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Relationship between organisational learning and organisational

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Article  in  Transformations in Business and Economics · January 2008

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 RELATIONSHIP BETWEEN ORGANISATIONAL LEARNING AND
ORGANISATIONAL PERFORMANCE: THE CASE OF CROATIA

Tomislav Hernaus
Department of Organization and Management
Faculty of Economics and Business
University of Zagreb
Trg J. F. Kennedya 6, 10000 Zagreb, Croatia
Tel: +385 1 2383264; fax: +385 1 2335633
e-mail: thernaus@efzg.hr

Miha Škerlavaj, Vlado Dimovski

Department of Management and Organization
Faculty of Economics
University of Ljubljana
Kardeljeva ploščad 17, 1000 Ljubljana, Slovenia
Tel: +386 1 5892467; fax: +386 1 5892698
e-mail: miha.skerlavaj@uni-lj.si, vlado.dimovski@ef.uni-lj.si

Tomislav Hernaus is a research and teaching assistant of organizational theory and business
process management at the University of Zagreb (Croatia), Faculty of Economics and
Business. In 2006 he received M.Sc. in Organisation Sciences, Economics from University of
Zagreb, on the topic “Transformation of Classical Organisation toward Process-based
Organisation”. His research interest are: organisation design, organisation theory,
organisation development, and business process management. He is an author and co-author
of several scientific articles and regurally publishes at the conferences worldwide.

Miha Škerlavaj is a research and teaching assistant of management and organizational theory
at the University of Ljubljana (Slovenia), Faculty of Economics. He has received his B.A.
degree in Banking and finance (2001), and M.Sc. in Business informatics (2003) from
Univeristy of Ljubljana. He also studied at the University of Nottingham, UK (2003).
Currently he is finshing his PhD Dissertation entitled Network Perspective and Performance
of Organizational Learning: Theoretical and Empirical Analysis. His research interest are:
organizational learning and organizational performance, learning network analysis, and
impact of IT on competitivness. He is an author and co-author of numerous scientific and
professional articles, three scientific monographies and regurally publishes at the conferences
worldwide.

Vlado Dimovski is a full professor of management and organizational theory at the

University of Ljubljana, Faculty of Economics in Slovenia. He holds B.A. degrees in
Economics and Philosophy, M.A. in Economics, and Ph.D. in Management and Finance. As
an academician Dimovski has taught and researched at the various universities and
institutions, and has published numerous articles in recognized journals. His academic
research interests cover learning organization, competitiveness, corporate strategy,
developing knowledge-based organizations, and labor markets. Besides his university
position professor Dimovski was the State Secretary for Industry (1995-97), the president of
Center for International Competitiveness (1997-2005), and Minister for Labour, Family and
Social Affairs (2000-2004).

1
ABSTRACT. The focus of the paper is on the examination of organisational learning (OL)
process and its link with organisational performance (OP) which was determined through
operationalised OL and OP constructs. The research involved 202 Croatian companies
employing more than 50 people. Besides determining the linkage between organisational
learning and organisational performance, the research task was to determine which
organisational performance measurement variables are the most and the least important, and
even further, to identify the best and the worst predictable OP measurement items for each
organisational learning variable. The most important finding of the study is the empirical
evidence about exsistence of strong, statistically significant, positive relationship between
organisational learning and organisational performance. In another words, organisations
with development of their learning processes congruently increase their performance. The
research also showed that employees’ measures are the most strongly related with
organizational learning process.

KEYWORDS. organisational learning, organisational performance, transition economy,

Croatia

JEL Classification: M10, L25.

Summary

In this paper the focus is on the organisational learning process and its’ relationship with
organisational performance (OP). More precisely, through operationalised organisational
learning construct, the linkage with specific organisational performance measures has been
determined, which included financial and non-financial measures as well. On the basis of 202
examined Croatian companies employing more than 50 people we have found the empirical
evidence about exsistence of strong, statistically significant, positive relationship between
organisational learning and organisational performance. In another words, organisations
which develop their learning processes congruently will increase their performance. The
study also revealed, and confirmed some earlier findings, that financial measures alone are
not good predictors of organisational performance. Furthermore, it showed that employees’
measures are the most strongly related with learning capability of an organisation, while
aforementioned financial measures are the weakest related. Finally, we have determined that
‘Behavioural and cognitive changes’ is the organisational learning construct variable which is
the most important for enhancing organisational performance.

2
Introduction

An organisation that dynamically deals with a changing environment should not only
process information efficiently, but also create information and knowledge. Analyzing the
organisation in terms of its design and ability to process information constitutes an important
approach to interpreting certain aspects of organisational activities (Nonaka et al, 1994).
Organisational learning (OL) is considered to be one of the most promising concepts in the
modern managerial literature.
However, there is very often a delusion, which should be demistifyed, that
organisational learning has a same meaning as a learning organisation. The distinction
between those two concepts is explained to the extent that organisational learning refers to
the study of learning process of, within and between organisations, largerly from an
academic point of view. On the other hand, the learning organisation is considered as an
entity – an ideal form of organisation, which has the capacity to learn effectively and hence
to prosper (Tsang, 1997). Jones and Hendry (1992) believe that it is necessary “to hold on to
the idea of the ‘learning organisation’ as a ‘direction’ while the process of ‘organisational
learning’ is seen as descriptive or heuristic device to explain and quantify learning activities
and events”.
In this paper the focus is on the organisational learning process and its’ relationship
with organisational performance (OP). More precisely, through operationalised
organisational learning and organisational performance constructs we tried to determine the
influence of organisational learning processes on organisational performance. The empirical
evidence on that topic is still sparse for the transitional economies. With exception of
Slovenia (Dimovski and Škerlavaj, 2004, Škerlavaj et al, 2007), there were no such analyses
published for other transitional economies. Therefore, our research task is to examine this
relationship also in Croatian setting. More specifically, the aim of the research is to
determine which organisational performance measurement variables are the most and the
least predictable when the effectiveness of organizational learning process is in the view, and
even further, to identify how a presence of learning process and quality of its’ practice
influence on organisational performance.
The paper is structured in six parts. After introductory words, a short overview of
relevant organisational learning and organisational performance literature is presented. The
operationalization of OL and OP contructs, which have been developed and validated in our
prior research, are separately introduced. Furthermore, on theoretical basis, a relationship
between organisational learning and organisational performance is observed which is
followed by sample description and data gathering process explanation. In the fifth part, a
thorough data analysis is conducted and research findings are presented. Finally, the research
results are discussed, limitations of the work exposed, and some directions for future research
in the area provided.

1. Organisational learning and organisational performance overview

1.1. Defining organisational learning

The 1990s have seen exponential growth of interest in organisational learning (Crossan
and Guatto, 1996; Bapuji and Crossan, 2004), apostrophizing its importance, providing
numerous definitions and many perspectives to the field. This is consistent with findings of
few early authors. According to Shrivastava (1983), a vast majority of research in the area has
been fragmentary and incomplete. Dimovski (1994) adds that research in the field of

3
organisational learning resulted in numerous definitions and models (e.g., Nonaka and
Takeuchi, 1996; Wall, 1998) that can be differentiated through criteria of inclusiveness, width
and focus. Most definitions are partial, because they deal with organisational learning from
only one theoretical perspective, disregarding the holistic conceptual view.
To present just a few of them, Senge (1990) defines organisational learning as ‘a
continuous testing of experience and its transformation into knowledge available to the whole
organisation and relevant to their mission’, while Huber (1991) sees it as a combination of
four processes: information acquisition, information distribution, information interpretation
and organisational memory. Argyris and Schön (1996) are even less restricting in their
definition, declaring that organisational learning emerges when organisations acquire
information (knowledge, understandings, know-how, techniques and procedures) of any kind
by any means.
However, the dominant paradigm for understanding organisational learning has taken
very much from the information-processing perspective of organisations (Cyert and March,
1963). According to it, the organisations interact with the environment constantly to capture
information (Hong, 1999). Dimovski (1994) provides an overview of previous research and
identifies four perspectives on organisational learning. His model manages to merge
informational, interpretational, strategic and behavioural approach to organisational learning
and defines it as a process of information acquisition, information interpretation and resulting
behavioural and cognitive changes, which should in turn have an impact on organisational
performance.

1.2. Organisational learning construct operationalised

Organisational learning process is a sequence of three phases: information acquisition,

information interpretation, and behavioural and cognitive changes. Companies that have
developed a strong learning culture are good at creating, acquiring and transferring
knowledge, as well as at modifying behaviour to reflect new knowledge and insight (Huber,
1991; Garvin, 1993). Hence, organisations stressing learning must first acquire information,
interpret it to fully understand its meaning and transform it into knowledge. At the same time,
they must not forget the most important part – to implement behavioural and cognitive
changes – in order to convert words into action. Furthermore, learning, through better
knowledge and understanding, facilitates behaviour changes that leads to improved
performance (Simon, 1969; Fiol and Lyles, 1985; Senge, 1990; Garvin, 1993; Lei et al, 1999).
Also, organisational learning is valuable to a company’s customers because it focuses on
understanding and effectively satisfying their expressed and latent needs through new
products, services and ways of doing business (Slater and Narver, 1995; Lukas et al, 1996).
The purpose of information acquisition is to decrease uncertainty (Daft and Lengel,
1986), which is defined as a lack of information by Shannon and Weaver (1973). Meaning,
uncertainty and quantity of information should be negatively correlated (Daft and Lengel,
1986). We would like to add that there is an optimal quantity of information. Namely,
information overflow probably limits organisations’ capacity to interpret information at hand.
Information acquisition is determined by two variables: data sources and intrusiveness
of organization (Daft and Weick, 1984). Data sources can be internal or external (Daft and
Lengel, 1986), with external sources representing managers’ direct contacts with information
source outside company boundaries, and internal sources including employee data collection
conveyed later (in the form of information) to managers using internal data channels. The
purpose of information interpretation is to reduce ambiguity related to information.
Ambiguity can be defined as existence of multiple, contradictory, explanations of situation at
hand (Daft and Lengel, 1986).

4
 Organizational learning reflects in ‘accompanying changes’ (Garvin, 1993). If no
behavioural or cognitive changes occur, organizational learning has in fact not occurred and
the only thing that remains unused is potential for improvements (Fiol and Lyles, 1985;
Garvin, 1993). When discussing cognitive changes two levels of learning can be observed.
Lower-level learning reflects changes within organizational structure, which are short-term
and only partially influence organization. Higher-level learning reflects changes in general
rules and norms (Fiol and Lyles, 1985).
In recent research, another measurement variable for organisational learning emerged.
Information quality (Eppler, 2003) is important in terms of reducing information overload
focusing towards comprehensive, accurate, clear, applicable, concise, consistent, correct,
easily accessible information with possibility for users to self-adjust format and content of
reports. In Table 1 operationalisation of Organisational learning construct is presented, using
four measurement variables and 48 measurement items. Each one of them was measured on a
five-point Likert scale (with 1 = completely disagree, to 5 = completely agree). When
measuring INFOACQ, INFOQUAL, INFOINT10 and INFOINT11 we asked respondents
about their degree of dis/agreement, when measuring INFOINT1-9 we measured perceived
importance and with BCC respondents were asked about changes in last three years in 14
selected items in terms of their increase or decrease.

Table 1. Operationalisation of organisational learning construct

Measurement
Item
variable
ƒ Employees as extremely important source of information (INFOACQ1).
ƒ Previous decisions important for current decisions (INFOACQ2).
ƒ New business methods and services are always worth trying even if they may prove
risky (INFOACQ3).
ƒ Reports prepared by external experts as an extremely important source of information
(INFOACQ4).
ƒ Clipping service (INFOACQ5).
ƒ Competitors as an extremely important source for learning new methods and services
(INFOACQ6).
ƒ Expertise on the industry, products, and services is an extremely important criterion
for hiring a new employee (INFOACQ7).
Information
ƒ Joint tasks and mergers contribute a great deal of knowledge about industry and
acquisition
economic environment, new methods and services/products (INFOACQ8).
(INFOACQ)
ƒ Top managers in any important decision seek information or advice from the board of
directors or owners (INFOACQ9).
ƒ Top managers in any important decision seek information or advice from sources
outside the company (hiring experts, contacting top managers of other companies,
etc.) (INFOACQ10).
ƒ Our organisation has employees whose job is related to searching for external
information (INFOACQ11).
ƒ External sources (reports, consultants, newsletters, etc.) are extremely important for
the operations of our organisation (INFOACQ12).
ƒ In our organisation we explicitly reward employees that are a source of quality
information (INFOACQ13).

5
 ƒ Information available in our organisation are comprehensive (all that we need)
(QUALINF1).
ƒ … accurate (close enough to actual situation) (QUALINF2).
ƒ … clear (allows for simple interpretation) (QUALINF3).
ƒ … applicable (serve certain intent e.g. decision-taking) (QUALINF4).
Information
ƒ … concise (there’s no information overload) (QUALINF5).
quality
ƒ … consistent (not in contradiction according to different sources) (QUALINF6).
(QUALINF)
ƒ … correct (true) (QUALINF7).
ƒ … current (quickly available) (QUALINF8).
ƒ Access to the information is simple (QUALINF9).
ƒ Information users in our company can self-adjust format and content of reports
(QUALINF10).
ƒ Personal contacts (INFOINT1).
ƒ Team meetings (INFOINT2).
ƒ Committees as decision-makers (INFOINT3).
ƒ Telephone contacts (INFOINT4).
ƒ Written memos, notes, letters… (INFOINT5).
Information
ƒ Special reports (INFOINT6).
interpretation
ƒ Formal chain of command reporting (INFOINT7).
(INFOINT)
ƒ Companies intranet as a mean of information interpretation (INFOINT8).
ƒ Forums (e-chat, e-debates) (INFOINT9).
ƒ The more information the subordinate has the better he/she will perform
(INFOINT10).
ƒ Information to a subordinate must always be simple and concise (INFOINT11).
ƒ Adaptability to environmental pressures (BCC1).
ƒ Quality of products / services (BCC2).
ƒ Number of products / services offered (BCC3).
ƒ Technology of operation (BCC4).
ƒ Speed of operations (BCC5).
ƒ Introduction of new marketing approaches (BCC6).
Behavioural
ƒ Average productivity of employees (BCC7).
and cognitive
ƒ Satisfaction of employees (BCC8).
changes (BCC)
ƒ Overall atmosphere (BCC9).
ƒ Personal communication between top managers and employees (BCC10).
ƒ Team meetings’ efficiency (BCC11).
ƒ Employees’ level of understanding of company’s strategic orientation (BCC12).
ƒ Employee’s level of understanding of major problems in the company (BCC13).
ƒ Efficiency of information systems within the company (BCC14).

Sources: Daft and Weick (1984); Daft and Lengel (1986); Martello (1993); Zahra and Covin, (1993);
Dimovski (1994); Eppler (2003); Škerlavaj (2003); Dimovski and Škerlavaj (2005).

1.3. Defining organisational performance

Innovation and improvement of products, services, and processes will be generated by

reskilled employees, superior information technology, and aligned organisational procedures.
As organisations invest in acquiring these new capabilities, their success (or failure) cannot be
motivated or measured in the short run by the traditional financial measures (Kaplan and
Norton, 1996). In other words, organisational performance is far wider concept than just profit
or some other financial performance measures. It cannot be evaluated without taking
organisational goals into consideration.
The contemporary modern business environment demands a multi-goal orientation.
Profit theory (Cyert and March, 1963) is no longer a valid measure of organisational
performance and neither are other approaches that only take the interests of shareholders
(owners) of a company into account. Emerging management paradigms are emphasizing a
stakeholder perspective (Atkinson et al, 1997; Berman et al, 1999; Harrison and Freeman,

6
1999; Hillman and Keim, 2001; Sirgy, 2002; Riahi-Belkaoui, 2003; Tangem, 2004). Due to
the significance of various stakeholders, organisational performance should not be solely
assessed by financial indicators. Although there are various approaches (Tangem, 2004) to
organisational performance measurement that encompass different stakeholder perspectives,
we have chosen to focus on following four perspectives: financial, employee’s view,
supplier’s view, customer’s view. The chosen perspectives are very similar to the perspectives
provided by a Balanced Scorecard approach, one of the most popular and widespreded
concepts. Namely, its founders, Kaplan and Norton (1996), have determined four basic
pespectives of the Balanced Scorecard: the financial perspective, the customer perspective,
the internal business process perspective, the learning and growth perspective. If we equalize
our employee’s view with the Kaplan and Norton’s learning and growth perspective, the only
difference in those two approaches is our emphasis on suppliers’ view, instead of on internal
business process perspective. From that point, we could say that our perception of relevant
organisational performance measurement variables is acceptable.

1.4. Organisational performance operationalised

The modern business environment is characterized by increased importance and

strength of customers, employees and society in general. Because of that, we used four
contructs (measurement variables) of organisational performance: financial performance
measures (FIN); customers’ measures (CUST); employees’ measures (EMP); suppliers’
measures (SUPL). Several perceptual measures of performance (relative to competition) were
used for each of them. The Organisational performance construct consists of 19 measurement
items. The respondents had to choose between two opposed statements on a five-point Likert
scale (with 1 = completely agree, to 5 = completely disagree). In the following table in depth
is presented the aforementioned construct, but it should be emphasized that, because of the
clearness of the notion, in the table only the minimum statements are presented.

Table 2. Organisational performance construct operationalised

Measurement variable Item
Return on assets (ROA, %) in our company is well below the industry average (FIN1).
Financial measures
Value added per employee in our company is well below the industry average (FIN2).
Suppliers’ measures Relations with suppliers are very poor and unstable and usually short-term (SUPL1).
The net fluctuation of employees (number of staff replaced due to dissatisfaction with
pay, relationships in the workplace and chances for career advances etc – internal
reasons) is very high within our company (EMP1).
Productivity of employees is much lower than industry average (EMP2).
Employees’ trust into leadership is low (EMP3).
Trust among employees themselves is weak (EMP4).
Work organisation is inefficient (EMP5).
Employees’ measures Employees do not feel special commitment to the organisation (EMP6).
Employees are not prepared to go an extra mile for the company (EMP7).
Work costs per employee are well above the industry average (EMP8).
Absenteeism is in our company (relative to competition) very high (EMP9).
Employees are very dissatisfied with the situation within the company (EMP10).
Learning ability and adaptability of employees is low (in comparison to competition)
(EMP11).
Risk-taking within the company is worse than it is by our competitors (EMP12).
The number of customer complaints within the last period has increased strongly
Customers’ measures
(CUST1).

7
 Speed of dealing with customer complaints (comparatively to competition) is low
(CUST2).
We loose existing clients and do not manage to attract new-ones (CUST3).
Reputation of our company in eyes of the customers has declined (CUST4).

Source: Dimovski and Škerlavaj, 2005; Škerlavaj et al, 2007.

2. Linkage between organisational learning and organisational performance

Quite a few studies have emerged in recent times that have scrutinized the relationship
between organisational learning process and organisational performance (Adler, 1990; Adler
and Clark, 1991; Dimovski, 1994; Simonin, 1997; Lam, 1998; Pisano et al, 2001; Sloan et al,
2002; Vits and Gelders, 2002; Figueiredo, 2003, Dimovski and Škerlavaj, 2005; Škerlavaj et
al, 2007).
Previous studies that underline the positive effects that organisational learning has on
business performance differ on what they understand by performance. The prescriptive
literature consider financial results as business performance (Lei et al, 1999). Although these
outcomes are important, there may be more proximate outcomes that may mediate the
relationship with financial results. For example, outcomes of organisational learning
behaviours may include changes in values and assumptions (Argyris and Schön, 1978), skills
(Fiol and Lyles, 1985), systems and structures (Levitt and March, 1988), core competencies
(Prahalad and Hamel, 1990), organisational innovativeness and competitiveness (Nason,
1994), corporate success, and employee satisfaction (Bontis et al, 2002).
It has been established, on the base of credit union inudstry in Ohio (Dimovski, 1994)
and Slovenian companies with more than 100 employees in 2003 and 2004 (Škerlavaj, 2003;
Dimovski and Škerlavaj, 2005; Škerlavaj et al, 2007), that better developed organisational
learning contributes to improved organisational performance in financial as well as non-
financial terms.
Many authors consider organisational learning as the fundamental aspect of
competitiveness and link it with knowledge acquisition and performance improvement.
Although links between learning and business performance have often been assumed, there is
a little empirical evidence to support this perspective, especially in terms of transitional
economies.
Positive changes in the way people act (behavioural changes) and perceive their
internal and external environments (cognitive changes) are expected to have a positive impact
on organisational performance (e.g., Thompson and Kahnweiler, 2002; Egan et al, 2004;
Kandemir and Hult, 2005). Jones (2000) emphasizes the importance of organisational
learning for organisational performance defining it as ‘a process through which managers try
to increase organisational members’ capabilities in order to understand better and manage an
organisation and its environment to accept decisions that increase organisational performance
on a continuous basis'.
Research conducted by Škerlavaj and Dimovski (2006) demonstrated the statistically
significant positive and strong impact of organisational learning on organisational
performance from the employee perspective. Companies which invest efforts into the
systematic approach to organisational learning profit in terms of an augmented level of
employee trust in the leadership, improved efficiency of work organisation, a more committed
workforce, decreased costs of work per employee, increased employee satisfaction and
increased employee flexibility. At the same time, Škerlavaj et al (2007) established a
statistically significant link between organizational learning culture on organizational
performance, based on medium and large Slovenian companies.

8
3. Sample description and data gathering

During September and October 2005 questionnaires were distributed to Croatian

companies with more than 50 employees. The main source of data about Croatian companies
was the database of The Institute for Business Intelligence, which includes all industries. As
in Croatia 3700 companies with more than 50 employees exist, we have decided to send the
questionnaires randomly to the half of the population. The questionnaire was addressed to the
CEOs or the chairpersons of the companies who were instructed to fill out the questionnaire
themselves or give it to a competent person within the organisation.
The research group received 202 completed questionnaires which accounts for 11.5%
response rate. The size of the company can be determined on several bases (according to
number of employees, revenue size, market share, etc.). The selected companies were
analyzed according to the number of employees’ criterion. About two thirds of the selected
Croatian companies had between 50-250 employees, around 16% between 250-499
employees, and around 12% of the selected companies exceeded the number of 500
employees. According to the company's revenues in 2004, the most companies had a revenue
under 7 millions EUR. Business entities have been classified into different industry types
according to the European Classification of Economic Activities NACE Rev 1, which is
obligatory for all EU member-states. The frequencies and the percentages of companies in
regard to their industry type are shown in the following table.

Table 3. The examined companies according to the industry type

Industry type Frequency Percentage
A Agriculture, hunting and forestry 5 2.5%
B Fishing 0 0%
C Mining and quarrying 3 1.5%
D Manufacturing 64 31.7%
E Electricity, gas and water supply 10 5.0%
F Construction 32 15.8%
G Wholesale and retail trade 27 13.4%
H Hotels and restaurants 13 6.4%
I Transport, storage and communication 11 5.4%
J Financial intermediation 6 3.0%
K Real estate, renting and business activities 0 0%
O Other community, social and personal service 26 12.4%
activities
Not given 5 2.5%

Although the top management members were also significantly represented, the
questionnaire was mostly filled out by people from the middle management level (directors of
functional departments). For the better understanding of the sample, data considering
independent characteristics of the companies and respondents are summarized in the
following table.

Table 4. The independent characteristics of the examined companies and respondents

Number of employees
character

companie
Independ

istics of

50-249 71.3%
ent

the

250-499 16.3%
500 + 11.8%

9
 Not given .5%

Annual revenue in 2004 (mil. €)

Under 7 50.0%
7-27 33.7%
More than 27 14.4%
Not given 2.0%

Hierarchical position of the

characteristics
Independent

respondents

respondents
of the

Top management 22.4%

Middle management 55.7%
Lower management and operational level 13.0%
Not given 8.9%

4. Data analysis and research findings

The research constructs used have a high reliability. Cronbach’s alfa is the most often
used measure of reliability that ranges from 0 to 1, with values of .60 to .70 deemed the
lower limit of acceptability. In respect that calculated Cronbach’s alpha for examined
Croatian companies for OL construct amounts .927, while for OP construct even more, .935,
gathered data are reliable and ready for statistical analysis, which was conducted in the SPSS
13.0.
In Table 5 we present some descriptives (means and standard deviations) for every
item included in Organisational learning construct. By looking at items ‘means’ and ‘standard
deviations’, separately for each measurement variable, several conclusions can be drawn.

Table 5. Organisational learning construct items - Descriptive statistics

Item Standard Item Standard
Mean Mean
(OL) Deviation (OL) Deviation
INFACQ1 3.94 .796 INFINT1 4.16 .580
INFACQ2 4.00 .776 INFINT2 3.88 .864
INFACQ3 3.60 .797 INFINT3 3.66 .913
INFACQ4 3.75 .709 INFINT4 3.73 .733
INFACQ5 3.07 1.266 INFINT5 3.55 .869
INFACQ6 3.95 .721 INFINT6 3.63 .861
INFACQ7 3.79 .903 INFINT7 3.44 .901
INFACQ8 4.22 .743 INFINT8 3.09 1.083
INFACQ9 3.75 1.024 INFINT9 2.95 .996
INFACQ10 3.73 .811 INFINT10 4.14 .853
INFACQ11 2.69 1.144 INFINT11 4.31 .749
INFACQ12 3.60 .948 INFINT 3.68 .490
INFACQ13 2.69 1.013 BCC1 3.82 .827
INFACQ 3.60 .435 BCC2 4.09 .757
QUALINF1 3.25 .851 BCC3 3.88 .785
QUALINF2 3.61 .740 BCC4 3.94 .724
QUALINF3 3.72 .702 BCC5 3.95 .793
QUALINF4 3.81 .626 BCC6 3.80 .815

10
 QUALINF5 3.72 .713 BCC7 3.82 .752
QUALINF6 3.42 .819 BCC8 3.62 .845
QUALINF7 3.53 .773 BCC9 3.74 .877
QUALINF8 3.40 .859 BCC10 3.79 .838
QUALINF9 3.24 1.199 BCC11 3.71 .763
QUALINF10 3.39 1.140 BCC12 3.59 .748
QUALINF 3.51 .595 BCC13 3.58 .832
BCC14 3.69 .825
BCC 3.79 0.539

First, item scores for Information acquisition (INFOACQ) measurement variable

indicate that on average Croatian companies put previous decisions (INFOACQ2) on the first
or at least second place as an extremely important source of information. Furthermore,
executives of Croatian companies have assigned greater importance only to joint tasks and
mergers as a way of inter-organisational learning (INFOACQ9). Furthermore, it should be
emphasized that the greatest standard deviation within the sample is at item INFACQ5, which
means that some companies approve the usage of clipping services, while at the same time
others disagree with it.
Second, looking at Information quality (QUALINF) measurement items, one can
realize that all of item ‘mean scores’ range in examined companies from 3.24 to 3.81 which
could mean that respondents give relatively equal (great) importance to all items within this
measurement variable. Third, examination of Information interpretation (INFOINT)
measurement item scores again reveales greater variance. Interestingly, Croatian executives
agree the most strongly with the statement that ‘Information to subordinates always needs to
be simple and concise’ (INFOINT9). Respondents agree that forums (e-chats, e-debates) are
the least important for information interpretation. Indeed, this is not surprising knowing that
the Croatian economy is small and hence geographical distances (overcomed also with
cooperative information-communication technologies) within companies do not play such an
important role as do they in global terms.
Fourth, analysis of main descriptive statistics for items related to ‘Behavioural and
cognitive changes’ measurement variable shows that companies from the sample on average
believe to have improved quality of their products and services (BCC2) at least moderately,
while they do not think so for employees’ level of understanding of major problems in the
company (BCC13) as well as for employees’ level of understanding of company’s strategic
orientation. This might show the lack of empowerment or communication within company
and, in general, problems with employee relationships.
Aformentioned is that the construct for measuring organisational performance is
developed by Dimovski and Škerlavaj (2004), consisted of 19 items grouped in 4
measurement variables. In order to determine the most important and predictable
measurement items of organisational performance, we have characterised items as dependent
variables, while organisational learning measurement variables were independent (for each
independent variable the separate calculation was conducted).
On the basis of the regression coefficients (R), which for each dependent variable
(organisational performance and its four measurement variables) count over .3, it can be
concluded that there exists a strong relationship between examined variables. Furthermore,
used organisational learning measurement variables strongly influence on organisational
performance in examined companies.

11
Table 6. Link between organisational learning and organisational performance measurement
variables
Dependent variable Independent variables Pearson
R R2
(OP) (OL) Correlation
Information acquisition .207*
Information quality .371*
Organisational
.497 .247
performance Information interpretation .353*
Behavioural and cognitive
.465*
changes
Information acquisition .089
Information quality .260*
Financial
.340 .116
measures Information interpretation .220*
Behavioural and cognitive
.303*
changes
Information acquisition .189*
Information quality .276*
Suppliers’
.403 .163
measures Information interpretation .315*
Behavioural and cognitive
.373*
changes
Information acquisition .194*
Information quality .398*
Employees’
.506 .256
measures Information interpretation .322*
Behavioural and cognitive
.476*
changes
Information acquisition .188*
Information quality .273*
Customers’
.373 .139
measures Information interpretation .271*
Behavioural and cognitive
.354*
changes
* Correlation is significant at the 0.01 level (2-tailed)

Results of the study conducted by Goh and Ryan (2002), show that there is no
relationship between learning capability and the two financial performance measures, return
on equity and return on assets. However, learning capability is strongly related to job
satisfaction, a non-financial performance measures. Similar conclusions can be drawn from
our research, too. Although financial measures appear to have statistically significant positive
correlation with all organisational learning measurement variables except INFACQ, the
correlation coefficients appears to be the lowest of all 4 organisational performance
measurement variables. It has been shown that employees’ oriented performance
measurement variable is the strongest, positive predictor of organisational performance, just
as Goh and Ryan (2002) founded in earlier research.
‘Behavioural and cognitive changes’ measurement variable is most strongly positive
related with organisational performance (ρ=0.465, p<0.01, N=202) which means that
conducting and implementing change in organisations, caused and conditioned by turbulent
business environment, leads to improved performance. This correlation coefficient is even

12
higher if the employees’ measures are examined (ρ=0.476, p<0.01, N=202). The weakest link,
which is also the only statistically insignificant, is present between INFACQ and financial
measures (ρ=0.089, p<0.01, N=202). It is interesting that all relationships between
organisational learning and organisational performance variables are positive and statistically
significant (besides aforementioned link), which confirm the validity of both constructs, and
ultimately, inevitably positive linkage between those two constructs.
If we look from the other perspective, and try to determine which of the organisational
performance measurement variables are the most and the least important for organisational
learning, the following table gives an answer.

Table 7. Importance of organisational performance measurement variables to organisational learning

Pearson
Dependent variable OP measurement variable
Correlation
Information acquisition

max. Employees’ measures .194*

min. Financial measures .089

Information quality

max. Employees’ measures .398*

min. Financial measures .260*

Information interpretation

max. Employees’ measures .322*

min. Financial measures .220*

Behavioural and cognitive changes

max. Employees’ measures .476*

min. Financial measures .303*
* Correlation is significant at the 0.01 level (2-tailed)

In all four organisational learning measurement variables, the employees' measure

category represents the most important and predictable variable and the financial measures
represents the weakest predictable variable. Also interesting is to examine the importance of
particular measurement item on organisational learning what request in-depth analysis at the
lowest, measurement item level. Considering 'Information acquisition' variable, organisational
perfomance measurement item 'trust into leadership' has the strongest positive correlation
coefficient, although 'commitment of employees' is also highly ranked (ρ=0.217, p<0.01,
N=202). At the bottom, the weakest correlation, but not statistically significant, is present
with 'value added per employee', and furthermore, with 'satisfaction with work conditions’
item.
In the case of 'Information quality' variable, again measurement item 'trust into
leadership’ showed the highest Pearson coefficient, along with items 'employees prepared to
go extra mile' (ρ=0.387, p<0.01, N=202) and ‘work organisation of employees’(ρ=0.367,
p<0.01, N=202) , while two weakest relationships were noted with organisational

13
performance measurement items 'net fluctuation of employees' and 'customers complaints
number'. What is interesting for QUALINF variable is that all OP measurement items are
statistically significant with it, while for INFACQ there were only 11 significant items.
'Trust into leadership’, ‘Relationships with suppliers’ and ‘Commitment of employees’
organisational performance measurement items contains the highest level of positive
correlation with Information interpretation segment of organisational learning process. On the
other hand, the weakest item is ‘work costs per employee’, although not statistically
significant. Furthermore, when observing relationship between INFINT and OP measurement
items, it is the only statistically insignificant item.
Finally, analysing impact of organisational performance measurement items on
Behavioural and cognitive changes, the most related variable in the organisational learning
construct, it arises that ‘employees prepared to go extra mile’ is the most relevant item, but
again ‘trust into leadership’ item is at the very top, which launch it as the most important
organisational performance measurement item in the whole construct. Apart from 'speed of
dealing with customer complaints' item, second lowest coefficient is related with 'value added
per employee’ (ρ=0.249, p<0.01, N=202). Again, as in the case of INFQUAL variable, all 19
items are statistically significant.

Table 8. Importance of organisational performance measurement items to organisational learning

Pearson
Dependent variable OP measurement item
Correlation
Information acquisition

max. Trust into leadership (EMP3) .217*

Value added per employee
min. .027
(FIN2)
Information quality

max. Trust into leadership (EMP3) .413*

Net fluctuation of employees
min. .150*
(EMP1)
Information interpretation

max. Trust into leadership (EMP3) .317*

Work costs per employee
min. .091
(EMP8)
Behavioural and cognitive changes
Employees prepared to go
max. .455*
extra mile (EMP7)
Speed of dealing with
min. .190*
customer complaints (EMP8)
* Correlation is significant at the 0.01 level (2-tailed)

Discussion and conclusion

Main goal of our research was to determine the linkage between organisational
learning processes in Croatian companies and their’s organisational performance. We used

14
data for 202 Croatian companies with more than 50 employees (gathered with self-reported
questionnaire). Insightful examination of research results leads to the several conclusions.
First, Croatian companies put previous decisions on average on the first place as an
extremely important source of information. However, they are more inclined towards inter-
organisational way of learning through joint-tasks and mergers, their employees often need to
search for external information, frequently to seek information or advice from sources outside
the company or from owners which means that in this manner they are outward oriented.
Second, examined companies put relatively great value to importance of information quality,
meaning that they are all subject to information overload and need to employ adequate tools
and procedures in order to get quality out of quantity. When interpreting information is in
question, Croatian executives highlight importance of simple and concise information to
subordinates and assign relatively low importance to various cooperative information-
communication technologies. We noticed the greatest variation within the sample, when
measuring use of company’s intranet as an information interpretation tool. Interestingly, it
could not be contributed to differences in terms of company size (neither in annual revenues
neither in average number of employees). This means, that regardless of company size, use of
intranet is still a significant point of differentitation among companies. Finally, when
behavioural and cognitive changes are in question, it can be concluded that majority of
Croatian companies still have to bridge the transition period. Improving company
performance in these change areas would mean that managers should move their
organisations from closed-minded, top-down, authoritarian behaviours, to open-mindedly
handling two-way information flow as part of building learning organisation (Dimovski et al,
2005).
The most important finding of the study is the empirical evidence about exsistence of
strong, statistically significant, positive relationship between organisational learning and
organisational performance. In another words, organisations which develop their learning
processes congruently will increase their performance. The study also revealed, and
confirmed some earlier findings, that financial measures alone are not good predictors of
organisational performance. Furthermore, it showed that employees’ measures are the most
strongly related with learning capability of an organisation, while aforementioned financial
measures are the weakest related. Also, we have determined that ‘Behavioural and cognitive
changes’ is the organisational learning construct variable which is the most important for
enhancing organisational performance what is in accordance with the fact that information
without action does not lead to true learning.
However, we should be aware of some limitations to our research. First, sample size
and context always pose important limitation to every research, so do here. In the sample
were randomly included only a half of all Croatian companies with appropriate size and year.
It should be also beard in mind that we deal with perceptual measurement, where subjective
assessments from respondents lead to danger of measurement errors. Next limitation is cross-
sectional nature of research. With introduction of longitudinality and by observing data
through time, interesting findings could emerge. Furthermore, we have to be aware of
possibility of missing variables and items that could statistically have significant influence
differences. Finally, both constructs, organisational learning, and especially organisational
performance, should be continuously examined, so that the most relevant items of each
construct could be determined.
Several earlier mentioned limitations of the research lead us to suggest some possible
implications for future research. It would be interesting to find out how does our model
perform in some other contexts, possibly in other countries at higher or lower development
level, stemming from other cultural origin. Current measurement variables should be
developed further, eventhough organisational learning measurement instrument used here has

15
been under constant development and testing since 1994 (Dimovski, 1994; Škerlavaj, 2003;
Dimovski and Škerlavaj, 2005).
In following research, the organisational performance measurement instrument should
be more emphasized in the way that it covers all the important areas of organisational
performance. Some additional insights into the issue of performance from higher-level
organisational learning can provide longitudinal study. New variables and items have to be
taken into consideration, besides correction of omission of included items. Last but not least,
a focus on organisational structure, its connection and impact on the organisational learning,
and vice versa, should very likely lead to interestingly findings. Nevertheless, all this work
needs to be done due to undoubtfull contribution that higher-level organisational learning has
in terms of improved organisational performance (Dimovski, 1994; Darr et al, 1995; Simonin,
1997; Lam, 1998; Pisano et al, 2001; Sloan et al, 2002; Figuieiredo, 2003; Škerlavaj, 2003;
Dimovski and Škerlavaj, 2005; Škerlavaj et al, 2007).

16
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