Organizational Dynamics, Vol. 32, No. 1, pp.

4661, 2003 ISSN 0090-2616/02/$ see frontmatter

2002 Elsevier Science Inc. All rights reserved. doi:10.1016/S0090-2616(02)00137-7
www.organizational-dynamics.com

Designing Learning
Organizations
CONSTANCE R. JAMES

INTRODUCTION in industries where efciency is required,

Many leaders face problems when trying to
redesign their organizations. Stuck in the
paradigm of the 20th century, they are more
comfortable with the multidivisional form of
command and control than the new form of
learning organizations and knowledge-crea-
tion firms. Leaders often apply band-aid
fixes, such as teams, without implementing
a change in their fundamental beliefs and
organizational design. Without these funda-
mental changes, they are doomed to fail at
truly becoming learning organizations.
The old paradigm of command and con-
trol led to the development of the multidivi-
sional form, the M-form. It was once the king
of organizational design because of its
emphasis on specialization and efciency.
In the 21st century, this organizational form
became slow to adapt to rapidly changing
environments, globalization, consumerism,
and the information superhighway. Like
United Airlines versus Southwest Airlines
and Jet Blue, it was a luxury liner surrounded
by speedboats. The adaptive nature of fast-
moving learning organizations made this
new form heir apparent to the throne.
While still in their adolescence, learning
organizations or L-forms have begun to dom-
inate the landscape in industries subject to
rapid change, such as software. Surprisingly,
such as steel and airlines, learning organiza-
tions are often the most protable or the only
protable rms during economic downturns.
Nucor Steel and Southwest Airlines continue
to be protable while companies in their
industries teeter on the edge of bankruptcy.
Despite the claim that it is a new form,
the L-form looks to many observers a lot like
an M-form with a band-aid on it. Place a
bunch of teams in your organization and
wipe out a few middle managers and you
have a learning organization, the thinking
goes. Or, even simpler, implement a few
learning processes (such as benchmarking
and experimentation) and you have a learn-
ing organization. Serious observers know
that L-forms are much more complex than
this, and it is not possible to build a success-
ful one by focusing on a few components or
on process alone.
Most of the literature emphasizes pro-
cess rather than the contextual design and
architect of this form. In the absence of lit-
erature on organizational design and archi-
tect, managers are left without an approach
to ll the void.
In today's competitive environment,
organizations have to pay close attention to
the organizational design of learning organi-
zations. The L-form that emerges is founda-
tional, in effect an organizational web that

Acknowledgments: I would like to acknowledge Drs. Noel Tichy and Dave Ulrich at the
University of Michigan business school, and Richard L. Daft at Vanderbilt's Owen Graduate
School of Management. I have been greatly inuenced by their future-oriented work and
encouraged by their support.
46 ORGANIZATIONAL DYNAMICS
utilizes integrating mechanisms to move
people and knowledge across boundaries.
It is an egalitarian model that is more trans-
formational than transactional. Described
more fully below, the L-form is tangibly dis-
tinct from the M-form organization in both
process and design. Beliefs, boundaryless-
ness, balance, and behavior operate at its
core, supporting the learning organization
web. This framework gives managers the
basic building blocks to analyze the more
complex interactions and strategic implica-
tions of learning organizations. Constance R. James has had outstanding
careers in both industry and higher education.
After receiving her bachelor's in economics and
THE LEARNING M.B.A. in finance from the University of Michigan,
ORGANIZATION WEB she worked at IBM Corp. in marketing. She then
worked in financial and strategic management at
In the fast changing world of global com- Bendix and Burroughs Corporation, where she
merce, an L-form is needed to stay ahead of won awards for redesigning budgeting and
the pack. An L-form is more than adaptive; it strategic planning systems. She went to work
is transformational. Thus, it engages everyone as assistant to the president at Pepperdine
in the exploration, exploitation, and transfer of University, where she developed its strategic
knowledge, increasing the collective learning planning and budgeting systems.
throughout the organization and the capacity to In 1998, James received her Ph.D. from UCLA's
create its future. The transformational nature Anderson School. Her award-winning doctorate
of an L-form requires an organizational focused on corporate strategy and organizational
design that focuses both on components learning. She has lectured nationally and inter-
and their connections. The components nationally on corporate and business strategy and
include leadership, culture, strategies, sys- learning organizations. She currently teaches
tems, structure, and knowledge workers. In general management, business policy, strategy,
L-forms, they are woven together in an inter- and ethics, and international management in the
connecting web of interaction, according Business Administration Division of Seaver Col-
to Daft, that affects organizational learning lege, Pepperdine University.
(see Fig. 1). James is a member of the Malibu Rotary Club
and the founder and faculty sponsor of Pepper-
Transformational Leadership dine Rotaract, a student club dedicated to
service and building professional connections.
In learning organizations leadership may be She consults with numerous companies and sits
found at many levels, from knowledge work- on several boards.
ers to senior management. The focus of lea-
dership is to learn, to teach, and to transform
the organization.
Leadership tends to be more transforma-
tional and visionary than transactional. Lea-
ders focus on inuencing change within the
organization rather than on the efciency of
transactions and tasks. They provide incen-
tives and rewards that encourage teamwork,
personal mastery, systems thinking, and
47
 FIGURE 1 LEARNING ORGANIZATION WEB
decision-making. They utilize powerful
visions that transform the organization.
The transformation of IBM Corp. into a
learning organization occurred when Lou
Gerstner changed its mission from being
product-oriented to being service-oriented.
In addition to changing its mission, IBM
had to remove the powerful divisions of
the M-form. As a result, it changed from
offering solutions based only on proprietary
IBM products to offering solutions based on
what was best for the customer, including
rival products. To achieve this mission, busi-
ness units had to work together to meet
customer needs.
Leaders create a clear and compelling
vision that goes beyond moving knowledge
around the organization. Leaders inuence
change. They translate visions into revolu-
tionary goals that transform industries and
the way companies do business. Microsoft
Corp.'s big hairy audacious goal, ``We set
the standard,'' forced it to refocus its efforts
on the Internet if it wanted to continue to
48 ORGANIZATIONAL DYNAMICS
dominate the personal computing industry.
Its latest release of MSN threatens AOL with
its user-friendly parental controls and inte-
gration with Microsoft's ofce products and
operating systems. Thus, leaders set visions
that inspire and produce change-oriented
goals. This allows learning organizations
to adapt and sustain a competitive advan-
tage over long periods of time.
Senior managers design the strategic
architecture of the rm, carefully allocating
resources based on needs, and teaching
higher level decision-making based on sys-
tems thinking. Systems thinking encourages
employees to analyze the systems and struc-
tures surrounding the problem, to ask why a
problem has occurred, and to try to develop
holistic solutions. This type of decision-
making is encouraged and taught at lower
levels.
Mike Fister, senior vice president and
general manager of the Enterprise Platform
Group at Intel Corp., is a transformational
leader. He transformed his groupwhich
makes servers and workstation platforms
from a matrix organization to a more hori-
zontal one, with a spider web-like structure
to increase the ow and implementation of
new knowledge.
At the middle level, managers are con-
cerned about linking the organization hori-
zontally. They provide the glue that connects
the web. They focus on systems and policies
that spread learning and knowledge
throughout the organization. Their job is to
know where knowledge is stored and how to
retrieve it. Their goal is to maximize its use in
the most cost effective way possible. They are
conduits for change. They support new ideas
and nd new ways to accomplish the job and
ways to incorporate new ideas into existing
routines.
McKinsey & Co.'s director of communi-
cation ensures that knowledge is readily
available and easy to access. By developing
a Firm Practice Information System, a com-
puterized database of client projects, his team
made information more timely, accurate, and
complete. They also developed a type of
yellow page directory of McKinsey associates
that was small enough to t into a notebook.
In this upside-down organization, lower-
level managers are responsible for the entre-
preneurial function. No longer is this
reserved for senior managers. At Asea Brown
Bover (ABB), lower-level managers are
actively engaged in new knowledge creation.
In L-forms, the lower-level manager's job is
to maximize explorative learning and to
incorporate these new ideas into the existing
routines of the rm. First-line managers tap
into knowledge workers and see that their
ideas are heard and acted upon. This level
is also concerned with increased efciency
from exploitation learning. They must
improve existing routines while considering
which new ones to incorporate. This level is
primarily responsible for striking a balance
between explorative and exploration learn-
ing. A third role that lower-level managers
play in an L-form is to get knowledge out of
their organizational unit. They are rewarded
for transferring new ideas and best practices
to other organizational units and for making
these ideas and practices available to others
throughout the organization.
Egalitarian Culture
Learning organizations are characterized by
strong egalitarian cultures, because this facil-
itates continuous improvement and adapta-
tion at all levels. Organizations with strong
egalitarian cultures create a set of norms,
symbols, and beliefs that encourage organi-
zational learning.
Southwest Airlines has a strong egalitar-
ian culture. It specically eschews words like
``human resources'' in favor of words like
``people.'' It views all of its people as leaders.
Its culture puts employees rst, and they in
turn put customers rst. Its ``LUV'' culture
permeates everything it does from putting
employees' names on its planes to stock
options for all full-time employees. As a
result, Southwest Airlines is usually ranked
#1 in customer service in spite of its no-frills
approach.
One of the key ways that L-forms achieve
a strong egalitarian culture is through recog-
nition and rewards. These rewards reinforce
behavior that exemplies the egalitarian
values of the rm.
At Yum! Brands, CEO David Novak is a
master of rewards. He recognizes the impor-
tance of energizing everyone in his workforce.
Novak has built a recognition culture that
generates energy among the workforce and
makes everyone feel valued. Yum! uses
awards from CHAMP cards, crystal trophies,
high-ves, e-mails, banners and kudos to the
``Royal Order of the Pepper'' to recognize
employees. Yum! is challenged to recognize
750,000 workers worldwide, ranging from
teenagers to grandparents. Novak feels that
it is critical to translate his enthusiasm to the
workforce so that front-line workers will value
customers and serve them enthusiastically.
Dispersed Strategy
In learning organizations, strategies can
emerge from anywhere in the organization.
No longer is strategy formulation and
49
implementation the sole purview of a few
senior managers; it is also the responsibility
of middle and lower-level managers. This is
in sharp contrast to the M-form, in which
senior managers determine corporate strat-
egy, including expansion, retrenchments and
diversification.
In learning organizations, strategies can
not only come from upper, middle and lower
management, but they may also come from
knowledge workers or teams of workers.
Knowledge workers are empowered and
trained in strategic decision-making. They
become champions of ideas. Strategic plan-
ning becomes less of a deliberate, controlled
process and more of an emergent, idea-gen-
erating process. Planning is not only partici-
patory, but also somewhat chaotic, as new
ideas are explored and implemented.
Certain types of strategic planning are
more conducive to learning new ideas or
becoming more efcient at existing routines.
Emergent strategies tend to facilitate innova-
tion and exploration learning; however,
innovation may upset existing routines.
Deliberate strategies may be more conducive
to exploitation learning, as this type of learn-
ing relies on goals that are relatively stable
over time. Given that a learning organization
includes both exploitation and exploration
learning, it includes both deliberate and
emergent strategies.
Integrating Mechanisms
Integrating mechanisms link the organiza-
tion both horizontally and vertically. These
mechanisms reflect communication pro-
cesses and policies that enhance the sharing
of knowledge and learning across business
units, and are dominant in learning organi-
zations. They go beyond Galbraith's informa-
tion systems; they include people, systems,
and processes that link the organization. In
contrast to the M-form's emphasis on vertical
communications, learning organizations
emphasize horizontal communications and
integrating mechanisms.
In learning organizations, middle man-
agers focus on horizontal integration, includ-
50 ORGANIZATIONAL DYNAMICS
ing internal benchmarking, best practice
identication, and technology transfer. The
middle manager's goal is to link and leverage
the company's resources and capabilities.
Thus, these rms tend to be more decentra-
lized and to utilize more of an open and
horizontal ow of communications.
Organizations can improve the horizon-
tal ow of knowledge inside or outside of the
rm. IBM has been able to maintain its status
as the number-one computer corporation in
the world by changing its internal systems. It
began to utilize Lotus Notes and other share-
ware products to improve communications
around the globe. It eventually used these
systems with customers to improve commu-
nication and response time. Based on its
review of customer needs, IBM is also trying
to change the way computer services are
billed. Utilizing its powerful mainframes
and a Linux virtual system, it is creating a
host site where users will pay for the appli-
cations and services based on how much they
utilize them, and not based on a xed price.
Horizontal Structure
Learning organizations tend to be loosely
structured federations, adhocracies, or heter-
archies. The organization is networked
together through a system of atomistic or
web-like configurations. Heterarchies empha-
size horizontal linkages and teamwork. These
organizations frequently violate vertical
chains and unity of command to enhance
integration of knowledge across business
units and firm performance.
ABB's global matrix is a heterarchy, a
loose federation of companies, in contrast to
the multidivisional form. In L-forms, large
numbers of business units are combined into
semi-autonomous divisions. The global
matrix facilitates effective organizational
learning and knowledge transfer by atten-
ing the pyramid and requiring global man-
agers to work with product and customer
managers on an ongoing basis. What distin-
guishes the heterarchy from the divisional
form is that there are more units reporting to
a general manager. Given that each unit is
semi-autonomous, more units can report to a
general manager. General managers act as
facilitators, talent developers, and trouble-
shootersbut not as cop.
While loose federations imply that more
units report into managers, the team-based
matrix structure holds the organization
together. Team-based matrix structures are
used to foster innovation.
In large complex organizations, teams
that create a third dimension hold the matrix
together. Teams are often used to bring
together core competencies and to transfer
them to other knowledge workers and parts
of the organization. At ESPN, core compe-
tencies in securing rights and branding pro-
ducts are often packaged by a team that
understands the product and how to bring
together the elements of production in a high
quality show. This allows ESPN to leverage
its competencies and transfer them from
one area to another, including the NBA,
the U.S. Open, the World Cup, and the Tour
de France.
Knowledge Workers
In learning organizations, employees must
become knowledge workers. Each person is
responsible for mastering her job and for
disseminating important information to
others in the organization. Knowledge work-
ers are continually updating their skills and
developing new skills that make them valu-
able to the organization. They help the orga-
nization continually adapt and expand its
exploration and exploitation capabilities as
well as to transfer knowledge to other parts
of the organization.
At Starbucks, full-time employees are
treated as associates of the rm. Even part-
time employees who work at least 30 hours
per week are entitled to benets. Employees
are listened to and valued. Those who make
the coffee are called, ``Baristas.'' This title
conveys a certain mastery and knowledge
of how to make specialty coffees that custo-
mers value. But these knowledge workers go
beyond just making a good cup of coffee;
they make their customers feel good. They
are encouraged to learn each customer's
name and favorite or usual cup of coffee.
At many Starbucks, a regular customer is
not only greeted by name, but his coffee is
frequently ready before he pays for it. Star-
buck's employees take standards for knowl-
edge workers to new heights by seemingly
reading the customer's mind. This type of
anticipatory service becomes the new bench-
mark of the knowledge era.
These six macro properties of learning
organizations, transformational leadership,
dispersed strategies, horizontal structures,
integrating mechanisms, egalitarian cultures,
and knowledge workers are the major ele-
ments of design. This design is run by a
framework of beliefs, balance, boundaryless-
ness, and behavior.
DNATHE 4 Bs FRAMEWORK
The information age has given way to the
knowledge revolution. Thus organizational
design has shifted to developing highly adap-
tive and transformational firms that require a
new DNA to become L-forms (Fig. 2).
The L-form web design requires a frame-
work to drive the transformation and gen-
erative learning processes. The 4 Bs
framework is the glue that provides cohesion
and connections. This glue forms the DNA of
the learning organization. It is the lifeblood
that makes the web work and gives it its
ability to transform itself. The DNA links
the learning organization web to two types
of learning, generative and collective.
L-forms focus rst and foremost on gen-
erative learning, in which employees are
encouraged to see the big picture and chal-
lenge the status quo so as to improve deci-
sion-making within the rm. Systems
thinking is necessary in order to improve
the quality of decisions and to force employ-
ees to think ``outside of the box.'' Systems
thinking requires that employees understand
the macro systems and structures that affect a
decision, so that they can alter their under-
standing and improve their effectiveness. As
situations change, they can modify their
51
 FIGURE 2 LEARNING ORGANIZATION 4 BS FRAMEWORK
understanding of systems and structures,
alter the decision-making rules, or change
their behavior.
Generative learning requires double-
loop learning. However, unlike most models
of double-loop learning, in L-forms interven-
tion can occur at any level of the organiza-
tion. Employees are trained to see the big
picture and intervene at both the level of the
decision and the process for making the
decision. At General Electric Co.'s Croton-
ville training center, thousands of managers
were trained to make strategic decisions, and
to challenge and improve the decision-mak-
ing process.
The second type of learning in L-forms is
collective learning. This requires a set of
organizational learning capabilities, includ-
ing systematic problem solving, experimen-
tation with new approaches, learning from
best practices, and transferring knowledge
efciently throughout the organization. This
approach increases both exploration and
exploitation learning, but goes beyond this
by focusing on processes in which knowl-
edge is transferred around the company. At
McKinsey, best practices are transferred
through Practice Olympics. These Olympics
create a forum to share the best of the bright-
est of new knowledge creation with others in
the rm. Teamwork is necessary to improve
52 ORGANIZATIONAL DYNAMICS
individual decision-making and to transfer
knowledge from one employee to another.
Knowledge transfer and collective learning
become core competencies of the rm.
Both generative and collective learning
require a different way of thinking and behav-
ing by leaders and managers. They must
trust and train employees. This learning
also requires a different kind of employee,
one who is willing to see the big picture, make
decisions, and take appropriate action. Only
then will employees become knowledge
workers.
While these approaches provide the
focus of learning organizations, they are just
a start in understanding the glue that gives L-
forms its cohesiveness. Systematic thinking
must be linked to structures that facilitate
generative and collective learning. Integrat-
ing mechanisms that move information to
knowledge workers are needed. Leaders
must be willing to disperse power and
believe in their people if employees are to
participate in key decision-making. They
must also be willing to trust their employees
if truly generative learning is to occur. This
requires a reframing of the organization. It
requires a new DNA.
This DNA is composed of four parts:
beliefs, balance, behavior and boundaryless-
ness. It explains how learning organizations
work. Beliefs describe the underlying sup-
port for knowledge workers that makes
L-forms transformational. Balance describes
how the web design creates organizational
learning that is collective and generative.
Behavior relates to how the internal parts
interact in a synergistic way to create trans-
formation. Boundarylessness describes how
the web design minimizes boundaries both
inside and outside of the organization to
enhance learning and sustain superior per-
formance over time.
Beliefs
Beliefs form the basis for transformational
leadership and empowered knowledge
workers. They also show how these areas
impact collective and generative learning
in organizations that both teach and learn.
Every person in the organization can be a
knowledge worker. The fundamental belief
in learning organizations is that every person
in the organization can be a knowledge
worker who is an essential building block
of the organization. As a knowledge worker,
each person contributes, continuously learns,
and transfers knowledge to others in the
organization.
At Yum! Brands, this translates into a
formula for success based on people capabil-
ity rst and on the assumption that satised
customers and protability will follow. To do
this, CEO David Novak and his team have
designed a large teaching infrastructure. The
CEO puts on six 3-day workshops a year for
300400 leaders. The chief operating ofcer
(COO) focuses on teaching ``high impact
coaching'' and developing thousands of coa-
ches throughout the regions and stores.
There are also programs at Yum University.
All of Novak's team are required to teach and
develop knowledge workers on a regular
basis.
The knowledge worker's role is to learn
and to transfer knowledge to others. This
creates the ability to enhance collective learn-
ing throughout the organization. Knowledge
workers also become experts at generative
learning, learning how to learn. They devise
new strategies and structures that transform
the organization.
In order for knowledge workers to be
effective, leaders must engage in a new set
of beliefs about how to run organizations
based on the contributions of each worker.
At Yum! Brands, Novak has established a set
of ``how-we-work-together principles'' that
enables the rm to transfer knowledge across
750,000 employees worldwide at its Taco
Bell, KFC, Pizza Hut, Long John Silver, and
A&W fast food restaurants.
Every knowledge worker is valued in
learning organizations. The second belief is
closely tied to the first, that learning organi-
zations value every knowledge worker. This
belief in knowledge workers underlies the
egalitarian culture. L-forms start with hiring
good people, training employees to be
knowledge workers, and giving them the
tools they need to do their jobs.
Yum! Brands is known for its culture of
recognition. By recognizing winners, it can
leverage its culture to strengthen its values.
According to the CEO, winners create a
culture in which everyone is valued. Every-
one knows that he can make a difference.
Each person is trained to be a customer
maniac. Yum!'s goal is to train all 750,000
of its workers to have a customer mania
mindset.
In order to develop an egalitarian cul-
ture, leaders must view everyone as an equal,
including themselves. The traditional view of
the leader who, by virtue of his position,
commands the troops and makes all the
key decisions is deeply rooted in an indivi-
dualistic and non-systematic world. This
view is a myth.
McKinsey is based on a strong egalitarian
culture in which everyone is valued. McKin-
sey hires the best and the brightest. The mana-
ging director, Rajat Gupta, views himself as
a rst among equals. Considerable expense is
used to train these workers to enhance
their skills and McKinsey's value to its
clients. While employees work in teams, each
person's expertise is valued. This culture
53
empowers workers and increases the ow of
knowledge around the globe.
Everyone is a teacher and a learner. Leaders
design organizational processes, structures,
and systems that facilitate learning and
teaching at all levels. This upside-down
process starts with the leaders. They teach
others how to work effectively in a learning
organization, how to continuously improve
their jobs, and how to transfer knowledge to
other parts of the organization.
Two years before his retirement from
Ameritech, CEO Bill Weiss tore up his calen-
dar and changed his priorities. He spent 50
percent of his time coaching and teaching a
new lead team of four individuals who were
candidates for his job. He taught them what
he had learned about leadership, and they
taught him about the future of the business.
Weiss also modeled the personal transforma-
tion that he wanted from them. He modeled
everything he asked of them. This included
outdoor team-building activities, 360-degree
feedback, and teaching workshops. Even-
tually the lead team became head teachers
in the Breakthrough Leadership Program
that involved hundreds of leaders and task
forces.
As transformational leaders, L-form lea-
ders must design organizations that can
transform themselves. They develop learning
organizations into teaching organizations.
Everyone learns and everyone teaches. GE
went from being a command-and-control
organization to a learning and teaching
organization.
A belief in L-forms is that everyone
engages in constant learning, even leaders.
Leaders are engaged in learning from others.
Even Jack Welch viewed himself as both a
teacher and a learner. He recommended
that GE senior managers have a mentee just
as they were mentors. Mentees are often
young employees with new knowledge and
expertise.
Leaders also have to transform them-
selves, as Jack Welch did at GE, from leaders
who work autocratically and focus on trans-
actions to leaders who work democratically
54 ORGANIZATIONAL DYNAMICS
and focus on transformation. They must also
convince others to become teachers and lear-
ners. This fundamental change in thinking
creates an organization in which everyone is
both a leader and a teacher.
Balance
Balance reflects the tension that occurs
within a learning organization as it tries to
turn organizational learning into generative
and collective learning. It must balance learn-
ing within its units and among them.
Learning organizations balance exploitation
and exploration learning. Learning organi-
zations must balance organizational learning
between learning new knowledge and
improving existing capabilities. While some
organizational forms are more compatible
with either exploration of new knowledge
or exploitation of existing capabilities, learn-
ing organizations are effective at balancing
both types of learning.
In contrast with learning organizations,
M-forms are particularly effective at being
efcient; thus, they are more likely to be
effective at exploitation of existing capabil-
ities than exploration of new ones. Massive
improvements in productivity, manufactur-
ing efciency, and economies of scale are
largely attributable to the highly specialized
tasks and factory automation that thrives
within the divisional structure.
At the other end of the spectrum, knowl-
edge-creation rms focus on the exploration
of new capabilities. During the dot.com
craze, companies were exploring new cap-
abilities. The advent of new companies, such
as Priceline, Amazon, ETrade, and EBay are
examples of exploration learning. The differ-
ence between these successful rms and
those that failed is that the winners learned
to channel their new knowledge into exploi-
tation of existing capabilities as well.
L-forms lie in the middle, balancing both
exploration and exploitation learning. The
balancing act is complicated by the different
focuses of these two types of learning.
Exploration learning tends to require a
long-term focus while exploitation learning
requires a short-term focus.
When Nucor Steel adopted thin slab
casting, it was focusing on the long-term
opportunities in the high-end steel market.
If it could create a quality product that
undercut the cost of the integrated steel mills,
it would gain a distinct competitive advan-
tage. Over time, its successful foray into this
area had to be converted to other plants. The
successful operations in Berkeley, South Car-
olina and elsewhere attest to this company's
ability to balance exploration and exploita-
tion learning.
This balancing act creates a spiral of learn-
ing. Firms move from exploitation to explora-
tion and from exploration to exploitation. In
order to engage in this spiral, the rm must
develop its generative learning capacity.
Amazon.com had to determine how it
learned in order to expand its product offer-
ing from books to music to merchandise.
Yum! Brands learned a new model of coop-
eration after being under PepsiCo Inc.'s com-
petitive model. It then began to unite its
restaurants into a one rm model of shared
knowledge and then duplicate its success
around the globe as it exploited efciencies.
Learning organizations manage collective
learning across the organization. The
distinctiveness of a learning organization
goes beyond balancing exploration and ex-
ploitation learning and extends to managing
the collective learning across organizational
boundaries. This is done by maximizing core
competence, the collective learning across the
organization. Extending patents at Canon Inc.
from cameras into printers and copiers is an
example of collective learning.
Managing collective learning requires a
focus on how the parts connect to each other.
For example, connecting at team-based
structures to empowered knowledge work-
ers may improve collective decision-making.
Cross-functional teams may give way to self-
organizing teams, as issues arise and knowl-
edge workers feel empowered to make deci-
sions about team structure. Firms may begin
by sharing technological knowledge but then
extend this knowledge transfer to marketing
and customer service.
Collective learning can also occur in
entertainment and service rms. ESPN's abil-
ity to extend its core competence in sports
entertainment from cable TV, to magazines,
to ESPN zones, to merchandise, to games,
and to the Internet is an example of this type
of collective learning. At the heart if its core
competence is a group of knowledge workers
whom competitors try to siphon off. These
workers train and teach others. They share
knowledge across ESPN's many sporting
events. They include employees who obtain
the rights to the NBA, package the products,
protect the brand, and convey the ESPN
image on the air or behind the scenes.
Designing L-forms that manage collec-
tive learning as a core competence increases
the rms focus on knowledge transfer. Stra-
tegic thinking shifts towards leveraging core
competencies into new markets. For exam-
ple, Nike Goddess stores reect an extension
of Nike's competencies in marketing and
retail into the woman's athletic market.
Behavior
Behavior reflects the synergy created by the
interactions between the six elements of the
web, especially how knowledge workers
connect with strategies, structures, and inte-
grating mechanisms.
The behavior of leaders, managers, and
employees is different in learning organiza-
tions. In learning organizations, leadership is
more dispersed, managers facilitate learning,
and knowledge workers contribute to the
organization's continuous improvement
and capability enhancement. Behavior in
learning organizations, whether it is a leader,
manager, or knowledge worker, increases
exploration, exploitation, generative and col-
lective learning.
Employees are empowered to make decisions,
to experiment, and to continuously improve
the organization. Knowledge workers are
empowered employees who make decisions,
experiment, and continuously improve the
55
organization. They behave differently from
employees. They seek to be masters at their
jobs, to learn, and to teach others.
This change in behavior requires a dif-
ferent kind of employee, one who is willing
to see the big picture, make decisions, and
take appropriate action. Southwest Airlines
employees are empowered to make decisions
and focus on the big picture. Employees are
known for helping customers on the spot,
even if the problem is not directly related to
their area. Flight attendants may help bag-
gage handlers, and baggage handlers may
help maintenance. It is unusual to see airline
employees work across areas of specializa-
tion so that the turnaround time is reduced
and customer satisfaction is increased, but
this is the norm at Southwest. Thus, it has the
highest rates of productivity in the industry.
Its learning and adaptation skills have
helped the organization evolve from a small
niche player to a national airline.
Empowered knowledge workers become
leaders. According to Home Depot CEO
Arthur Blank, hourly associates are encour-
aged to lead the rm itself! They must make
the right decisions that improve stores and
build customer loyalty. Blank attributes this
to trust. If his people have the right value
system and knowledge to do their jobs, he
trusts them to make the right decision.
Learning organizations manage the con-
nections and not just the components of
the web. In L-forms, collective knowledge is
more important than component knowledge.
Collective knowledge reflects how
knowledge is transferred and interacts with
the L-form structure and systems. Learning
organizations are concerned with how the
learning organization web components
interact with each other and affect collec-
tive learning. While the dots reflect the
components of the web, the interactions are
the connections.
Learning organizations include interac-
tions at different levels. At the operating
level, teams interact with shared informa-
tion, participate in strategy formulation,
and share knowledge with others. It would
56 ORGANIZATIONAL DYNAMICS
be difcult to participate in strategy formula-
tion without adequate information.
At McKinsey, best practices are widely
shared and employees have access to experts,
enhancing both collective and generative
learning. Practice Olympics are held each
year to showcase knowledge from newer
employees. Directories of employees and
papers by experts are easily accessible by
any employee in the rm.
The web suggests that while compo-
nents are important, it is the interactions
that distinguish learning organizations
from other forms. Core competencies,
such as technical know-how or marketing
expertise, are enhanced when managers
design rms that focus on how the parts
interact. In conguration theory, these parts
must interact in compatible ways. Thus, a
non-egalitarian culture would not support
participative strategies. Centralized power
does not work effectively with horizontal
and at structures. The interaction of
the parts enhances collective learning, the
learning that occurs across organizational
boundaries.
Nucor was able to move thin slab casting
know-how from one plant to another by
establishing teams with shared information
and a strong egalitarian culture. It trans-
formed itself from a minimill that produced
rebar and structural joists to one that pro-
duced high grade at rolled steel for cars and
appliances.
Learning organizations outperform
their rivals by focusing on how the organiza-
tion's design affects collective learning and
transformation. By managing the interac-
tions of the web, an L-form leverages its
collective learning and transformational
capacity.
Leaders teach others how to make key
decisions so that power can be dispersed.
Leaders also disperse power by empowe-
ring employees to make decisions. The
dispersion of power facilitates decision-
making at lower levels of the organization.
Learning organizations engage everyone in
strategy formulation and decision-making.
L-form leaders build processes, which
encourage decision-making at all levels of
the organization.
The dispersion of power enables knowl-
edge workers to engage in strategy formula-
tion or resource allocation decisions. In
contrast to M-forms, in which strategy for-
mulation and resource allocation decisions
are centralized at the top, L-form's have
leaders who are stewards of resources and
engage in participatory strategy making.
Strategy is not just an annual process, but
it is an ongoing one. Strategies may emerge
from anywhere in the organization, at any
time, and in any place. The difference is that
the horizontal structure and systems link
these ideas to those who can implement
them.
Strategic planning in M-forms is concen-
trated at the top of the organization. Jack
Welch challenged and trampled this model.
He red 97 percent of the planning staff who
were sucking the creative life blood out of
GE. He then trained his people to make
strategic decisions. Welch felt that ``People
were strategy.''
In L-forms, clear values, training, and
knowledge allow higher level decision-mak-
ing, including strategy development at lower
levels. L-forms establish processes that
encourage people to be champions for new
processes, products, and services.
L-forms establish reward systems, such
as Yum! Brands' recognition systems that
encourage participation. They also design
implementation systems that allow for rapid
deployment of new ideas, such as McKin-
sey's knowledge directory and best practice
documents.
The spiral of knowledge is complete as
the exploration of new ideas becomes
exploited by the organization in its existing
routines. Thus, the creation of new knowl-
edge is translated into continuous improve-
ment and more efcient routines.
Boundarylessness
Boundarylessness reflects the learning orga-
nization's open connections within the firm
and to its external environment. Learning is
not just limited to managing the internal
connections of the web, but includes the links
among organizational units and connections
to suppliers, competitors, and customers.
Learning organizations work to minimize
boundaries within the organizations and
across customer and supplier lines.
Learning organizations minimize organiza-
tional boundaries. Within the organization,
boundaries are minimized through com-
ponents of the web, starting with strong
egalitarian cultures. This type of culture
allows decision-making and organizational
learning to cross organizational lines.
Wal-Mart founder Sam Walton used to
spend more time at the stores talking to his
employees than he did meeting with his
executive team. Today a team of Wal-Mart
executives visits every store and stays
in touch with over 1 million employees.
This has created a partnership between
Wal-Mart's associates and management. It
has minimized unionization and encouraged
associates to offer over tens of thousands of
suggestions to improve the company and
save millions of dollars every year. Each
weekend, senior managers meet to discuss
their associates' suggestions and transfer
this knowledge throughout the worldwide
organization.
The second element of the web that mini-
mizes inter-organizational boundaries and
improves collective learning is the relatively
at structure. Oftentimes, learning organiza-
tions will resemble a modied matrix with
teams of worldwide learners. With part of the
organization focused on traditional areas
such as function, product, or markets, and
the other part of the organization focused on
worldwide learning, collective learning and
knowledge transfer are enhanced.
Worldwide learning may be facilitated
through teams of experts that move around
the organization. At McKinsey, knowledge
workers and experts are loaned out to teams
that need a particular type of expertise.
Amgen Inc. has experienced hyper
growth as one of the world's leading bio-tech
57
rms. In the 90s, it was doubling in the
number of employees every six months. To
manage this explosive growth, it instituted a
team-based structure that included man-
agers of various product lines, drug discov-
eries, and research. Few organizational
layers were added. Instead, teams were mod-
ied as needed to move knowledge across
organizational boundaries.
Flattening the hierarchy only increases
rm performance if decision-making can be
improved. At GE, Jack Welch didn't just
atten the hierarchy from nine levels to four,
he trained thousands of managers to make
key decisions. He also used the atter hier-
archy to bring him closer to lower-level man-
agers and improved decision-making in the
company. Nucor Steel also uses a at hier-
archy to improve decision-making. With
only two levels between the CEO and the
plant manager, employees are encouraged to
make decisions and to call on others in the
company as needed, including the CEO.
Collective learning is also improved by
changing the conguration of the chain of
command. Flattening the hierarchy and
improving decision-making may not be
enough without a heterarchy or adhocracy
conguration. Learning organizations may
have divisions, but many more units will
report into the division head than in a tradi-
tional M-form, such as ABB's federation of
units. At Intel's Enterprise Platform Group,
the horizontal global matrix was transformed
into a heterarchy. It resembles a spider web-
like conguration that changes to accommo-
date the ow of new knowledge and improve
operating efciencies.
This conguration is supported by inte-
grating mechanisms that enhance collective
learning and knowledge transfer. Learning
organizations utilize integrative mechanisms
and systems that move knowledge and
knowledge workers across organizational
units. Learning organizations consistently
use integrating mechanisms to achieve col-
lective and generative learning. Integrating
mechanisms, such as shared information,
communication processes, and reward sys-
tems are dominant in learning organizations.
58 ORGANIZATIONAL DYNAMICS
From Yum! Brands recognition culture to
McKinsey's knowledge management sys-
tems, knowledge workers are encouraged
to learn and to teach others. These mechan-
isms enhance the transfer of knowledge and
the rm's ability to adapt and compete over
time.
Learning organizations minimize boundaries
between the external environment and the
rm. Integrating systems include outside
mechanisms that link customers and
suppliers to the firm. These mechanisms
transfer knowledge and learning from
outside the organization to inside the firm.
L-forms may learn from anyone, any where at
any time, but they particularly focus on
customers, suppliers, and competitors.
At Home Depot, the new CEO Bob
Nardelli focused on ``outside-in'' learning.
He wanted to get more of the perspective of
the customer and competitor into the deci-
sion-making process. He developed a pro-
cess called ``market back,'' in which
managers look at the needs of their custo-
mers, communities, and employees and ask
whether Home Depot is meeting their needs
now and into the future. The goal is to shape
the futurenot just let it shape Home
Depot.
Building connections with customers
may require changing the internal structure
of the company. IBM's new customer-
oriented approach requires greater integra-
tion among the different business units to
nd a customer-based solution. By focusing
on customer service, IBM is able to build
relationships with its clients that make its
organizational boundaries transparent.
While some customers run their data proces-
sing on IBM mainframes, others buy space
from IBM and connect to IBM's powerful
solutions business. IBM can anticipate cus-
tomer needs and provide them with a virtual
one-stop, integrated solution before signi-
cant problems occur.
Integrating mechanisms are extended to
communication systems with suppliers. Wal-
Mart linked its inventory systems with its
suppliers to build faster response time for
stocking its distribution centers before its
stores ran out of stock. Inventory systems
were linked to the cash registers at the check-
out counter via powerful computers and
satellite communication systems. Cash reg-
isters became centers of knowledge and con-
duits for knowledge transfer.
This DNA is the core of the learning
organization web. The 4 Bs framework of
beliefs, balance, behaviors, and boundaryless
forms the basis for how the web can generate
collective learning and transformational cap-
ability. L-form beliefs in strong leaders and
knowledge workers who are learners and
teachers, and in an egalitarian culture
develop organizations into ones that are truly
transformational. Balancing the spiral of
explorative and exploitation learning helps
to transfer knowledge and enhance collective
learning. Behavior is rooted in empowered
knowledge workers who participate in stra-
tegies, operate in at structures, and inte-
grate mechanisms that enhance generative
and collective learning. Boundarylessness
allows collective learning to move across
organizational units and links the organiza-
tion to its external environment. These 4 Bs
are the DNA that supports the web of inter-
action. The 4 Bs give life to the web and allow
the design to be truly transformational.
IMPLICATIONS FOR
MANAGERS
Managing learning organizations requires an
understanding of more than just the pro-
cesses of organizational learning. These pro-
cesses are largely adaptive in most
companies, but they flourish in a company
designed to increase collective and genera-
tive learning throughout the organization.
Collective and generative learning lead to
transformation in L-forms with egalitarian
cultures, transformational leaders, integrat-
ing mechanisms, horizontal structures,
empowered knowledge workers, and dis-
persed strategies.
This new form is based on the six ele-
ments in the learning organization web, but it
goes much further than that. At a fundamen-
tal level, managers can change the six ele-
ments of macro processes within learning
organization; however, these are not discrete
components that can be managed separately.
They are part of a cohesive web, linked by the
interconnections and a framework.
Leaders, who are the teachers of man-
agers and knowledge workers and the chief
architects of the rm, continue to push deci-
sion-making down in the organization by
rewarding and training others in strategic
decision-making. Middle managers, who
provide one of the key integrating mechan-
isms, are also responsible for maintaining
horizontal structures that improve the ow
of information to knowledge workers. Front-
line managers become the entrepreneurs
who transfer new knowledge from knowl-
edge workers to the rm and incorporate this
knowledge into routines. Knowledge work-
ers master their jobs, understand the com-
pany's vision, and transfer knowledge to
others in the rm.
As organizations cut back, it is difcult to
imagine how to preserve knowledge workers
or an egalitarian structure. Yet, learning
organizations such as Southwest and Nucor
are spreading the pain, without losing good
people or changing their corporate culture.
They do not change their beliefs that all
workers should be engaged in key deci-
sion-making, but involve workers in addres-
sing the problems of cost containment. This
approach has allowed learning organizations
to remain protable with productive
employees throughout difcult times.
In order for these components and inter-
connections to work, the organization must
change its basic assumptions and beliefs. In
the new economy, learning organizations
must become teaching organizations. Just
as teachers are concerned not only with what
students learn, but also with how they learn,
so too must learning organizations be con-
cerned not just with adaptive learning but
with generative learning. Adaptive learning
is based on what knowledge workers have
learned, but generative learning is concerned
with how they have learned it.
59
 More than allowing learning organiza-
tions to adapt, changing the processes,
design, and fundamental assumptions of
the organization also gives them their collec-
tive and generative learning capability. The
learning organization web and framework
enhance collective learning. It creates a spiral
of learning as the organization explores new
knowledge, absorbs it into existing routines,
develops new knowledge, and transfers it to
other parts of the rm.
Adaptive capability allows the organiza-
tion to make changes that are more incre-
mental in nature, but truly radical change
comes from its generative power. Adaptive
learning is single-loop learning based on
changing the way knowledge workers per-
form their jobs, but generative learning is
double-loop learning based on changing
how knowledge workers learn to do their
jobs. Generative capability allows rms to
recreate themselves. It is the level at which
managers can understand how the rm
learns and what changes are needed as envir-
onments shift. It is transformational.
Without understanding the fundamental
assumptions of belief, balance, boundary-
lessness and behavior, the design is largely
adaptive. These four elements allow it,
according to Senge, to ``expand its capacity
to create its future.'' This is the level at which
a type of managerial consciousness occurs. It
gives managers the basis for making change
in the underlying six elements.
 Beliefs unleash the power of the
leadership. Leaders disperse power and
decision-making to employees. This assump-
tion connects leadership and culture to the
other four web elements.
 Behavior unleashes the power of the
employees. Employees engage in strategy
making, transferring learning, and continu-
ous improvement. This assumption con-
nects knowledge workers to the other five
elements.
60 ORGANIZATIONAL DYNAMICS
 Balance unleashes the power of learn-
ing. It connects both efficiency and innova-
tion and builds a collective model of learning
throughout the firm. This assumption creates
an organization that is designed to increase
its capacity to transform its future.
 Boundarylessness unleashes the
power of learning across organizational
boundaries within the firm and among its
customers, suppliers, and even competitors
and the firm. It opens the door to learning
that expands the capacity of the firm to
learn. This assumption connects the six ele-
ments to the environment. It is most critical
because it determines the fit and feedback
between learning organizations and their
environment.
The nature of learning organizations
requires that congurations constantly
change. Just as webs constantly shift, so too
do learning organizations. These variations
may have broad characteristics, such as the
global matrix of ABB or the team-based struc-
tures of Amgen. Just as the M-form evolved
into geographic, customer and product-mar-
ket divisions, learning organizations may be
evolving with several variations of their basic
structure.
As learning organizations evolve, they
become teaching organizations. Everyone is
engaged in both learning and teaching. Lea-
ders train employees, and knowledge work-
ers become mentees to leaders. Learning and
teaching become a part of their DNA.
Finally, translating the basic DNA of
learning organizations into strategies can
create a powerful competitive advantage.
Once rms understand their basic DNA, they
can translate this into powerful metaphors or
stretch targets that inspire and transform the
rm.
 SELECTED BIBLIOGRAPHY
The criteria for organizational design are
derived from: H. Mintzberg, ``Organizational
Design: Fashion or Fit,'' Harvard Business
Review, JanuaryFebruary 1981, 116; H. Min-
tzberg, Mintzberg on Management: Inside Our
Strange World of Organizations (New York: The
Free Press, 1989); and the 5-star model from
J. R. Galbraith, Designing Organizations:
An Executive Guide to Strategy, Structure, and
Process (San Francisco: Jossey-Bass, 2002).
On process theories of learning organi-
zations: see D. A. Gavin, Learning in Action: A
Guide to Putting Learning Organizations to
Work (Boston: Harvard Business School
Press, 2000); P. M. Senge, The Fifth Discipline:
The Art and Practice of Learning Organizations
(New York: Doubleday, 1990); and P. M.
Senge, ``The Leader's New Work: Building
Learning Organizations,'' Sloan Management
Review, 1990, 32, 722.
For a structural view of learning organi-
zations and knowledge-creation rms, see R.
L. Daft and D. Marcic, Understanding Manage-
ment, 3rd Ed. (Fort Worth: Harcourt, 2000);
and G. Hedlund, ``A Model of Knowledge
Management and the N-form Corporation,''
Strategic Management Journal, 1994, 15, 7390.
Approaches to organizational learning, col-
lective learning, and knowledge-creation are
found in: J. G. March, ``Exploration and
Exploitation in Organizational Learning,''
Organization Science, 1991, 2, 71115; C. K.
Prahalad and G. Hamel, ``The Core Compe-
tence of the Corporation,'' Harvard Business
Review, MayJune 1990, 7991; and I. Nonaka
and H. Takeuchi, The Knowledge-Creating
Company: How Japanese Companies Create the
Dynamics of Innovation (New York: Oxford
University Press, 1995); and N. M. Tichy, The
Cycle of Leadership: How Great Leaders Teach
Their Companies to Win (New York: Harper
Business, 2002).
A description of M-forms is found in: A.
D. Chandler, Strategy and Structure: Chapters
in the History of the American Industrial Enter-
prise (Cambridge, MA: MIT Press, 1984); A.
D. Chandler, ``Organizational Capabilities
and the Economic History of the Industrial
Enterprise,'' Journal of Economic Perspectives,
1992, 6, 79100; and O. E. Williamson, The
Economic Institutions of Capitalism (New York:
The Free Press, 1985).
61