Journal of Business Research 55 (2002) 571 581

The structures and processes of learning. A case study

Lennart Bangensa, Luis Araujob,*
a

Chalmers University of Technology, S-41296 Gothenburg, Sweden

Department of Marketing, The Management School, University of Lancaster, Lancaster LA1 4 YX, UK

Abstract
The objective of this paper is to examine the structures and processes of learning in industrial systems. Put briefly, we argue that learning
is not a purely firm-based phenomenon and that it is partly dependent on the distribution of capabilities in the wider system in which the
firm is embedded. The governance structures that sustain a particular division of labor in an industrial system play a key role in enabling
some forms of learning and constraining others. We classify governance structures as falling under three categories market, hierarchy,
and business relationships and explore learning implications for all three. Using a case study, of a Kenyan firm that designs and
manufactures wind-powered water pumps, we examine in detail the processes of learning that occurred over a 17-year period at an intraand interorganizational level. Finally, we extract some conclusions as to how these processes were affected by the governance structures that
the firm used to control and access the capabilities that it needed to design and manufacture its products. D 2002 Elsevier Science Inc. All
rights reserved.
Keywords: Learning; Government structures; Interorganisational relationships

1. Introduction
The objective of this paper is to examine the notion that
firm-based learning cannot be understood independently of
the context of the capabilities available in the industrial
system in which the firm is embedded. Put briefly, we argue
that learning cannot be conceived solely as the development
of capabilities within firms and instead must be understood
as dependent on the governance structures that underpin the
division of labor within an industrial system.
The traditional organizational learning literature has seldom examined the structural aspects of learning and focused
instead on highlighting the variety of processes and mechanisms leading to learning outcomes (Araujo, 1998). When it
has stepped outside the firm, it has focused mainly on how
firms learn from each other in the context of formal alliances
(e.g. Larsson et al., 1998). Similarly, the business history
literature has often focused on the firm as a site of the
accumulation of capabilities and learning (Chandler, 1990;
Lazonick, 1991).
In this paper, we contend that the accumulation and
development of a firms capabilities is linked to the network
* Corresponding author. Tel.: +44-1524-59-39-15; fax: +44-1524-5939-28.
E-mail address: l.araujo@lancaster.ac.uk (L. Araujo).

of relationships in which the firm is embedded (Hakansson

and Snehota, 1995; Dyer and Singh, 1998). To conceptualize the types of links that make up the network of relationships, within which a firms capabilities are accumulated
and developed, we will make use of Richardsons (1972)
seminal contribution to categorize the division of labor in
industrial systems.
The structure of the paper is as follows: in the first
section, we make a case for including governance structures
for the understanding of learning in industrial systems. In
the second part of the paper, we will introduce a longitudinal
case study of a firm involved in the manufacturing of wind
powered water pumps in Kenya. A Third World context
provides an interesting opportunity to study the processes
and structures involved in learning at the firm level, since
much of the infrastructure we take for granted in the First
World is absent. In the final part of the paper, we will
present our conclusions on the structures and processes of
learning in industrial systems.

2. Governance structures and learning

The economist Dennis Robertson once described firms as
. . . islands of conscious power in this ocean of unconscious
cooperation like lumps of butter coagulating in a pail of

0148-2963/02/$ see front matter D 2002 Elsevier Science Inc. All rights reserved.
PII: S 0 1 4 8 - 2 9 6 3 ( 0 0 ) 0 0 1 9 7 - 1

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

572

buttermilk (Robertson, 1923, p. 85). Two prominent economists, Oliver Williamson and George B. Richardson, have
subsequently used this quotation in divergent ways.
For Williamson (1994, p. 324) firms and markets
encapsulate the ideals of conscious coordination (hierarchy)
and spontaneous cooperation (market). Markets and hierarchies represent thus two alternative governance structures, or modes of coordination of economic activity, and
high-performance economies need to combine the autonomous adaptation of markets with the cooperative adaptation of hierarchies.1
For Richardson (1972), Robertsons picture of firms as
islands of coordination in a sea of market relations proved to
be less productive. The division of labor between firms and
markets left out what he termed a dense network of
cooperation and affiliation by which firms are inter-related
(Richardson, 1972, p. 883).
Richardson contended that firms should not be seen as
entities making products, but as undertaking activities
underpinned by particular capabilities as determined by
their skills, experience and market connections. Activities
are classified as complementary or similar depending on
what capabilities they draw upon and on their interrelationship in a specific chain. Activities that use the same
capability are called similar, while activities are classified
as complementary when they represent different phases of
the same overall process.
Similarity and complementarity may thus be combined
in different ways to provide three different governance
structures.2 Complementary but dissimilar activities may
be governed through market exchange, where the providential law of large numbers can be trusted to match
activities in end-product-related chains. Close complementarity and either similar activities, activating the same
range of capabilities, or dissimilar activities but where no
economies of scale in the use of capabilities may be
achieved, favors governance by hierarchy or direction.
Richardson (1998) later clarified this point by arguing that
firms are needed to cause a set of systematic and closely
complementary activities have to be carried out concurrently and in accordance with a particular design. Finally,
close complementarity and dissimilar activities i.e.
activities making use of different capabilities favors
governance through cooperation3 between two independent
1

A review of the transaction cost approach developed by Williamson

is outside the scope of this paper, but see Jones (1997) for a recent and
critical review.
2
Throughout this paper, we use the term governance structure to
denote the mode of coordinating economic activities.
3
Again, the notion of cooperation that Richardson used in 1972 was
open to further clarification. Whereas, for some authors, including
Richardson (1995), cooperation meant formal alliances such as joint
ventures or licensing agreements; for others, cooperation was to be
interpreted more broadly. In this paper, we interpret Richardsons notion of
cooperation as meaning the same as business relationships (Hakansson
and Snehota, 1995).

parties with reciprocal undertakings and ex ante matching

of plans (Dubois, 1998).
The key, but underspecified, notion underlying Richardsons activity structures framework is that of capabilities. In
his original article, Richardson (1972, p. 888) acknowledged this limitation: The notion of capability is no doubt
somewhat vague but no more so perhaps than the notion of,
say, liquidity and, I believe, no less useful. For Richardson,
the notion of capabilities provided a bridge to understand
the pattern of specialization of firms (firms tend to specialize
in activities for which their capabilities provide a comparative advantage), as well as their coherent development
(capabilities can lead firms into a variety of end-products
and markets).
Loasby (1999) recovers the thread of Richardsons argument and anchors the definition of capabilities in a classification of the different forms of knowledge required for
productive activities. A key distinction is made between
knowledge how and knowledge that. Knowledge
that is propositional knowledge, knowledge of facts and
relationships that can be codified and transmitted through
formal education and training. It can be further subdivided
into knowing what and knowing why (Lundvall and
Johnson, 1994). Know-what is what is normally understood as information it can be broken down in units and
can be easily stored and communicated. Much of the
knowledge required for productive processes is instrumental
know-what e.g. how to activate a particular function in
a machine. By contrast, know-why refers to knowledge on
underlying causes and effects of events and performances.
In opposition to knowledge-that, Loasby (1999) discusses the notion of knowledge-how. Know-how is
the domain of skilled performance, learned through situated
practice and emulation of experienced performers (Brown
and Duguid, 1998). Know-how is often embedded in
communities of practice with shared repertoires, sensemaking routines and identities (Wenger, 1998).
Loasby (1999) makes a further distinction between direct
and indirect know-how we may either know how to do
something ourselves, or how to get something done for us. In
other words, control of capabilities is unnecessary if we can
have access to them. However, access requires know-how,
too. Often, accessing complementary capabilities requires
simple market-based interfaces, especially when these capabilities are effectively packaged in standardized products or
services. However, in many other cases access to complementary capabilities may require the establishment of more
complex interfaces with third parties that cannot be achieved
by arms-length exchanges.4 In short, access to complementary capabilities may require the establishment of complex
and multifaceted business relationships.
The notion of indirect capabilities has thus important
implications for how firms can specialize and learn along

On the notion of resource interfaces, see Araujo et al. (1999).

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

narrow paths by allowing them access to complementary

capabilities via either market or relationship-based
exchanges.5 Capabilities belong to the realm of direct and
indirect know-how. Internal organization must be supplemented with an external organization through investments in the creation of markets and interfirm relationships.
Similar arguments have been developed elsewhere. The
industrial networks (Axelsson and Easton, 1992; Hakansson
and Snehota, 1995) and development (Lall 1992, 1993)
literatures highlight that firms do not develop capabilities in
isolation. For example, Lall (1992, 1993) emphasizes the
notion that technology is a complex bundle of knowledge
embodied in a wide range of artifacts, human capital,
procedures, and organizational practices. Few components
of technology are acquired ready-made and brought into use
according to some blueprint. The embodied elements of a
technology have to be complemented by a number of tacit
elements that have to be taught and learned through practice.
The effective implantation of technology has to be accompanied by elements of capability building (know-how)
inside firms.6 However, left to their own devices, firms
may find capability development difficult, slow and expensive, and may end up unable to operate efficiently. The
process of capability development often takes place in dense
networks of formal and informal relationships with suppliers, customers, and other third parties such as consultants,
research institutes, and educational institutions.
The notion of capabilities dissolves clear-cut boundaries
between knowing and learning. Capabilities embody both
existing achievements and vectors for extending these
achievements. Learning is a path-dependent process, where
the acquisition of further knowledge is both dependent on
existing knowledge of the same kind and obstructs the
acquisition of incompatible knowledge (Loasby, 1998). In
short, knowledge grows by increasing specialization, but the
price of learning along narrow paths is ignorance of what
might have happened had other paths been pursued.
In summary, we expect that the division of labor in an
economy will reflect both the variety of specialisms available, as well as the governance structures that can support
specific pattern of specialization. To understand learning
phenomena, we must thus understand both the processes
that drive specialization and trajectories of accumulation of
different forms of knowledge, as well as the structural
conditions that foster or impede the growth of knowledge.
The development of direct capabilities within firms has
important spillover and linkage effects between firms, as
well as other institutional actors (Lall and Latsch, 1998).
The extent and forms of these linkages varies from sector to
5
This dual structure of direct and indirect capabilities is what some
recent literatures in innovation in the industrialized world have termed
innovation milieux (Camagni, 1991), networks of innovators (DeBresson and Amesse, 1991), or systems of innovation (Lundvall, 1988).
6
See also the notion of absorptive capacity as developed by Cohen and
Levinthal (1990).

573

sector and depends on the type of technology being used

(Bangens, 1998).
In conclusion, we regard governance structures as providing different ways of linking diverse clusters of capabilities and providing different opportunities for learning.
Firms provide opportunities for the use of closely related
capabilities where routine and repetition (learning-by-doing)
allows improvements in those capabilities along narrow
evolutionary paths. However, the development of these
routines, often equated with organizational learning,
may be of little use in itself.7 Markets provide access to
dissimilar capabilities that come effectively packaged in
often standardized, goods or services (learning-by-using).8
Relationships allow the connection of dissimilar capabilities
that are too heterogeneous to preclude the close integration
afforded by placing them under single ownership but not so
heterogeneous as to foster the development of a market
(learning-by-interacting).9
Finally, interfirm linkages generate what Nooteboom
(1992) has called a cross-firm economy of learning. If
the combination of different activities within one firm can
lead to economies of scale, scope, and experiential learning
effects, the connectedness and spillover of knowledge
across a variety of interfirm linkages can lead to an
interfirm ecology of learning, where learning takes a
network and distributed character. A network of connected
relationships is thus important from a learning perspective.
If relationships have a number of connections, these connections enable a variety of learning opportunities e.g.
between people with varying skills and backgrounds
(Hakansson et al., 1999).
In the next section, we will introduce a longitudinal case
study of a firm operating in a Third World country to
illustrate the ideas we have developed here. A Third World
context poses different challenges to the understanding of
learning processes than the traditional organizational learning studies based on First World firms. The size distribution

This view is associated with those who regard routines as the site of
organizational learning. For example, Levitt and March (1990) propose that
. . . organizations are seen as learning by encoding inferences from history
into routines that guide behavior. The generic term routines includes the
forms, rules, procedures, conventions, roles, strategies and technologies
around which organizations are constructed and through which they
operate (p. 16).
8
This point is neatly encapsulated in Demsetzs (1991, p. 173)
observation that A production process yields a saleable product when
downstream users can work with, or can consume the product without
themselves being knowledgeable about its production. In short, markets
can supply us with solutions to our needs that do not require us to be more
than instrumentally knowledgeable about their uses in specific contexts.
9
Hakansson (1993) provides an insightful way of summarizing this
argument. He argues that firms learn through their own experimentation or
through using counterparts knowledge and experience, often in the form of
blackboxed products or solutions. But often, in industrial settings two
resource holders will, through a process of close interaction, develop
knowledge about how to use each others resources and produce joint
values (Hakansson 1993, p. 215).

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

574

of firms tends to be characterized by a small number of

comparatively large firms complemented by a population of
smaller enterprises (Jorgensen et al., 1984). In addition, the
degree of specialization among firms is poor, resulting, for
example, in the absence of specialized middlemen. The
degree of vertical integration is generally high leaving little
room for specialized suppliers.10 The notion that learning
requires a degree of absorptive capacity, founded on direct
capabilities, raises the issue of how and where to kick-start
learning processes.

3. Bobs Harries Engineering Limited (BHEL)

This small-scale company outside Nairobi, Kenya was
started in 1977 as a diversification venture by the owner,
Mike Harries, whose grandfather, Bobs, was a British
settler. The company was previously dependent on coffee
and horticultural products. BHEL is one of two wind pump
manufacturers in Kenya. There have been wind pumps in
Kenya since the early 1900s, predominantly imported from
South Africa, Australia, and the US. It is estimated that the
total number of pumps installed from the turn of the century
to the 1960s was around 100.
By 1994, BHEL had sold around 250 wind pumps, of
which 69 had been exported to neighboring countries. By
adding up other sales and scattered imports over the last
three decades to the original stock, the total number of
wind pumps in Kenya is around 500. This number, in
relation to Kenyas dependence on agriculture and the
continuous water shortages, shows a remarkably low usage
of the technology. Large tracts of Kenya are outside the
national electrical grid. In practice, this limits the resolution of the water shortage problem to wind or diesel
pumps. The deep ground water levels make other techniques less viable.

4. The Kijito and its technology

BHEL produces a handful number of different wind
pumps based on the Kijito design that was the first pump
they developed. The wind pumps consist of a few mechanical parts: rotors, shafts, transmission, tower section, pump
cylinder, and piston. Almost all parts are made of mild steel,
welded together, painted with anticorrosive primer and a
final finishing coat. An essential part of the wind pump is
the transmission made up of around 10 bearings. The four
largest models of rotor diameters 12, 16, 20, and 24 ft
have in principal a similar design as the original Kijito
design see Fig. 1 for a picture of a traditional windmill.
The Kijito has a larger number of rotor blades (18 to 24)
than the one depicted in the figure, as a result of adaptation

10

See Bangens (1993, 1998).

Fig. 1. Traditional windmill.

to local conditions. The largest Kijito model weighs 1100 kg,

which is relatively less than equivalent sizes made in Australia or South Africa.
The tower is either a 9- or 12-m tubular steel tripod
consisting of welded sections bolted together. The pump
requires wind speeds of 2 3 m/s on average to function. A
tail with furling mechanism keeps the rotor against the
wind as long as the wind speed does not exceed the
(adjustable) furling limit, normally set around 12 m/s. A
typical wind pump runs 15 h/day for 20 to 25 years adding
up to over 100,000 operating hours and 150 million pump
strokes. The torque from the rotors is transmitted via the
rotor shaft to a reciprocating rocker through a crank and a
connecting rod. The length of the crank determines the
length of the stroke. Vertical pumping rods are joined to the
rocker. The pump rods are connected to the pump via a
piston, which reciprocates in a pump cylinder. To tighten
the piston against the cylinder, leather washers are used
(there are no piston rings).

5. BHELs start-up years: 1977 1979

Mike Harries interest in wind pumps began in the mid1970s due to the recurrent power outages; his farm was
regularly cut off 4 days a week. There were two essential
motives behind Mikes interest in wind pumps. First, it was
to find an independent energy source for his farm. Secondly,
the desire to address the widespread problem of lack of
clean drinking water in remote areas of Kenya.
The first wind pump Mike bought was a second hand
model from a friend in 1976, who was selling his farm. It

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

575

Fig. 2. BHEL early connections.

was a very small Canadian model, with only 8-ft rotor

blades. At that time, the workshop in Mikes farm was small
and used primarily for repairing agricultural implements;
Mike did not want to invest in machinery for gear cutting
and castings. He did manage to repair and install the
Canadian pump but felt the model was too complicated
for manufacturing in Kenya. Mikes search for a more
appropriate design eventually bore fruit through the mediation of a small NGO11 in the UK. ITDG12 was an
organization devoted to developing and spreading intermediate technology, like wind pumps, to the Third World.
While on vacation in England in 1977, Mike saw a wind
pump prototype made by ITDG. He was granted permission to start local manufacturing in Kenya based on
ITDGs drawings. However, small changes to the original
specifications were made, such as increasing the number of
blades from 5 to 12. The wind pump was called Kijito, a
Swahili word meaning a small stream of water. ITDG and
BHEL had frequent contacts during the first few years of
manufacturing in Kenya, including the updating of the
original drawings.
Production started on a modest scale in a small workshop
primarily aimed at developing a working prototype. BHEL
chose to purchase most raw materials and inputs locally.
Many of them were mild steel products such as pipes and
metal sheets that could easily be found in local hardware
stores. The reasons for basing production on standardized,
off-the-shelf items that could be bought locally, were ease of
11
NGOs are nongovernmental organizations, which have mushroomed
over the last decade as a result of declining state aid programs. NGOs tend
to be small, concerned with resource allocation through projects, and often
dependent on donor support.
12
ITDG stands for Intermediate Technology Development Group who
started a project to design, The ultimate wind-pump for the Third World.
ITDG was looking for counterparts in the Third World who could test
prototypes, adapt to local conditions, and start up local production.

access to spares, no need for foreign exchange, reduced

dependence on specific suppliers, fast deliveries, and independence from political decisions on import duties. The
high load on the transmission mechanism of the Kijito made
BHEL choose SKF-Kenya for the supply of high-quality
bearings, the remaining item of BHELs inputs. ITDGs
director at the time, Peter Fraenkel, was a personal friend of
SKF-Kenyas general manager, which also contributed to
BHELs selection of SKF as a supplier. Total purchases
stood for approximately 40% of total costs, production, and
labor contributed to around 30%, and overheads and sales
accounted for the remaining 10% of total costs.
BHELs early connections in 1977 1979 with suppliers
and (potential) customers are depicted in Fig. 2. Although
BHEL had ongoing relationships with potential customers,
mainly missionary stations, the discussions involved mostly
installation rather than technical issues.
A priest himself, Mike had discussions with friends at
various missions on the feasibility of installing wind pumps.
However, during this start-up phase, efforts were mostly
directed at improving and adapting the ITDG design to
obtain a reliable Kijito. For example, a wind-tunnel test was
invented, where the rotor was bolted to Mikes Range Rover
and driven up and down the farms airstrip at 90 mph.
However, by 1979, the Kijito was still not fine-tuned for
Kenyan conditions, partly due to the lack of field tests. The
first Kijito had yet to be sold. At the same time, ITDG was
running short of capital and could no longer fund the
development work.

6. Years of development: 1980 1986

By participating in a trade fair late in 1979, BHEL
received its first Kijito order for a ranch in Northern Kenya,
Ol Pejeta, owned by an Arab billionaire. A Swede, Christer

576

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

Johansson, worked as an intermediary and contacted BHEL

during the fair. Ol Pejeta gave BHEL an opportunity to learn
about specific site adaptations for wind pumps. Ground
water was at least 200 m deep, which demanded some
design alterations. Both the number of rotor blades and the
diameter of the rotor were extended. In addition, the wind
on location was both high and erratic, putting a lot of stress
on the pump. Unsurprisingly, the pump broke down frequently. Nevertheless, an order of 10 pumps was placed
with BHEL and Ol Pejeta became BHELs test site for
nearly 7 years. It was at this site that BHEL learned more or
less everything they needed to know about adapting pumps
to specific site conditions.
As demand increased, a mechanical workshop had to be
built, and it later became the production unit of BHEL. The
firms internal activities were organized with self-sufficiency in mind, incorporating machining and mechanical
capabilities, as well as a painting and assembly facility.
There are about 35 workers in the workshop. The workshop
was gradually built up and organized around a few lathe,
milling, drilling, and cutting machines. The coffee farms
workshop had only a limited range of equipment like metal
cutters and a welding unit. Considerable investments were
necessary and Mike together with Steve Wilson, a friend
with an engineering background, took all the decisions
regarding the purchase of machinery by visiting agents in
Nairobi and selecting appropriate equipment. The first
machines were bought from the UK and Czechoslovakia
through dealers in Nairobi. The set-up of the workshop was
done taking into account the availability of local materials
and spare parts,13 and the desire to avoid dependence on
specific suppliers.
Small improvements of the wind pump design were
continuously pursued. After having experienced further
breakdowns at Ol Pejeta and problems with machinery
in-house, BHEL decided to change the design of the
transmission. The breakthrough came with the help of
external expertise. In 1982, through the ODA,14 BHEL
temporarily employed an English designer, Paul Dawson,
who spent his time as a trainee travelling around with
Mike. Back in England, Paul spent 6 months at the
drawing board coming up with more than 100 possible
design improvements, including a manual for manufacturing. ITDG intervened and claimed that the drawings were
its property and should not be handed over to BHEL.
Pauls company, Mike Neill and Associates, decided to
give BHEL the drawings anyway, which led to a break-up
of its relationship with ITDG. BHEL decided to implement
only a few of Pauls suggestions, due to inertia in the
13
Kenya had at that period of time massive and complicated
restrictions regarding imports, which both made it extremely expensive
due to high tariffs and time consuming in the light of the paper work and
Kenyan bureaucracy.
14
The Overseas Development Agency, an agency of the British
Foreign and Commonwealth Office.

workforces routines but also because many suggestions

were not readily transferable from the drawing board to a
functioning design.
The work by Paul Dawson turned out to be crucial for the
final design of the Kijito, particularly in areas of production
planning and drawings. Improvement in jigs and fixtures
and changes in the manufacturing process were mainly
aimed at simplification, as well as attaining higher quality
and robustness of the Kijito. Paul and his colleagues at Mike
Neill and Associates have, over the years, continued to
assist BHEL in improving the Kijito design, as well as
coming up with new designs. The company had, in effect,
become the R&D department of BHEL.
Reviewing the innovation process from the original 1977
design to a tolerably functioning design in 1986 1987, a
number of product and process changes can be identified.
The basic design is still accredited to ITDG whose ideas on
the towers construction, foundation, and furling mechanism
(blades, tails, and brake) have endured. The ITDG wind
pump was designed for short piston strokes pumping
shallow wells, using a low-density rotor with few blades,
which as a result spun fast.
Interaction with ITDG ceased in 1981 when Peter Fraenkel left to form IT-Power. Peter represented the wind pump
technology at ITDG who consequently could not help
BHEL further. As BHEL discovered early on, Kenyan
ground water is deep, often 100 m below surface, requiring
a steady flow of pumped water. BHELs initial efforts were
directed at improving the transmission, which among other
features included a construction, based on bearings instead
of gears. Other improvements involved the shaft taking over
the load from the rotors. The rotor hub rests on a fixed tube
instead of directly on the shaft. This means that the shaft has
to cope with the torque only, and the weight from the rotors
rests on the tube. The blade was initially made of glass fiber
but was soon replaced with mild steel in order to use locally
available materials.
Suppliers were part of the process only once when SKF
delivered an assembly joint for enabling assembly in the
field. The joint was ordered specifically at BHELs request.
Several improvements of the production process were done
in cooperation with external experts such as Paul Dawson.
Fig. 3 below summarizes the external linkages established in
the period 1980 1986.
The encounter with a Swede, Christer Johansson, led
firstly to the installations of wind pumps at Ol Pejeta where
Christer had drilled the boreholes. To evaluate water resources on sites without boreholes, BHEL needed hydrological
expertise, which was found with a friend of Christers who
conducted hydrological surveys.

7. BHEL 1987 1993

In the later years (from late 1980s to the early 1990s),
BHEL attempted to streamline its purchases. Most of the

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

577

Fig. 3. BHELs network of exchanges in 1980 1986.

input goods are today purchased locally from Koimu who

supplied tubes, rods, plates, water pipes, paint, bronze for
pump cylinders, stainless steel for valves, etc. BHEL had a
number of suppliers at the beginning including Koimu but
realized the advantages of concentrating purchases on one
supplier. The Kijito was now fully adapted to Kenyan
conditions after 10 years of development but BHEL was
still unable to sell more than 25 units a year. Mike was now
acknowledged among the Renewable Energy Technology
(RET) experts in the world, but the Kenyan farmer proved
harder to convince. Sales and marketing had been a problem
primarily because of BHELs limited resources, Mike being
the only one who actively tried to market the wind pumps.
However, an even greater obstacle was the perception of
wind pumps among potential buyers. Most farmers hesitated
to invest in Kenyan technology believing that anything
imported was superior. BHEL also suffered, as a result of
a large number of broken down windmills in the countryside, which in most cases, paradoxically, were imported
units. Many chiefs (heads of tribes or villages) believed that
wind pumps were too conspicuous in the eyes of the people
and frightening, particularly if they broke down and no
chief wanted a reputation of being the chief who bought a
wind pump that did not work. An additional problem was
the perception of wind pumps as representing old technology, which made many farmers prefer diesel pumps.
Two CWD models, smaller than the Kijito, were introduced later in 1990 after contact with CWD, a Dutch wind
pump manufacturer. BHEL produced a prototype and modified a few specifications, such as doubling the number of
rotor blades. This was done in cooperation with CWD who
sent down an engineer to assist BHEL. Cooperation with
CWD lasted only a few months and involved a handful of

meetings. The result was two smaller models 6 and 8 ft

which were later improved, based on BHELs earlier
experience with the larger Kijitos. In the mid-1980s, the
GTZ the German aid agency responsible for technical
cooperation had a special energy program in Kenya
involving several Ministries. GTZ funded a few wind pump
projects on Lamu Island off the coast. A number of aid
donors were also involved in setting up wind pumps but
BHELs total sales via the aid community remained low
the total accumulated sales were only 10 units in 1994.
Fig. 4 below illustrates BHEL linkages in the period 1987
1993 (the dashed lines indicate informal links).
The Kijitos final design was reached in 1986/1987,
which fulfilled the needs of the most demanding customers,
but sales remained low. The break-even amount of 25 units
a year was achieved for just 2 years. The main problem was
the low awareness among potential customers, who had
little faith in wind pump technology. Very few were aware
of the fact that wind pumps work even during wind speeds
as low as 2 m/s. An exception to this rule were the missions,
which bought over 100 pumps altogether.
Turning now to manufacturing processes, BHELs workshop is functionally organized into machining, fabrication,
paint, and assembly sections. The layout evolved more by
accident than proper planning. Fabrication and machining
activities are parallel processes followed by painting and
final assembly. Certain parts, such as the tower, are preassembled, due to their weight and robust construction, and
finally assembled on site. The machining section is
equipped with four lathes and a Bridgeport milling machine
and is by far the most demanding in terms of workers skills
and know-how. The workers in machining section rotate
less than the rest of the workforce, being basically speci-

578

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

Fig. 4. BHEL linkages in 1987 1993.

alized in the production of rotor shafts, bearing beds, and

pump cylinders. The fabrication section uses metal pipe
cutting, drilling, and welding machines for the manufacture
of rotors with blades, blade spurs, and the hub, the transmission housing, the tail, the tower section, and the pump rods.
In the production process, we can distinguish four distinct
general categories of activities: fabrication, machining,
painting, and assembly. Machining has been the only constraint for the present rate of production of 25 units a year.
Interdependence of activities can be examined by taking a
closer look at their subdivision. For instance, the pump
system is made up of a bronze cylinder worked on a
lathe and milling machine, fabricated pump rods, and leather
bushes (standard item bought), which calls for coordination
over BHELs functional units as the pump is put together
using capabilities shared across several activities. Fig. 5
presents a scheme of the firms manufacturing activities.
A central skill, which BHEL had to acquire through a
trial and error process over many years, was the capacity to
evaluate different sites for wind pump installations. The

Fig. 5. BHELs internal activity structure.

output of a pump depends on several parameters, which can

only be learned from experience. The availability of water
resources is the first area to be researched. The type of
application is also important domestic, livestock supply,
and irrigation are the dominant applications. Many sites do
however already have boreholes, which gives little choice
for BHEL other than trying to fit the wind pump to the
existing holes. BHEL does not do the drilling itself but
cooperates with a few drilling companies. The second factor
to take into account concerns the wind conditions on site.
The average wind speed should be between 2.5 and 3 m/s
the minimum requirement for the Kijito is around 2 m/s. An
even distribution of wind speed over time is helpful; gusty
high winds can damage the tower section. Wind speed
measurements have to be done at repeated intervals and
BHELs relies on data supplied by the Kenyan Meteorological Services for this purpose. Unfortunately, their publications stopped in the mid-1980s.
Many of the workers employed by BHEL were initially
unskilled and had to be trained in-house. BHELs location in
the bush made the men bring along their families, and in
many cases, stay permanently at the farm. The farm is able
to provide for all their needs; it has a church, a school, and
even a store.
The upgrading of workers skills was the result of BHELs
strategy to employ a small number of qualified people who,
through an informal apprenticeship system, would spill-over
their competencies to fellow workers. An example is Alfie
Reynolds who in 1983, through knowing the general manager, Mr. Challoner, ended up working for 10 years at the

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

farm. Alfie had been an engineer and machinist all his life,
and he was able to play a key role in improving the quality of
work in the machining sector of BHEL.
BHELs development over the years is, by and large, the
result of Mike Harries ambition and efforts to organize
production and involve external capability at critical junctures. Mike did not have any prior knowledge of either wind
pump technology or how to organize an engineering workshop: I knew how to weld, but that was it, as he put it.
BHELs total sales of wind pumps over 15 years (1979
1994) amounted to 269 units, averaging 18 pumps a year.
The break-even point lies around 25 units/year. Considering
the initial investment in machinery and years of low sales,
the dependence on the coffee farm for funding the development of the Kijito has been high. Up to 1994, the farm had
transferred around KShs 15 millions (US$1 equivalent to
KShs 60 in 1994) to BHEL, which has not been reimbursed.
Without the support of the coffee farm, BHEL would
probably have been closed down during the lean years.

8. Analysis of the case

At the broadest level, this case demonstrates how the
context within which BHEL operated shaped the nature of
its learning processes. If we analyze the evolution of the
direct capabilities of BHEL since its inception in 1977, it is
a remarkable case of learning. The firm went from a
rudimentary workshop to repair agricultural implements,
to an operation that could specify, manufacture and install
wind-powered water pumps. A quick glance at the activity
structure, depicted summarily in Fig. 5, invites the reader
to appreciate the range of capabilities involved in sustaining it. It is a mixture of skills embodied in teams of
workers, learned through socialization and practice, in
machines and technical artifacts, in the plant layout, and
in higher-order skills to direct and coordinate these activities to produce specific outputs. As we indicated earlier,
the development of these direct capabilities is the product
of learning-by-doing, learning-by-using, and learning-by-interacting. This has been seen over time, where
BHEL got better and faster at learning.15 However, the
story of the evolution of direct capabilities in manufacturing cannot be disentangled from a parallel story of the
development of indirect capabilities.
Having acquired the prototype design from ITDG, Mike
Neill spent years adapting the design to the local conditions
faced by Kenyan end-users, as well as setting up a manufacturing and supply infrastructure to manufacture an indigenous model, the Kijito. The development of direct
capabilities in this phase is inextricably linked to the de15

Stiglitz (1987) argues that: Just as experience in production

increases ones productivity in producing, so experience in learning may
increase ones productivity in learning. One learns to learn at least partly, in
the process of learning itself (p. 130).

579

velopment of indirect capabilities. The development of

indirect capabilities in the Kenyan context was restricted
to know-how regarding reliable sources of standardized
items. The concentration of purchases on Koimu simplified
this process. BHELs relationship with Koimu was strong on
social content but, otherwise, could be characterized as an
arms-length market interface, involving few or no adaptations on either side. Only the choice of a source of supply
for bearings presented a more complex problem.
The delivery of the first unit in 1979 provided BHEL
with another challenge. Moving from drawing boards and
manufacturing prototypes to field tests and installing a
working unit at the Ol Pejeta ranch was hardly a smooth
transition. For more than 6 years, BHEL struggled with
unforeseen problems. Failures and breakdowns lead to
design changes and new field tests. The locus of problem
solving shifted between the drawing board and the test site
and involved several iterative loops between Ol Pejetas site
and BHELs workshop.16 The secondment of Paul Dawson
to BHEL, in 1982, and his subsequent proposals for design
improvements played a key role in this process.
During the years of product development (1980 1986),
the evolution of BHELs direct capabilities to adapt the
technology to local end-users is inextricably linked to its
access to external capabilities. Learning-by-doing at the
site of the first customer is thus complemented with learning-by-interacting with third parties, but, as Fig. 4 illustrates, these parties are mostly disembedded from the
Kenyan context. Interaction with local parties is limited to
the supply of standardized components, mainly via Koimu
and SKF Kenya, and a few local customers.
Finally, when BHEL developed all the know-how to
specify, design, manufacture, and install wind pumps, it
found it equally hard to develop the indirect capabilities to
market the product to its intended user community. Local
farmers are suspicious of the reliability of the technology,
perceiving it as old fashioned and too conspicuous. Aid
projects and missions account for some sales but the endresult is disappointing; BHELs survival continues to be
subsidized by the coffee farm.
At another level, BHEL presents a typical illustration of
the challenges of industrialization and acquisition of capabilities in developing countries. A seemingly simple
technology cannot be transferred into a new context and
made to work instantly. As Bell and Albu (1999) argue
very few components of production technology are simply acquired ready-made and then brought to use according to standard recipes which are identical to, and
replicated from, previous applications. Even in cases where
the introduction of some element of new technology in the
16
The Tyre and Von Hippel (1997) notion of situated learning stresses
the dynamic quality of learning, requiring different arrangements of social
and material resources within the same physical setting but also alternation
between different physical settings e.g. the customers site and the
suppliers workshop.

580

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

production system typically involves a close approximation

to such noncreative technology adoption, the interaction
with other elements of technology in the production system
typically requires creative problem-solving and innovative
re-configuration of at least some elements in the overall
production system (p. 1717).
In the Kijito case, the problem is further compounded by
the need to access capabilities for adapting a design to the
particularities of the Kenyan context (e.g. wind speeds,
depth of water holes), as well as set up a concurrent
production system to manufacture the appropriate design.
In other words, if the absorption of appropriate technologies
is rooted in the set of direct capabilities of the absorbing
firm (Bell and Albu, 1999), then this case illustrates how the
adaptation of technology and the firm with a set of capabilities to absorb it, are constructed simultaneously.
Governance structures play a key role here in shaping the
learning process. The Kenyan context provides only opportunities for market-based exchanges and affords very few
opportunities to learn. Business relationships with foreign
actors provide valuable opportunities for learning-by-interacting, and, in some cases, for learning-by-doing, for
example, when Paul Dawson was seconded to BHEL.

9. Conclusions
We started this paper by positing a relationship between
governance structures and learning. Our focus on capabilities emphasizes the situated and distributed aspect of
learning in industrial systems. At the same time, we stressed
that the governance structures underpinning the organization
of capabilities play an important role in shaping the evolution of those capabilities.
As we have seen, the governance structures used for
producing wind pumps in Kenya were influenced by both
the strategy followed by BHEL and its founder, as well as
the opportunity structures afforded by the local environment. In BHELs case, the three governance structures
that we outlined earlier hierarchy, market, and business
relationships existed in parallel and fulfilled different
roles in the learning process. The trajectory of BHEL can be
broadly understood by how learning-by-doing within an
emerging structure set up to absorb and adapt a technology,
intersected and mixed with the learning-by-using
afforded by arms-length market transactions with local
suppliers and the learning-by-interacting with other
actors external to the Kenyan context.
In the Kenyan context, as in other developing countries, a
sharp division between markets and hierarchies underscores
a feeble division of labor and a low degree of specialization.
Markets and hierarchies restrict learning to learning-byusing through the purchase of largely standardized items
and also learning-by-doing inside firms. In this case,
market exchanges also enabled BHEL to insulate itself from
external vagaries in Kenya but afforded few or no oppor-

tunities for learning. Instead, interacting with parties disembedded from the local context who have the requisite
complementary capabilities (e.g. drawings, prototypes) provided a viable route to acquire the necessary capabilities to
adapt the technology to local conditions and set up a
manufacturing infrastructure. Whereas the benefits of connecting learning-by-doing in Kenya with learning-byinteracting with parties disembedded from the local context
are easy to see by all accounts BHELs learning is
impressive the outcome still proved disappointing.
BHELs achievements occurred while temporarily
removing users and potential customers from the picture.
All energies were devoted to learning how to translate
specifications and designs to the Kenyan context and
develop the direct capabilities to convert general purpose
inputs into working wind pumps. This, as we have described
in detail, involved a long and winding process that culminated in the internal activity structure depicted in Fig. 5. In
parallel, BHEL learned how to develop indirect capabilities
(e.g. access to hydrological expertise) that helped it translate
site conditions (e.g. depth of ground water, wind speed
conditions) into wind pump specifications. When this learning process was finally completed, the putative users who
had been temporarily forgotten did not behave according to
the script that Mike Harries had envisioned.
Two tentative conclusions emerge from the preceding
analysis. To kick-start processes of firm-based learning, in
the absence of structural conditions that provide opportunities to connect direct capabilities to other actors in the local
environment, is problematic. A strict division of labor in
industrial systems between firms and markets limits learning
opportunities to learning-by-doing and learning-byusing. The absence of relationships, in the local environment with other business actors (e.g. suppliers, customers)
and institutions, prevents the possibility of opportunities for
learning-by-interacting and a cross-firm economy of
learning to emerge. In summary, the process of firm-based
learning generates important externalities and an exploration
of learning processes within firms has to take into account
the connections and relationships within which learning
takes place. The dense and varied connections that make
up Western modern industrial systems and provide a fertile
cross-firm economy of learning are simply absent from a
Third World context, as some authors in the development
literature have acknowledged (Lall, 1993). However, we
should not forget that such fertile cross-firm economies of
learning were not set up overnight and are themselves the
product of many distributed and cumulative investments, as
the business history literature shows (Chandler, 1990).
The other brief conclusion that we offer connects the
results of this study to wider policy concerns in the development literature concerning the role of learning in promoting industrialization in the Third World. When the success of a
technology depends on a set of linkages to factor and
customer markets and these linkages prove to be difficult or
impossible to put in place, there is a case to be made for

L. Bangens, L. Araujo / Journal of Business Research 55 (2002) 571581

selective governmental intervention to foster the development

of learning at the firm level and kick-start a wider ecology of
learning (Lall and Latsch, 1998). In the absence of such
institutional support, achievements such as the one documented in this paper will make little difference to promote
industrialization and growth in Third World economies.
References
Araujo L. Knowing and learning as networking. Manage Learn 1998;29(3):
317 36.
Araujo L, Dubois A, Gadde L-E. Managing interfaces with supplies. Ind
Mark Manage 1999;28(5):497 506.
Axelsson B, Easton G, editors. Industrial networks: a new view of reality.
London: Routledge, 1992.
Bangens, L, 1993. A Network Approach to Third World Industrialization.
Capability Accumulation through Technological Exchange. Licentiate
Thesis, Chalmers University of Technology, Goteborg, Sweden.
Bangens, L, 1998. Inter-Firm Linkages and Learning. An Empirical Exploration of Firms in the Third World. PhD dissertation, Chalmers University of Technology, Goteborg, Sweden.
Bell M, Albu M. Knowledge systems and technological dynamism in
industrial clusters in developing countries. World Dev 1999;27(9):
1715 34.
Brown JS, Duguid P. Organizing knowledge. Calif Manage Rev 1998;
40(3):90 111.
Camagni R, editor. Innovation networks: spatial perspectives. London:
Belhaven Press, 1991.
Chandler AD. Scale and scope. The dynamics of industrial capitalism. Cambridge, MA: Belknap Press, 1990.
Cohen WM, Levinthal DA. Absorptive capacity: a new perspective on
learning and innovation. Adm Sci Q 1990;35(1):128 52.
DeBresson C, Amesse F. Networks of innovators: a review and introduction
to the issue. Res Policy 1991;20(5):363 80.
Demsetz H. The theory of the firm revisited. In: Williamson OE, Winter
SG, editors. The nature of the firm. Origins, evolution and development.
New York: Oxford Univ. Press, 1991. pp. 159 78.
Dubois A. Organizing activities across firm boundaries. London: Routledge, 1998.
Dyer JH, Singh H. The relational view: cooperative strategy and sources of
interorganizational competitive advantage. Acad Manage Rev 1998;
23(4):660 79.
Hakansson H. Networks as a mechanism to develop resources. In: Beije P,
Groenewegen J, Nuys O, editors. Networking in Dutch industries.
Leuven-Appeldorn: Garant, 1993. pp. 207 23.
Hakansson H, Snehota I, editors. Developing relationships in business networks. London: Routledge, 1995.
Hakansson H, Havila V, Pedersen A-C. Learning in networks. Ind Mark
Manage 1999;28(5):443 52.

581

Jones SRH. Transaction costs and the theory of the firm: the scope and
limitations of the new institutional approach. Bus Hist 1997;39(4):
9 25.
Jorgensen J, Hafsi T, Kiggundu MN. Market imperfections and organizational structure: the LDC perspective. In: Kindra GS, editor. Marketing
in developing countries. London: Croom-Helm, 1984. pp. 172 87.
Lall S. Technological capabilities and industrialization. World Dev
1992;20(2):165 86.
Lall S. Understanding technology development. Dev Change 1993; 24(4):
719 53.
Lall S, Latsch W. Import liberalization and industrial performance: the
conceptual underpinnings. Dev Change 1998;29(3):437 65.
Larsson R, Bengtsson L, Henriksson K, Sparks J. The interorganizational
learning dilemma: collective knowledge development in strategic alliances. Organ Sci 1998;9(3):285 305.
Lazonick W. Business organization and the myth of the market economy
Cambridge: Cambridge Univ. Press, 1991.
Levitt B, March JG. Chester Bernard and the intelligence of learning. In:
Williamson OE, editor. Organization theory. From Chester Bernard to
the present and beyond. New York: Oxford Univ. Press, 1990. pp.
11 37.
Loasby BJ. The organization of capabilities. J Econ Behav Organ 1998;
35:139 60.
Loasby BJ. Knowledge, institutions and evolution in economics London:
Routledge, 1999.
Lundvall B-A. Innovation as an interactive process: from user producer
interaction to the national system of innovation. In: Dosi G, Freeman C,
Nelson R, Silverberg G, Soete L, editors. Technical change and economic theory. London: Pinter Publishers, 1988. pp. 346 69.
Lundvall B-A, Johnson B. The learning economy. J Ind Stud 1994; 1(2):
23 42.
Nooteboom B. Towards a dynamic theory of transactions. J Evol Econ
1992;6:281 99.
Richardson GB. The organization of industry. Econ J 1972;82:883 96
(September 1972).
Richardson GB. The theory of the market economy. Rev Econ 1995;6:
1487 96 (November 1995).
Richardson GB. Some principles of economic organization. In: Foss NJ,
Loasby BJ, editors. Economic organization, capabilities and co-ordination. Essays in Honour of GB Richardson. London: Routledge, 1998.
pp. 44 62.
Robertson D. Control of industry. London: Nisbet, 1923.
Stiglitz JE. Learning to learn, localized learning and technological progress.
In: Dasgupta P, Stoneman P, editors. Economic policy and technological
performance. Cambridge: Cambridge Univ. Press, 1987. pp. 125 53.
Tyre MJ, Von Hippel E. The situated nature of adaptive learning in organizations. Organ Sci 1997;8(1):71 83.
Wenger E. Communities of practice. Learning, meaning and identity. New
York: Cambridge Univ. Press, 1998.
Williamson OE. Visible and invisible governance. Am Econ Rev 1994;
84(2):323 6.