Managing Higher Order Technological Learning : A … · Managing Higher Order Technological Learning : A Factor in Predicting Firm Market Performance ? Elias G ... (Stratel) (Carayannis,

Proceedings of the 29th Annual Hawaii International Conference on System Sciences - 1996

Managing Higher Order Technological Learning : A Factor in Predicting Firm Market Performance ?

Elias G. Carayannis Suleiman K. Kassicieh

Anderson Schools Of Management, University Of New Mexico, Albuquerque, NM 87131

Abstract

This study explores the link between higher order technological learning (hyperlearning) processes and firm performance (profitability). The model used is one where learning causes technology transfer which enhances the firm’s strategic assets and therefore increases profitability.

The theoretical concepts of technological learning are established and empirical qualitative evidence about technological learning is presented as it occured at three distinct levels (strategic, tactical, and operational) within 16 firms from five industries between 1990 and 1992. The qualitative findings are then correlated to the quantitative evidence, namely firm profitability data that cover the time period from 1985 to 1993.

The qualitative evidence was compiled by in-depth interviews of sixteen high technology companies headquartered in the USA, Canada, Germany, and France. The quantitative analysis is based on correlation and therefore evidence of relationships between the levels of learning and profitability as well as between the levels of learning and changes in profitability due to a learning effect. The hypotheses indicate that the levels of learning do not have any significant correlation to profitability. The paper attempts to define further research on the topic as well as reasons to explain these phenomena.

Introduction and conceptual framework

In order to understand some of the terms that are fundamental to the empirically derived conceptual constructs, a number of these terms is defined. Rogers (1983: 12) defines technology as “a design for instrumental action that reduces the uncertainty in the cause-effect relationships involved in achieving a desired outcome”. Technology can also be defined as systematic knowledge thus providing the basis for viewing technology transfer from an information theoretic and meta-cognitive / linguistic perspective (Carayannis, 1994b).

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Brooks (1968) defined technology transfer as: . . . the process by which science and technology are diffused throughout human activity. Whenever systematic rational knowledge developed by one group or institution is embodied in a way of doing things by other institutions or groups, we have technology transfer. This can be either transfer from more basic scientific knowledge into technology, or adaptation of an existing technology to a new use. Technology transfer differs from ordinary scientific information transfer in the fact that to be really transferred it must be embodied in an actual operation of some kind.

This definition brings forth the commonalities of technology transfer with the organizational routines used by Teece et al (1990) to outline the process of learning. Thus, technological learning is the medium or “tool” for facilitating and managing technology transfer. The significance of the underlying link between the two processes is the potential for creating and renewing an organization’s competitive advantage by means of diffusing firm-specific and proprietary technological competencies throughout the organizatiollthus maximizing the firm’s leverage on its dynamic capabilities (Carayannis, 1994b: 570-571). Technological learning is defined as the process by which a technology-driven firm creates, renews, and upgrades its latent and enacted capabilities based on its stock of explicit and tacit resources (Aaker, 1989; Amit & Shoemaker, 1993; Bahrami & Evans, 1989; Barney, 1991; Carayannis, 1993, 1994a, 1994b; Morone, 1989). It combines purely technical with purely administrative learning processes (Jelinek, 1979).

Teece et al (1990) define learning as “a process by which repetition and experimentation enable tasks to be performed better and quicker and new production opportunities to be identified”. The focus is placed on the nature of learning as both, an individual and an organizational process:

Learning processes are intrinsically social and

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Proceedings of the 1996 Hawaii International Conference on System Sciences (HICSS-29) 1060-3425/96 $10.00 © 1996 IEEE

collective phenomena. Learning occurs not only through the imitation and emulation of individuals, as with teacher-student, or master- apprentice, but also because of joint contributions to the understanding of complex problems. Learning requires common codes of communication and coordinated search procedures (ibid.).

Seen from the hypercompetition / hyperlearning perspective, learning thus becomes the tool for continually creating new technological realms of competition and new “languages of strategic thought” (Fodor, 1980).

Technological learning processes are organizational transformation processes whereby individuals, groups, and I or the organization as a whole internalize with both, extrinsic and intrinsic motivation, technical and administrative experience to improve their decision making and the management of uncertainty and complexity (Carayannis, 1993, 1994a, 1994b).

The strategic management of technology is ‘an information-seeking and information-processing activity’ (Rogers, 1983: 13) that tries to ‘build advantage on the basis of technology’ (Morone, 1989: 94), or : ‘bring the potential opportunities that technology creates to bear on the formulation of corporate strategy’ (ibid.: 96).

Out of the synthesis of the strategic management of technology and the management of technological learning, emanates the concept of the Strategic Management of Technological Learning (Stratel) (Carayannis, 1993, 1994a, 1994b), which highlights the ‘unfair’ competitive advantage that accrues for a firm with an operating bias for a layered, dynamically adaptive archetype for its learning and decision making processes. Such a firm integrates the feedback accruing from the strategic, tactical, and operational learning that takes place within the firm and from its interactions with other firms, thus engaging in a process of technological hyperleaming.

D’Aveni (1994) describes the strategic maneuvering of hypercompetitive firms as one of continuous technological discontinuities (echoing Itami (1987), Nonaka (1988, 1994), and others): Hypercompetitive firms attempt to avoid or break out of perfect competition (where no one has an advantage by 1) speeding up the ladder faster than the other players or 2) restarting the cycle by building new knowledge bases that allow new products and business methods to be used (ibid.: 109).


Towards An organizational architecture of technological hyperlearning

The empirical findings were synthesized to develop an architecture of hyperlearning or triple-level technological learning (Carayannis, 1994b), namely:

a) strategic learning or learning to learn-how-to- learn and unlearn from experience,

b) tactical learning or learning how-to-learn and unlearn from experience, and

c) operational learning or learning and unlearning from experience (see Figure 1). Specifically, these levels constitute in more detail the processes of learning and unlearning.

On the operational learning level, we have accumulating experience and learning by doing: we learn new things (Carayannis, 1994b). This is the short to medium term perspective on learning, that focuses on managing core organizational capabilities (Prahalad & Hamel, 1990), resource allocation (Andrews, 1965), and competitive strategy (Polrter, 1991).

On the tactical learning level, we have learning of new tactics about applying the accumulating experiience and the learning process (redefinition of the fundamentals (rules and contingencies) of our short term operating universe): we build new contingency models of decision making by changing the rules for making decisions and / or adding new ones (Carayannis, 1994b). This is the medium to long lterm perspective on learning, that focuses on a strategy of re- inventing and re-engineering the corporation (Argyris & Schon, 1978; Bateson, 1972, 1991; Schon, 1983, 1991; Mintzberg, 1979, 1985, 1990, 1991a, 1991b; Quinn, 1980, 1992; Senge, 1990).

On the strategic learning level, we lhave development and learning (internalization and institutionakation) of new views of our operating universe or Weltanschuuungen (Hedberg, 1981)’ hence we learn new strategies of learning (Cole, 1989). Thus, we redefine our fundamentals (our rules and contingencies) for our decision making or in &her words we redefine thefundamentals of our operating universe not only in the short term but primarily in the long term. This is the very long term perspective on learning, that focuses on re-shaping our re-inventing

’ ‘A Weltanschauung is a definition of the situation: it influences what problems are perceived, how these problems are interpreted, and what learning ultimately results (Hedberg, 1981).

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FB

7 TACTICAL

r-3 INTEGRATE

0 EXPERIENCE

Figure 1. A triple-layered architecture of technological learningstrategic, tactical, and operational Legend: S.O.F. = Self-Organizing Feedback, FB = Feedback Loop, FF = Feedforward Loop (adapted from Carayannis, 1994a, 1994b)

and re-engineering organizational “tools” (methods and processes) (Bartunek, 1987; Bateson, 1972, 1991; Krogh & Vicari, 1993; Nielsen, 1993). The strategic technological learning level serves to “leap-frog” onto a new competitive realm and to increase the slope of the learning curve as well as the rate by which the slope per se increases by means of enhanced and innovative organizational routines.” (Carayannis, 1994b: 582-583).

Qualitative and quantitative research design

The study consists of both, a qualitative and a quantitative component. Specifically, the study was designed to cover companies fromfive major arenas of industrial activity, for a period of at least one business cycle, with products of short, medium, and long term development as well as life cycles, with domestic and international operations, and finally from four competitive (industrial chemicals and materials, health care products, transportation means, and multimedia),

and one regulated market (power generation). The objective of the study was to empirically identify the presence of multiple-level technological learning (hyperleaming) (Carayarmis, 1994b) through in-depth- interview-driven, two-to-three-year-long, ethnographic case studies of sixteen companies headquartered in the USA, Canada, Germany, and France, that operate in high risk and / or uncertainty, very dynamic (due to intensity of competition and/or technological complexity), and technologically intensive business environments. The industries the companies operate in are: multimedia, pharmaceuticals / biotechnology, transportation, industrial chemicals / materials, and power generation.

The interviews were driven by three sets of questions focused on technological learning as it accrues from such organizational activities strategic decision making, product development, and the implementation of multi-level organizational performance metrics (Carayannis, 1994b: 127-130, 228-229).

The questions focused on issues such as : 1) The factors that promote technological learning in the organizations at the strategic, tactical, and

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operational levels 2) The factors that hinder technological learning in the organization at the strategic, tactical, and operational levels. 3) The formal and informal processes that enhance the factors promoting learning and suppress the factors that hinder iearning in the organization at each level. 4) The formal and informal processes that could be, or are in the process of being, instituted to further optimize and reinforce the processes in item 3 above. (ibid.).

The quantitative part of the study is driven by a model used to link learning levels to profitability through technology transfer processes and strategic assets development (see Figure 2).

Figure 2. Model linking learning to technology transfer and profit

The model links learning to firm market success and was used to test the correlation between learning and profitability by means of the following hypotheses: H, : There is significant correlation between fiim learning (L) and firm profitability which is defined as the ratio of net income to gross revenues. H, : There is significant correlation between learning how-to-learn (LTL- 1) and firm profitability. H3 : There is significant correlation between learning to learn-how-to-learn (LTL-2) and firm profitability. H, : There is significant correlation between levels of learning and changes in profitability in the short term. H, : There is significant correlation between levels of learning and changes in profitability in the long term. In the next section these hypotheses are tested and the results are presented and discussed.

Empirical findings and conclusions

We found several instances of operational (learning and unlearning from experience), tactical (learning how-to-learn and unlearn from experience), and strategic (learning to learn-how-to-learn and unlearn from experience) technological learning throughout the qualitative component of our study. The name of the companies that were studied and the qualitative results are tabulated in Table 1, while the firm profitability numbers are presented in the remaining columns of Table 2.

Pearson correlation matrixes were used to compute

the correlations between each one of the variables listed in the hypotheses. The Bartlett Chi-Square test was used to determine if the correlations were significant. This is a general test which implies that individual tests using the Bonferroni probabilities should be used to test for significant correlation between each pair of variables. Bonferroni’s probabilities are adjusted, for errors accruing from interrelationships between variables (Wilkinson, 1988).

In all of the correlations between learning, LTL- 1 and LTL-2 and profits in years 1985 and 1993, no significant correlations were found. The same conclusion held true for changes in profits in the short term (3-year periods: change from 1985 to 1988, from 1988 to 1991 and 1991 to 1993) or in the long term (from 1985 to 1993 and from 1988 to 1993).

There are a number of issues that these results raise:

1) are these results true for a larger sample of companies? Our study looked at 16 companies in 5 industries that differ in market forces and economic positions.

2) is the model used in figure 1 correct? Is tlhere a relationship between learning and technology transfer and strategic assets and ultimately profits?

3) are these results industry specific that depenld on the importance of new innovations in the industry. ‘That is, is technology transfer and technological learning as important for industries that are economically viable with increasing demand for products as it is for industries that need to rejuvenate their product lines?

4) are there better measurement techniques or observable phenomena for identifying levels of learning in organizations and I or industries?

These questions are very important in dealing -with the main issue of the study which is the relationship between technological learning and firm market performance. It is obvious from the above questions that more research is needed to examine the variables involved.

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Table 1. Learning and Hyperlearning for the 16 firms studied

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Company Firm Profitability (%)

1985 1986 1987 1988 1989 1990 1991 1992 1993

Sun 7.800 5.700 6.700 6.300 3.500 4.500 5.900 4.800 3.600 Microsystem

S

AGFA I 2.800 2.800 2.900 2.600 2.800 2.500 1.600 1.100 2.000

BAYER 3.100 3.500 4.200 4.700 4.900 4.600 4.400 3.800 3.300

BASF 2.200 2.200 2.600 3.300 4.300 2.400 2.300 1.400 1.800

ST 0.810 1.620 3.200 6.870 6.520 4.860 3.340 3.210 1.840 GOBAIN

Table 2. Profitability for the 16 firms studied.

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Managing Higher Order Technological Learning : A … · Managing Higher Order Technological Learning : A Factor in Predicting Firm Market Performance ? Elias G ... (Stratel) (Carayannis,