Journal of Small Business and Enterprise Development

Business networks: assisting knowledge management and competence acquisition within UK

manufacturing firms
Ian ChastonTerry Mangles
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 Journal of Small Business and Enterprise Development, Volume 7, Number 2
Business networks: Assisting knowledge
management and competence acquisition within
UK manufacturing firms
Ian Chaston and Terry Mangles
Group for Organisational Learning & Development, Plymouth Business School, University of Plymouth, Plymouth
PL4 8AA, UK
Tel: 01752 232810: Fax: 01752 232852; E-mail: Ian.chaston@pbs.plym.ac.uk
Submitted: 8th June, 1999; Amended: 18th August, 1999; Accepted: 11th November, 1999
ABSTRACT
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In both literature and policy documents, small and
medium-size enterprises (SMEs) are being advised
to form networks as a route for acquiring the
knowledge required to survive in rapidly changing
and/or highly competitive markets. There is, how-
ever, only limited anecdotal evidence of the positive
contribution that networks are a way of upgrading
organisational learning and thereby enhancing the
performance of small ®rms. Additionally, there
appears to be minimal guidance available on how
small ®rms might exploit networks as a route for
improving their capabilities to acquire and utilise
knowledge to enhance future performance.
To acquire additional empirical data on these
issues, a survey was undertaken to examine the
learning style of small UK manufacturing ®rms
participating in some form of cooperative relation-
ship with other members of their market supply
chain. Learning style in the survey was measured
by seeking response to a scale which permits assess-
ment of the degree to which the respondent ®rm is
exhibiting a single- versus double-loop learning
style. A survey of small ®rms advisers to gain their
view of the organisational competency was mea-
sured using a scale that identi®es those areas of cap-
ability that have signi®cant impact on the
performance of small ®rms.
Results indicate that ®rms involved in networks
tend to adopt a double-loop (or higher-order) learn-
ing style, whereas non-network ®rms mainly
appear to be autonomous single-loop learners.
When compared with non-network ®rms, respon-
# 2000 Henry Stewart Publications, ISSN 1462±6004, 160±170
dent organisations who participate in networks tend
to have a better developed, more formalised knowl-
edge management system. Furthermore, small ®rm
advisers perceive that the creation of a formalised
knowledge management system is re¯ected by such
®rms exhibiting a higher level of organisational
competence across some of the areas of marketing,
HRM and information management.
The implications of these ®ndings are discussed
in relation to how small ®rms might be assisted in
becoming involved in learning networks as a path
for improving their knowledge management cap-
abilities. Some qualitative, illustrative examples of
small business learning networks are provided.
Additionally, proposals are presented on the need
for further research.
MANAGERIAL AND POLICY IMPLICATIONS
. Study provides empirical data suggesting
that adoption of an organisational learning
philosophy can be assisted by persuading
®rms to participate in learning networks.
. Results indicate that small ®rms seeking to
become double-loop learners can gain from
participation in a learning network.
. Research provides empirical evidence that
participation in a learning network can
assist small ®rms develop more e€ective
knowledge management systems.
. Study provides a process model and case
materials that can be used by small ®rm
support agencies interested in facilitating
the creation of learning networks as a route

to accelerating problem solving within the
SME sector organisations.
KEY WORDS
Networks, manufacturing, learning, knowledge,
lifelong learning, small manufacturing ®rms
INTRODUCTION
Despite the very limited availability of empirical
data demonstrating the proven bene®ts of organi-
sational learning, within the last few years the UK
Government has adopted the philosophy as the
platform for promoting the idea that small ®rms
should increase their commitment to organisa-
tional development. An apparent justi®cation is
that this is the most e€ective and practical way
through which to increase SME sector survival
rates during the early years of the new millennium
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(Fryer, 1997). Central government has selected the
concept of `Lifelong Learning' as the platform
through which to communicate the need for indi-
viduals and ®rms continuously to seek to acquire
and apply new knowledge. Four new policy initia-
tives which have been implemented speci®cally to
support the Lifelong Learning message are New
Deal, the University for Industry, Individual
Learning Accounts and the National Grid for
Learning.
In the UK, delivery of public sector small ®rm
support policies is primarily the responsibility of
two organisations, the Training and Enterprise
Councils (TECs) and the more recently established
`one-stop' advisory service, the Business Links. A
review of a sample of promotional literature from
TECs and Business Links suggests that these
organisations consider the Lifelong Learning
concept is mainly concerned with assisting
employees in small ®rms participate in training
schemes regularly to upgrade competencies.
Furthermore, where possible such training should
lead to the award of a nationally recognised
educational quali®cation such as a National Voca-
tional Quali®cation (NVQ). This leaves the
authors with the impression that Lifelong Learning
is only concerned about establishing within the
SME community, a longer-term perspective about
the design and delivery of employee training
schemes.
In order to gain further understanding of the
UK small ®rm support agencies' perceptions con-
cerning the concept of organisational learning,
unstructured one-to-one interviews and focus
Journal of Small Business and Enterprise Development
Chaston and Mangles
groups were undertaken with personal business
advisers (PBAs), business counsellors and manage-
ment sta€ drawn from various TECs and Business
Links. In total, qualitative data were obtained
from 54 individuals. Their prevailing view is one
of Lifelong Learning being designed to promote
the concept that, in order to survive in the face of
rapidly changing market conditions, ®rms should
be more committed to upgrading employee skills
and using organisational development to improve
managerial practices further. Respondents were in
agreement that, because employees undertake dif-
ferent job roles, relevant training schemes need to
re¯ect those competencies required to ful®l speci®c
tasks within an organisation.
Most respondents felt that although owner-
managers are willing to accept that a speci®c
employee might require additional training, few
would accept the holistic approach contained with
an organisational learning philosophy of being
prepared to resource a sustained, ongoing, contin-
uous upgrading of all areas management practice
across their entire organisation.
ORGANISATIONAL LEARNING: ORIGINS OF
THEORY
With ®rms striving to ®nd new ways of ensuring
their survival in the face of turbulent and/or
highly competitive market conditions, the only
real source of competitive advantage is to stimu-
late learning by employees (De Geus, 1988). Simi-
lar views have been expressed by Slater and
Narver (1995), who de®ne competitive advantage
in terms of the skills learned by employees which
are dicult to imitate and which permit the orga-
nisation to o€er superior value to customers.
Woodru€ (1977) presented the concept of learning
about the marketplace as an activity central to
o€ering greater customer-based value. Earlier, Bell
(1973) had proposed that the information and
knowledge acquired by employees is now more
important than the more traditional orientation of
assuming the technology contained within the
®rm's ®xed capital assets can provide the basis for
delivering products superior to competition.
In proposing employee-initiated strategic
responses to changing market conditions, most
authors have drawn upon the increasingly popular
area of academic theory known as `organisational
learning' (Senge, 1990). The literature on this
topic has grown very rapidly over the last 5 years,
attracting interest from the six academic perspec-
tives of psychology/organisational development,
161
 Business networks
management science, strategic management, pro-
duction management, sociology and cultural
anthropology (Easterby-Smith, 1997). The view
that organisational learning o€ers the bene®t of
enhancing business performance is supported by a
number of authors (eg Bell, 1973; Slater and
Narver, 1995). It is, however, somewhat surprising
to ®nd that very little conceptual and empirical
attention in the academic literature has been given
to the relationships which may exist between
organisational learning and e€ective execution of
key managerial functions (Morgan et al., 1998). In
those cases where writers have linked organisa-
tional learning with ful®lment of management
tasks (eg Jaworski and Kohli, 1966; Slater and
Narver, 1995), they have focused on the informa-
tion required to gain a complete understanding of
complex problems.
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ORGANISATIONAL LEARNING AND THE
SMALLER FIRM
Many writings on organisational learning describe
the application of the philosophy within the large
®rm sector. Furthermore, as noted by Easterby-
Smith (1997) `much of the existing research is
based upon case studies of organisations that are
said to be successful, and these sometimes seem to
rely more on public relations than on any rigorous
and grounded studies'. His view supports an earlier
analysis by Huber (1991), which also concluded
that there is little in the way of substantial theory
concerning organisational learning and, further-
more, minimal cross-fertilisation between research
groups from di€erent academic traditions.
Two groups of researchers who have made
some attempt speci®cally to address the issue of
learning in smaller organisations are Pedler et al.
(1997) and Hendry et al. (1995). The latter group
concluded, however, that SMEs are a sector which
has, for far too long, been neglected by organisa-
tional learning researchers and that, therefore, no
empirically adequate data sets yet exist within the
literature.
Despite this conclusion, some additional insights
on organisational learning can indirectly be gained
from studies on technology transfer within the
small ®rms sector. A common conclusion from
many such studies, which are concerned with
identifying obstacles in e€ective technology trans-
fer, is that small ®rms are often constrained by
their very limited ability either to acquire adequate
information from external sources and/or to utilise
such information to evolve new operational prac-
162
tices (Langley and Truax, 1994; Robertson et al.,
1996). As such, it can probably be inferred that
many small ®rms exhibit low-level, single-loop
learning (Argyris and Schon, 1978), which
involves the utilisation of existing knowledge and
trading experience as the basis for improving the
eciency of current operations. Although there is
a tendency in the organisational learning literature
to criticise single-loop learning, a more reasoned
and balanced case has been presented by Ayas
(1996). He suggests there is no one best way for
organisations to learn and that learning style
should re¯ect the operational needs of the organi-
sation. Thus, for example, a small manufacturing
organisation operating in a relatively stable market
producing standard components for original
equipment manufacturers (OEMs), and where the
primary purchase decision factor is competitive
price, would probably ®nd single-loop learning is
appropriate for sustaining employee development
aimed at optimising organisational eciency.
In those market situations where there are peri-
ods of signi®cant discontinuous change and/or a
desire to use product superiority achieved through
innovation as a strategy to di€erentiate the ®rm
from competition, then possibly an incremental,
more adaptive, higher-order learning style may be
more appropriate (Nevis et al., 1995). For this type
of organisation, Senge (1990) feels that the more
appropriate learning style would be to adopt a
double-loop orientation involving the exploitation
of new knowledge to evolve new practices, per-
spectives and operational frameworks.
THE ROLE OF BUSINESS NETWORKS IN
ASSISTING LEARNING
Many research studies on the formation and opera-
tion of business networks contain the observation
that a primary bene®t obtained from membership
of a network is the sharing of knowledge that will
enhance the learning processes within participant
®rms. Nelson and Winter (1982) argue that part-
ner learning is a key element in the success of net-
works. They describe how the embedded
knowledge represents the `network routines' that
de®ne the operational activities of the network
and the way it does business. Womack et al. (1990)
consider that knowledge transfer, especially in
terms of transferring expertise to overseas partners,
is a critical element within Japanese industrial net-
works. DeBresson and Amesse (1991) ascribe one
of the key factors leading to the emergence of a
network approach to innovation is the realisation
Journal of Small Business and Enterprise Development

by ®rms that internationalisation of technology is
critically dependent upon ®nding structures that
can support the transfer of information across bor-
ders. Ford et al.(1997) have proposed that the opti-
mal performance within networked supplier
chains and distribution systems can be attributed
to participants exchanging knowledge and learn-
ing from each other.
Early research on the role of networks in the
SME sector focused on the social and institutional
contexts into which owner-managers of small
®rms are embedded (Aldrich and Zimmer, 1986;
Birley, 1985). Until these studies were initiated,
the innovative owner-manger was often charac-
terised as acting as a `Lone Ranger' ®gure achiev-
ing their entrepreneurial goals by acting
independently of other actors within their market
system. Application of network theory to provide
a clearer understanding of actual behaviour
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revealed that successful small business entrepre-
neurs were often members of complex informa-
tion networks. These networks are used to acquire
information and/or access to incremental resources
that cannot be funded from within their own busi-
ness operations.
Some authors perceive small ®rm networks as
heterogeneous entities in which owner-managers
use di€erent contacts (®nancial advisers, friends,
business contacts) to gain access to a variety of
information sources (eg Johanisson et al., 1994).
Sverrisson (1994), on the other hand, has used the
actor-network approach to examine both the
social and technology sharing aspects of small busi-
ness networks.
Another dimension to SME sector networks are
the concepts associated with writings concerning
the demise of mass production as a viable strategy
in a post-Fordist industrial age (eg Piore and
Sabel, 1984). This involves the replacement of
large corporations with clusters of geographically
concentrated smaller ®rms cooperating together in
a single industrial district. A frequently quoted
example to validate the bene®ts of this alternative
organisational form is the Emilia-Romagna district
in Northern Italy (Capecchi, 1989). Subsequently,
the Danish Technological Institute formalised the
cluster model to evolve frameworks to stimulate
the creation of business networks as an economic
regeneration mechanism. Having validated the
concept in Denmark, in the late 1980s, the Insti-
tute became involved in launching their small
®rms network formation process model in econo-
mies elsewhere in the world, such as in Australia,
Journal of Small Business and Enterprise Development
Chaston and Mangles
Canada, New Zealand, Norway and the UK
(Chaston, 1996).
As with most emerging theories of manage-
ment, the proponents of concept, having observed
the common occurrence of a speci®c type of
industrial behaviour, quite reasonably conclude
that it must confer some form of strategic advan-
tage. In the case of network theory, a very usual
conclusion is that membership of a business net-
work will o€er participants the opportunity to
add greater value to their product and/or services.
One way this can be achieved is through the
reduction of costs. Kalawi and Narayandas (1995),
for example, concluded that suppliers entering
into long-term relationships could make inventory
savings and lower costs in areas such as administra-
tion, selling and/or distribution management.
Another example is provided by Benetton. This
network illustrates how a `hub ®rm' can orches-
trate the activities of numerous smaller supplier
®rms to build business as a strategy for enhancing
the e€ectiveness of the marketing process to such a
degree that it permits the creation of a global
brand.
RESEARCH AIMS AND METHODOLOGY
Writers such as Gibb (1996) have posited that busi-
ness networks are an e€ective mechanism through
which to assist learning within small ®rms. It does
not appear, however, that within the Govern-
ment's Lifelong Learning initiative, much thought
has been given to the issue of what structures
might be used to engender a move towards
higher-order learning within the UK SME sector.
Additionally, it seems few support agency person-
nel, when advising clients on the implementation
of Lifelong Learning programmes, are concerned
about the needs of ®rms to adopt an appropriate
learning style, or review whether the level of
learning is sucient to resolve complex organisa-
tional problems e€ectively. Hence, in view of this
situation, it was concluded that there is need for
further research.
For the purposes of this study, the following
two null hypotheses selected for testing were:
1. Small ®rms, no matter whether they are net-
work or non-network oriented, exhibit the
same style of learning.
2. Small ®rms, no matter whether they are net-
work or non-network oriented, exhibit the
same level of competence across areas of busi-
ness activity.
163
 Business networks
Most of the leading academic authorities in the
®eld of business networks are willing to provide
descriptions of the attributes exhibited by partici-
pants within such structures. Few, however, have
apparently attempted to translate their de®nitions
into appropriate scales for measuring the degree to
which a ®rm is involved in networking. In recog-
nition of this situation, a series of one-to-one and
group meetings were held with sta€ from Business
Links around the UK who are responsible for
facilitating the creation of small ®rm networks
based upon the Danish Technological Institute
model (Chaston, 1996). Respondents were shown
some of the relationship management statements
which have been suggested by writers such as
Gummesson (1987), Gronroos (1994) and Coviello
et al. (1997).
By using these materials to stimulate debate and
applying content analysis to the discussion outputs,
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six descriptive statements emerged which were fre-
quently mentioned by the participants in terms of
the characteristics that they felt are exhibited by
members of small ®rm networks. These statements
were used to develop a scale for distinguishing
between independent, non-network oriented ®rms
versus those ®rms who perceive themselves as
cooperating with others in a business network.
The scale is based upon requesting respondents
to comment on each of the following six state-
ments, using a 7-point scale ranging from `Very
strongly disagree' to `Very strongly agree':
1. Revenue is primarily generated from repeat
sales from customers who themselves have
formed a close working relationship with each
other and/or with their suppliers.
2. In-depth understanding of customers and/or
suppliers is achieved through close involve-
ment with a group of these ®rms.
3. New and improved products are developed by
forming close information exchange partner-
ships with a group of customers and/or suppli-
ers.
4. The ®rm's quality standards are developed on
the basis of close interaction between a group
of customers and/or suppliers.
5. Sta€ are strongly committed to meeting the
needs of others within the group of customer
and/or supplier ®rms with whom the organisa-
tion has a close working relationship.
6. In seeking solutions to identi®ed problems,
sta€ at all levels within the ®rm interact with
the group of customers and or suppliers with
164
whom the organisation has a close working
relationship.
Identi®cation of a scale to assess organisational
learning style also proved somewhat problemati-
cal. Although scales can be found in many of the
texts on the subject, few appear to be carefully
validated as e€ective research tools. An exception
to this situation was found in the case of a scale
developed by Badger et al. (1998). This scale was
evolved from a detailed review of the literature
and, subsequently, extensively tested in both the
large and small ®rm sectors.
Respondents are asked to comment, using a 5-
point scale ranging from `Never like this' through
to `Always like this', on nine statements (see Table
1) concerned with various aspects of the current
learning environment within their organisation.
The originators of the scale suggest that organisa-
tional learning should be perceived as a conti-
nuum, with at one end reliance on building upon
existing knowledge (ie single loop learning) and at
the other, exploiting new sources of knowledge as
the basis for becoming ever more versatile, ¯exible
and adaptive(ie double-loop learning). In relation
to the nine statements in Table 1, the nearer the
respondent ®rm rates the statements as `in our
company it is always like this', then the greater is
the probability that the ®rm is exhibiting what
Glyn (1996) has described as a `higher-order' style
of organisational learning.
Organisational learning is utilised to solve pro-
blems confronting the ®rm. There appears to be
no existing validated scale for examining the issue
of the competencies associated with complex pro-
blem solving in the small ®rms sector. Hence, it
was decided that to gain an understanding of how
small ®rms handle complex problem solving, the
organisational and employee descriptions proposed
by Badger and Chaston (1992) would be used.
These provided 24 statements of activity (see
Table 2). The resultant scale that was developed is
based upon requesting respondents to comment,
using a 7-point scale ranging from `Very strongly
disagree' to `Very strongly agree', on each of the
24 statements.
It was felt that to test the study's two hypoth-
eses e€ectively required the widest possible percep-
tion of small ®rm behaviour. To achieve this aim,
it was decided both to research the views of small
®rms in relation to their learning style, and to gain
the views of individuals who have extensive
experience of the UK SME sector.
Journal of Small Business and Enterprise Development
 Chaston and Mangles

Table 1: A comparison of learning styles

Company behaviour Mean network Mean non- t-value

®rms network ®rms

(1) Constructive feedback is given to all employees on how they are

doing 2.84 2.40 5.08*
(2) Employees encouraged to undertake training and development
activities 2.97 2.71 3.13*
(3) Employees share training/development
learning lessons with others 2.79 2.63 1.44
(4) Employees share knowledge and resources 3.10 2.74 3.50*
(5) Company goals made clear to all employees 2.65 2.27 3.76*
(6) Employees, suppliers, customers all encouraged to let ®rm know
if anything is going wrong 2.79 2.36 3.94*
(7) Employees not afraid to voice di€ering opinions 2.49 2.36 1.31
(8) Company always willing to change working practices 3.15 2.79 3.46*
(9) Company on lookout for new ideas from any source 3.18 2.61 5.72*

* Di€erence signi®cant at p50.05.

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Table 2: Complex problem solving: a comparison of network versus non-network oriented ®rms

Managerial practice Mean network Mean non- t-value

®rms network ®rms

(A) Problem handling

Inability to handle complex marketing problems 4.32 4.76 2.08*
Inability to handle complex HRM problems 4.05 4.06 0.02
Inability to handle complex ®nancial problems 5.28 5.47 1.10
Inability to handle complex production problems 3.33 3.47 0.80
Inability to handle complex problems associated with new technology 4.46 4.75 1.49
Inability to handle complex procurement problems 3.17 3.42 1.51
Inability to handle complex control systems 4.41 4.83 2.20*
Inability to handle complex computer operating problems 4.44 4.81 1.97*

(B) Organisational behaviour

Ability to ensure departments work well together 4.20 3.70 3.07*
Encouragement of employees taking risks in decision making 3.23 2.75 2.70*
Ability to ensure departments cooperate with each other 4.28 3.78 3.22*
Ability to ensure departments enjoy interaction with each other 4.27 3.83 2.82*
Ability to encourage employees to be actively involved in
discussions 4.21 3.46 4.07*
Ability to ensure good ¯ow of information across organisation 3.41 2.88 3.31*
Encouragement of employees to make their own decisions 3.49 2.89 3.50*
Ensuring employees can gain access to needed information 3.75 2.89 4.84*
Ability to ensure employees can gain access to information from
external sources 3.51 2.74 4.24*
Ensure employees make careful assessment of available information 3.72 3.03 4.29*
Ensure employees make careful assessment of alternative solutions 3.79 3.13 4.52*
Ensure that cost bene®t analyses are undertaken 3.59 2.88 4.24*
Ensure solutions e€ectively implemented 4.22 3.55 4.73*
Problem solving based around a project team approach 3.88 3.36 2.51*
Employee development programmes cover problem-solving skills 3.44 2.65 4.91*
Firm encourages innovation by all employees 4.12 3.02 6.50*

*Signi®cant at p50.05.

Journal of Small Business and Enterprise Development 165

 Business networks
Following pilot testing, a survey on learning
style in relation to network orientation was mailed
to 750 manufacturing ®rms selected from a Dun
and Bradstreet database. For inclusion in the
sample frame, the ®rms had to be autonomous
trading entities and have between 10 and 50
employees. Responses were received from 189
®rms, representing a response rate of 25.2 per cent.
To obtain an understanding of competencies
exhibited by small ®rms, a second survey was
mailed to 1,000 members of the UK Institute of
Business Advisers (IBA). These individuals were
asked to comment on each question in relation to
how `the descriptive statement applies to the
majority of ®rms to whom you provide advice'.
As it was considered that complex problem sol-
ving is more likely to be relevant to existing small
®rms, respondents were asked only to comment if
their primary client base is ®rms which have been
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trading for at least 3 years. Unfortunately the IBA
database does not di€erentiate between those
members who work with start-up ®rms and those
who focus on established businesses. On the basis
of both received correspondence and earlier
experience with the IBA database, it is estimated
that approximately only 45 per cent of members
work with established small businesses. Initial
usable responses were received from 217 indivi-
duals. Hence, based upon the assumption concern-
ing the proportion of members involved in
assisting established ®rms, the estimated response
rate was 48.2 per cent.
RESULTS
All 189 survey forms returned by the small manu-
facturing ®rms were used to calculate inter-item
reliability for the network participation scale. The
reliability score of 0.85 exceeded the minimum
reliability standard of 0.70 recommended by Ven
de Ven and Ferry (1980) for scales used to measure
organisational attributes. Further scale validation
was achieved by using the procedure recom-
mended by Allen and Yen (1979), which involves
factor analysis of the scale items in order to assess
dimensionality or `factorial validity'. If high item
loading on a single factor occurs, this would sug-
gest that, although the items focus on di€erent
aspects of the behaviour being measured, they are
empirically related and constitute a distinct, unidi-
mensional orientation. In the case of the network
orientation scale, one item (`Revenue generated
primarily . . .') loaded at a value of 0.4 and was
dropped from the network orientation scale. All
166
other items on both scales loaded above 0.4 on a
single factor, indicating that it is probably appro-
priate to combine these items into scales to pro-
vide a measurement of the degree to which ®rms
are members of small business networks.
Covin and Slevin (1988) have proposed that, as
most measurements of management style are in
fact a continuum, one approach for classifying
groups is to select the overall mean for all scale
attributes as the dividing point. Hence, ®rms in
the sample which had a mean overall score equal
to or less than the overall sample mean of 4.25 for
network orientation were classi®ed as being biased
towards operating as independent, non-networked
trading entities. Those ®rms that had a mean score
greater than the overall sample mean were classi-
®ed as being biased towards operating as members
of a business network. A t-test was undertaken to
compare the responses of the small ®rms to the
nine questions concerning organisational learning
style in network versus non-networked ®rms. The
results of this analysis are presented in Table 1.
Higher mean scores for network versus non-net-
work oriented ®rms were reported for seven of
the nine company behaviour variables associated
with learning style.
To determine the degree to which IBA mem-
bers agree over the ability of small ®rms to handle
the 24 descriptions of various aspects of complex
problem-solving activities, a t-test was undertaken
to compare network versus non-network ®rms.
The results are summarised in Table 2. It can be
seen for three areas of problem handling and all
areas of organisational behaviour, signi®cant statis-
tical di€erences exist between network versus non-
network oriented ®rms.
CONCLUSIONS AND IMPLICATIONS
The ®rst conclusion which can be drawn from this
study is that, on the basis of the data in Table 1, it
is not possible to substantiate hypothesis 1;
namely, that `small ®rms, no matter whether they
are network or non-network oriented, exhibit the
same style of learning'. For on the basis of these
data, it appears that small ®rms that participate in
business networks are more able to achieve a
higher-order, or double-loop, learning style than
non-network oriented ®rms, who tend to exhibit
the characteristics of a lower-order, or single-loop,
learning style.
Thus, if support agencies can convince small
®rms of the bene®ts of organisational learning,
successful implementation of such schemes is likely
Journal of Small Business and Enterprise Development

to be impaired unless actions can be taken to
ensure ®rms seeking to create a ¯exible, proactive
business response capability, adopt a higher-order
learning style. Furthermore, on the basis of the
data in Table 1, it seems support agencies working
with ®rms who have adaptability/¯exibility aspira-
tions should attempt to persuade such organisa-
tions to consider joining, or creating, a learning
network. For, as demonstrated by the results
described in Table 1, these ®rms will probably be
more able to ensure:
1. Constructive feedback is given to all employees
on how they are doing their jobs.
2. Employees can be encouraged to participate in
training and organisational development pro-
grammes.
3. Employees will actively share their knowledge
and/or resources with others.
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4. The organisation's goals and strategies will be
clearly communicated to all employees.
5. Employees, customers and suppliers will all be
motivated immediately to let the organisation
know about failings across any area of its
operations.
6. The company is able continually to evaluate
current working practices and rapidly identify
actions to enhance further the delivery of inter-
nal and external customer value.
7. The company is able rapidly to identify new
ideas from any source both within and outside
the organisation.
It is apparent from Table 2 that, for three areas
of problem solving and all areas of organisational
behaviour which support an e€ective associated
problem-solving environment, statistically signi®-
cant di€erences exist between the mean scores for
network versus non-network oriented ®rms.
These results would appear, therefore, to invalidate
research hypothesis 2 of this study; namely that
`small ®rms, no matter whether they are network
or non-network oriented, exhibit the same level of
competence across areas of business activity'.
This conclusion has some very interesting
implications for both the potential success of UK
Government's Lifelong Learning initiative, and
support agency sta€ and/or owner-managers con-
sidering how best to structure the learning process.
For it would appear that the results described in
Table 2 provide empirical support for the concept
that involvement in business networks can o€er an
extremely e€ective route through to implement
Journal of Small Business and Enterprise Development
Chaston and Mangles
an organisational learning programme aimed at
enhancing long-term operational performance.
Thus, it would seem reasonable to suggest that in
relation to small ®rm support policies, the concept
that should be strongly promoted is the formation
of learning networks as an e€ective mechanism to
assist ®rms achieve their goal of upgrading organi-
sational performance.
NEED FOR FURTHER RESEARCH
In ®nalising the list of management practices asso-
ciated with complex problem solving to be cov-
ered by this study, the authors recognise that, in
order to optimise response rates by not mailing an
excessively lengthy questionnaire, this means that
a less than totally inclusive list of issues was cov-
ered. Clearly, therefore, further research is needed
in order that many of the generically presented
issues are probed in much greater depth (eg the
interpersonal skills of employees working within
project teams; the utilisation of project manage-
ment computer software for problem solving). It
is also necessary to recognise that complex pro-
blem solving was adopted as one measurement
for assessing the degree to which a double-loop,
or higher-order-level, learning is exhibited. Pro-
blem solving is, however, only one aspect of
higher-order-level learning and, hence, further
research is needed to examine other behavioural
dimensions associated with this organisational
learning style.
Some academics and management consultants are
now frequently advising ®rms that the most appro-
priate strategy to cope with increasingly competi-
tive market conditions is to implement actions
associated with adopting a higher-order learning
orientation. As yet, there only exists mainly qualita-
tive, sector speci®c evidence to support the view
that organisational learning can contribute to the
upgrading of organisational competence and act as
a path through which to overtly strengthen a ®rm's
market position. Clearly, therefore, there is an
urgent need for further research to provide addi-
tional evidence of the bene®ts which can accrue to
small ®rms that decide to invest in extensive organi-
sational learning programmes. Such research will
probably involve the use of a variety of approaches
ranging from grounded theory, in-depth case stu-
dies and ongoing, longitudinal surveys of ®rms that
have introduced changes in organisational learning
practices.
By drawing upon both the literature and their
own observations of actual business practices, wri-
167
 Business networks
ters such as Carson et al. (1995) and Gibb (1996)
have posited that business networks provide an
e€ective vehicle through which owner-managers
can gain access to information to assist the future
performance of their businesses. To date, however,
it would seem that few UK support agencies have
exploited these observations and formally sought
to use networks as a platform through which to
accelerate competence acquisition by SME sector
®rms. One possible reason for this omission is the
limited availability of research data on both
mechanisms to facilitate learning network forma-
tion and how to manage the learning process
within this type of organisational structure.
For some years now, support agencies in both
the UK and elsewhere in the world have been
actively promoting the concept of business net-
works as a mechanism through which to enhance
small ®rm growth rates (Chaston, 1996). The pri-
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mary objective of these various schemes, however,
has been to focus on the formation of new trading
entities to resolve speci®c operational problems (eg
entry into an overseas market; creating scale with
procurement activities). Discussions with UK net-
work brokers did reveal, however, that they have
been involved in using networks to stimulate par-
ticipant learning. One example is a network of
small biotechnology ®rms linked with their local
university to more rapidly acquiring knowledge
on issues such as advances in their ®eld of science
and the implementation of new laboratory techni-
ques. Additionally, the UK Department for Edu-
cation and Employment (DfEE) has recently
funded some pilot-level research on the formation
of networks to assist organisational learning.
Examples of networks encompassed by this latter
study include:
1. A group of small retailers seeking to learn how
to evolve strategies for responding to the com-
petitive pressures of out-of-town superstores.
2. A group of independent garden centres seeking
to gain understanding on the use of market
research to evolve improved marketing strate-
gies.
3. Small ®rms having recently acquired their ®rst
injection of equity capital, evolving the skills
required to work more e€ectively with their
new investors.
4. A group of recently launched micro-®rms
seeking to expand their ®rms more rapidly
through sharing experiences of both successful
and mistaken business decisions.
168
5. A group of ®rms seeking to acquire expertise
in Internet marketing and e-commerce.
Linking data provided by discussions with net-
work brokers and participants in the DfEE project
permits the construction of a provisional process
model for describing the formation of a small ®rm
learning network. The elements and activities
within the four-phase model as follows:
Phase 1: This involves a learning opportunity
being identi®ed that can best be resolved
through the formation of a learning network.
The opportunity identi®cation can be achieved
through various sources. These include the
®rms themselves, a trade association, a support
agency broker, an educational institution, a
local authority economic development ocer
or a commercial organisation such a High
Street bank.
Phase 2: Prior to network formation, there is a
need for the learning opportunity to be vali-
dated. This is usually achieved because an indi-
vidual drawn from either one of the ®rms or
an external source is prepared to accept the
pivotal role of Network Facilitator. This indi-
vidual then undertakes further research and
brings the potential network members
together to discuss key issues as the idea is pro-
gressed through the validation process.
Phase 3: Once the learning opportunity has been
validated, it is necessary for an appropriate net-
work structure to be designed. It appears that
learning networks normally require the
ongoing services of a `Learning Leader'
responsible for managing the design and
operation of the proposed learning pro-
gramme(s). This person might be the Network
Facilitator, an owner-manager appointed on a
rotational responsibility basis, a newly
appointed employee jointly funded by the net-
work participants or an individual from an
external body such as a support agency or an
educational institution.
Phase 4: This is the last phase during which the
operational form of the network is ®nalised
and the formal learning programmes initiated.
The process model posited is based upon only a
limited number of case examples. If, however,
support bodies responsible for managing initiatives
such as Lifelong Learning decide that learning net-
works represent an e€ective vehicle for assisting
Journal of Small Business and Enterprise Development

organisational learning, then clearly this will open
up a potentially rich new vein of SME research.
There are a number of issues associated with any
learning network process models that will require
further investigation. These include how to maxi-
mise the potential outcomes for the opportunity
identi®cation phase, optimising the role of the
Network Facilitator, the competencies demanded
of an e€ective Learning Leader and how to over-
come obstacles that might be encountered upon
initiation of the network members learning activ-
ities.
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Ian Chaston is Director of Research at Plymouth
Business School, responsible for the faculty's
overall research strategy and the operation of the
school's PhD programme. His primary areas of
research interest are small business management
and marketing management.
Terry Mangles is principal lecturer in statistics
and IT Management at Plymouth Business School.
His primary area of research is in the application
of IT to manage business performance.
Journal of Small Business and Enterprise Development
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