Some further features need to be added to the standard architecture of learning dynamics in Briefing 83.

Limits to learning. Like most asset-stocks, there is a limit to how far capabilities can be improved, even if everything went perfectly, and all internal processes were instantaneous and 100% reliable.

Learning from failure. There is much opportunity to learn from failure, both on acquiring and retaining resources – product launches that did not work, bids for projects that failed and marketing campaigns that did not capture the additional customers hoped for. These experiences are also opportunities to learn. Companies carry out exit interviews with departing staff to find out how they can do better at retaining their people, and some interview customers to find out why they left, so as to improve service levels, product quality, and so on.

Loss of capability: forgetting. Like other asset-stocks, capabilities may be depleted. One mechanism was already explained in Briefing 26, with the departure of skills when individuals leave. Other mechanisms for capability depletion include the obsolescence of data, systems and processes. However, the mutual reinforcement between people’s skills, processes and information systems can make capabilities robust against minor losses of staff.

Deliberate learning. Some building of capability occurs naturally, as individuals and teams learn from experience and informally share their growing understanding. But this is unlikely to generate the rate of learning that might be possible if the team deliberately designs processes for reviewing recent experience to seek new insight, and uses that review to improve processes, systems and their own skills. Many articles on organizational learning seem to imply it is an accidental and mystical process – it need not be.

These four additional mechanisms are shown in the expanded diagram of generic capability development in Figure 1. The “B” symbols indicate self-limiting, or balancing, feedback structures – as each item increases, it has consequences that slow its ability to grow further.

Figure 1: Extending the generic picture of capability-building dynamics. (Click image to view larger)

To illustrate the third of these points, there is an interesting epilogue to the site-acquisition story from recent briefings. During the company’s fifth year, a competitor seeking to grow in the same market hired away the company’s first and most experienced expert, hoping to copy their success. In spite of this loss, the original company experienced no disruption whatever to its growth plans. The individual’s expertise had become embedded in the systems, processes and routines of the team, and the small loss of his capacity was soon replaced by rising younger staff.

One mechanism for organizational forgetting in this case — loss of people — was therefore ineffective. This is not to say that the capability would survive a larger scale of defection. It is common in some industries for firms to target and hire not individuals, but entire teams, in the expectation that the firm will be able to jump almost instantly from a low capability to a higher level. Some further investment may still be needed, for example in the systems the team needs to function at its peak, but the major delay will have been overcome.

The second outcome of this episode was that the competitor still failed to match the first company’s success.

Their controls on staff hiring and “non-essential” spending meant that their new hire was unable to build either the team or the systems that he had assembled in his first company. Furthermore, the original company continued to get the favored treatment by real-estate agents that brought them better opportunities, faster.

Until next time…

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How we damage ourselves

Helping real organizations use strategy dynamics to make big improvements in performance has often highlighted some risks that other efforts may advertently cause serious damage. Previous briefings have noted that an obsession with cost ratios and profit margins – often spurred on by pressure from investors and analysts – can leave a business with so little slack that it struggles to sustain what is has, let alone build anything for the future.

Another killer is organizational change. We seem sometimes to forget that things work because people know how they work, and no amount of effort can document every last process and procedure that is responsible for this smooth running. Some organizations make such large and frequent changes, or move people around so often that this tacit knowledge is lost, and never gets a chance to rebuild. Of course, change is sometimes essential, but let’s take care when that happens to keep as much organizational knowledge as possible.

This briefing summarises material from chapter 10 of Strategic Management Dynamics, pages 658-660.

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