Organizational Learning & Competitive Advantage

I believe that the only sustainable source of competitive advantage is the ability to out learn current and prospective competitors; and this applies equally to public sector, not-for-profit and business organizations.

Before I get to organizational learning (OL), let me first say a word about sustainability. What are the characteristics or elements that might generate a sustainable advantage for organizations? There are four; VRIO: (Note: VRIO comes from the work of Jay Barney.)

Value. Organizations are essentially social mechanisms to generate value. They generate valuable goods and services by taking inputs and using their resources (people, plant, know-how, etc.) to convert them to value added outputs (products, services). The resources to do the conversion, must add value to that conversion process, i.e., resources must be valuable.

Rarity. At least some of those valuable resources used in the conversion processes should be relatively rare in the organization’s industry/market. If none are rare then there can be no competitive advantage. Firms must have something different from others in their competitive space. For example, a firm could have a better location, a defendable patent, highly innovative and skilled R&D team, or a valuable brand, etc.

Inimitability. Can competitors copy, imitate or obtain (at the same price as you paid) the same valuable, rare resources? If so, the firm will have no sustainable advantage. Can competitors substitute other resources and get the same result, e.g., can they engineer around a patent? Can they develop their own innovative, skilled R&D team? Inimitability is usually the stumbling block for most organizations.

Organization. Finally, is the company sufficiently well organized to leverage those valuable, rare, inimitable resources in the cause of fulfilling the organization’s value proposition?

Why is this important? Why bother looking for resources that satisfy these four criteria? Because, if firms have value and rare resources but they are not inimitable, competitors will imitate those resources and the firm will only generate normal levels of performance (at best). If, however, an organization can satisfy all four criteria with some of their resources, then they have the potential to generate above normal performance (whether measured in profit, growth, or patient outcomes depending upon the industry).

Let’s now look at organizational learning (OL) and see if it has the potential to satisfy these four criteria for sustainability, because remember, I suggested that OL might be the only long term source of sustainable advantage.

Organizational learning is the adaptive capability of an organization to create, capture, transfer, and use knowledge. I am hard pressed to think of any process or element of an organization and what it does that is not a function of learning. Firms have to learn how to market to their customers, learn how to buy inputs at the right quality and price, learn how to make better products and services. They have to learn how to attract and retain talent and buyers, and how to adapt to an ever changing external business environment. These activities are fundamental to business. A business, indeed any organization, cannot exist without learning. Learning (let’s assume for now it is the “right” learning) is fundamentally valuable. If a firm can learn better than its competitors, then the learning capability is also rare. Learning is socially complex and path dependent so it may be difficult for one firm to learn how another company learns. Finally, if learning is core to the organizational culture, if it is a valued part of what managers and employees do, then OL can be valuable, rare, inimitable and organized into the firm.

Organizational Learning has the potential, therefore, to help an organization generate sustainable advantages which has the potential to generate superior performance.