In recent years, globalization has changed companies' perspective towards competition. Globalization made the world more interconnected and interdependent. This gave companies opportunities but also lead to increased competition amongst companies worldwide. An example of an industry in which this happened, is the airline industry. Over the past 40 years, the International Air Transport Association [IATA] recorded that 1300 new airlines were founded worldwide (International Air Transport Association, 2011). The new airlines compete not only in upcoming markets, but also in existing markets. Existing markets are for example the airline industry in The Netherlands, while upcoming markets are for example the new airline industries in the Middle-East and Asia. As a result of globalization, the new competitors are challenging the dominant position of long existing large companies (Frankel, 2000). New airlines such as Emirates and Qatar Airways have rapidly become competitors for airlines such as Lufthansa and British Airways.
These new competitors may have several advantages over long existing companies. An example is the lower production costs due to lower labor costs in the areas where they are located. Another example is that airlines from the Middle East profit from low airport handling fees. The reason for this is that the airports in for example Dubai, Qatar and Abu Dhabi are directly financed by the State (Spinetta, 2006). Since the same State wants their national airlines to become successful, the State can help their national airlines by asking low airport handling fees.
Not much can be done to counteract the above-mentioned advantages, however there are also other advantages against which something can be done. One of which is that new competitors are able to start from scratch and the fact that they are not limited by decisions made in the past. This generally makes them more agile and innovative than long existing companies. Long existing companies find it hard to change because they are restricted by lots of standard practices, procedures and hierarchical layers (Tidd & Bessant, 2009) .
The increased competition means that for the (formerly) dominant airlines, there is a need to do something to maintain their competitive advantage. An increasingly important way of maintaining an advantage over competitors is through innovation (Porter, 1990). It is predicted that for the 20th century, innovation will be one of the most important driving forces for growth (Franko, 1989), which stresses the importance of innovation.
This introduction will continue by scoping the research to clarify exactly what the research will include and what not (1.1). After scoping, the relevance of the research will be explained (1.2) and an overview of the state-of-the-art in literature on innovation exchange will be given (1.3). After going through the existing literature, the goal, problem statement and research questions are designed (1.4), the research method is explained (1.5) and the layout of the rest of this report is given (1.6).
1.1. Scope
Since innovation can be used as a way of staying ahead of competitors, it is highly desired by many companies (Porter, 1990). The question that therefore rises is: How can a company become more innovative? There are many ways of making a company more innovative. For example, a company can work together with external companies to gain access to innovative ideas. Another way is by using the companies' own workforce to come up with innovations. This research will focus on innovations that have been developed inside companies. Such innovations start with an employee having an innovative idea, which is then developed into a usable innovation. One company that uses this principle is Koninklijke Luchtvaart Maatschappij [KLM].
Before introducing KLM, the definition of innovation used in this research is explained. The definition used is the definition from West and Far (1990). West and Farr (as cited in Ravindra, 2010) define innovation as 'the intentional introduction and application within a role, group or organization of ideas, processes, products or procedures, new to the relevant unit of adoption, designed to significantly benefit the individual, the group, organization or wider society'.
Highlighting several aspects may further clarify the definition. The first aspect is that something is an innovation when something is intentionally changed in order to gain anticipated benefits. Second, the benefits from innovation are broader than merely economic benefits. Examples of other benefits are improved ergonomics and increased safety. Third, something is an innovation when it benefits at least one individual but can also benefit an entire society. The fourth and last aspect is that innovations are not only technical changes but can also be about changing processes (West & Farr, 1990).
Lots of people will be familiar with the airline KLM. KLM is an airline with a long tradition and has for many years been the flag carrier of The Netherlands. In 2004, they have merged with AirFrance [AF] and since then they are a holding company under the name AirFrance-KLM [AF-KLM] (Gudmundsson, 2010). Therefore, they can be grouped under the category of mergers and acquisitions [M&A]. Before the merger, both AF as KLM had their own maintenance departments, respectively AirFrance Industries [AFI] and KLM Engineering & Maintenance [KLM E&M], which are now combined to one maintenance department called AirFrance Industries KLM Engineering & Maintenance [AFI KLM E&M]. Through years of optimizing processes, gaining knowledge and experience and employees creatively inventing tools and equipment that optimized their work, these maintenance departments have, combined with other factors, been able to dominate the global market of aircraft maintenance. As AFI KLM E&M themselves describe it on their website: 'As an Airline MRO, AFI KLM E&M has developed a unique portfolio of know-how and engineering capabilities reflected in its development of a wide range of value-adding innovations. This mindset has always been deeply embedded in Group DNA' (AFI KLM E&M, 2015).
This shows that lots of innovations are present at both AFI as KLM E&M. On the downside, an interview with the innovation manager of KLM E&M (Appendix 1) showed that many of these innovations are only accessible for certain groups of people or departments. This means that large groups are not using them and that as a consequence, the potential benefits are not fully reaped. Innovations that have proven to be valuable for one department are likely to be useful for other departments as well. This is especially true for the AFI KLM E&M case where two aircraft maintenance companies have merged. For this reason, companies such as AFI KLM E&M want innovations to be made accessible to all departments and want useful innovations to reach users who can benefit from these innovations.
The fact that the two merged companies are located in two different countries is expected to influence the way in which innovations can exchanged. Besides being a merger of international companies, AFI KLM E&M is a technical company which main focus is on providing aircraft maintenance, i.e. service and not for example developing new products. A company such as AFI KLM E&M is called a Maintenance, Repair and Overhaul company [MRO], which is a company that maintains, repairs and overhauls aircraft(s) (parts). The actions which MRO's perform include both the technical as the corresponding administrative, managerial and supervision action (EFNMS, 2015).
Lots of research has been done towards innovation exchange within companies, but AFI KLM E&M is located in a niche of the research field namely that of merged international MRO's. For further clarification, international means that the merger consists of companies located in different countries that are now together as one company, which is also the definition of a merger for this research. A merger is defined as two independent companies that have come together and continue as one company.
Being a merged international MRO might influence the success factors for innovation exchange that apply to the company. This is indicated by research done on the three characteristics of such companies: being an M&A, being international and being an MRO.
The first indication is about the company being an M&A. De Man & Duysters (2005) have reviewed 15 papers on M&A and tested the effect of the M&A on innovation. This research on the effect of M&A on innovation has shown that studies using output measures show a decline in innovation for companies involved in M&A, studies using input measures show a neutral effect of M&A on innovation and there are no studies which show a positive effect of M&A on innovation (De Man & Duysters, 2005). This is striking as the same research tests hypotheses indicating the relation between alliances and innovation and finds that 73 percent of the tested hypotheses indicate that alliances increase innovation (De Man & Duysters, 2005).
The second indication is being an M&A between companies from different countries. This factor is generally believed to increase the difficulty of exchanging innovations. Factors such as language, culture and physical distance are believed to increase the difficulty. De Man and Duysters (2005) have looked at the influence of geographical setting on the innovation success of M&A, but could not find a significant difference between M&A from different countries. It should however be noted that their sample only included five articles which studied cross-border M&A.
The third indication is that this research focuses on the MRO sector. The fact that the exchange of innovation happens between MROs is likely to influence how a company should deal with this process. Like all other companies, MROs have a specific culture. De Man and Duysters (2005) have looked into the influence of different sectors on the relation between M&A and innovation and found that: 'there is not much clarity about sectoral differences in innovative performance of mergers and acquisitions' (p. 1383). Ernst and Halevy (2000) found that M&As perform worse in high-tech sectors as compared to non-high-tech sectors. However, the opposite of this was found by Link (1988).
The above-mentioned reasons indicate that a list of success factors for merged international MRO's is different than a general list of success factors for innovation exchange. This research therefore creates both a general list of success factors from the existing literature and a list of success factors from a merged international MRO. By combining these two lists, one list of success factors is created which gives success factors for innovation exchange within merged international MRO's. In the discussion chapter, potential differences between the two lists will be discussed.
1.2. Relevance of the research
This research has both theoretical as practical objectives. The theoretical objectives are mostly relevant for the scientific community, while the practical objectives are mostly relevant for AFI KLM E&M and similar companies.
The theoretical objective of this research is to provide the reader with an overview of the existing literature containing success factors for the exchange of innovations. These factors will be derived by going through literature on inter-organizational learning, social networks, alliance governance and standards battles and taking out the factors for successful innovation exchange. By performing a case study research at AFI KLM E&M, another set of success factors is derived. This new set of success factors adds to the existing literature by confirming existing success factors and/or by adding new success factors. By means of interviews, it provides empirical insight into factors that contribute to and obstruct the exchange of innovations and suggestions on ways of exchanging innovation. Besides that, existing literature shows that the research field focused on M&A and the relation to innovation and knowledge sharing is quite young and contains many gaps and unanswered questions. Bresman et al. (1999) also mention that very little explicit attention is paid to knowledge transfer in acquisitions. They say that considerable attention has been paid to knowledge transfer within single companies but not to knowledge transfer between companies. Since the exchange of innovations can be seen as some form of knowledge transfer, this research adds to the existing literature on knowledge transfer in acquisitions. The case study helps by providing insight into factors that contribute to the exchange of innovations and which are likely to also play a role in the knowledge transfer process.
The practical objective of this research is to provide AFI KLM E&M with a set of success factors for innovation exchange. AFI and KLM E&M can use these factors for designing an innovation strategy. Furthermore, the success factors can be used to improve innovation exchange within or between other departments in AFI or KLM E&M and in similar alliances.
1.3. State-of-the-art in literature
This research focuses on success factors for innovation exchange. Relevant literature streams that can provide these factors are the literature on standards battles, inter-organizational learning literature, social networks literature and alliance governance literature.
A first look at literature on M&A's shows that the problems that AFI KLM E&M are experiencing are not unknown and that the existing literature also tries to find solutions for these problems with innovation exchange. An indication is found in existing literature on knowledge transfer in M&A's: 'what many acquiring firms have discovered, however, is that the transfer and utilization of knowledge through acquisitions can be a daunting task' (Bresman et al., 1999, p. 440). This specific example talks about the transfer of knowledge, but when exchanging innovations, it is actually information that is being transferred. The similarity between knowledge and information transfer gives an indication for the problems that can be expected when trying to exchange innovations after an acquisition. This difficulty also shows in the poor performance of merged companies in terms of innovation.
It is clear from the above-mentioned literature that there is a need to explore how innovation exchange can be done better within merged companies. The first literature stream which can be used is the literature on standards battles which explains why companies collaborate in the first place (E den Hartigh, Ortt, van de Kaa, & Stolwijk, 2009). It is explained by researchers in this field that companies collaborate in order to make their technology the standard in the market (van de Kaa, 2009). In order to achieve this, amongst others things, they need to exchange information about innovations and this literature stream explains how this should be done and which types of networks support this exchange and which not.
The second literature stream is the literature on inter-organizational learning. This literature explains how companies can learn from each other and how the processes of exchanging information and knowledge should be organized (Van Haverbeke, Gilsing, & Duysters, 2012). It talks about how different types of relations affect the exchange of information and knowledge. This literature has two different perspectives on knowledge flows that are the competence perspective and the governance perspective. By looking at these flows through these two perspective, it can be assessed why in some cases companies do exchange information and in others not.
The third literature stream is the literature on social networks. Social networks are important when trying to exchange innovations since the innovations should be exchanged through these networks. Many different characteristics of networks exist and each of them influences the successfulness of innovation exchange in the network. Two important views on social networks can be distinguished which are the perspective containing so called 'structural holes' by Burt (1992a) and the perspective which uses the concept of social capital by Coleman (1990). This research will address both perspectives when creating the list of success factors.
The fourth and last literature stream that is used is the literature on alliance governance. This literature stream talks about how different ways of collaborating lead to different levels of success in, amongst other things, innovation exchange (Kogut, 1988). This literature distinguishes different stages of collaboration and shows how companies should act in each of these stages (Tidd & Bessant, 2009). Alliance governance also discusses motives for collaboration where it makes a distinction between tactical and strategic motives. Besides that, it talks about the effect of different types of collaboration on the development of core and noncore technologies.
The four literature streams as discussed above will be used in the next chapter of this report during the literature review in which a list of success factors for innovation exchange will be created.
1.4. Goal, problem description and research questions
The goal of this research is to acquire knowledge and insight into the success factors for innovation exchange within merged international MRO's. This will be done with both a literature review and a case study research at AFI KLM E&M. The acquired insight and knowledge can help companies, such as AFI KLM E&M, in setting up a strategy to improve their exchange of innovations.
The problem statement of this research is: Which factors positively influence the exchange of innovations between merged MRO's from different countries? This research compares the success factors found in the literature with the success factors found in the research performed at KLM E&M. By gaining insight in these factors, companies can design strategies for innovation exchange with a focus on including or reinforcing the positive factors. Since the eventual goal of this research is to help merged international MRO's improve their innovation exchange, the main research question of this research is:
Main research question: How can merged MRO's from different countries successfully exchange innovations between the merged companies?
In order to answer this main research question it is necessary to answer more specific questions first. These questions have a describing, explaining or designing nature. To do so and provide structure for the rest of the research, three sub questions are set up (Table 1).
Sub-question Method Result
1. Which factors contribute to successful exchange of innovations between companies?
Literature review List of success factors for the exchange of innovations.
2. Which factors contribute to successful exchange of innovations between two merged international MRO's?
Case study research (AFI KLM E&M) List of success factors for the exchange of innovations in merged MRO's from different countries.
3. How can AFI KLM E&M come to successful exchange of innovations? Case study research (AFI KLM E&M) List of do's and don'ts for setting up an innovation exchange strategy.
Table 1 Sub-question of this research
1.5. Research methods
The research method for each sub-question is described below. The description shows in which way each question is answered.
Sub-question 1 is answered by a review of the existing literature. The existing literature is explored which includes amongst others inter-organizational relationships literature, social network literature, alliance governance literature and literature on standards battles. Articles are selected by backward reference searching in the ISI Web of Science database. Aside from these articles, some books and other articles were used that were referred to in the articles found in the ISI Web of Science database. Most important in this review is to get an understanding of what success factors contribute to the exchange of innovations between companies. This part of the research is deductive since it derives success factors for innovation exchange from existing literature.
Sub-question 2 is answered by a case study that is conducted at AFI KLM E&M. AFI KLM E&M fits the focus of this research, since it is a merger of two MRO's and the MRO's are located in different countries. Besides fitting the profile, they want to improve the situation concerning the exchange of innovations. The interviews will be held with 26 employees from both AFI as KLM E&M. The interviewees are selected based on the role they play in innovation. During a 6 months internship at KLM E&M, the researcher visits the selected employees from KLM E&M on location. This way an impression of the diverse working environments is obtained. Interviews with AFI employees are conducted by phone.
Sub-question 3 is answered by the same case study. During the interviews, employees were asked about do's and don'ts for innovation exchange. A list of do's and don'ts is provided to AFI KLM E&M to help them in designing a strategy for innovation exchange. Sub-questions 2 and 3 are inductive since they develop a new list of success factors from observations during a case study research.
1.6. Thesis layout
This report will continue with a literature review of the existing literature on innovation exchange. A list of success factors will be derived from the literature that will be the answer to the first sub-question (Chapter 2). The report then continues by introducing the research method, which is a case study at AFI KLM E&M (Chapter 3). The results from the case study are then presented. These results will answer the second and third sub-question (Chapter 4). In the final chapter (Chapter 5), the results of the research will be discussed and concluded. This chapter ends by showing the limitations of this research and providing opportunities for further research.