European Journal of Training and Development

The impact of a learning organization on performance: Focusing on knowledge

performance and financial performance
Kyoungshin Kim Karen E. Watkins Zhenqiu (Laura) Lu
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Kyoungshin Kim Karen E. Watkins Zhenqiu (Laura) Lu , (2017),"The impact of a learning organization
on performance Focusing on knowledge performance and financial performance ", European Journal
of Training and Development, Vol. 41 Iss 2 pp. 177 - 193
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The impact of a learning Impact of a

learning
organization on performance organization

Focusing on knowledge performance and

financial performance 177
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Kyoungshin Kim and Karen E. Watkins

Department of Lifelong Education, Administration and Policy,
The University of Georgia, Athens, Georgia, USA, and
Zhenqiu (Laura) Lu
Department of Educational Psychology (Quantitative Methods),
The University of Georgia, Athens, Georgia, USA

Abstract
Purpose The purpose of this study is to examine the relationships among a learning organization,
knowledge and financial performance using the Dimensions of the Learning Organization Questionnaire and
its abbreviated version.
Design/methodology/approach This study used a secondary data set and performed second-order
factor analysis and structural equation modeling for testing the proposed relationships.
Findings The study found that a learning organization has a positive effect on knowledge performance;
knowledge performance has a positive effect on financial performance; and knowledge performance fully
mediates the relationship between a learning organization and financial performance.
Research limitations/implications This study contributes to validating the current dimensionality
of the theoretical framework of a learning organization proposed by Watkins and Marsick (1993, 1996) and
offers a valid conceptual framework of the relationship among the learning culture and organizational
performance dimensions.
Practical implications This study re-stresses the significance of the learning and knowledge generated
by the human resources of an organization and developed by human resource development practitioners.
Originality/value This study is valuable to human resource development scholars and practitioners
interested in improving and measuring organizational performance.
Keywords Structural equation modeling, Learning organization, Financial performance,
Confirmatory factor analysis, Knowledge performance,
The Dimensions of the Learning Organization Questionnaire (DLOQ)
Paper type Research paper

One of the essential requirements for organizations to survive in the current

hypercompetitive organizational environment is flexibility, the ability to cope with
constant change (Volberda, 1996). As a way of developing this capability, researchers
have taken a learning organization approach, because learning is a primary source of
developing pro-activeness in response to change, which in turn allows organizations to
assume superior positions in the market (Hung et al., 2010).
European Journal of Training and
A primary characteristic of a learning organization is continuous learning that Development
enables an organization to steadily transform (Watkins and Marsick, 1993). If such Vol. 41 No. 2, 2017
pp. 177-193
transformation positively affects organizations ability to compete, and eventually their Emerald Publishing Limited
2046-9012
survival, it could be presumed that learning plays a critical role in terms of DOI 10.1108/EJTD-01-2016-0003
 EJTD accomplishing organizational performance, and that encouraging continuous learning
41,2 will promote this performance.
Researchers have supported the idea that the way a learning organization enables an
organization to become more effective is by enhancing the organizations knowledge
and financial performance (Awasthy and Gupta, 2011; Ellinger et al., 2002; Davis and
Daley, 2008; Kumar, 2005; Kumar and Idris, 2006; Noubar et al., 2011; Rose et al., 2006;
178 Yu and Chen, 2015). The purpose of this study is to empirically examine relationships
among a learning organization, knowledge performance and financial performance.
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Literature review
This section reviews different approaches to a learning organization and its relationships
with organizational performance, focusing on financial and knowledge performance, and
establishes a theoretical background for the research models.

Learning organizations
A distinguishing characteristic of a learning organization is its ability to continuously learn
and transform (Senge, 1990; Watkins and Marsick, 1993). To develop this ability, an
organization needs to think systemically, so the organization is enabled to simultaneously
understand itself as a whole as well as the dynamic relationships between each part of the
organization (Senge, 1990). Thus, we would expect that creating a culture focused on
learning would also affect performance outcomes (Watkins and Marsick, 1993, 1996).
Managers have proven to be a pivotal factor in an organization becoming a learning
organization (Ellinger et al., 1999; McGill et al., 1992; Ulrich et al., 1993). An organization
whose managers encourage individuals to be open and creative with a sense of efficacy is
able to experience generative learning (McGill et al., 1992).
Watkins and Marsick (1993) identified essential elements that comprehensively describe
the nature of a learning organization. They defined a learning organization as an
organization that cultivates a learning culture so that continuous learning occurs at
individual, team, organizational and societal levels. As a result, the organization is able to
transform itself in a timely manner.
To create high performance outcomes, Marsick and Watkins (1999) suggested
organizations create a learning culture by generating continuous learning opportunities,
promoting dialogue and inquiry, encouraging collaboration and team learning, creating
systems to capture and share learning, empowering people toward a collective vision,
connecting the organization to its environment and having leaders who support learning.

The Dimensions of the Learning Organization Questionnaire

Watkins and Marsick (1997) developed the Dimensions of the Learning Organization
Questionnaire (DLOQ), a questionnaire that includes 43 items measuring the above seven
dimensions and 12 items measuring perceptions of financial and knowledge performance.
The DLOQ has been used as a research tool for measuring a learning organization. Since its
development, over 70 articles have been published using the DLOQ (Watkins and ONeil,
2013).
Studies have revealed the stable reliability of the DLOQ regardless of cultural differences.
Thus far, about ten studies have examined the reliability of the DLOQ in various cultural
contexts outside of the USA and in different languages, including Arabic, Chinese, Malay,
Iranian, Korean, Portuguese, Spanish and Turkish (Basim et al., 2007; Dirani, 2009;
Hernandez and Watkins, 2003; Lien et al., 2006; Menezes et al., 2011; Sharifirad, 2011; Song
et al., 2009a, 2009b; Sta Maria, 2003; Zhang et al., 2004). Most of the reported coefficient alpha
 values, which represent the internal consistency of the DLOQ, are higher than 0.80. This Impact of a
supports the idea that the DLOQ is an excellent and widely applicable tool in terms of learning
reliability (Lance et al., 2006).
Studies have also shown that learning organizations encourage positive behaviors and
organization
decrease negative behaviors in organizations in either direct or indirect ways. Such
organizational behaviors measured included organizational commitment, self-efficacy,
interpersonal trust, work engagement and turnover intention (Dirani, 2009; Egan et al., 2004;
Park et al., 2014; Parsa et al., 2014; Song et al., 2009a, 2009b). 179
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Several studies adopted the DLOQ to identify degrees of a learning organization in

diverse organizational contexts and to find discrepancies in the perceptions of a learning
organization by departments, positions and ownership (Davis and Daley, 2008; Dymock,
2003; Wang et al., 2007). Other studies adopted the DLOQ to explore various facets of a
learning organization, such as its relationships with informal learning (Kim and Marsick,
2013; Yu and Chen, 2015; Nurmala, 2014) and different types of leadership (Sahaya, 2012;
Sopheak, 2013).
Becoming a learning organization correlates positively with issues related to enhancing
individual jobs and careers. It has a positive impact on job satisfaction (Dirani, 2009; Egan
et al., 2004; Wang, 2007), individuals subjective career success and protean careers (Park,
2009), career resilience (Abu-Tineh, 2011), career development (Parsa et al., 2014) and job
performance (Dekoulou and Trivellas, 2015).
Studies have shown that a learning organization is positively correlated with
knowledge-related issues in an organization. These knowledge-related issues include
innovation (Ismail, 2005; Sta Maria, 2003; Sta Maria and Watkins, 2003), knowledge creation
(Song, 2008), organizational learning processes (Song et al., 2011) and knowledge transfer
(Hernandez and Watkins, 2003).
Most importantly, abundant studies have identified the strong and positive correlations
between a learning organization and both perceived and actual measures of financial and
knowledge performance (Awasthy and Gupta, 2011; Ellinger et al., 2002; Davis and Daley,
2008; Kumar, 2005; Kumar and Idris, 2006; Noubar et al., 2011; Rose et al., 2006; Watkins et al.,
2009; Yu and Chen, 2015). Furthermore, studies proposed equations with certain dimensions
as optimum predictors of performances in a specific organizational context (Kumar, 2005;
McHargue, 1999; Rose et al., 2006; Wetherington and Daniels, 2013).

Measuring organizational performance

Understanding performance entails understanding the stories behind the survival or
adaptation of organizations (March and Sutton, 1997). Although organizational performance
has been used as a dependent variable in organizational studies, it is very difficult to
operationalize because of its inherent complexity (Gregory and Richard, 1984).
Most studies measuring organizational performance have focused on financial
performance (Richard et al., 2009). This is probably because these measures show the
immediate financial performance of organizations. However, knowledge is also essential in
the long-term success of an organization (Wilcox and Zeithaml, 2003), because intangible
knowledge factors are positively related to future financial performance (Banker et al., 2000).
Therefore, in the current organizational environment where everything changes rapidly,
securing intangible performance on top of financial performance is necessary for
organizations sustainability (Johnson and Kaplan, 1987).
Organizational knowledge, which is a primary source of intangible performance, has a
strong and positive relationship with organizational performance when it flows smoothly
from its generation to its utilization within organizations (Deeds and Decarolis, 1999). A
 EJTD learning organization allows the organization to holistically integrate knowledge, people and
41,2 the organization as a living system, and also allows for interaction between these parts
(Senge, 1990). Indeed, learning is a fundamental driving force for financial performance
(Kaplan and Norton, 1992). Moreover, learning provides a stable environment for creating
performance (March, 1991). In this vein, cultivating an organizational learning culture by
becoming a learning organization is beneficial in obtaining organizational performance.
180 Although analyzing performance derived from intangible assets is challenging (Bontis,
2001; Marr and Adams, 2004), the DLOQ provides measures that diagnose the degree of an
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organizational learning culture together with perceptual measures of financial and

knowledge performance in the human resource development field. Marsick and Watkins
(2003) define financial performance as financial health and resources available for growth
(p. 139) and knowledge performance as the creation and enhancement of products and
services because of learning and knowledge capacity (lead indicators of intellectual capital)
(p. 139).

Research purpose and conceptual framework

The purpose of this study is to empirically examine potential relationships among a learning
organization, knowledge performance and financial performance using the DLOQ, which
has been verified as a valid and reliable instrument in many studies (Yang, 2003; Yang et al.,
2004; Watkins and Dirani, 2013). A learning organization positively correlates with
knowledge and financial performance (Ellinger et al., 2002; Kumar, 2005; Kumar and Idris,
2006), and knowledge performance is considered to be a significant latent indicator of future
financial performance (Banker et al., 2000; Johnson and Kaplan, 1987; Wilcox and Zeithaml,
2003). The research models and conceptual framework for this study are as follows:
Model 1: The learning organization dimensions have a direct effect on knowledge
performance and financial performances.
Model 2: The learning organization dimensions have an indirect effect on financial
performance via knowledge performance (Figure 1).

Methods
This section introduces the methods used in this study, including data, instruments and
analysis techniques. To test the research models, this study implemented second-order
confirmatory factor analysis (CFA) together with structural equation modeling (SEM). SAS
9.4 and Mplus 7.2 were used for data analyses.

Figure 1.
Conceptual framework
 Data and analysis Impact of a
Data Set. This study took a secondary data analysis approach and used data owned by one learning
of the authors (Salkind, 2007). As the primary purpose of this study is to investigate the effect
organization
of a learning organization on different measures of organizational performance, the data
were cleaned to include only those responses from the USA that incorporated all of the seven
dimensions and both types of performance, financial and knowledge performance. This
approach resulted in a final sample of 416 responses. Demographic data from these
181
respondents indicate that they were predominantly in for-profit organizations.
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In addition, considering the fact that many studies used the abbreviated version of the
DLOQ (i.e. DLOQ-A) after Yang et al. (2004) validated it; a supplementary data set that
contained the 21 items of the DLOQ-A from the data set of this study was created for
reference purposes. The supplementary data set had 416 responses.
Instrument measuring a learning organization and performance. The DLOQ consists of
55 items with a six-point Likert scale (1 almost never, 6 almost always) measuring the
seven learning organization dimensions, financial performance and knowledge performance
(for the items of the DLOQ-A, see Marsick and Watkins, 2003).
Data analysis techniques. Second-order CFA was first performed to examine the construct
of a learning organization, and then SEM was performed to test the relationships among a
learning organization, knowledge performance and financial performance.
First, CFA is used to test the hypothesized factor structure identified by a theoretical
framework (Harrington, 2009), which means hypotheses should be defined by a
theory-driven approach prior to performing CFA (Mulaik, 2010). Researchers use
hierarchical factor analysis to test the theory by revealing the existence of more
comprehensive and abstract constructs (Brown, 2015). Thus far, many of the DLOQ studies
reviewed confirmed the theoretical framework of the learning organization proposed by
Watkins and Marsick (1993). These studies also showed positive correlations between the
seven dimensions. As more than three dimensions satisfy the requirements for conducting
second-order CFA (Kline, 1998), second-order CFA was performed in this study to test
whether the seven dimensions serve as sub-dimensions of a learning organization as a
higher-order single construct.
Second, SEM enables researchers to uncover complex relationships among factors and
observed variables. It examines simultaneous regression and investigates mediating effects
or moderating effects (Bowen and Guo, 2012). In this vein, SEM is the most appealing
analytic approach to investigating the simultaneous impacts of a learning organization on
financial and knowledge performance as well as those of knowledge performance on
financial performance.
Due to the non-normality of the data set, this study took a robust approach to overcome
the possibility of violating fundamental assumptions of factor analysis when analyzing
items using a Likert-type scale (Brown, 2015). Mplus provides an algorithm for categorical
variables by using probit regressions, which use a robust weighted least squares (WLSMV)
estimator to calculate parameters (Mulaik, 2010). Probit regressions use the probit link
function as follows:

1 [Pr (Xi 1)] Xi

where Xi is the linear function of covariates, and (.) is the cumulative density function for
the standard normal distribution. The inverse of this function allows for probabilities to
become standard normal variables (Razzaghi, 2013). Logistic regression is another common
 EJTD way to link the probability of each category to the coefficients of predictors. Both
41,2 transformations are non-linear.

Results
Prior to examining the research model, item internal consistency was analyzed by examining
Cronbachs alpha coefficients. All Cronbachs alpha coefficients for the DLOQ were above
182 0.80, which indicates that it is a reliable and stable instrument (Lance et al., 2006). Although
two dimensions of the DLOQ-A had Cronbachs alpha coefficients that were less than 0.70,
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they were close to 0.70; thus, the DLOQ-A had acceptable internal reliability (Lance et al.,
2006). Table I shows descriptive statistics, correlations and reliability estimates.
Fit indices were applied to assess the results of the analyses followed. For an acceptable
model fit, a relative chi-square value of less than 3 (the chi-square is divided by the degrees
of freedom) is recommended (Ullman, 2001); a comparative fit index (CFI) value above 0.95
(Bentler and Bonnett, 1980); a Tucker and Lewis index (TLI) value above 0.90 (Hu and
Bentler, 1999); a root mean square error approximation (RMSEA) value less than 0.08
(Browne and Cudeck, 1993); or a standardized root mean square residual (SRMR) value less
than 0.08 (Hu and Bentler, 1999).
Note that the parameters were estimated by probit regressions in this study, and all
coefficients were non-linearly transformed from the probability of each category via function
(.). In particular, the probit coefficients of predictors refer to the change in z-scores of the
cumulative probability under a standard normal distribution.

Dimension M SD 1 2 3 4 5 6 7 8 9

DLOQ
1. CL 3.48 0.81 0.82 (0.84)
2. DI 3.49 0.88 0.87 0.72* (0.89)
3. TL 3.40 0.83 0.84 0.65* 0.70* (0.87)
4. ES 3.13 0.92 0.84 0.51* 0.53* 0.52* (0.86)
5. EP 3.17 0.87 0.83 0.56* 0.63* 0.68* 0.65* (0.85)
6. SC 3.37 0.93 0.84 0.49* 0.54* 0.58* 0.57* 0.71* (0.86)
7. SL 3.44 0.97 0.88 0.58* 0.64* 0.66* 0.63* 0.75* 0.73* (0.90)
8. FP 4.28 1.04 0.90 0.32* 0.28* 0.30* 0.38* 0.34* 0.38* 0.34* (0.92)
9. KP 4.32 1.04 0.90 0.33* 0.31* 0.34* 0.42* 0.40* 0.42* 0.43* 0.77* (0.92)
DLOQ-A
1. CL 3.57 0.92 0.68 (0.69)
2. DI 3.39 0.95 0.79 0.65* (0.82)
3. TL 3.39 0.88 0.74 0.59* 0.61* (0.76)
4. ES 3.01 1.01 0.75 0.39* 0.49* 0.40* (0.78)
5. EP 3.17 0.89 0.69 0.50* 0.57* 0.57* 0.59* (0.72)
6. SC 3.35 1.00 0.70 0.46* 0.49* 0.52* 0.49* 0.59* (0.73)
7. SL 3.39 1.07 0.84 0.54* 0.63* 0.60* 0.53* 0.66* 0.63* (0.86)
8. FP 4.28 1.04 0.90 0.27* 0.30* 0.29* 0.33* 0.28* 0.34* 0.32* (0.92)
9. KP 4.32 1.04 0.90 0.27* 0.30* 0.33* 0.37* 0.37* 0.38* 0.39* 0.77* (0.92)

Notes: N 416; * p 0.01; Cronbachs alpha coefficients; the reliability estimates for factors are in
Table I. parentheses; the means, standard deviations and correlations are based on the mean scores of the
Means, standard corresponding items of the dimensions; the bivariate correlations of individual items were found to be less
deviations, than 0.80; CL Continuous Learning; DI Dialogue and Inquiry; TL Team Learning; ES Embedded
correlations and Systems; EP Empowered People; SC System Connection; SL Strategic Leadership; KP Knowledge
reliability Performance; FP Financial Performance
 Exploratory factor analysis (EFA) was first performed to investigate whether the factor Impact of a
structure of the secondary data set resembles the original framework (Watkins and Marsick, learning
1993, 1997). Regarding the learning organization dimensions, the seven-factor solution
showed the best fit [ 2(623) 1,266.31, p 0.001; CFI 0.97, TLI 0.96, SRMR 0.03].
organization
For the performance dimensions, the two-factor solution showed the best fit [ 2(43)
271.12, p 0.001; CFI 0.98, TLI 0.97, SRMR 0.03]. For the DLOQ as a whole, the
nine-factor solution showed the best fit [ 2(1,206) 1,744.50, p 0.001; CFI 0.98, TLI
0.96, SRMR 0.03]. The DLOQ-A revealed similar results. The seven-factor solution showed 183
the best fit [ 2(84) 168.67, p 0.001; CFI 0.99, TLI 0.98, SRMR 0.02], and the
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nine-factor solution showed the best fit with the two performance measures [ 2(267)
462.16, p 0.001; CFI 0.99, TLI 0.98, SRMR 0.02]. These results allowed this study
to move ahead with confirmatory analysis (Bollen, 1989).
As seen in Table I, the reliability estimates of the latent factors were also examined. The
reliability estimates were calculated by the formula proposed by Fornell and Larcker (1981):

( )2
Reliability
[( )2 ]

where is a standardized factor loading and is residual variance. The reliability estimates
of the factors ranged from 0.84 to 0.92, and they were slightly higher values than the
Cronbachs alpha coefficients obtained from the initial analysis, which ranged from 0.82 to
0.90. This supports the strong reliability of the DLOQ at the construct level (Lance et al.,
2006). The DLOQ-A also showed slightly higher values compared to the Cronbachs alpha
coefficients, which were close to or above 0.70.
Validity at the construct level was assessed prior to evaluating the research models. For
a learning organization as a second-order latent construct, the average variance extracted
(AVE) was calculated by the formula proposed by Mackenzie et al. (2011), averaging the
square of each sub-dimensions completely standardized loading on the second-order
construct (p. 313). For the two performance factors, the AVE was calculated according to the
formula proposed by Fornell and Larcker (1981):

2
AVE

2

The AVE values of the DLOQ were as follows: a learning organization (0.74), financial
performance (0.66) and knowledge performance (0.66). For the DLOQ-A, the AVE values were as
follows: a learning organization (0.75), financial performance (0.66) and knowledge performance
(0.66). All values were above 0.50, which showed adequate convergent validity (ibid.).
To assess discriminant validity, the heterotraitmonotrait (HTMT) ratio, a ratio of the
average correlations between constructs to the geometric mean of the average correlations
within items of the same constructs (Voorhees et al., 2016, p. 124), was calculated according
to the equation suggested in Henseler et al.s (2015, p. 121) study:
Ki Kj

HTMTij
1
Ki Kj g1 r h1
ig, jh

1
Ki1 Ki Kj1 Kj

2 2 2
rig, ih rjg, jh
Ki (Ki 1) g1 hg1
K j (K j 1) g1 hg1
 EJTD The average of correlations between constructs
41,2 The geometric mean of the average correlations within items of the same constructs
The HTMT ratios between the learning organization dimensions and the two performance
dimensions and between the performance dimensions were within 0.85 for both the DLOQ
and DLOQ-A. The HTMT ratios less than 0.85 or 0.90 can support discriminant validity
184 (Hensler et al., 2015; Voorhees et al., 2016). Thus, the discriminant validity was also
supported.
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Although the overall results supported the construct validity of the DLOQ and DLOQ-A,
examining structural parameters between factors and items for the first-order factor
structure or between factors for the second-order factor structure would be more adequate for
this study owing to several limitations of classical validity assessments (Bollen, 1989). The
results showed that most of the standardized validity coefficients were above 0.70, both at
the item level and the factor level. This also ensures the substantive validity of the
instrument.
The fit indices in Table II indicated that the second-order CFA model fits relatively well
to the sample data. For the DLOQ, the relative chi-square value was 2.89, the CFI value was
0.92, the TLI value was 0.92 and the RMSEA value was 0.07. The DLOQ-A showed similar or
better fit indices overall compared to the DLOQ, except for the relative chi-square value and
RMSEA of a second-order learning organization. It can be inferred that a learning
organization is a higher-order construct which has multiple sub-dimensions.
Table III shows the results of the research model. The fit indices showed that the research
model fits well to the sample data. For the DLOQ, the relative chi-square value was 1.97, the
CFI value was 0.95, the TLI value was 0.95 and the RMSEA value was less than 0.05. The
DLOQ-A also presented similar results, and it especially displays the better CFI and TLI
values.
Table IV shows the major standardized probit coefficients (z-scores). Among the seven
learning organization dimensions, the empowered people dimension showed the highest
z-score for the DLOQ. In other words, for one unit increase in this dimension, the z-score of the

Model fit indices z-score df 2 2/df CFI TLI RMSEA [90% CI]

DLOQ
LO (second-order) 853 2,464.63 2.89 0.92 0.92 0.07
[0.06-0.07]
LO (second-order)-FP 0.43*** 1,119 2,524.47 2.26 0.94 0.94 0.06
[0.05-0.06]
LO (second-order)-KP 0.49*** 1,119 2,596.33 2.32 0.94 0.94 0.06
[0.05-0.06]
DLOQ-A
LO (second-order) 182 660.49 3.64 0.95 0.94 0.08
[0.07-0.09]
LO (second-order)-FP 0.42*** 316 703.90 2.23 0.97 0.97 0.05
[0.05-0.06]
LO (second-order)-KP 0.48*** 316 771.17 2.44 0.97 0.96 0.06
[0.05-0.06]

Notes: CFI comparative fit index; TLI TuckerLewis index; RMSEA root mean square error
Table II. approximation; CI confidence interval; z-score standardized probit path coefficients; see Table I for the
Initial analyses results other abbreviations; *** p 0.001
 probability for this dimension to affect a learning organization increases by 0.93. The next Impact of a
highest dimension was the strategic leadership dimension, and its z-score is 0.90. The learning
embedded system dimension revealed the lowest z-score, and its z-score is 0.79. The z-scores
of the DLOQ-A were not very different from the above results.
organization
Figure 2 depicts the major results with the standardized probit path coefficients. As
shown in Figure 2, a learning organization has a statistically significant and positive effect
on knowledge performance (z-score 0.49, p 0.001, i.e. for one unit increase in a learning
organization, the z-score for a learning organization to affect knowledge performance 185
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increases by 0.49). Knowledge performance also has a statistically significant and strong
positive effect on financial performance (z-score 0.85, p 0.001, i.e. the z-score for
knowledge performance to affect financial performance increases by 0.85). And, knowledge
performance fully mediates the relationship between a learning organization and financial
performance, which means a learning organization has a significant indirect effect on
financial performance (z-score 0.42, p 0.001, i.e. the z-score increases by 0.42). The
DLOQ-A results also revealed similar z-scores.

Discussion
This study explored structural relationships among a learning organization, financial
performance and knowledge performance with a secondary data set. The primary purpose of
this study was to investigate the DLOQ; however, the DLOQ-A was also examined as a
reference using the same data set of this study. The results revealed that a learning
organization is a significant determinant of knowledge performance. As Watkins and
Marsick (2003, p. 273) pointed out, knowledge is the key asset base from which to predict

Research model df 2 2/df CFI TLI RMSEA [90% CI]

DLOQ 1,420 2,797.26 1.97 0.95 0.95 0.05

[0.05-0.05]
DLOQ-A 485 990.63 2.04 0.97 0.97 0.05
[0.05-0.06]
Table III.
Note: See Table II for the abbreviations Model fit indices

Results DLOQ DLOQ-A

Continuous learning Learning organization 0.84*** 0.86***

Dialogue and inquiry Learning
organization 0.85*** 0.87***
Team learning Learning organization 0.86*** 0.86***
Embedded systems Learning organization 0.79*** 0.77***
Empowered people Learning organization 0.93*** 0.94***
System connection Learning organization 0.86*** 0.87***
Strategic leadership Learning organization 0.90*** 0.89***
Learning organization Knowledge
performance 0.49*** 0.48***
Knowledge performance Financial
performance 0.85*** 0.85*** Table IV.
Major results with
Note: ***p 0.001 z-scores
 EJTD
41,2

186
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Figure 2.
Standardized probit
path coefficients of the
research model

future earnings, but having the knowledge assets does not guarantee that the company will
know how best to use them (Marsick and Watkins, 1999, p. 79). By creating an environment
where an organization uses its knowledge assets efficiently and effectively, a learning
organization enables an organization to enhance its knowledge performance.
The results also indicated that a learning organization is an invisible but critical player in
improving financial performance. As the results showed, knowledge performance is a strong
and positive predictor of financial performance. And, knowledge performance, which is
significantly impacted by a learning organization, fully mediates the relationship between a
learning organization and financial performance. In other words, a learning organization has
a strong and positive indirect effect on financial performance. This highlights the idea that
learning and development activities in organizations enhance knowledge performance and
ultimately contribute to obtaining financial outcomes.
Despite the fact that knowledge performance and financial performance showed a similar size
of correlation estimates with a learning organization, the results did not support the direct effect
of a learning organization on financial performance. In fact, as Table II shows, a learning
organization is a significant indicator of financial performance when they are measured
separately. In addition, when we examined the direct effects of a learning organization on
financial performance and knowledge performance without the assumption of the relationship
between knowledge performance and financial performance, the results indicated similar fit
indices as shown in Table III and similar path coefficients in Table II at the p 0.001 level. These
results imply that a learning organization, as a second-order factor, becomes a much stronger
 predictor of knowledge performance (Yang et al., 2004) under the assumption that knowledge Impact of a
performance is a future source of financial performance. As stated earlier, this study used a learning
secondary data set; thus, it might have an innate limitation that would provide insufficient organization
information to explain the direct effect of a learning organization on financial performance in the
research model.

Implications 187
Theoretically, this study contributes to validating the dimensionality of the theoretical
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framework of a learning organization proposed by Watkins and Marsick (1993, 1996) as well as
their dimensionalization of organizational performance. Moreover, this study takes a further step
toward solidifying the construct validity of the DLOQ and DLOQ-A and particularly of the two
performance dimensions financial and knowledge performance. This study analyzed all items
in the instruments, and the results showed that every item is a significant indicator for identifying
the seven dimensions of a learning organization and the two performance dimensions. The factor
loadings of the first factors on a learning organization were above 0.80 (see Figure 2), and most of
the factor loadings of the items both the learning organization dimensions and two performance
dimensions were above 0.70. Thus, reliability and validity were satisfied by these statistical
tests. Previously, Yang et al. (2004) performed SEM among the learning organization dimensions
and performance dimensions of the DLOQ to establish the nomological validity of the instrument.
However, the construct validity of the performance dimensions has been relatively less
emphasized compared to the learning organization dimensions. The results of this study strongly
supported the validity of the DLOQ and confirmed their original findings using a newer data set.
More importantly, the higher-order structure of a learning organization introduces a new
approach to understanding the relationships between a learning organization and
organizational performance. Thus far, the relationships between the learning organization
dimensions and organizational performance have been studied mostly by using canonical
correlation analysis (Ellinger et al., 2002; Lien et al., 2006). The hierarchical order of the
construct of a learning organization enables researchers to examine these relationships in a
more holistic and logically consistent manner.
Practically, this study re-stresses the significance of becoming a learning organization,
especially for securing outcome performance. Previous literature has already identified positive
effects of a learning organization from diverse perspectives. Among them, financial outcomes
would be the most desired outcome for most organizations. Organizations put enormous effort
into achieving the highest financial performance. Many times, organizations are faced with
situations when their usual efforts to manage their financial assets are no longer effective. Over
time, non-financial assets help them achieve their organizational goals. And, a learning
organization facilitates maximizing these outcomes from non-financial and largely human assets.
Therefore, it cannot be overemphasized that becoming a learning organization is a strategic
approach to encouraging both knowledge and financial performance.
This study also demonstrates that an exclusive focus on financial performance overlooks a
critical source of future financial performance the learning and knowledge (innovation)
generated by the human resources of the organization developed and enhanced by human
resource developers. In fact, the balanced score card puts the same emphasis on knowledge
learning and innovation play a fundamental role in deriving financial performance from
intangible assets (Kaplan and Norton, 1992). This significant inter-connectedness of knowledge
and financial performance suggests the need to align and integrate learning and development
activities into organizational strategies (Kaplan and Norton, 2004). Thus, one strategic use of the
findings of this study is to better position human resource developers to make the case with their
 EJTD organizations on the centrality of human resource work in ensuring the long-term viability of the
41,2 organization.

Limitations
Several limitations of this study suggest future research directions. First, as this study
analyzed a data set with samples from the USA, future research should further investigate
188 the findings of this study by analyzing samples collected by alternative strategies and
methods across a more global sample. The strategies include, but are not limited to, different
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cultural and organizational contexts and longitudinal studies.

Second, this study used the probit regression model, which limits direct interpretation.
Future research should be conducted to precisely uncover these relationships with other data
sets, particularly those which follow a normal distribution.
Third, the DLOQ measures perceptual performance. Although the correlations between
the financial performance measure of the DLOQ and actual financial performance measures
were already examined (Ellinger et al., 2002; Davis and Daley, 2008), future research is
recommended to further examine structural paths using hard measures, such as return on
equity or return on assets for financial performance, and measures such as new patent
disclosures, number of new products and services for knowledge performance.
Finally, this study used a self-report questionnaire. Self-report measures, which are
widely used in social behavioral research, often raise common method bias issues that could
yield misleading conclusions (Podsakoff et al., 2003). Using data from different sources is
recommended for controlling common method biases, yet a few studies using the DLOQ,
such as Ellinger et al. (2002), provide evidence that hard measures of financial performance
produce the same results with the DLOQ. Although this study demonstrated the substantive
reliability and construct validity, future study is recommended to take controlling common
method bias issues into consideration when using the DLOQ (Podsakoff et al., 2003).

Conclusion
This study examined the impact of a learning organization on knowledge and financial
performance as measured by the DLOQ and the DLOQ-A. The results suggested that a
learning organization positively affects knowledge performance, which positively and
strongly affects financial performance. A learning organization has a significant indirect
effect on financial performance that was proven by the result that knowledge performance
fully mediates the relationship between them.
Organizations continuously navigate how to manage their assets effectively in a
productive manner to maintain and enhance organizational performance. This study
suggests to such organizations that learning and development activities are areas they
should focus on to improve performance. Facilitating a learning culture through the Watkins
and Marsick (1997) dimensions creating continuous learning opportunities, promoting
dialogue and inquiry, encouraging collaboration and team learning, creating systems to
capture and share learning, empowering people toward a collective vision, connecting the
organization to its environment and having leaders who support learning positions
organizations to move forward in an uncertain future.

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