,” which “is the ability of a firm
to successfully identify, nurture, develop, upgrade, and deploy its hierarchy of
competencies.”50
Core competence nurturing is linked to organizational structure and
culture; competencies are easily leveraged and facilitate a competitive advantage most
successfully when they “are supported by its organizational architecture.” By creating a
fostering environment, such as one that has proper authority delegation, appropriate
performance metrics, and individual reward, core competencies can be easily developed
49
Shrirish C. Srivastava, “Managing Core Competence of the Organization,” The Journal for
Decision Makers 30 (October-December 2005): 52.
50
Ibid., 52.
33
and, most importantly, leveraged across units. While there is limited literature on core
competency development, there is no discussion on the strategic value of adding external
capabilities or factors for core competence maintenance. By having a greater
understanding of external factors‟ impact upon core competencies, managers can practice
more effective core competency maintenance while also identifying worthwhile, external
investments.
An observational study on a supporting industry and capability, such as business
aviation, would fit into the existing core competence literature by probing a link between
particular activities and capabilities and core competence maintenance. Furthermore, this
study would attempt to answer the question of how business aviation can create a
competitive advantage for user firms.
Conclusion
Strategy literature, while creating a constructive framework, fails to address
external factors‟ facilitation of core competency maintenance. This gap in research will
be exploited and addressed by reviewing business aviation use as a particular external
factor. By using literature to frame the study, the link between core competence
maintenance and external factors can be explored. This link will be created by probing
how a factor, such as aviation, affects the value chain, firm resources and capabilities,
human resource development, and most importantly, core competencies. Thus, chapter
two has discussed relevant business strategy theory in an effort to provide background
information and frame a probing study. Chapter three will explain the methodology of the
34
study and create a demonstrable link between the reviewed theory and the case study
questions.
35
CHAPTER III
METHODS
Chapter three will explain the research method design so that this study can be
replicated or expanded. First, the chapter will discuss the purpose of this study and the
reasoning behind the selection of appropriate methods. Next, it will explain the sampling
method and data collection procedures. Finally, the data analysis process will be
reviewed.
The purpose of this study is to examine the impact of an external factor upon a
business‟ core competencies and, if applicable, competitive advantage. Business aviation
was chosen as the external factor due to its widespread use and relevance in current
events. Most importantly, business aviation was chosen because it is an external asset
and has not been traditionally viewed in terms of a firm‟s core competencies. This study
was designed to answer the following research question: How does business aviation
impact a firm‟s core competencies and or competitive advantage?
36
Research Overview
Research was conducted with purely qualitative research methods. Although a
qualitative study cannot explain the strengths of particular relationships, it can provide
“unique and valuable insight.”1 Furthermore, qualitative methods “make visible and
unpick the mechanisms which link particular variables, by looking at the explanations, or
accounts, provided by those involved.”2 This level of detail provides immense value in
explaining the “how” and “why” of particular situations. For instance, several studies
have been conducted on business aviation with quantitative methods; however, they
failed to explain the underlying mechanics of value creation. Nexa Advisors (2009)
purely analyzed the performance differences of S&P 500 companies utilizing business
aviation and those that did not; such a study completely overlooks other variables
affecting performance.3 The challenge of such quantitative studies is noted in their
inability to explain why such a positive effect occurs.
The use of qualitative methods was further justified in this study because there
was not enough relevant quantitative data; the intangible nature of the benefits of
business aviation leads to ambiguous, case-by-case scenarios. This exposes another
structural benefit of qualitative research; it “is emergent rather than tightly prefigured.”4
1 Rosaline Barbour, Introducing Qualitative Research (London: Sage Publications, 2008), 9.
2 Barbour, 11.
3 Nexa Advisors, LLC, “Business Aviation: An Enterprise Value Perspective,” Prepared for the
NBAA (Fall 2009).
4 John W. Creswell, Research Design (Thousand Oaks: Sage Publications, 2003), 181.
37
By not being tied to a previously determined hypothesis, findings become real world
examples instead of purely support or criticism.
An interview-based approach was chosen for data collection to expose details
surrounding core competency maintenance and competitive advantage creation. This
method allows for anecdotes, stories, and explanations to provide the relevant take-
aways. While the conclusions reached are only applicable to the specific cases selected,
they still provide a rich background for further research. As such, sampling was
performed and interviews were conducted on business leaders and employees at several,
varying firms.
Sampling
There are over 10,000 firms in the United States utilizing some form of business
aviation.5 As previously defined, business aviation consists of any firm using proprietary
or hired aircraft for in house transportation.6 A nine firm convenience sample was
chosen and further subdivided by size. Size was determined based upon the number of
employees. The Small Business Administration uses two common parameters to define
small business: 500 employees or less and/or less than seven million dollars in total
annual revenue.7 Since the smaller businesses consulted were privately held, accurate
revenue figures were unattainable and the 500 employee metric was used. All other
5 National Business Aviation Association. What is Business Aviation? [cited 3 March 2010].
Available from http://www.nbaa.org/business-aviation/.
6 Ibid.
7 Small Business Administration. Summary of Size Standards By Industry. [cited 3 March 2010].
Available from http://www.sba.gov/contractingopportunities/officials/size/summaryofssi/index.html.
38
businesses contacted were defined as large businesses. There was no attempt to choose
firms based upon particular industry membership.
A small sample was chosen not to “generalize or predict, but rather…. [to] create
and test new interpretations.”8 Despite this, Denzin and Lincoln argue that “looking at
multiple actors in multiple settings enhances generalizability.”9 Furthermore, the use of a
non-random sample increased the chances of finding rich data. While essentially a
stratified purposeful sample, in which subjects were chosen by firm size, the sampling
procedures ultimately morphed into an opportunistic methodology in which new subjects
were chosen with little foresight.10
The convenience sample was generated through general knowledge, news
research, and ultimately referrals from previous subjects. Additionally, the flight tracking
website Flightaware.com and the FAA online aircraft registry database were consulted.11
The National Business Aviation Association also exposes some of its members through
publications and on its website, NBAA.org. Table 3.1 denotes the firms, identified
through labels one through nine.
8 Benjamin F. Crabtree, and William L. Miller (eds.), Doing Qualitative Research (Thousand
Oaks: Sage Publications, 1999), 34.
9 Norman K. Denzin and Yvonna S. Lincoln (eds.), Handbook of Qualitative Research (Thousand
Oaks: Sage Publications, 1994), 435.
10
Crabtree and Miller, 39.
11 Federal Aviation Administration. FAA Registry Site. [cited 10 February 2010]. Available from
http://registry.faa.gov/aircraftinquiry/ .
39
TABLE 3.1
Summary of Sample
Firm Number Size/Employees Industry Position of
Interviewee
1 Large: 150,000 Aerospace CEO
2 Large: 123,000 Homebuilding/Aerospace Pilot/SVP
3 Large: 14,000 Electronics Retailer Director of
Operations
4 Large: Unknown Agriculture CEO
5 Large: 500 Oil and Gas Exploration Senior VP of
Engineering
6 Large: 13,500 Super Market Chain Chief Pilot
7 Small: 20 Land Developer/Real
Estate
VP of Aviation
8 Small: Unknown Telecom Consulting President
9 Small: Unknown Agriculture Owner
Ultimately, fourteen firms were contacted but only nine chose to participate. Due to the
private and volatile nature of the topic of this study, several firms declined to be
interviewed or never responded. Also, with several firms it was too difficult to reach the
pertinent individuals with relevant knowledge. Furthermore, the most useful individual
differed at each firm. For instance, firm three was large enough that the head of the flight
40
department had enough knowledge of the strategic value of the asset to be relevant. At
other firms, such as firm six, the locus of control or use was so disseminated that it was
unclear from an outsider perspective who had the most relevant knowledge. In most
cases, attempts were made to speak with some form of senior vice president, Chief
Financial Officer, or Chief Executive Officer. Understandably, it was impossible to
speak to some of these individuals due to the size of the firm and their inability to
entertain interviews. As such, multiple avenues were chosen to attain rich data. Once a
willing sample was chosen, interviews were scheduled.
Data Procedures and Collection
Phone and in-person interviews were conducted from a set of thirteen main
questions. Questions were slightly modified on the spot or in advance depending upon
the actual position of the interviewee. For instance, if the interviewee was on the
provider side (pilot or flight department head), questions were modified to determine
what value the interviewee attempted to offer “customers” (albeit in house). If the
interviewee was a high level executive, questions attempted to assess the valuation of the
asset. Nonetheless, the questions basically followed the same format and covered the
same topics.
The interviews typically lasted thirty to forty five minutes and were recorded for
transcription purposes. An interview was chosen over a survey due to the relatively
higher level of data richness, flexibility (as noted above), and because personal
interviews allowed for the insertion of rich anecdotes. Using “open questions” will
41
“allow respondents to focus on the issues of greatest importance to them, rather than the
agenda being determined entirely by the researcher‟s interests.”12
The questions explore the strategic impact of aviation at the firm. Specifically, the
questions were framed with competitive advantage, core competency, value chain, and
intangible asset theories. Although each interview was situational and often included
similar anecdotes, the data proved very useful in its explanation of how an external
factor can impact a firm. Table 3.2 includes the basic form of the questions as well as
relevant theories.
TABLE 3.2
Interview Questions
Question Relevance
1 What is your job at [firm]? Could you
please describe your roles/duties and
exposure to aircraft use?
Background information
2 For a little background, I would like to get
a better understanding of your firm‟s
private aviation use patterns. How often is
it used in day- to-day operations? Who is
authorized to use the asset? What sort of
cutoff/divider is used? Which employees
are also typically included?
Background information
3 When did your firm begin to use business
aviation? What was the primary reason
your firm chose to begin to use corporate
aviation? Has that changed over the years?
Background and justification
12
Barbour, 17.
42
TABLE 3.2-CONTINUED
4 A lot of business theory alludes to the fact
that different factors can affect
performance. Do your competitors use
corporate aviation? How was that a factor
in your decision to begin to use this type of
asset? Defensive or offensive?
External analysis is
imperative to strategy
formulation; industry is
directly linked to firm
specific performance;
competitive advantage
creation; Porter (1980),
Porter (1981), Porter (1983),
Mahoney and Pandain (1992)
5 This question focuses on your firm‟s value
chain. Would you maybe elaborate on how
or where aviation fits into/alters the value
chain?
Value chain aggregates what
activities go into making a
product/service; Porter
(1979), Porter (1985), Pugh
et al (2002), Stabell and
Fjeldstad (1998)
6 Does it allow for different aspects of the
value chain to connect?
7 Do users of the aircraft consider it as an
office or just purely for transport?
Increasing productivity and
efficiency; human resource
development
8 Could you please list/rank several
advantages and disadvantages of using
business aviation?
Justification, open ended to
look at how firm resources
are utilized; Lockett (2005),
Lockett et al (2009), Collis
(1991), Dean and Snell
(1996)
9 Does the use of aviation create/alter
capabilities? How does it improve your
reputation? For instance, does it allow for
high quality service offering (on time,
adaptable, reliable) or on-demand product
support? Have your customers ever said
anything about this?
Idea of “Doing Capabilities,”
networks, and reputation;
Hall (1993)
43
TABLE 3.2-CONTINUED
10 Business aviation is mostly for moving
people. How does that tie into improving
employee performance and productivity?
Service capability and customer
interaction?
Connects the valuable role
human resource development
plays in improving firm‟s
core competencies. HRD
within the RBV framework:
how can a firm improve
employees so they improve
the firm‟s competitive
advantage; Clardy (2007),
Ulrich (1991), Ulrich (1992)
11 Core competency literature talks about the
fact that leveraging core competencies
across a firm, especially one with SBUs, is
very difficult. Does your firm think in
terms of a portfolio of competencies,
versus just business units? Just out of
curiosity, would you list your firm‟s core
competencies? How is aviation a factor in
leveraging core competencies across
physical distances?
Core competencies must be
valuable to customers, hard
to imitate, and leveraged
across small business units.
Importantly, core
competencies can be the
source of a competitive
advantage. Maintaining core
competencies is key; they can
diminish, be imitated, and
become obsolete; Hamel and
Prahalad (1990), Hamel and
Prahalad (1994), Porter
(1985), Lahti (1999), Harvey
and Lusch (1997)
12 I am sure you are aware that some view
business aviation as an inefficient
allocation of resources; do you agree with
this statement? Can you provide me a
specific example which corresponds with
your interpretation?
Background; exposes
justification argument and
way of thinking about
strategic value of asset
13 Many of the benefits you mentioned
previously were intangible. How do you
value such benefits? Is there any way to
put a money figure on it? Hypothetically,
how would you convince a BOD that it
was a necessary asset?
Exposes valuation of
intangible resources
44
Once the interviews were conducted, the results were transcribed into full-text versions
of the conversations.
Analysis Methodology
Content analysis was performed to analyze various emergent themes and findings,
whether or not they were theory related. Secondarily, obvious or implicit connections to
the relevant theories were noted in order to tie the findings into relevant theory and
complete the strategic analysis. The content was analyzed by creating a table with all
responses, relevant references to theory, and initial take-aways.
This analysis process tries to answer the “primitive questions of what is going on
and how things are proceeding.”13
Furthermore, the “description” process simplifies
occurrences and gives way to “storytelling.”14
This process was accomplished by
continuously analyzing the data: a process termed “early analysis.”15
Choosing to
analyze each piece of data frequently and early on in the study allows the researcher to
avoid blind spots and keep research methods effective. For instance, Question 13 (see
Figure 3.2) was added after the first interview to ensure access to the essential research
question from another angle. Early analysis also includes the practice of basic coding and
marginal remarks. Marginal remarks were the primary method for analysis because of
their ability to generate “new interpretations, leads, [and] connections,” while being able
13
Denzin and Lincoln, 432.
14
Ibid.
15
Matthew B. Miles and A. Michael Huberman, Qualitative Data Analysis (Thousand Oaks: Sage
Publications, 1994), 50.
45
to “add meaning and clarity to field notes.”16
They were chosen over intense coding
because they “point to important issues that a given code may be missing or blurring.”17
Ultimately, the content was viewed as “interview-data-as-resource” in that it was
“interrogated with reference to both internal inconsistencies and relevant theoretical
frameworks, rather than standing as an unquestioned record.”18
Similarly, it is
understood that the resulting “explanations are condition and context dependent, partial,
inconclusive, and indeterminately applicable.”19
Figure 3.3 explains this process of
analysis.
FIGURE 3.3
16
Ibid, 67.
17
Ibid.
18
Barbour, 123.
19
Denzin and Lincoln, 433.
46
Design of Research Process
Source: Norman K. Denzin and Yvonna S. Lincoln (eds.), Handbook of Qualitative Research
(Thousand Oaks: Sage Publications, 1994), 433.
In the case of this study, data was created in a “display” table in order to allow for easy
analysis in one location. Then, an iterative process began, albeit early on, with the
display and analytic texts “influencing” each other. Thus, it is the content and
organization of the data display which ultimately weaves into the story telling process of
the analytic text. This format illustrates the ability of qualitative research to be emergent;
the findings and conclusions of this study were altered in respect to particular responses
over time rather than consistently adhering to a previously determined hypothesis.
This chapter can be used as a guide for the replication of this study or the creation
of a similar exploratory study. Next, chapter four will reveal the results of this analysis
and relevant findings.
47
CHAPTER IV
RESULTS
Following the completion of the interview process, data was compiled and
analysis began. From the outset, various themes emerged regarding the justification and
benefits of business aviation. Broadly, responses focused on the benefits of the asset and
why business aviation is considered useful at a particular firm.
The responses provided several interesting parallels to business theory; however,
some questions did not provide the type or level of detail expected. For instance, a
question concerning the use of current resources was dropped after the first interview due
to redundancy. Many respondents reverted to previously mentioned anecdotes or reasons
for justification resulting in overlapping answers. Additionally, question six, which
concerns the firm value chain, was generally answered very quickly with little detail.
This could have been because respondents were not aware of the value chain, or could
not make the immediate link because of only limited familiarity with the terms. Similarly,
linkages, which were ideally uncovered by question six, were very difficult to expose due
to their implicit and intangible nature. In this study, it was clear that studying competitive
advantage creation leaves ambiguous results due to the difficulty of making the implicit
explicit.
48
One of the most important findings was that every user firm interviewed was
different in their aviation use patterns, anecdotes, and justifications. One industry veteran
interviewee made that clear himself: “I mean corporate aviation…every operation is
different. My operation is completely different than the next guy‟s… they might have
different reasons, different planes, different philosophies.” As such, the data was very
rich and exposed many valuable themes.
Analysis of the results generated two main threads regarding business aviation‟s
benefits: those that are tangible, and those that are intangible. Tangible benefits typically
have a numerical, monetary value associated with them. For instance, tangible benefits
include time savings, productivity increases, efficiency improvements, and a specific
value add to a firm‟s business model. Intangible benefits are implicit and more difficult to
measure or identify. For instance, intangible benefits include the facilitation of
interactions, such as the leveraging of core competencies, as well as other intangible
gains such as reputations or perks.
There was also relationship between experience and efficiency suggesting that
firms that have used business aviation for some time were able to use the asset more
efficiently. Furthermore, there was little mention of corporate strategy and a linkage of
the asset back to a competitive advantage generation.
Tangible Benefits
Tangible benefits are typically assessed with metrics. Statements regarding such
benefits were listed by virtually every respondent in some form or another. Despite this,
the only attempt at justifying and supporting these statements numerically was to use a
salary per hour cost versus aircraft cost per hour calculation. By comparing the personnel
49
costs to a firm versus the cost of traveling privately and commercially, many interviewees
argued that a firm could theoretically justify business aviation. Respondent seven
exemplifies this methodology:
What you need to do is the time savings and break it down by the hour. How
many hours you save, and then the value of an executive‟s time, his hourly
salary….and if he‟s not being productive for 8 hours in a day, that‟s $8,000 to
$30,000 dollars….it could be pretty pricy. Now you‟re….you can do it
cheaper…the company is paying him that salary if he‟s on an airline or a
company airplane. He needs to be productive with his time.
There were no other numerical metrics used to measure the efficiency of this asset; this is
disconcerting due to the fact that many of the areas business aviation appears to impact
are critical to firm competitiveness. The other major tangible aspects of business aviation
include time savings, productivity increases, and essentiality to business model.
Time Savings
Nearly every single contributor listed time savings as the number one benefit of
utilizing business aviation assets. Table 4.1 shows the responses to question eight, which
asked participants to list the benefits of corporate aviation.
TABLE 4.1
Summary of Responses to Question 8
50
Participant Response
3 “A lot of times when you go to Texas, obviously that‟s a 3 hour trip on
Southwest or American, a lot of times, depending on the number of managers
or district managers that need to go, they‟ll take one of the Sabreliners, or the
Gulfstream….The advantages of business aviation is the time motion of
people.”
4 “The advantages are to be able to be in Arizona today…to start the day in
California and finish the day in Arizona….how many hours you want people in
the field do you want people working?”
6 “It allowed us to depart in the morning and sometimes go to 2 or 3 different
cities…number one is having the ability to come and go when you want to go
on your schedule, not the airlines schedule.”
5 “Time savings… that‟s probably number one.”
1 “How do you take a valuable resource, a CEO or senior executive, and get
them as many places as you can…you just flat couldn‟t do it without the
airplane.”
7 “It‟s a time machine. The time is what you are saving and when you are talking
the value of an executive, you can‟t quantify it. Accountants hate airplanes.
They say just go on the airline, it‟s a lot cheaper.”
2 “The first would be time savings. If you read most surveys or do any kind of
research into large corporations, CEOs and executives, the one thing that they
want more than anything else is time.”
Time savings includes the ability to save time in travel and create a more productive
working environment while en-route. Respondent three states: “The advantage of
business aviation is the time motion of people.” For the respondents, aviation provided
value by creating the ability to move people around their system in an expeditious
fashion. Furthermore, benefits included overall efficiency of human resources and
ultimate flexibility. Respondent six argued, “Well I think number one is having the ability
51
to come and go when you want to go on your schedule, not the airlines schedule.” For the
firms included in this study, reducing the amount of time required to perform a trip or job
equates to increased productivity. Despite this, respondents said that they did not quantify
how this specifically aids the firm, except for an implicit understanding that some benefit
is present. Productivity was the next major theme prevalent from the responses.
Productivity
Productivity is related to time savings due to the mathematical equation for
productivity: as mentioned above, if a firm can reduce input time for the same or
increased net result, productivity has increased. However, interviewees also gave
responses related to productivity independent of time savings or any associated numerical
equations. Thus, it is worthwhile to discuss the productivity theme separately.
According to the firms interviewed, using business aircraft can increase
productivity. Respondent one discussed the initial justification for utilizing such an asset
at his firm: “It was just: how do you get the most use out of your key personnel. Can I just
get a lot more productivity and was it worthwhile?” Some firms in this study rationalized
this implicit productivity gain through an expense per employee metric. However, it is
apparent that there are intangible gains present as well. These gains are often very
difficult to measure and will be discussed further in chapter five.
In addition to making individual executives more productive as a whole, there
were also statements about productivity improvement while en-route, onboard the
aircraft. Users touted the new productivity created during what was usually wasted travel
time aboard commercial aircraft or in commercial airports. Respondent two states: “The
52
time on a [business aircraft] is actually a very productive time. They can read
newspapers, do research, go do their mail or email, or whatever that you can‟t really do
in an office because people are lined up at your doorstep. They value that time.”
Additionally, every single respondent said that their aircraft are configured as traveling
offices so as to be effective working spaces. This included meeting areas, voice and data
connectivity, and equipment such as printers and fax machines. Interviewee one
described an instance in which the aircraft‟s office capabilities saved him several hours
on the ground:
I can remember printing a document on descent into New York that was
critical…and it‟s the kind of thing where had you not had that office
capability you would have gotten off the airplane, had to go to a hotel, get
online, get the document, go to the hotel office center, and get it printed. You
know you‟re really quickly into a couple hours of savings right there and that
happened all the time.
Every participant said that they generally work, or catch up on needed sleep, while they
are onboard.
Despite the fact that productivity improvement was listed as a major benefit of
business aviation, few respondents could provide measurable, numerical support; rather,
justification was provided through anecdotes and personal experiences.
Essentiality to Business Model
While not necessarily tangible by itself, the theme of essentiality is related to the
previously identified themes of time savings and productivity increases. Many
respondents justified business aviation use at their firm with statements that implied that
it was essential to the way that their firm conducts business. Theoretically, this claim
could be substantiated by time savings and productivity metrics.
53
Many respondents defended aviation as essential to the way their business
operates, utilizing words and phrases such as “necessity,” “need,” and “only way.”
Furthermore, experience played a major role in the ability to make such claims. In
response to a question positing the idea that business aviation may be a poor use of
resources, one respondent stated that, “I think you would hear more of that if it wasn‟t
used so widely [at my firm].” In this particular instance, justification for use stems from
the fact that this firm has experience in using the asset efficiently across all divisions.
Another interviewee stated in response to the same question, “I don‟t think…I haven‟t
heard that argument relative to our….what we do. We couldn‟t operate without it. The
question would be do we have to have 2 or 3?” Thus, the way that firms have evolved in
the use of their assets appears to have generated a sense of relative protection from
criticism, especially in the face of public spectacles of misuse such as the Detroit auto
makers flying to Washington, DC. Respondents three and four stated that examples of
misuse, such as bank executives and automotive executives, posed relative examples of
inefficiency to benchmark against and use as examples of what to avoid. One tenured
flight department head stated:
I think it is part of the decision making process: first of all the type of
airplane. Determining your missions, type of missions you want to fly, and
then finding the right type of aircraft for that mission. It can‟t be
inefficient…if the CEO is buying an expensive aircraft and he‟s flying around
in it by himself all the time and he never utilizes the full capacity of a G4 or
G5…but if all he‟s using G4 and G5 for is going back and forth between here
and San Diego…that‟s not efficiency. That aircraft was designed to do long
stage lengths. If you‟re flying to London all the time, it‟s a good airplane. If
he‟s hauling 20 people down there two or three times a week he needs an
aircraft that can carry that kind of people. And believe me there‟s been a lot
of guys who say I want to buy a jet. I talk them out of it. Do you really need it?
I convince them that the fractional is a good way to go. I back into it. I back
into what the requirement is. It saves them a ton of money.
54
Several respondents were adamant about aviation being essential to their firm‟s
success. Several particular anecdotes highlighted how aviation was pivotal in day-to-day
operations. Interviewee six declared: “It is just the nature of our business…and we are a
very flat organization with a lot of operations scattered in a lot of places. It‟s a necessity
that we‟ve recognized and dealt with.” Furthermore, participant one stated: “One of the
things that was important to us was moving people back and forth between business units
and if you‟re not conscious about who‟s there and what their capabilities are, you just
flat can‟t do it.” These two firms view aviation as essential to their business model,
mainly due to the physical distances between their operations. The ability to connect
physical distances with valuable face-to-face interactions exposes the intangible benefits
of business aviation; mainly core competence leveraging, the value of face-to-face
interactions, reputation, and employee perks.
Intangible Benefits
Core Competency Leveraging
All interviewees claimed that business aviation aided in some degree of core
competence leveraging within their firm. By moving critical individuals around a firm‟s
system, aviation contributed to the maintenance and efficient use of valuable firm
resources. In some instances, aviation was used for employee education programs.
Respondent three, head of a flight department for a national electronics retail chain,
described how aviation was critical in opening a new retail location:
55
We‟ll take [employees] out of a [West Coast] store and take them when
they‟re opening up a new store. So there‟s training and education and helping
the new store up and running. We‟ll actually take people that just work the
floor. There‟s no discrimination we utilize the airplane from the owner down
to people in the store. We‟ll move them when they‟re opening a new store.
And it‟s sort of the philosophy of this company.
In this instance, business aviation is able to efficiently move individuals from varying
hierarchies around a firm in order to spread knowledge and company philosophy.
Business aviation was also used to move management around the system in order
to maintain core competencies. Respondent one stated that such assets were invaluable
for managing a large firm with multiple small business units:
We tried to go to every major business unit and talk about leadership
development. Now when you do that you want the head of that business unit
there but you also want your key corporate executives there. And getting them
all together at that site is really important. Your human capital is absolutely
crucial and getting to know people so that you make the right decisions. In
our case, both from a manufacturing standpoint and a research standpoint we
had little facilities in various places. Some of which were hours of driving
from the nearest commercial airport. And so to be able to get to them in some
cases, I think, you just flat never would have gotten there.
These respondents placed a great value on business aviation due to its ability to maintain
firm core competencies and ultimately competitiveness.
A participant from the agricultural industry claimed that aviation was critical to
their organizational structure. By using business aviation to leverage management
capability from a centralized location, the firm could avoid overstaffing or having to rely
on multiple, redundant management structures:
It allows us to either not have to staff as heavily or it allows us to be in
locations that we wouldn‟t otherwise be there. We have a centralized
management and it‟s critical to have it. If we had decentralized management
with a Vice President that ran our Arizona operations and some sales and
56
marketing people that were in the field all the time then, you know, you are
gonna have a pretty hard time justifying [aviation].
These organizational benefits give way to another sub theme of core competence
maintenance: the facilitation and value of face-to-face interactions. According to the
respondents, business aviation allowed for valuable meetings and shared “time on
ground.” Participant three states that, “at the end of the day people need to be moved
around and the efficiency of a business jet is so much more efficient in a person‟s day.”
These comments run counter to the notion that a phone call could suffice.
Two participants, both from the technically dependent oil and gas exploration and
agricultural industries, claimed that aviation helped facilitate interactions in regards to
day-to-day operations. Interviewee five stated, “It gets our technical people to and from
offices where we have operations to really meet face-to-face with people. We get so much
more; I guess we keep our projects better steered by having face-to-face meetings with
people rather than doing it via telephone or whatever else you can use.” Furthermore,
participant four continued, “by having a small group of guys that interact on a daily basis
without a hierarchal chain, we‟re very nimble, we can act quickly, and we take
advantage of opportunities on a daily basis.” Both of the respondents above cite
business aviation as a critical factor in allowing projects and daily operations to be
conducted.
One participant alluded to the fact that the benefits were on a higher, executive
level by allowing interactions with customers: “clearly an important role of the CEO and
some of the senior executives was that you need to be seen by customers and those
customers are literally all over the world.”
57
The concept of core competency leveraging, and the associated face-to-face
interactions, were clear benefits of business aviation. These benefits are categorized as
intangible because they are difficult to measure, yet universally understood by the
participants to add value. Next, the second intangible theme, the notion that aviation
improves user firm reputation, will be discussed.
Reputation
Business aviation was originally thought to affect a user firm‟s reputation by
directly enhancing service or product offering, improving support, or ultimately adding
value to the final product. However, interview participants provided even more intangible
examples such as the generation of good-will with customers and suppliers or the
creation of a better overall firm appearance.
Interviewee five stated that aviation was used as a tool to impress potential
partners:
We‟ll actually invite some [potential partners] along if we‟re having an event
somewhere or the same event we‟re going to offsite and invite them along and use
that as a kind of a… way of letting them know they‟re important to you. Putting
them on your corporate jet; it‟s kind of a plus. It works in that manner to kind of
help you a little bit as a company.
In this instance, business aviation improves a firm‟s reputation by showing potential
partners that it is an organization that takes care of important resources. Examples of
business aviation being used to improve reputation also extended to humanitarian or
goodwill missions. One interviewee said:
We have done some trips in the past as goodwill trips and some trips that have
generated revenue. We have done some hurricane evacuations for companies
that we have a close relationship with and gave them a deep discount on our
direct operating costs!
58
While it is impossible to numerically value the implicit gains of such actions,
there is an implicit understanding among the participants that such allocations are smart
business decisions. It is probable for flights such as those mentioned above, that there is
hope of some form of potential reciprocation in the future. Furthermore, these two
examples also postulate that a current business relationship could be improved or a new
one forged. Despite this, two participants gave responses that imply an even grander,
broader improvement to overall firm appearance and reputation:
When you go meet Donald Trump or Martha Stewart in your own airplane
that sends a signal. So you may end up having some business contacts that
you wouldn‟t normally have…but I believe that to be intangible.
And the second continued:
It also means that when I arrived in China, and the governmental delegation
is there to meet you, the boarding ramp comes down, you walk down, people
are there with flowers, it is part of what sets the image for a visit at that level.
If you arrived a different way, that ability to sort of set your stature relative to
a head of state was pretty important.
In these instances, interviewees suggest that the aura of having a business aircraft
improves firm reputation and possibly improves bargaining power or customer
perception. As noted by participant two, respondents were aware of the intangible,
immeasurable nature of such actions. Next, the use of business aircraft as a perk and
means of reducing wear and tear on critical people will be reviewed.
Business Aviation as a Perk
The use of business aviation as a perk was another prevalent theme among the
responses. The interviewees put this theme into the context of caring for human capital
and highlighted business aviation‟s ability to reduce wear and tear upon key human
59
resources. Table 4.2 illustrates how business aviation provides ability to travel frequently
and still be productive.
TABLE 4.2
Selection of Responses Regarding Aviation as a Perk
Participant Responses
4 “Last year…I was at twenty appointments in 14 cities in seven states and I
did it in 5 days. And I came home and I was not tired.”
2 “[Executives] have very little control over their day…they have very little
time for themselves…”
5 “So, other than it helps us for our employees to realize the value gained
when they have to travel and how quickly they can be turned around and
not spend time on the road wasting time away from the office where they
can be doing other things. It does help us for kind of our higher level
professionals in appreciating that perk basically that they can use versus
flying commercially, because that‟s their option.”
1 “I think it saves some wear and tear on critical people. If I can get a good
night sleep on a transatlantic flight as opposed to trying to sit up and sleep.
You sleep better, so I think number two is are you taking care of your senior
people. The thing that you‟ve got to be really careful about is both the
perception and the reality of this being a big perk.”
The final participant‟s remark was enlightening and exposed the balance firms must play
in keeping the perk continuum in check. Three respondents explicitly stated, without
prompt, that there were strong controls in place to authorize every aircraft movement and
ensure business legitimacy. One of those firms was privately held, while two were
publicly traded. There were also several statements that attempted to balance the perk
continuum through relative benchmarking. For instance, justification for asset use
60
stemmed from the fact that it was used “95%” or “to a very high degree” for business
purposes. Two important aspects can be divulged from these last two findings: one,
participants view business aviation as a perk within the business scope versus a perk for
personal or pleasure use and two, there is an implied fact that justification differs at
private versus public firms. Lastly, the theme of tenured experience as a business aviation
user will be discussed.
Experience
Many respondents claimed that their business aviation use patterns were efficient
and inexpensive, yet they used relevant experience and industry awareness to justify that
claim. Most participant firms have been using aviation for at least a decade, and some as
long as fifty years. As such, justification stems from an apparent knowledge of how to
efficiently use business aviation assets. One participant states:
I am fourth generation. We probably started using general aviation in the
60‟s. It is just the nature of our business. We are a very flat organization with
a lot of operations scattered in a lot of places. It‟s a necessity that we‟ve
recognized and dealt with.
It appears from this response that the implicit benefits of business aviation require that
somebody with experience be in control of its use or create its case for justification.
Additionally, many respondents stated that having owners who understand the nature of
business aviation assets is useful in making a supportive case. Interviewee five explains:
We have an owner who also owns corporate aircraft: quite a few. In fact we
hooked up through them when we purchased our aircraft. But they understand
completely the power and advantage of having corporate transportation like
this.
Three participants responded affirmatively to an add-on question querying whether or not
experience had something to do with justification. All three also said that having owners
61
who understand the asset or had previous experience with its use aided in justification.
Thus, it is apparent that this experience gives way to a sense of essentiality or implied
justification.
Conclusion
This chapter describes how business aviation is currently justified by a sample of
user firms. It contains anecdotes and statements from interviewees that highlight which
business areas and concepts the asset affects. Overall, only two respondents actually
stated that business aviation directly leads to a competitive advantage at their firm. The
difficulty in drawing a direct link from business aviation to competitive advantage
creation is two-fold: one, it must be inferred through the statements of interviewees
versus numerical data and two, the gains are implicit, secondary, or tertiary through what
is most likely a human resources link. Thus, chapter five will discuss the relevant
implications of these findings and contain several recommendations for user firms.
70
CHAPTER V
CONCLUSION
This study was designed to identify how business aviation affects core
competencies and ultimately competitive advantage. Nine interviews were conducted,
with questions framed around the benefits and methods of justification at user firms.
Coincidentally, this qualitative approach attempts to address the current gap in strategy
literature regarding the impact of an external factor upon firms‟ competitiveness. As
previously defined, an external factor is any asset or service utilized by a firm to address
a need following the establishment of their core business model. Virtually all strategic
literature today focuses internally when attempting to identify the sources of competitive
advantage generation. This study focuses on how an external factor or asset can affect
competitive advantage.
Contributions
There were several meaningful implications related to the two themes of tangible
and intangible benefits identified in chapter four. First, the theme of knowledge and
experience surrounding the use of business aviation assets will be discussed. Based on
this study‟s findings, it appears that having experience with business aviation assets leads
to more efficient use. This may be critical to ultimately using such an external factor for
the goal of generating a competitive advantage.
71
Furthermore, the implicit nature of many of the benefits of business aviation further
supports the need for experience in order to utilize such assets to their fullest potential.
Many interview participants referenced their knowledge of other companies‟ poor
allocations of business aviation resources in order to justify the use at their firm. For
instance, interviewee four stated in response to a question positing the idea that business
aviation may be a poor allocation of resources: “I haven‟t heard that argument relative to
…. what we do.” This participant is recognizing that the argument exists in the industry
space. Yet, the response implies that the argument is just not relevant due to their
experience and ability to use their assets efficiently. This is also embodied by interviewee
three: “I‟ve always approached it from, „what is the need.‟” Based on these comments,
flight departments and firms believe they maximize efficiency by possessing
experienced, cost and mission minded employees.
These observations coincide with research findings on the important role instinct
or intuition plays in upper level management. Dreyfack (1967) claims that instinct is a
“sixth sense” eligible for helping to make the toughest business decisions. Dreyfack
states that instinct “assembles previously unrelated facts and experience into a new
judgment about an untried solution.”81
The key ingredient, experience, allows for
judgment and an understanding of ambiguous situations. Furthermore, Hayashi‟s (2001)
research points to the fact that emotions and feelings are essential to making good
81
Raymond Dreyfack, “Use that sixth sense-INSTINCT,” Industrial Management 9 (1967): 11-
16.
72
business decisions. Hayashi cites numerous business decisions made by several American
corporations that were executed without relevant numerical support.82
This overarching theme of experience was also present in comments concerning
the value of face-to-face interactions. Interviewees seemed to be aware of the fact, based
on experience, that certain people need to be physically present across a firm‟s locations.
Interviewee one states: “if you‟re not conscious about who‟s there and what their
capabilities are, you just flat can‟t do it.” There is significant research confirming the
value of face-to-face interaction; mainly, the link is drawn through the value of
interpersonal, nonverbal communications. Goman (2008) found that seventy percent of
communication is nonverbal.83
This suggests the optimal way to fully communicate is
through in-person, face-to-face interactions. In a survey conducted with 2,300 business
leaders by the Harvard Business Review, only 20% of the respondents said that they
believe virtual meetings create the same results as a face-to-face interaction. Furthermore,
81% claimed that there is implicit value beyond the actual meeting content when a
meeting is conducted in person. Despite this, 71% believe that virtual meetings are more
time efficient.84
Ultimately, face-to-face interactions are critical because they play a key
role in firm core competency maintenance. Hamel and Prahalad (1994) argue that in
order to effectively maintain firm core competencies, executives must be given “cross-
corporate stewardship roles for particular competencies.” Furthermore, they argue that
82
Alden M. Hayashi, “When to Trust your GUT,” Harvard Business Review 79 (2001): 59-65.
83
Kinsey Goman, The Nonverbal Advantage (San Francisco: Berret Koehler, 2008).
84
Jay Boehmer, “Study Shows Face-to-Face Meeting Value,” Harvard Business Review 33
(2009): 9.
73
“the mobility of competencies is also aided when the employees who comprise a
particular competence meet frequently.”85
Additionally, Porter (1985) claims that
managers should “identify and exploit inter-relationships” between business units and
individuals.86
Thus, one way that firms can effectively maintain core competencies is
through relationships, synergies, and face-to-face interactions. While the case for
conducting face-to-face interactions can be made, it is evident that time is a major
consideration. The time savings generated by business aviation can offset this detractor
and allow firms to conduct face-to-face interactions and effectively maintain core
competencies.
Commoditization
Another finding of this study is that business aviation assets have transitioned into
a commodity for many user firms. Participant six made an enlightening comment in
regard to a question querying whether or not he believed business aviation gave his firm a
competitive advantage:
I don‟t think so. Most of these other companies, super market chains, have
their own flight departments… what might give us the edge is that we actually
have the most, probably the smallest and therefore more economical flight
department. A lot of these companies have much larger airplanes and multiple
airplanes and several pilots, mechanics, so I would say the only competitive
edge would be in that we just run it more economically.
85
Hamel, Gary and C.K. Prahalad, Competing for the Future (Boston: Harvard Business School
Press, 1994), 223.
86 Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance
(New York: The Free Press, 1985), 38.
74
First and foremost, this statement embodies the theme of experience listed above;
interviewee six believes that experience in operations gives his firm an advantage over
competitors and thus allows his firm to utilize this asset more efficiently. Second, this
quotation suggests that since business aviation is used so widely in many industries for
the same purpose of moving human resources, it appears to some respondents to no
longer give a firm an advantage through time savings, increased productivity, or
improved efficiency. Participant four exemplifies this: “At one point, go back 10 or 15
years ago, you might have been able to romance somebody: pick them up, take them
somewhere… that stuff doesn‟t happen anymore.” Thus, while the participants still view
business aviation as an important resource, many do not appear to think of it entirely in a
strategic sense. This highlights an opportunity for firms to think strategically about this
asset: it is a significant capital expenditure and has been found, in this study, to have
strategic implications.
The Intangible Link
The fact that many in the industry do not view business aviation as a competitive
advantage driver could be due to the intangible nature of its impact. Peteraf (1993)
highlights the difficulty of measuring secondary, tertiary, or intangible benefits.87
Numerical support for the anecdotes and examples provided by the respondents regarding
the benefits of business aviation may simply not exist in the tangible realm. Rather,
management can shift its focus regarding such an external factor to an intangible
87
Margaret A. Peteraf, “The Cornerstones of Competitive Advantage: A Resource-Based View,”
Strategic Management Journal 14 (March 1993): 184.
75
mentality. In a study analyzing the impact of non-financial measures upon investors‟
decisions, Ernst and Young (1998) found that 35% of said decisions were influenced by
measures other than those found in typical financial reports. Such measures include
innovation, ability to attract and retain talent, compensation, strategy execution, and
research leadership. 88
If investors are focusing outside the typical valuation realm, it
may prove valuable for executives as well. Furthermore, in a 2001 presentation to the
Balanced Scorecard Initiative, Norton highlights that intangible value creation has grown
from 38% of total value creation in 1982 to 85% in 1998. As such, Norton (2001) also
recommends a shift to non-typical metrics such as cause-effect linkages, value creation
processes, and portfolios of intangibles. Intangible asset portfolios are typically
comprised of human capital and a particular organizational “climate”: “infrastructure to
support the long-term effectiveness of human capital.” “Climate” ultimately comprises
cultural and strategic awareness, strategic alignment, and strategic integration.89
These
industry studies concerning the importance of intangibles are substantiated by academic
literature such as Hall (1992) and Aaker (1989). Based on the results of this study,
business aviation users are presented with an opportunity to benefit from being aware of
the influence an external factor has upon their intangible portfolios. Thus, it is apparent
that business aviation directly affects human capital and other intangible assets, such as
the ones described above.
88 Ernst and Young, LLP. Measures that Matter. [Cited 1 April, 2010]. Available from
http://valuementors.com/pdf/Measures%20that%20Matter.pdf.
89
David Norton, Keynote Address Balanced Scorecard North American Summit, San Diego, CA,
pp. 2-35, 2001.
76
Conclusion
Since this study engaged qualitative methods, the generalizability of these
findings is limited. However, the implications suggest several areas for further research
regarding intangibles and external factors. For example, a future study could analyze how
other intangibles such as corporate social responsibility or leadership development
programs affect core competencies and competitiveness. In these instances, as well as
the case of business aviation, there are implicit, intangible benefits; however, making
those impacts explicit is considered difficult.
Overall, this study attempts to provide a snapshot of how firms justify and view
an “external factor” at their firm. It highlighted the benefits, as listed by a sample of
users, of business aviation. These benefits were identified as tangible, such as time
savings, productivity increases, and relevance to business model, and intangible, such as
facilitating interactions, reputations, and perks. The study also revealed the justification
methodology chosen by users; this was important because it exposed the attitude
surrounding the asset and its use.
The study‟s original goal sought to find a direct link between an external factor
and competitive advantage generation: this research suggests a secondary or tertiary
relationship. However, most notably, the findings coincide with academic and business
literature concerning the importance of intangible assets, firm inter-connectivity, and core
competence maintenance and development. Business aviation is a critical external factor
that allows firms to develop capabilities, foster resources, and ultimately pursue their
unique strategies. By aiding in the overall process of strategic implementation, business
aviation stimulates generic strategies and improves the way firms accumulate and
77
allocate resources. This study can be expanded upon or altered to further explore the
impact of other external factors upon intangibles, and thus competitive advantage.
78
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