ABSTRACT
The evolving dynamic changes in the business environment have led to a focus on knowledge as a driver of superior performance in firms. As a result, some firms are adopting organizational learning to manage their knowledge assets for competitive advantage and increased performance. While past studies have demonstrated the importance of organizational learning to firms, few have empirically examined the effect of organizational learning on organizational performance. This study sought to examine the effect of organizational learning on performance of food manufacturing firms in Nairobi County. The objectives of the study were to determine the effect of knowledge acquisition, information distribution, information interpretation and organizational memory on firm performance. A correlational survey research design was adopted for the study. The target population comprised food manufacturing firms in Nairobi which are subdivided into 7 subsectors. A sample of 71 firms was used in the study. Disproportionate stratified random sampling method was used to ensure the sample is representative of the 7 sub-sectors of the food manufacturing industry. Primary data was collected using questionnaires which were administered to executive officers in the firms. To summarize the data, descriptive statistics such as mean and standard deviation were used. To examine the relationship between organizational learning and performance, Pearson’s correlation analysis was used. To examine the effect of organizational learning on organizational performance, multiple regression analysis was used. The results were presented using tables. The results revealed a significant positive relationship between organizational learning and organizational performance. The findings also revealed that among all organizational learning dimensions, information distribution had the strongest relationship with organizational performance. The results also showed that the joint effect of organizational learning components on organizational performance was significant. The study recommended that while information distribution needs to be the key vision of organizational learning goals in firms, all organizational learning dimensions should be combined for a greater increase in organizational performance. The researcher recommends replication of the study in different sectors and countries to enhance understanding of the relationship between organizational learning and organizational performance.
CHAPTER ONE
INTRODUCTION
Background of the Study
The business economy today faces increasing challenges posed by a competitive and dynamic business environment. Some of these challenges are globalization, innovation in technology and a growing dynamic consumer market. This has led to disruptive changes that have forced businesses to change their course in order to survive. To develop and sustain a superior competitive advantage, firms have resorted to managing their knowledge resources (Grant, 1996). Prahalad and Hamel (1990) believe that in order to improve performance, value must be created from knowledge assets as a firm merely possessing knowledge is not enough to impact performance. In addition, an organization’s capacity to learn, acquire, apply and spread new insights is considered a fundamental strategic capability (Fiol & Lyles, 1985).
Guided by the knowledge based theory, it was postulated in this study that organizational learning is a vital strategic asset that creates value from knowledge assets and it is anticipated that its application leads to increase in knowledge stocks that lead to efficiency and effectiveness that translates to increased firm performance. Therefore, it was expected that manufacturing firms practice organizational learning to enhance competitive advantage and performance.
Organizational Learning
The concept of organizational learning emerged in the 1980s, but its scientific background and principles goes back into many perspectives of management. Different scholars have given various definitions and perspectives of organizational learning. Huber (1991) gives a comprehensive framework for organizational learning to take place. This comprehensive framework is the process knowledge goes through to attain organizational learning. He conceptualizes organizational learning by assigning constructs and processes that will lead to other sub constructs and sub-processes that are contributing factors to organizational learning. These constructs are knowledge acquisition, information distribution, information interpretation and organizational memory. He posits that an entity learns if through its processing of information, there is a change in organizational knowledge, increase in the range of possible actions and the range of potential behaviors is changed.
Probst and Buchel (1997) view organizational learning in terms of the ability of the institution as a whole to discover errors and correct them and to change the organization’s knowledge base and values so as to generate new problem solving skills and new capacity for action. This enables the organization to attain a superior competition and adapt to the rapid changes in the environment. Smith (2001) compliments this view by defining organizational learning as a key characteristic that enables an organization to adapt to changes in its external and internal environment and remain competitive in times of uncertainty.
Direkes et al. (2001) suggest that organizational learning requires both the appropriate structural mechanisms and the cultural conditions that promote habits of inquiry, experimentation and reflection. In conclusion, these definitions ascertains that generally, organization learning entails acquiring new knowledge, modifying the existing knowledge, sharing and interpreting this knowledge to suit the needs of the organization in relation to the requirements of the business environment. That it further demands changing or modifying behaviors, skills, values or preferences to align with the mission and vision for the organization in creating a learning environment.
Organizational Performance
Organizational performance is a multidimensional concept that is considered one of the most important constructs in management research. A wide variety of definitions of organizational performance have been proposed in literature with frequent reference to how efficiently and effectively a firm utilizes its resource in generating economic outcomes (Barney, 2007). Organizational efficiency refers to the amount of resources used to achieve an organizational goal while organizational effectiveness is the degree to which an organization achieves a stated objective (Daft, 2013).
Performance can be determined in two ways; one is based on factors that exist in the firm’s external environment and the other is based on internal organizational factors. Most literature highlights that firms would benefit more if they can use knowledge acquired from the external environment to strengthen their internal environment as the external environment is beyond the firms’ control while internal environment can be controlled. It is important for managers to know which factors influence organization performance in order to take appropriate steps to improve performance. Organizational performance is therefore the dependent variable of the study. Performance indicators most commonly used are financial performance and market performance which were used in study.
Food Manufacturing Industry in Kenya
Today, the manufacturing sector in Kenya is the third leading sector contributing to the Gross Domestic Product in Kenya by a little over 10 percent thus has a direct impact on economic growth. There are over 700 established enterprises in the manufacturing sector in Kenya, most of which are privately or family owned. According to the Kenya Association of Manufacturers Directory (2014), Food and Beverages is the largest sector comprising of 181 members, which constitutes 24 per cent of the total Kenya Association of Manufacturers membership. However, manufacturing has been on the decline for a considerable period of time and its contribution to the country’s GDP has remained stagnant at about 10 percent since Independence. Furthermore, according to the Kenya Economic Survey (2013), the Manufacturing sector decelerated from an expansion of 3.4 percent in 2011 to a growth rate of 3.1 percent in 2012.
The manufacturing sector in Kenya has faced increased competition from both domestic and international countries. The integration of traditional manufacturing, increase in innovation technologies, use of information and knowledge to improved supply chain management and growth of national markets has transformed manufacturing in Kenya from a domestic focus to an international scope. Furthermore, the establishment of free trade zone in Mombasa and EPZs has contributed $543m to the Kenyan economy in 2013 by reducing tax and regulatory hurdles to enable the sector to focus primarily on industry activities (Kenya Economic Survey 2013). In order to channel the manufacturing sector into economic growth, the Kenyan government has created objectives to expand the manufacturing sector as it is a major part of the government’s Vision 2030 economic development plan to transform Kenya into a middle income country. The government’s goal is for manufacturing to account for 20% of the GDP by 2030, nearly twice today’s level at 10.6%, manufacturing represents 11% of GDP (Kenya Economic Survey 2013).
Given the fact that manufacturing firms in Kenya are operating in a competitive environment, it would be important for firms to adapt organizational learning strategies to enhance competitive advantage and improve performance. Studies examining institutionalization of KM in manufacturing enterprises in Kenya (Cheruiyot et al., 2012) found that the firms were sourcing and using knowledge as a basis of improving effectiveness and efficiency, and hence competitiveness. However, previous studies have not been done in food manufacturing firms to investigate the relationship between organizational learning and organization performance in large food manufacturing firms in Nairobi County. It is anticipated that the application of organization learning leads to increase in knowledge stocks that lead to efficiency, effectiveness that translates to increased firm performance.
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Item Type: Kenyan Topic | Size: 65 pages | Chapters: 1-5
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