The LearningO~a~ation

To survive in today’s turbulent business climate, chips to potato chips are being compressed, control over
organizations must transform themselves into intellectual resources is becoming more important than
‘learning organizations’. Daniel Quinn hlills and control over ra\v materials, and the nurturing of kno\v-
Bruce Friesen explain several characteristics of a ledge-intensive industrv is an acknwvledged basis of
successful learning organization. First, it should industrial strategy. In this setting, organizations unable
possess mechanisms which transfer learning from to sustain innovation - not able to ‘learn’ - are in great
an individual to the group. Second, it must make a danger of failure. As Ray Stata, Chairman of Analog
commitment to knowledge. Third, it must have a Dev,ices inc. has observed, ‘. . 1 b\,ould argue that the
mechanism for renewal within itself. Fourth, it rate at kvhich individuals and organizations learn may
should possess an openness to the outside world. become the only sustainable competitive advantage,
especially in knowledge-intetlsiv~ industries ‘.’
With reference to the specific case of the British
Petroleum Company, the authors propose a network Transforming organizations in wavs that favor learning,
or ‘cluster’ organization. They then cover the responsiveness and innovation is becoming a major
important area of teaching the organization to learn aspect of corporate purpose all around the globe. Firms
via personnel-based systems. are adopting features that favor learning out of econo-
mic necessit!,, as a by-product of installing information
technology, or in response to demands from restive
Why Development of a Learning employees for challenge in their work. Often, these
firms do not connect the surge in performance they
Organization is Important experience with the features they have introduced. This
Allorganizations learn, but some don’t learn fast is unfortunate, because JS firms comciously adopt such
enough to survive. In today’s world in which know- features, in a planned fashion, the full benefits of the
ledge workers and managers are becoming a key learning organization can be captured.
ingredient of success for firms, the ability of a firm to
keep up to date by learning is more important than ever. We conceive of a learning organization as one able to
Rapid change affects more and more aspects of business: sustain consistent internal innovation or ‘learning’, with
development cycles in products ranging from computer the immediate goals of improving quality, enhancing

146 EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992

 THE LEARNING ORGANIZATION

customer or supplier relationships, or more effectiveI> puter what he had learned that day. The summaries
executing business strategy, and the ultimate objective served tlvo purposes.
,I? sustaining profitability.
‘I know from my experience,’ the executive explained,
IJst as firms were required to create a particular business ‘that unless I do something to fix the lessons in mq
model (a combination of organization structure, manage- mind, that six months after a program I’ll remember
ment practices and internal support systems) to utilize only a few things and that a year later all I’ll have left
mass production techniques, so will they need to build is a ltrarrn remembrance of the program.’ \Vherever he
a business model to effectively encourage learning and could, the manager also put into his summaries ideas
utilize the outputs of innovation in their operations. for application of the learning to his olvn company.
Some of the key building blocks of such a business
model are described below. Back at the company, the student’s boss found his
summaries very interesting. He began distributing them
each morning to his executive committee who soon
How an Organization Learns looked forw,ard to the daily missive from Harvard.
Through his active involvement, the student had found
An organization learns in several ways. First, it learns
a way to turn his own learning into a form of organiza-
through the individuals who are part of it. People may
tional learning - and to create a big bonus for his
be hired because of specific competence or knowledge;
corporation.
they may gain it on the job or receive it in formal train-
ing. In fact, we generally think of education as a device
r\-hich raises the capability of individuals and we see the Three Key Characteristics of a
organization benefitting through the activities of these Learning Organization
n,.)~v more learned individuals. In this view, learning is
What are the characteristics of an organization which
an individual phenomenon which benefits the organiza-
equip it for learning? There are three.
tion entirely through the individual. Thought of this
way, learning for an organization is a remarkably hap-
First it must make a cortrrrritnlazt to knowledge. A very
h,jzard thing. Often, it simply doesn’t work. Individuals
important aspect of this commitment involves the selec-
learn, but the organization does not. Each individual
tion of people. Too often firms hire people expecting
who leaves takes his or her learning away.’
to train them in all they’ll need to know. The firm
acquires no learning at all in this transaction. It also
Organizations learn in two additional ways. One
suggests to people hired in this way that nothing worth
involves systematization of knowledge into practices,
knowing exists outside the firm. This is the antithesis
processes and procedures. It is the routinization of
of the learning organisation; it teaches, it does not learn.
knowledge. There are those who believe that this is the
only true learning of which an organization is capable;
Another aspect of commitment to learning involves the
individual learning is that and that only, individual. If
development of learning internally through a variety of
the individual doesn’t use it or leaves the firm, the
means. Research is one such mechanism; others include
organization has nothing left - the organization, that
discussions or seminars intended to discover what
is, has learned nothing.
individuals have learned and to record it for use by
others. A firm committed to learning will systematize
Organizations also learn by absorbing other organiza-
what it has learned by codifying it and making it
tions, rather like hiring individuals with desired
accessible to others, by embodying it in practices and
knowledge. When a firm acquires another or merges
procedures, and by publishing much so that others
with it, then it absorbs into its own practices and
outside the firm can critique its accuracy and value.
procedures, or adds to its staff, the knowledge embodied
in the other firms’ processes and personnel.
Second, a learning organization must have a n~echanisr~z
/,I, rcwcml within itself. Departments and other units
How to Turn Individual into Group of firms continually fall into bureaucratic rigidity. They
cease to adapt; to learn. They become impediments to
Learning the success of the firm. It is not just a matter of leader-
Learning organizations benefit greatly from mechanisms ship or even of a few individuals within them, it is the
which transfer learning from an individual to the group. whole organization that is at fault. In many instances,
A dramatic example of such a mechanism made possible the individuals continue to have great potential - it is
by modern technology involves a manager from a large the system in which they are imbedded which is at fault.
:ompany who attended a three-month long executive In looking at organizations like this, I’ve sometimes been
rducation program at Harvard Business School. The driven to wonder, ‘How can the whole be so much less
executive was intent on getting as much as he could than the sum of the parts?’ A learning organization must
from the program. He also wanted to find some way be able to intervene in such situations to renew and
to share his learning with his boss at the company, a revitalize them.
thousand miles away. He hit upon this solution - he
would summarize each evening on his personal com- Such a mechanism includes the power to abolish or

EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992 147

 THE LEARNING ORGANIZATION

transform (which ordinarily exists - at least formally tion of the center. At the lower center of the chart are
- in a business organization), a systematic method of seen sixteen boxes which close inspection will reveal to
identifying when the need exists (which often does not have no direct line connection to any other part of the
exist in a firm), and an established procedure for taking organization. These are semi-autonomous business
large-scale action (for example, adding many new people units, each of which is in direct contact with its
at once to the department so that a new critical mass customers and is supported by the managerial structure
is created). which appears as a traditional hierarchy on the chart.

Third, a learning organization possesses an openness to Figure 3 is a redrawing of Figure 2 which attempts a
the outside world so that it may be responsive to what clarification. The business units now are shown at the
is occurring there. This may be accomplished in various center of the diagram which acknowledges their impor-
ways because there are many different kinds of things tance to the center as the means by which its services
a firm must learn. For scientists and engineers, access are supplied to customers. The managerial units are
to new developments in the field are crucial. Managers shown in supporting positions. All elements of the
require knowledge of how the business environment is center report, in some form, to its managing director
changing from periodicals, briefings and periods of who is shown at the top of the diagram.
formal education; the rank and file needs training in
new technology and processes. For the firm’s staff as a Figure 4 represents the most recent step in the evolution
whole, an openness to the changing needs of customers of British Petroleum Engineering (BPE) since it aban-
and suppliers is required. doned the traditional functional structure two years ago.
The large business units have been broken into smaller
The Evolving Structure of a Learning ones which are functionally specialized. Even the mana-
gerial units are now represented as non-hierarchical
Organization teams. No direct lines of reporting appear on the
The need for openness to outside ideas has a great diagram, but close communication between the teams
impact on how the firm is structured. In attempting to is suggested by listing each team’s contact person on
be more responsive to customers, firms must discover the organization chart.
how the customer’s desires are changing. To accomplish
this, some firms have been reorganizing themselves This is a diagrammatic representation of the network
internally to put employees in direct contact with or cluster3 organization which is now evolving. It is a
customers or clients; through direct contact the rank and learning organization, designed for close interchange
: Ifile can learn what customers need. with customers and for intimate communication intern-
I
ally. The business services section facilitates the inter-
Figures l-4 show the changing organization charts of action of clusters or teams with customers and thereby
the engineering center of the British Petroleum Com- assists the organization in learning. The technology
pany. The center employs some 1400 engineers and development section collects, codifies and makes
support personnel. The first chart depicts the center as available within BPE the know-how generated by its
it was prior to 1988 - a typical functionally structured operating units. The engineering resources section,
hierarchy. through hiring, training and education, makes certain
that BPE has engineers with the information and skills
,
/ IFigure 2 represents the first step in a radical transforma- necessary for its success.

Chief Executive
Group Engineering and Technical Center

Personnel Manager
1
Management Services Diwsion
Manager’
I
L I I I
Information Financial Work Planning
Systems Control Branch Control Branch and Control

I I I ~ 1
Business Technical Support Central Engineering Projects Materials and Contracts
General Manager General Manager General Manager General Manager

‘Also ETC Controller

Ygure 1 Group Engineering and Technical Center, BP (Pre-1988)

EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992

 THE LEARNING ORGANIZATION

Ck.mory d E rrmnlbe
‘._.._...,.._...._...__...............__...........
-- l
Figure 2 Group Engineering and Technical Center, BP (First Transformational Step)

The new organization is designed to operate with a expertise. In their very broadness of operation, they may
relatively small number of managers, which limits its make individuals into managers and cause people to
overhead costs relative to more traditional matrices or ignore the dirty technical side of operations. (This is the
hierLlrchies. Many middle management functions are flip-side of the hierarchy’s use of economic efficiency.)
explicitly given to organization members to execute as Second, they are dependent on non-traditional manage-
part of their duties. Others are assigned to modern ment systems to maintain their coherence of operation.
computer expert systems and senior managers who Relying on strong senior central leaders and vision as
have access to computers and analytic software to grind less formal control systems may strike some as difficult.
numbers for them. In the process of delayering and
delegating, the new form encourages entrepreneurial A traditionally structured organization can also be a
beh,rvior, flexibility and adaptability among employees learning organization. Unfortunately, however, steep
by specifically allowing them great latitude to perform hierarchies tend to preserve the knowfedge of a forma-
thei- jobs. Clusters typicalfy run without formal desig- tive period in the firm’s life when it was successful. Over
nation of job designs or career ladders. This allows time they tend to rigidify and find it more and more
coll;iboration and communication to occur as is needed difficult to learn new things. In contrast, the flatter, less
to gc?t duties done. hierarchical structures being pioneered today generate
new knowledge continually and have much less diffi-
The weaknesses of the new form are also twofofd. First, culty digesting it. Hence, the new structures make it
they tend to cost the firm formal specialization and much easier for an organization to learn effectively.

EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992 149

THE LEARNING ORGANIZATION

c-7
Markaging
Director

Figure 3 Group Engineering and Technical Center, BP (First Transformational Step Clarified)

The Human Side of a Learning decisions within corporate guidelines. The cluster form
operates on a different base. Its internal logic is driven
Organization by the objective to be accomplished, not the functions
As a firm adopts the flatter structure, significant changes to be performed. Clusters are mission-centered and
in the roles and expectations of workers, executives employees take greater responsibility for work and its
and middIe managers must occur. Empowerment of quality - they are neither ‘controlled’, ‘supervised’ or
employees will provide the autonomy that permits ‘managed’ in the traditional sense. In such organiza-
innovation to emerge. Executives must resist the tempta- tions, middle managers don‘t supervise, they find the
tion to utilize new communication technology to impose right person to fit the culture and task, then step back.”
tighter controls over workers and make more rather than They rely on reporting systems to provide data to senior
fewer decisions. Finally, those in the middle must switch executives instead of analysing it. The full nature of this
from supervision to facilitation, if innovation is truly to reversal of roles is shown in Table 1.
take hold.

Empowerment at the ‘Bottom’

Learning a New Role in Middle
Monica lames had heard about a grozoing firm which zoas
Management lookirrg for more people. She already had a sales position in
In the past, middle managers reported events to the top, anotlzer firm bzlt zuas bored, so she decided to investigate. A
directed employees in performing required tasks, meeting zoith a Truman resource o~cer~o~~~ued, then a meeting
analyzed problems and opportunities, and made Iocal with ttze firm’s presidenf, and a job ofier. On her first day

150 EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992

Figure 4 Englnaaring Center Organizational Chart, BP (Most Recent Transformation)

I-
THE LEARNISG ORGAXIZATIOX

Table 1 Middle management fUnCtiOnS work out zl-here you ‘II fit in. I’m sure ym ‘!I do a great job
for us. l’m i1ei-y pleased. ’
Hierarchy Cluster

Overall orientation ‘control’ ‘support’ Monica il’as also zvm pleased. She had an assignment that
interested her, ami the opportunity to learn amf yrom. In
Most significant tasks Supervise Facilitate atfdifior1, because the company pain attention to her lfesires
Monitor Communicate in making assi~rmzet~fs, she harf the promise offurther interest-
Organize Coordinate
ing projects. All in all, Monica thouyht, this company seenled
better able than others to draw on all the ability she coulrf bring
nt zvork, Monica was asked to meet a secor~d time u,ith the to work.
compauy’s president. ‘We hired you, ’ he toId her, ‘because
zcleare impressed with 1/011
r experience and ~/our abilities. NOZO, The firm which had Monica had the capability to learn.
zohat zvo1rld you like to do here?’ It did not try to fit her unique talents and experience
into a preconceived structure of jobs. Instead, it was able
The question crystallized in an instat1t several concerns Monica to give her considerable leeway in creating her own
had Ilad about the interviewing process she had beers through. most-productive niche in the organization.
While there had been many questions about her background,
skills aruf irrterests, she had neuer been told zvhat she was being Contionted with the firm’s flexibility and the opportunity
hired to do. Apparerrtly this zvas because the company didn’t it created for her, Monica showed her mettle by demon-
have a specific spot for her. ‘1 don’t kuozv, ’ she answered. strating the attributes of an ‘empowered’ employee. It
‘Dou’t you know what job I’m supposed to haoe? was expected she would show considerable initiative in
deciding what to do and where to do it, since there were
The presideut smiled. ‘Not yet, ’ he answereri. ‘Why don’t you not many managers around to provide guidance. She
haus around the company for a few weeks. Find out what’s was expected to be able to work with others in a team,
yoirrs ou. Decide zvhere you can n1akc a contribution; then and to demonstrate her ability to do so, so that they
come back. Meanwhile, I’d like ~011 to meet a person zvho is would want to work with her. She needed to show
on our staff who zvill be your sponsor. He’II help you meet personal energy and ambition to be successful and she
people and zvill sho7v yoti the ropes. /list call him whenever did. Her role was to contribute to the overall effort of
you zmnt to knozv sornethiny or to get an introduction. ’ the team she joined; not concentrating on a narrowly-
defined task. Finally, she was asked to have a broad
‘He’s my boss?’ Mor1ica asked. ‘No, ’ the yresiderlt replied. view of the firm and its objectives so she could find
‘You don’t have a boss. But there are many people you can where she best fit in.
so to if you need assistance. You can start zvith your sponsor,
or come to me, or to other people you ‘11soon meet. Lzter, zvhen Teaching the Organization via
you decide zvhat you zvant to do, you’ll probably be attached
to a group of people, and they may have a manager for you
Personnel-based Systems
to work with. ’ A firm which aspires to be a learning organization must
teach its employees how to learn, and it must reward
In herfirst fezv days at the company, Monica zvas zlery uneasy. them for success in learning. There are a number of
She felt insecure zvithout a specific job. Buf soon she began levers which a firm has in its human resources policies
to enjoy the opportunity to look irrto whatever aspects of the and practices to do this. Several of the most important
firm’s operations interested her. To feel useful she carried some are described below.
messages, did some data entry and some typing. No one asked
her to do these things, but the people zvhon1 she assisted zvere
gratefill, and she felt better for making some small contribution. Hiring
lu her second week, she discovered that the company zuas The first and most important personnel mechanism is
expanding its operations and was contemplating opening a nezu the hiring process - recruiting, selecting and orienting
facility on the zvest coast. That zvas the opening for zvhich she new employees. People who zvant the job right often do
had been zvaiting. She concentrated her next several days’ not need expensive supervision. In traditional hier-
efforts on the gro1ip planning the nezv facilities. At the end archies, recruiting, selecting and orientation are carried
of the third zueek, she zvas ready to see the president. She out by a supervisor, a personnel officer or both, with
explained to him zvhat she had learned about the expansion limited involvement from the work group. This may
effort. lead to mismatches between work group environment
and individual personality. What pleases a supervisor
‘I’ve had some experience opening rrezv offices, ‘she told him, may not please the group or vice versa.
‘thou@ 1 hazle to admit it isn’t much. Bllt I’ve alzvays enjoyed
it. 1 think 1 can be very good at it, but I’ve never had a chance Cluster organizations move a step beyond assessment
to tnj it really on my own. That’s zvhat I’d like to do here centers and realistic job previewing5 by delegating
for starters, if you think it’s okay. ’ The president zvas very some or most of the selection process to a cluster itself.
pleased. ‘That’s an important initiative for KS, ’ he told her, Managers retain influence through the personnel depart-
‘and I’m delighted that you wanrzt to be a part of it. Sam ment, which continues to develop recruiting programs
(ohrzsorr is rrlnnirrg the effort at this time. Go see him and and test candidates for technical skills, but once

152 EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992

 THE LEARNING ORGANIZATION

candidates arrive for interviews, the cluster members forms to complete, managers were drawn into seminars
take over. This direct involvement allows individuals about the changed environment and what it required
trl be tested on the basis of their ability to ‘fit’ into the of them and their staffs. They were given the oppor-
group and perform in that environment immediately. tunity to learn and to discuss how to act in the new
However, there are issues to be dealt with when using setting; learning, not bureaucratic controls, was the
this approach. approach.

Frst, there is the issue of cost. When teams hire, many Honda - the car manufacturer - deliberately set out
people must interview a candidate then meet to discuss to educate its employees about spirit as part of its
Mhat they have seen. This takes time, and time is money culture, by entering Formula One motor racing six years
- particularly when production schedules must be met. ago. By rotating its young engineers through its Formula
The benefit of reducing turnover, or improving produc- One team, Honda teaches them how it beats the com-
tivity through work group harmony, must outweigh the petition with the racing spirit - which means thinking
cost for it to be effective - and, generally speaking, about minutes not hours when making decisions. The
companies do not spend enough on selection.6 hope is that they will take this back to the factory with
them. As a Honda managing director pointed out,
Second, there is a more subtle issue of what is being ‘When a problem arises, you have to find the solution
assessed. The work group will naturally assess social now. And if it is a problem you have never seen before,
skills and interaction ability. It may not assess technical you have to have the flexibility to create a new solution
work skills and learning ability. This can be done on the spot’.’
through more objective testing in the case of knowledge-
b‘rsed skills and demonstration in the case of physical Incentives to Learn
skills. With several observers on hand, the chances of Compensation is an important influence on people and
an individual getting through to a group-based inter- has more elements than just money. Among the non-
view without having the technical qualifications to do monetary ones are opportunity, growth and personal
the work are slight. involvement. The cluster itself is a form of compensa-
tion. To be able to work in this form of organization is
a benefit to many people and one that they ardently
Education and Dialogue desire. It is work without the hassle of a boss and a
It is not common to think of education and dialogue as bureaucracy. For a cluster organization, the company’s
alternative control systems, but they are. Competence culture helps to attract and retain people. But culture
and professionalism at all levels of an organization is not a substitute for money and financial compensation
constitute an assurance to top management that activi- must be dealt with in a careful and imaginative way.
titas are being conducted properly. This is, after all, the
purposeof reporting relationships and tight supervision. In most hierarchies, compensation is fixed by rank and
determined largely by length of service (often equated
Traditional organizations rely upon the willingness of to experience). Pay grades are set based on analysis
people to carry out directives as the basis for confidence among carefully defined ‘comparison’ jobs inside and
in performance. Clusters rely upon the knowledge and outside the firm. In theory, this system should work
professionalism of people as their basis for confidence well but, in practice, people who have been around
in the performance of the firm. It is thus possible to use tend to be promoted as their service mounts, and thus
the corporate culture as a means of communicating and they build up compensation based on tenure, not
inrluencing behavior standards of employees in a cluster performance.
setting.7
The effects of economic plenty have lessened the incen-
The actions of some chemical firms after the Bhopal tive effect of a regular pay check. Employees increas-
disaster provide an instructive example. To minimize ingly view base compensation as a form of entitlement
the possibility of plant leaks, one firm sent out streams and more is necessary to bring forth extraordinary effort.
of directives to its staff. This was to be checked; that In some instances, the ‘more’ may be incentive pay; in
was to be done; this form was to be filed. others, it may be individual recognition. Pay beyond
what is simply ‘owed’, and personal attention (‘caring’),
Managers began to complain about paperwork and to are necessary to generate real commitment in today’s
ask for staff to cope with it. It then occurred to top workforce. Variable bonus schemes designed to augment
management that supervisory directives might not be salary based on performance implicitly recognise this.
the way to go. After all, an accident might have any of They typically come in three types: the standard lump
a thousand causes, some of which they could not foresee sum bonus, profit-sharing and gain-sharing, and many
and warn plants about. Yet the last thing executives firms invest heavily in them. It is thus unfortunate that
wanted was for an accident to occur with plant manage- their motivational effect has largely been lost as well.
ment defending themselves on the grounds that they A survey by the Public Agenda Foundation of 84.5 blue-
had complied with all directives. An alternative was and white-collar workers in America showed that 45%
available which lacked the disadvantages of the bureau- believe there is no link between pay and performance.’
cratic approach. Instead of receiving directives and Why should this be so?

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THE LEARNISC ORGANIZATION

The new organization forms allow executives to re- their nature tend to initially boost labor costs,
establish the link between pay and performance that is although these costs are often made up by low
often lost in a bureaucracy. In a cluster, people cannot turnover in the longer term.
argue ‘I’ve been here 15 years, I’m a manager, so I 3. There is the problem of what is being rewarded,
deserve X amount of base and merit pay’. There is no If the behavior of learning is being rervarded, ther
hierarchy of jobs, no defined comparison standard and, that is what employees do - they may not
above all, limited supervision of individuals by others. practice their new skills. To deal with this situa.
Rewards can be given on the basis of knowledge, tion, firms install a ‘pay-back period’ where
performance, quality, teamwork or productivity.” employees must use the new skill they have
learned before they o on to the next one, or lose
the pay increment. 15
Flexible manufacturing requires
flexible compensation Northern Telecom adopted ‘pay-for-knowledge’ at its
switch plant in Santa Clara, California. In 1987, half the
An important alternative for compensation in clusters plant was upgraded from assembly, where workers
involves the concept of ‘pay-for-knowledge’. Several repeated the same step, to a team-based system, where
firms going to the cluster form have chosen not to workers are expected to understand the manufacturing
reward on output; but on the potential output implicit process, and are relvarded with rises only after they
in demonstrating new work skills. The idea is that more demonstrate new skills. Dick Dauphinais, compensation
skills improve employee usefulness in a team environ- director at NT, said ‘To have flexible manufacturing, you
ment where job descriptions are vague and task rotation must have flexible compensation’.‘3
is a key motivator. Pay-for-knowledge has a number of
benefits. ”
Career Management
First, pay-for-knowledge allows staff to demonstrate to Since cluster organizations are flat, they offer less likeli-
themselves and others why they received rises. When hood of advancement in rank than do traditional hier-
an individual steps up to a new machine and does the archies. To ambitious people this may seem a serious
work, he or she shows all observing that they in fact limitation; but it does not mean that opportunities are
earned their promotion. This eliminates the subjectivity completely missing. As has been mentioned earlier,
around pay rises inherent in many work settings. there is a residual hierarchy in a cluster organization
Second, pay-for-knowledge makes horizontal as well as (though not in an individual cluster) up which some can
vertical career moves both legitimate and possible. By work their way. Also, in cluster units which exist in a
building skills, it is possible to cover a broader and larger organization there may be opportunities for
broader job. This is a key point for organizations trying advancement by leaving the unit.
to reduce vertical hierarchy or reward many employees
without having open slots higher up in the job ladder. Nor should we accept without critical examination the
Third, since new techniques and processes are constantly assertion that there are substantial opportunities for
appearing in the workplace, a ‘pay-for-knowledge’ promotion in traditional hierarchies. Many have been
system is self-renewing. As old skills become obsolete down-sized and delayered with consequent reductions
they can be replaced with new ones. Where knowledge in promotion opportunities. And as the average length
is the key to running sophisticated machinery or dealing of service increases in our firms, and the ‘baby boom’
with complex processes, it makes sense to reward its generation plugs up the hierarchy, more people are
acquisition. coming to recognize that they are effectively plateaued.
In fact, the vaunted promotion opportunities of tradi-
These systems are not without problems. They include tional hierarchies are, in today’s world, much less
:he issues of who does the measuring, what happens significant than is claimed. Hence, the disadvantage of
when all available skills are learned, and what behavior cluster organizations in practice is far less than might
s actually being rewarded. be imagined.

There is the issue of evaluating skill proficiency. Without promotions as a major incentive for people,
Some firms rely on the work group itself to cluster organizations have developed other rewards.
measure proficiency - if defect rates rise, produc- Among these are the broadened scope of work itself,
tivity will fall and all members will be affected, so the greater opportunity for diversion and challenge, and
cheating is minimized. Others use the cluster the wider range of people with whom a person interacts.
leader or even an outside supervisor. Each constitutes a significant reward in a cluster
There is the issue of ‘topping out’ - having organization. As one engineer in a high-tech company
employees reach the peak of the pay system by put it, ‘It’s the pin-ball theory of rewards: the reward
learning all available skills. This can be addressed for winning one game is that you get to play another.’
in part by adding new skills or moving people into Seen in this way, a career is a succession of interesting
available management slots, but is not solved projects, rather than a lengthy, difficult, unpleasant
completely by this method. Also, with ‘topping climb to the top. The reward is in the doing, rather than
out’ comes the issue of cost. These systems by at the end. A career in a cluster is typically an inter-

EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992

 THE LEXRNING ORG.4ZlZATIOS

esting, challenging and enjoyable progress through

difterent assignments. Learning makes this possible. A. Professional Technical Skills

1. Versatilifyy: the degree to which the individual

can apply technical competence and produc-
tivity outside the area where slhe is currently
Performance Appraisal
employed.
The final personnel mechanism available for influencing 2. Productivity: an assessment of output. How
clusters is performance appraisal. While cluster members long does it take to achieve a quaiity job?
have considerable say in administering appraisals in the 3. Technical Competence: applied level, in terms
system, I4 senior executives still control the develop- of quality, of technological experience and
ment of performance criteria, and can use this as a lever expertise.
to influence employees by setting the standards to lvhich
the cluster members tvill measure themselves for B. Personal and People Skills
compensation purposes. Consultancy Skills: The degree to which the
individual can persuade and influence clients
Since job descriptions in a cluster are deiiberately vague,
and others to cooperate with the processes of
and ‘pay-for-knowledge’ or performance with different analysis and to support the recommended
customers or multiple kinds of equipment are often the actions on the basis of value added.
bajes for compensation, appraisal criteria must include Client Acceptability: The degree to which the
measures that are not job-specific. It must be possible individual is accepted and in demand from
to earn a good rating in several different ways in the those he is servicing, both internal to BPE, BP
same cluster, otherwise multiple skill usage will not be Group and the outside world, where relevant.
encouraged. Se/f Standing: The ability of an individual to
organise his or her own time, take responsibility
The success of a cluster depends on the ability of and work without line management supervision.
pe;tple to work together. Appraisal criteria must thus
inc lude some measures for social skills, interaction and Figure 5 Evaluating contributions of cluster
communications, as Iveil as work output. members”

Sources of appraisal information are varied in a cluster.

Exrernal feedback from clients or customers is key.
Cluster leaders are not able to see everyone all of the produce the perfect consulting engineer - echo should
time due to the wide span of control, nor do they have be promoted to lead a cluster.
spc,cific task or behavior descriptions to use as baselines
for measuring performance - instead, detail comes from As people acquire more skill and demonstrate their
clitsnts. This fits in well with the autonomy of a abilities with clients and elsewhere, the cluster leaders
supervisor-free environment - if the client says you are move their ratings upward, producing pay increases.
no1 doing rvell, then you are not doing well, regardless Should performance fall off, then pay can be adjusted
of TOW you feel about it. If the person paying the bill downkvard, or bonuses can be withheld.
is happy, then, generally speaking, things are well.

Since all cluster members may not be in contact with Summary

customers, and reliance on any one source of data is All organizations learn, but some don’t learn fast enough
suspect, other internal standards may have to be set as to survive. In today’s world, in ivhich knowledge
well. In industrial settings, the production process yields workers are becoming a key ingredient of success, the
some natural measures - scrap rates, defect rates, ability of a firm to keep up to date by learning is more
output per hours worked, etc. - along with the setting important than ever.
for testing individuals in a ‘pay-for-knowledge’ format.
Thcsye are standard factory measures that do not change An organization learns in several ways. Primarily, it
cvh+n a cluster arrangement is set up. (What changes learns through the individuals who are part of it. Learn-
is that the group monitors and evaluates performance, ing organizations benefit greatly from mechanisms
not d supervisor.) which transfer learning from an individual to the group.

Ser\-ice settings are more problematical, but practical There are three characteristics of an organization which
me.lsures still exist. For example, BP’s engineering equip it for lsarning. First, it must make a comn~ifvmf
group uses t\vo three-part scales to review performance to knowledge. Second, a learning organization must
of engineers (see Figure 5). A number is assigned to each have a ~~~+n~ris~nfc)r ~~~?fi~~[~l
within itself. Third, a learn-
par: ~)f each scale based on a 1 to 10 rating. The results ing organization possesses an OYL’~~H~SSto the outside
are summed up to produce a score on each dimension, l\,orld so that it may be responsive to Lvhat is occurring
the11 an overall score, which can be translated into a there.
pe&rmance level that can be converted to a pay bracket.
The maximum score of 60 (6 items x 10 points) \vould The need for openness to outside ideas has a great

EUROPEAN MANAGEMENT JOURNAL Vu1 10 No 2 June 1992 153

impact on how the firm is structured. A firm needs the 4. David R. Altany, ‘Decision-Xiaking Trickles Down to the
capabilitv to learn by avoiding efforts to fit employees Troops’, lndustq !Vcei;, 18 April 1988, p. 3-k
talents and experience into a preconceived structure of 5. This process rvorks bv exposing a recruit to the job and
jobs. Instead, it should be able to give people consider- workmates over a period of several hours or even davs
to improve the chances of a better fit over the long run.
able leeway in creating their own most-productive The extra costs of RJP-style recruitment are often out-
niches in the organization. weighed by the reduced turnover it engenders, although
it does require time on the part of the work group to make
X firm which aspires to be a learning organization must the process work. (See John P. Wanous, Orpniz&mzl
Edrq: Recnritrnrnt, Sciection amf Sociuiilntiorz of~%~cornrrs,
teach its employees how to learn, and it must reward
Addison-\Vesley Series on Managing Human Resources,
them for success in learning. There are a number of Reading, Mass., 1980.)
levers which a firm has in its human resources policies 6. James Kochanski, ‘Hiring in Self-Regulating Work Teams’,
and practices to do this, in&ding hiring, education and hkhmd hvdrrctidy Rmiew, Spring 1987, pp. 133-159.
incentives to learn. 7. Roger Plant and Mark Ryan, ‘Managing Your Corporate
Culture’, Trilitlirrg ff ~~~dopment ]ound, September 1968,
pp. 61-65.
8. Dumaine, op. cit.
Notes 9. Nancy J. Perry, ‘Here Come Richer, Riskier Pay Plans’,
Fort2oze, 19 December 1989, pp. 50-59.
1. Ray Stata, ‘Organizational Learning - The Key, to
10. Carla O’DeIl and C. Jackson Grayson Jr., ‘Flex Your Pay
bianagement Innovation’, %utz Munugment Rmezc,
Muscle’, Across the Bud, July-August 1988, pp. 43-48.
Spring 1989, pp. 63-73.
11. See Fred Luthans and IMarilyn L. Fox, ‘Update on Skill-
3. We all know firms, if we think about the matter, in which
Based Pay’, Personnel, March 1989, pp. 26-31.
individuals are able to learn continually, but the firm
seems never to learn anything. It is no wonder that many 12. W. Christopher Musselwhite, ‘Knowledge, Pay and
firms have begun to have doubts about the cost effective- Performance’, Traizziq fi Dezleloprrzerzt ]ar~rrzal, January
ness of investing in the education and training of indivi- 1988, RR. 62-65.
duals. (What is the distinction between education and 13. Nancy J. Perry, op. cit., p. 58.
training? Training involves learning skills; education 14. Joani Nelson-Horchler, ‘Performance Appraisals’, hfustry
involves learning information and concepts.) Wck, 19 September 1988, pp. 61-63, describes some of
3. A cluster is an interdisciplinary team focused on customer the different ways in which managers and subordinates
needs. A cluster organization is one based on clusters. will interact on performance appraisal.
See D. Quinn IMills, The Rebirth of the Corparntian, New 15. This list of criteria has been adaptedfromBzitish Petroleum
York: John Bailey and Sons, 1991. Engineering Group information by the authors.

EUROPEAN MANAGEMENT JOURNAL Vol 10 No 2 June 1992