What can organisational learning, and the search for the learning organisation, offer to companies seeking improved financial performance in the modern workplace?

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What can organisational learning, and the search for the learning organisation, offer to companies seeking improved financial performance in the modern workplace?

Contents Table

Abstract                                                                                p. 4        

Chapter I: Introduction

Overview of the review                                                                p. 5

Context of the review                                                                p. 6        

Statement of the issue                                                                p. 8        

Purpose of the review                                                                p. 9

Chapter II: Literature Review

Introduction                                                                        p. 13

Organisational learning and the learning organisation – issues of definition        p. 16

Organisational learning and the learning organisation – Evolving thoughts        p. 19

Organisational learning and the learning organisation – Culture                        p. 20

Organisational learning and the learning organisation – Change                        p. 21

Organisational learning and the learning organisation – Value                        p. 23

Organisational learning and the learning organisation – Action                        p. 26

Organisational learning and the learning organisation – Measurement                p. 27

Organisational learning and the learning organisation – Financial performance         p. 29

Chapter III Conclusions and Recommendations                                        

Conclusions                                                                        p. 40

Recommendations                                                                        p. 43

Chapter IV: Methodology

The Systematic Review Process                                                        p. 44

Search Strategy                                                                        p. 44

Databases                                                                                p. 44

Other sources of information                                                        p. 45

Keywords                                                                                p. 45

Search String                                                                        p. 45

Results from the Search Strategy                                                        p. 46

Selection Criteria                                                                        p. 46

Selection Criteria for Titles and Abstracts                                                p. 46

Section Criteria for Full Text Papers                                                p. 47

Quality Appraisal                                                                        p. 48

Data Analysis and Synthesis                                                                   p. 48

Chapter V: Limitations and ideas for future research                                        p.49

Chapter VI: References                                                                p.50

Appendices                                                                                 p.56


It is widely accepted that corporate organisations must pursue and achieve growth to prosper. Companies are involved in a relentless search for organisational initiatives that will create competitive advantage which can be translated into and evidenced by improved financial performance. The purpose of this paper is to review the literature relating to the conviction; that to achieve and sustain growth organisations must learn, and that the optimum way of ensuring such learning is for organisations to aspire to the characteristics of the learning organisation. While there is a body of organisational learning research which proclaims the commercial benefits afforded to an organisation committed to learning. Many scholars also lament the dearth of empirical research to support the optimism surrounding the link to organisational performance. This paper presents a literature review that draws attention to both the research that supports the case for organisational learning as the key to improved financial performance and that which questions the validity of such claims. It also suggests some areas of further research that may help in addressing this issue.

Chapter I: Introduction

Overview of the review

Large corporate organisation faces increasing competitive pressures from an assortment of global and domestic rivals. The drive for the efficiencies afforded by globalisation in areas such as; transportation, distribution, IT/financial systems and communications have accelerated the need to for continuous performance improvements. As a result, organisations are continually seeking out and are eager to employ ideas that seem to promise improvements in financial performance. Unfortunately, such organisational magic bullets are proving increasingly elusive in the complex global landscape. One such initiative that has been offered as an answer to organisational leaders in their search for a sustainable competitive edge is the enhancement of organisational learning. Could the concept of the learning organisation offer an opportunity to more effectively exploit corporate knowledge, provide innovative solutions, improve performance and establish a competitive advantage?

The learning organisation has attracted substantial academic and practitioner interest for a number of years and as time has passed the intellectual growth of the organisation has begun to be seen by many as a central element to organisational success. Jantunen (2005) sustains the impact learning can make, “organisational learning capabilities are increasingly recognized in the literature as potential sources of competitive advantage” (p. 336), and an increasing number of researchers can be seen to support the benefits to an organisation which focuses on learning.

Organisational learning has acquired the standing of a fundamental requirement rather than that of a discretionary program and the list of researchers who recognize the importance of managed organisational learning is increasing. Fulmer et al (1998) put that the learning development of an organisation should be a standard and accepted initiative. Kenny (2001) emphasised the crucial nature of learning to the contemporary organisation and suggested that implementing business strategies without proper consideration for the importance of organisational learning was an invitation to, at best, average performance. De Geus (1997) held that a capacity to learn faster and respond sooner than competitors could perhaps be the long term sustainable competitive advantage in this fast changing global market place.

De Geus (1997), believed that without a focus on learning, an organisation was incapable of moving beyond its current operational model. That while some performance improvement initiatives can have temporary value it is by improving an organisation's ability to learn that long term sustained improvements can be achieved. At around the same time Hurley & Hult (1998) were asserting that organisational learning was tantamount to an organisation's ability to grow and innovate, stating that, without organisation learning, performance, innovation and therefore growth stagnate. According to Hurley and Hult then, an organisation must be prepared to use learning as the originator of performance improvements that can drive innovation and provide solutions to future organisational needs.

Context of the Review

In his work on the place of learning in modern society Schön (1973) emphasised the prevalence of change in society and its organisations, “Our society and all its institutions are in continuous processes of transformation….We must learn to understand, influence and manage these transformations.” (p. 28). A recognition of the inevitability of change and the necessary acceptance of learning as a response are thought to be essential skills for the modern organisation and as shall be shown an increasing number of research papers seek to evidence that improving an organisation's learning capacity is linked to positive performance improvements. Before further examining the learning organisation’s link to performance it is necessary to look at how components of what might be seen as an organisations learning positioning might be defined. A preliminary classification of the learning organisation is presented below with an extended analysis to follow later in this review.

Argyris and Schön (1978) formalised the idea of ‘organisational learning’ in their work Organisational Learning: A Theory of Action Perspective. Here it is specified that organisational learning exists when members, "act as learning agents for the organisation, responding to changes in the internal and external environments... detecting and correcting errors in organisational theory in use" (p. 23). As can be seen in this definition a key element is action. Each employee is required to act on the changes they perceive to initiate new learning within the organisation.

Senge (1990), in perhaps the best known work on organisational learning; The Fifth Discipline: The art and practice of the learning organisation, coined the term ‘The Learning Organisation’ to describe those organisations that are able to develop organisational learning, to its fullest capacity. Senge reasoned that such organisations evidence five characteristics or ‘disciplines’: Personal Mastery; Mental Models; Shared Vision; Team Learning and Systems Thinking. Using the first four disciplines to assess the potential for learning within the organisation Senge incorporates the parts through the use of systems thinking and maintaining it is this development of a cohesive organisational approach to learning that truly identifies the learning organisation. Organisational learning is stimulated by the ‘fifth discipline’ of the learning organisation - systems thinking.

Garvin (1993) provides a further definition of the learning organisation, this time from a more practitioner based perspective, but which is still consistent with previous literature. Stating that the learning organisation is one “skilled at creating, acquiring, and transferring knowledge, and at modifying its behaviour to reflect new knowledge and insights" (p. 82) and outlining proposals for initiatives whereby an organisations could demonstrate a declaration to and expertise in learning: Systematic problem solving; Experimentation with new approaches; Learning from past experiences; Learning from the best practices of others and; Transferring knowledge quickly and efficiently throughout the organisation. The practitioner orientated work of Garvin provides an accompaniment to the more theoretical discourses of his initial predecessors in the area of the learning organisation. Together, however, they provide a foundational background for this review.

Statement of the Issue

Organisations can become overwhelmed with complexity from transformational forces. The threat associated with such a possibility is that it will see a decrease in organisational performance and put the viability of the company at risk. In order to respond to these forces the organisation must develop methods to manage change as effectively as possible. One way of doing this is to develop the functionality to learn and act on that learning in an efficient manner. This link between learning and performance is advanced by researchers such as Kenny (2001) who suggests that organisational learning must be seen as a necessary constituent of performance and that competitive advantage can be a consequence of an organisation committed to learning.

Despite the assertions of a significant number of researchers supporting the link between organisational learning and improved organisational performance, many others claim that the relationship between learning and performance has not been fully explored or the influence of one on the other properly understood. For example Kumar’s (2005) statement that further research is needed to “further explore the relationship between organisational learning and performance improvement" (p. 34) is still a common view. Indeed Smith and Tosey (1999) have suggested that evidence linking learning initiatives to return on investment was in itself hard to find, without the extra step of linking learning to overall organisational financial performance.

Given the above it is not surprising that Goh and Richards (1997) stated that the development of learning organisations and the implementation of learning principles could be much advanced by empirical validation. Ellinger et al. (2002) further emphasised the inadequate research support for the relationship between the learning organisation and performance, stating that the relationship between “the learning organisation concept and firms' financial performance has not been adequately established in the learning organisation literature” and that the “absence of such research does not encourage leaders, managers, and employees to adopt learning organisation practices” (p.18). At this initial stage then it would seem that despite Garvin (2000) suggesting that learning is an essential originator to improved organisational performance more work is required to support the belief that organisational learning positively affects an organisation’s financial performance.

Purpose of the review

This review will examine the current literature so as to ascertain if it is still the position that while many researchers make the case for the organisational learning and the learning organisation as a means to improved financial performance are we any closer to providing empirical evidence to support this claim.

Farrell’s (2004) view is that to achieve growth organisations must leave behind the outlook that continuing to do the same things well is enough to remain competitive.  Reflecting Schön’s view of the continual transformational society, McGrath et al (2006) proposed that learning is vital to successful business projects in the 21st century marketplace where the need to learn is increased by the effects of on-going globalization.  In the views of many researchers (Garvin, 2000; Tosey, 2005; Tanriverdi and Zehir, 2006;), a knowledge-enabled, information sharing organisation is no longer optional.

The collection of research indicating how the learning organisation can bring about organisational benefits is growing (Garvin, 2000; Ellinger 2002, Ellinger, Yang, and Howton, 2002; McGrath, Keil, and Tukiainen, 2006). However, it remains the case that empirical research which endorses the link between the learning organisation and financial performance is still limited.

Despite the reservations a relationship correlating the learning organisation with corporate performance is still the target for many researchers. Kenny (2001) mentions the link between knowledge and organisational existence alongside the belief that the competitive forces driving change make it a requirement for companies to become learning organisations.

The literature review begins with an introduction to the research under investigation in the context of extant and relevant learning literature. In the section on definition, groundwork is established for the study based on the initial research in the learning discipline. An agreed definition for the learning organisation remains elusive and the implications for this absence are considered.

Change is a formidable challenge affecting all modern organisations. The organisations best equipped to deal with environmental instability and market volatilities are better positioned to profit from pervasive commercial and technological transformations. The characteristics of the learning organisation are considered against the backdrop of the current complex business climate. As complexity intensifies, the consequences of not appropriately managing will be examined.

While organisational initiatives are frequently suggested as methods to enhance corporate effectiveness, next learning research is reviewed that commends the benefits of applying programs designed to improve learning orientation. The challenges and potential rewards are discussed and encouraging learning initiative implementation approaches are reviewed for usefulness. Following this the importance of linking action to learning is explored. From the early work of Argyris and Schön, the crucial association between learning and action has been identified. Due to the fundamental distinction of loop learning, that innovative work is reviewed and the importance of expressing learning with action is discussed.

Recent literature is reviewed for significance to the financial implications of learning in the section, on financial performance. The deficiency of empirical research to support a positive relationship between learning and financial performance is a primary impetus for the current study. While the consensus of researchers is that more work is required to clarify potential connections, a selection of studies are reviewed that examine the learning/financial performance relationships are evaluated.

Following the review a summary of the work is provided, the methodology used to prepare the literature review is discussed and limitations are briefly explored. Finally, recommendations are conveyed for future research.

Chapter II: Literature Review


A consistent and agreed definition of organisational learning and the learning organisation has evaded academia and practitioners since its inception and continues to pose problems for these groups to this day. That Garvin (1993) and more than a decade later Argyris (2004) can both acknowledged the lack of definitional consensus reflects the difficulty in the area and that this lack of agreement has proved harmful to the success of practical learning initiatives within organisations. Although an acknowledged definition and conceptual framework does not truly exist, the pursuit of such would be beneficial to all involved with organisational learning and is a constant in the literature;  Garvin, 1993; 2000, Schein, 1996, Bartlett & Ghoshal, 1998, Argyris 2004). King (2001) repeated the lack of agreement on the basic concepts surrounding organisational learning and the learning organisation with the statement that there is a great deal of confusion relating to actions that are often considered as being related with the learning organisation.

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Scholars continue to acknowledge that more study is required to not only define and conceptualise the learning organisation but to produce a body of knowledge that can address the effective implement issues which currently affect those organisations seeking to tie its implementation with increased performance. (Schein, 1996; De Geus, 1997; Garvin, 2000; Argyris, 2004). Marr and Spender explicitly expressed the problem for academic writers, which results in a problematic relationship with practitioners, when they stated that while many corporations had accepted knowledge was becoming an ever more vital strategic asset, indeed for some sectors perhaps even the main source ...

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