How does an organization learn

I want to extend the previous posting which focused on technology to discuss how an organization learns. I defined technology as a body of knowledge about how to accomplish useful purposes embodied in devices, materials (such as pharmaceuticals and seeds), facilities and infrastructure, people and institutions. I will focus on the corporation, and indeed the formally organized business corporation.

Organizational learning is then a change in the knowledge embodied in an organization, and indeed I would suggest that "learning" implies either a change that directly improves performance or has the potential to improve future performance. We would not suggest that acquisition of new knowledge that is unrelated to any useful task would be organizational learning. (An employee picks up a piece of gossip about a movie star. Is that organizational learning? I define it not to be.)

Knowledge in an organization can be embodied in devices, materials, facilities and infrastructure, people, and institutional knowledge within the organization. Such knowledge may be technological, but it may also be of other kinds related to the organization's operation, such as knowledge of the market in which it sells its products, or the markets from which it obtains goods and services, or knowledge of government regulations, the general evolution of the economy, or many other topics. By "institutional knowledge" within the organization I mean knowledge embodied in its structure and procedures, formal or informal.

Given the previous discussion of technology, let us start with that kind of knowledge. Clearly it is important for organizations to gain technological knowledge. A common means of doing so is to acquire new facilities that allow for improved production. Even when such acquisitions are "turn key", they involve people in the organization learning to operate the new facilities, and changes in the organization's processes and structures to deal with the new facilities.

A process of critical importance to technology intensive firms is learning by acquiring new employees whose technological knowledge adds to that of current staff, and bringing that new knowledge to bear on issues where it benefits the firm. However, technology intensive organizations often improve performance by reorganizations which move people around to bring people with critical technological knowledge to work where they are most needed; this kind of reorganization too can be a form of organizational learning.

This brings up the problem of what is meant by "within an organization". I would suggest that bringing in a consultant to advise for a limited time on a specific issue may be seen as organizational learning. The consultant brings knowledge which he/she has gained to bear on the problems of the firm while being paid by the firm. Of course, the organization may "forget" that information when the consultant goes on to other corporations, unless he/she teaches the information to staff members who stay behind.

Incidentally, forgetting can be valuable. Think of "unlearning" things which prove counterproductive or which were once useful but are outdated.

Note that a number of pharmaceutical firms have chosen to buy biotechnology from small research and development organizations rather than try to develop strong biotechnology capacities within the firm. We would see the purchase of such a biotechnology as technological learning by the pharmaceutical firm. So too would be purchase of a small biotech firm by a large pharmaceutical firm to acquire its technology and technological capacity.

 I would suggest, however, that there is something like a market for such new biotechnologies, with a number of firms seeking to develop and sell biotechnology, and a number of other firms seeking to purchase the technology. In any market or market-like institution there is learning both by those who would sell and those who would buy. In some cases the lessons are simple; in others they are complex, difficult and sometimes very expensive to learn. Thus even the decision to outsource, with the obvious element of losing knowledge that once was incorporated within an organization, normally will involve acquisition of other new knowledge.

Here is a metaphor. Someone has been preparing full meals at home from raw materials. The person discovers that it is possible to prepare better meals less expensively by purchasing per-prepared ingredients from several sources. Over time, the person loses some of the skills that once were used in preparing meals fully from raw materials, but has learned how to prepare better meals more efficiently. This kind of learning goes on all the time in McDonalds.

Banks have long been inventing software for different purposes. The "dusty deck" software remains even when the people who developed it have gone on to other jobs in other firms. Some of the knowledge involved in carrying out those purposes is embodied in the software (and in the people who use it, and the organizational procedures and structures utilized by those using the software.) Now some banks are consolidating there many data bases into a common software platform, and in so doing either buying the platform from outside or employing outside consultants -- both forms of organizational learning, as is the introduction of a new platform with greater technological capacity.

What shall we say about the voluminous data held by such banks? If the bank does not have the capacity to mine the data it is hard to say that it has knowledge. If, however, the new software allows the bank to now mine and utilize that data better, in some sense the data has been better internalized as "knowledge" and we can say learning has taken place.

I suggest that the border distinguishing an organization from the rest of the world is a fuzzy concept, and perhaps the border is best seen as somewhat amorphous. As mentioned above, consultants and contractors can be seen as within an organization sometimes, and other times as outside its border.

Consider an organization's website. Since the website will provide information about the organization to its visitors, clearly the servers and software in some sense embody knowledge of the organization. Most organizations also utilize their websites for automated transactions, and one may conceive as the knowledge of how to conduct such transactions for the organization to be embodied in the hardware and software providing the website. However, the users of the organization's website also must learn in order to more effectively find the information that they seek or to perform the transactions from their side. Some of that learning is transferable to other websites, but some of it is specific to one organization. Is it appropriate to attribute part of the user learning as "organizational learning" and part as more general learning of the user?

Some organizations will create technological knowledge by internal invention, deepening of craft skills and understanding, and research. This is especially true for large, high technology firms. Any firm or organization will be likely to create only a small part of the technological knowledge it comes to embody. Thus in technology, as in other forms of knowledge, a key issue is how the firm comes to obtain technological knowledge from outside itself.

I would suggest that as organizations grow larger, they need to duplicate embodiments of the same or similar knowledge. A firm will need more workers with similar skills and knowledge as it increases production. Each of the office workers in a firm may need his/her own personal computer and software, embodying copies of some of the firms knowledge, and as the office workforce increases more copies of that embodied knowledge will be employed. I suppose these too are forms of knowledge acquisition or learning.

We should be long past the idea that organizational decision making in large organizations is centered in one person or a small group of people. So the control of organizational learning should be considered a distributed function. On the other hand, organizations and especially formal organization, do have structures of authority, and some decisions related to organizational learning are more centralized than others. The board of directors with the advice of the leading operational officers may make decisions as to whether to buy a new plant or merge with another firm, while each employee will make some decisions independently on what job related skills or information to seek to acquire in what time frame.

It is a truism that the world is changing ever more rapidly and that as a consequence organizational success depends on learning to learn better and more rapidly. Figuring out how an organization will respond to this challenge is of course a hugely complicated task, but one facilitated by recognizing the complexity of organizational knowledge systems, the complexity of the embodiments of organizational knowledge, and the processes of organizational change.