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The structures and processes of learning. A case study

Lennart Ba ngens a , Luis Araujo b,*a Chalmers University of Technology, S-41296 Gothenburg, Sweden

b 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 thefirm is embedded. The governance structures that sustain a particular division of labor in an industrial system play a key role in enablingsome 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 andmanufactures wind-powered water pumps, we examine in detail the processes of learning that occurred over a 17-year period at an intra-and 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. Allrights 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 industrialsystem in which the firm is embedded. Put briefly, we arguethat learning cannot be conceived solely as the development of capabilities within firms and instead must be understoodas dependent on the governance structures that underpin thedivision of labor within an industrial system.

The traditional organizational learning literature has sel-dom examined the structural aspects of learning and focusedinstead on highlighting the variety of processes and mechan-

isms leading to learning outcomes (Araujo, 1998). When it has stepped outside the firm, it has focused mainly on howfirms learn from each other in the context of formal alliances(e.g. Larsson et al., 1998). Similarly, the business historyliterature has often focused on the firm as a site of theaccumulation of capabilities and learning (Chandler, 1990;Lazonick, 1991).

In this paper, we contend that the accumulation anddevelopment of a firms capabilities is linked to the network

of relationships in which the firm is embedded (Ha kanssonand Snehota, 1995; Dyer and Singh, 1998). To conceptual-ize the types of links that make up the network of relation-ships, within which a firms capabilities are accumulatedand developed, we will make use of Richardsons (1972)seminal contribution to categorize the division of labor inindustrial systems.

The structure of the paper is as follows: in the first section, we make a case for including governance structuresfor the understanding of learning in industrial systems. Inthe second part of the paper, we will introduce a longitudinalcase 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 processesand structures involved in learning at the firm level, sincemuch 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: S0148- 2963(00 )00197- 1

* Corresponding author. Tel.: +44-1524-59-39-15; fax: +44-1524-59-39-28.

E-mail address : [email protected] (L. Araujo).

Journal of Business Research 55 (2002) 571 581


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buttermilk (Robertson, 1923, p. 85). Two prominent econ-omists, Oliver Williamson and George B. Richardson, havesubsequently used this quotation in divergent ways.

For Williamson (1994, p. 324) firms and marketsencapsulate the ideals of conscious coordination (hierarchy)and spontaneous cooperation (market). Markets and hier-archies represent thus two alternative governance struc-tures, or modes of coordination of economic activity, andhigh-performance economies need to combine the auto-nomous adaptation of markets with the cooperative adapta-tion of hierarchies. 1

For Richardson (1972), Robertsons picture of firms asislands of coordination in a sea of market relations proved to be less productive. The division of labor between firms andmarkets 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 activitiesunderpinned by particular capabilities as determined bytheir skills, experience and market connections. Activitiesare classified as complementary or similar depending onwhat capabilities they draw upon and on their interrelation-ship in a specific chain. Activities that use the samecapability are called similar, while activities are classifiedas complementary when they represent different phases of the same overall process.

Similarity and complementarity may thus be combinedin different ways to provide three different governancestructures. 2 Complementary but dissimilar activities may be governed through market exchange, where the provi-dential law of large numbers can be trusted to matchactivities in end-product-related chains. Close complemen-tarity and either similar activities, activating the samerange of capabilities, or dissimilar activities but where noeconomies of scale in the use of capabilities may beachieved, 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 closelycomplementary activities have to be carried out concur-rently 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

parties with reciprocal undertakings and ex ante matchingof plans (Dubois, 1998).

The key, but underspecified, notion underlying Richard-sons activity structures framework is that of capabilities. Inhis original article, Richardson (1972, p. 888) acknowl-edged 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 understandthe pattern of specialization of firms (firms tend to specializein activities for which their capabilities provide a compara-tive advantage), as well as their coherent development (capabilities can lead firms into a variety of end-productsand markets).

Loasby (1999) recovers the thread of Richardsons argu-ment and anchors the definition of capabilities in a classifica-tion of the different forms of knowledge required for productive activities. A key distinction is made between

knowledge how and knowledge that. Knowledgethat is propositional knowledge, knowledge of facts andrelationships that can be codified and transmitted throughformal education and training. It can be further subdividedinto knowing what and knowing why (Lundvall andJohnson, 1994). Know-what is what is normally under-stood as information it can be broken down in units andcan be easily stored and communicated. Much of theknowledge required for productive processes is instrumentalknow-what e.g. how to activate a particular function ina machine. By contrast, know-why refers to knowledge onunderlying causes and effects of events and performances.

In opposition to knowledge-that, Loasby (1999) dis-cusses the notion of knowledge-how. Know-how isthe domain of skilled performance, learned through situated practice and emulation of experienced performers (Brownand Duguid, 1998). Know-how is often embedded incommunities of practice with shared repertoires, sense-making routines and identities (Wenger, 1998).

Loasby (1999) makes a further distinction between direct and indirect know-how we may either know how to dosomething ourselves, or how to get something done for us. Inother words, control of capabilities is unnecessary if we canhave access to them. However, access requires know-how,too. Often, accessing complementary capabilities requires

simple market-based interfaces, especially when these cap-abilities are effectively packaged in standardized products or services. However, in many other cases access to comple-mentary capabilities may require the establishment of morecomplex interfaces with third parties that cannot be achieved by arms-length exchanges. 4 In short, access to complement-ary capabilities may require the establishment of complexand multifaceted business relationships.

The notion of indirect capabilities has thus important implications for how firms can specialize and learn along

1 A review of the transaction cost approach developed by Williamsonis outside the scope of this paper, but see Jones (1997) for a recent andcritical review.

2 Throughout this paper, we use the term governance structure todenote the mode of coordinating economic activities.

3 Again, the notion of cooperation that Richardson used in 1972 wasopen to further clarification. Whereas, for some authors, includingRichardson (1995), cooperation meant formal alliances such as joint ventures or licensing agreements; for others, cooperation was to beinterpreted more broadly. In this paper, we interpret Richardsons notion of cooperation as meaning the same as business relationships (Ha kanssonand Snehota, 1995). 4 On the notion of resource interfaces, see Araujo et al. (1999).

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narrow paths by allowing them access to complementarycapabilities via either market or relationship-basedexchanges. 5 Capabilities belong to the realm of direct andindirect know-how. Internal organization must be sup- plemented with an external organization through invest-ments in the creation of markets and interfirm relationships.

Similar arguments have been developed elsewhere. Theindustrial networks (Axelsson and Easton, 1992; Ha kanssonand Snehota, 1995) and development (Lall 1992, 1993)literatures highlight that firms do not develop capabilities inisolation. For example, Lall (1992, 1993) emphasizes thenotion that technology is a complex bundle of knowledgeembodied in a wide range of artifacts, human capital, procedures, and organizational practices. Few componentsof technology are acquired ready-made and brought into useaccording to some blueprint. The embodied elements of atechnology 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 accom- panied by elements of capability building (know-how)inside firms. 6 However, left to their own devices, firmsmay find capability development difficult, slow and expens-ive, and may end up unable to operate efficiently. The process of capability development often takes place in densenetworks of formal and informal relationships with suppli-ers, 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 bothexisting achievements and vectors for extending theseachievements. Learning is a path-dependent process, wherethe acquisition of further knowledge is both dependent onexisting knowledge of the same kind and obstructs theacquisition of incompatible knowledge (Loasby, 1998). Inshort, 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 aneconomy will reflect both the variety of specialisms avail-able, as well as the governance structures that can support specific pattern of specialization. To understand learning phenomena, we must thus understand both the processesthat drive specialization and trajectories of accumulation of

different forms of knowledge, as well as the structuralconditions that foster or impede the growth of knowledge.The development of direct capabilities within firms hasimportant spillover and linkage effects between firms, aswell as other institutional actors (Lall and Latsch, 1998).The extent and forms of these linkages varies from sector to

sector and depends on the type of technology being used(Bangens, 1998).

In conclusion, we regard governance structures as pro-viding different ways of linking diverse clusters of capabil-ities and providing different opportunities for learning.Firms provide opportunities for the use of closely relatedcapabilities where routine and repetition (learning-by-doing)allows improvements in those capabilities along narrowevolutionary paths. However, the development of theseroutines, often equated with organizational learning,may be of little use in itself. 7 Markets provide access todissimilar capabilities that come effectively packaged inoften standardized, goods or services (learning-by-using). 8

Relationships allow the connection of dissimilar capabilitiesthat are too heterogeneous to preclude the close integrationafforded by placing them under single ownership but not soheterogeneous 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 canlead to economies of scale, scope, and experiential learningeffects, the connectedness and spillover of knowledgeacross a variety of interfirm linkages can lead to aninterfirm ecology of learning, where learning takes anetwork and distributed character. A network of connectedrelationships is thus important from a learning perspective.If relationships have a number of connections, these con-nections enable a variety of learning opportunities e.g. between people with varying skil ls and backgrounds(Hakansson et al., 1999).

In the next section, we will introduce a longitudinal casestudy of a firm operating in a Third World country toillustrate the ideas we have developed here. A Third Worldcontext poses different challenges to the understanding of learning processes than the traditional organizational learn-ing studies based on First World firms. The size distribution

7 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 historyinto routines that guide behavior. The generic term routines includes theforms, rules, procedures, conventions, roles, strategies and technologiesaround which organizations are constructed and through which theyoperate (p. 16).

8 This point is neatly encapsulated in Demsetzs (1991, p. 173)observation that A production process yields a saleable product whendownstream users can work with, or can consume the product without themselves being knowledgeable about its production. In short, marketscan supply us with solutions to our needs that do not require us to be morethan instrumentally knowledgeable about their uses in specific contexts.

9 Hakansson (1993) provides an insightful way of summarizing thisargument. 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 tworesource holders will, through a process of close interaction, developknowledge about how to use each others resources and produce joint values (Ha kansson 1993, p. 215).

5 This dual structure of direct and indirect capabilities is what somerecent literatures in innovation in the industrialized world have termedinnovation milieux (Camagni, 1991), networks of innovators (DeBres-son and Amesse, 1991), or systems of innovation (Lundvall, 1988).

6 See also the notion of absorptive capacity as developed by Cohen andLevinthal (1990).

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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, thedegree of specialization among firms is poor, resulting, for example, in the absence of specialized middlemen. Thedegree of vertical integration is generally high leaving littleroom for specialized suppliers. 10 The notion that learningrequires 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 wasstarted in 1977 as a diversification venture by the owner,Mike Harries, whose grandfather, Bobs, was a Britishsettler. The company was previously dependent on coffee

and horticultural products. BHEL is one of two wind pumpmanufacturers in Kenya. There have been wind pumps inKenya since the early 1900s, predominantly imported fromSouth Africa, Australia, and the US. It is estimated that thetotal number of pumps installed from the turn of the centuryto the 1960s was around 100.

By 1994, BHEL had sold around 250 wind pumps, of which 69 had been exported to neighboring countries. Byadding 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, inrelation to Kenyas dependence on agriculture and thecontinuous water shortages, shows a remarkably low usageof the technology. Large tracts of Kenya are outside thenational electrical grid. In practice, this limits the resolu-tion of the water shortage problem to wind or diesel pumps. The deep ground water levels make other techni-ques 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 pumpthey developed. The wind pumps consist of a few mechan-

ical parts: rotors, shafts, transmission, tower section, pumpcylinder, and piston. Almost all parts are made of mild steel,welded together, painted with anticorrosive primer and afinal finishing coat. An essential part of the wind pump isthe 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 Kijitodesign 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

to local conditions. The largest Kijito model weighs 1100 kg,which is relatively less than equivalent sizes made in Aus-tralia or South Africa.

The tower is either a 9- or 12-m tubular steel tripodconsisting of welded sections bolted together. The pumprequires wind speeds of 23 m/s on average to function. Atail with furling mechanism keeps the rotor against thewind as long as the wind speed does not exceed the(adjustable) furling limit, normally set around 12 m/s. Atypical wind pump runs 15 h/day for 20 to 25 years addingup to over 100,000 operating hours and 150 million pumpstrokes. The torque from the rotors is transmitted via therotor shaft to a reciprocating rocker through a crank and aconnecting rod. The length of the crank determines thelength of the stroke. Vertical pumping rods are joined to therocker. The pump rods are connected to the pump via a piston, which reciprocates in a pump cylinder. To tightenthe piston against the cylinder, leather washers are used(there are no piston rings).

5. BHELs start-up years: 19771979

Mike Harries interest in wind pumps began in the mid-1970s due to the recurrent power outages; his farm wasregularly cut off 4 days a week. There were two essentialmotives behind Mikes interest in wind pumps. First, it wasto 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 10 See Ba ngens (1993, 1998).

Fig. 1. Traditional windmill.



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was a very small Canadian model, with only 8-ft rotor blades. At that time, the workshop in Mikes farm was smalland used primarily for repairing agricultural implements;Mike did not want to invest in machinery for gear cuttingand castings. He did manage to repair and install theCanadian pump but felt the model was too complicatedfor manufacturing in Kenya. Mikes search for a moreappropriate design eventually bore fruit through the medi-ation of a small NGO 11 in the UK. ITDG 12 was anorganization devoted to developing and spreading inter-mediate 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 permis-sion to start local manufacturing in Kenya based onITDGs drawings. However, small changes to the originalspecifications were made, such as increasing the number of blades from 5 to 12. The wind pump was called Kijito, aSwahili word meaning a small stream of water. ITDG andBHEL had frequent contacts during the first few years of manufacturing in Kenya, including the updating of theoriginal 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 andmetal sheets that could easily be found in local hardwarestores. The reasons for basing production on standardized,off-the-shelf items that could be bought locally, were ease of

access to spares, no need for foreign exchange, reduceddependence on specific suppliers, fast deliveries, and inde- pendence from political decisions on import duties. Thehigh load on the transmission mechanism of the Kijito madeBHEL choose SKF-Kenya for the supply of high-quality bearings, the remaining item of BHELs inputs. ITDGsdirector at the time, Peter Fraenkel, was a personal friend of SKF-Kenyas general manager, which also contributed toBHELs selection of SKF as a supplier. Total purchasesstood for approximately 40% of total costs, production, andlabor contributed to around 30%, and overheads and salesaccounted for the remaining 10% of total costs.

BHELs early connections in 19771979 with suppliersand (potential) customers are depicted in Fig. 2. AlthoughBHEL had ongoing relationships with potential customers,mainly missionary stations, the discussions involved mostlyinstallation 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 mostlydirected at improving and adapting the ITDG design toobtain a reliable Kijito. For example, a wind-tunnel test wasinvented, 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. Thefirst Kijito had yet to be sold. At the same time, ITDG wasrunning short of capital and could no longer fund thedevelopment work.

6. Years of development: 19801986

By participating in a trade fair late in 1979, BHELreceived its first Kijito order for a ranch in Northern Kenya,

Ol Pejeta, owned by an Arab billionaire. A Swede, Christer

Fig. 2. BHEL early connections.

11 NGOs are nongovernmental organizations, which have mushroomedover the last decade as a result of declining state aid programs. NGOs tendto be small, concerned with resource allocation through projects, and oftendependent on donor support.

12 ITDG stands for Intermediate Technology Development Group whostarted 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.



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Johansson, worked as an intermediary and contacted BHELduring the fair. Ol Pejeta gave BHEL an opportunity to learnabout specific site adaptations for wind pumps. Groundwater was at least 200 m deep, which demanded somedesign alterations. Both the number of rotor blades and thediameter of the rotor were extended. In addition, the windon location was both high and erratic, putting a lot of stresson the pump. Unsurprisingly, the pump broke down fre-quently. Nevertheless, an order of 10 pumps was placedwith 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 pumpsto specific site conditions.

As demand increased, a mechanical workshop had to be built, and it later became the production unit of BHEL. Thefirms internal activities were organized with self-suf-ficiency in mind, incorporating machining and mechanicalcapabilities, as well as a painting and assembly facility.

There are about 35 workers in the workshop. The workshopwas gradually built up and organized around a few lathe,milling, drilling, and cutting machines. The coffee farmsworkshop had only a limited range of equipment like metalcutters and a welding unit. Considerable investments werenecessary and Mike together with Steve Wilson, a friendwith an engineering background, took all the decisionsregarding the purchase of machinery by visiting agents in Nairobi and selecting appropriate equipment. The first machines were bought from the UK and Czechoslovakiathrough dealers in Nairobi. The set-up of the workshop wasdone taking into account the availability of local materialsand spare parts, 13 and the desire to avoid dependence onspecific suppliers.

Small improvements of the wind pump design werecontinuously pursued. After having experienced further breakdowns at Ol Pejeta and problems with machineryin-house, BHEL decided to change the design of thetransmission. The breakthrough came with the help of external expertise. In 1982, through the ODA, 14 BHELtemporarily employed an English designer, Paul Dawson,who spent his time as a trainee travelling around withMike. Back in England, Paul spent 6 months at thedrawing board coming up with more than 100 possibledesign improvements, including a manual for manufactur-

ing. ITDG intervened and claimed that the drawings wereits property and should not be handed over to BHEL.Pauls company, Mike Neill and Associates, decided togive BHEL the drawings anyway, which led to a break-upof its relationship with ITDG. BHEL decided to implement only a few of Pauls suggestions, due to inertia in the

workforces routines but also because many suggestionswere not readily transferable from the drawing board to afunctioning design.

The work by Paul Dawson turned out to be crucial for thefinal design of the Kijito, particularly in areas of production planning and drawings. Improvement in jigs and fixturesand changes in the manufacturing process were mainlyaimed at simplification, as well as attaining higher qualityand robustness of the Kijito. Paul and his colleagues at Mike Neill and Associates have, over the years, continued toassist BHEL in improving the Kijito design, as well ascoming up with new designs. The company had, in effect, become the R&D department of BHEL.

Reviewing the innovation process from the original 1977design to a tolerably functioning design in 19861987, anumber of product and process changes can be identified.The basic design is still accredited to ITDG whose ideas onthe towers construction, foundation, and furling mechanism

(blades, tails, and brake) have endured. The ITDG wind pump was designed for short piston strokes pumpingshallow wells, using a low-density rotor with few blades,which as a result spun fast.

Interaction with ITDG ceased in 1981 when Peter Fraen-kel left to form IT-Power. Peter represented the wind pumptechnology at ITDG who consequently could not helpBHEL further. As BHEL discovered early on, Kenyanground water is deep, often 100 m below surface, requiringa steady flow of pumped water. BHELs initial efforts weredirected at improving the transmission, which among other features included a construction, based on bearings insteadof gears. Other improvements involved the shaft taking over the load from the rotors. The rotor hub rests on a fixed tubeinstead of directly on the shaft. This means that the shaft hasto cope with the torque only, and the weight from the rotorsrests on the tube. The blade was initially made of glass fiber but was soon replaced with mild steel in order to use locallyavailable materials.

Suppliers were part of the process only once when SKFdelivered an assembly joint for enabling assembly in thefield. The joint was ordered specifically at BHELs request.Several improvements of the production process were donein cooperation with external experts such as Paul Dawson.Fig. 3 below summarizes the external linkages established in

the period 19801986.The encounter with a Swede, Christer Johansson, led

firstly to the installations of wind pumps at Ol Pejeta whereChrister had drilled the boreholes. To evaluate water resour-ces on sites without boreholes, BHEL needed hydrologicalexpertise, which was found with a friend of Christers whoconducted hydrological surveys.

7. BHEL 19871993

In the later years (from late 1980s to the early 1990s),

BHEL attempted to streamline its purchases. Most of the

13 Kenya had at that period of time massive and complicatedrestrictions regarding imports, which both made it extremely expensivedue to high tariffs and time consuming in the light of the paper work andKenyan bureaucracy.

14 The Overseas Development Agency, an agency of the BritishForeign and Commonwealth Office.



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input goods are today purchased locally from Koimu whosupplied tubes, rods, plates, water pipes, paint, bronze for pump cylinders, stainless steel for valves, etc. BHEL had anumber of suppliers at the beginning including Koimu but realized the advantages of concentrating purchases on onesupplier. The Kijito was now fully adapted to Kenyanconditions after 10 years of development but BHEL wasstill unable to sell more than 25 units a year. Mike was nowacknowledged among the Renewable Energy Technology(RET) experts in the world, but the Kenyan farmer provedharder to convince. Sales and marketing had been a problem primarily because of BHELs limited resources, Mike beingthe 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 hesitatedto invest in Kenyan technology believing that anythingimported was superior. BHEL also suffered, as a result of a large number of broken down windmills in the country-side, which in most cases, paradoxically, were importedunits. Many chiefs (heads of tribes or villages) believed that

wind pumps were too conspicuous in the eyes of the peopleand frightening, particularly if they broke down and nochief wanted a reputation of being the chief who bought awind pump that did not work. An additional problem wasthe perception of wind pumps as representing old tech-nology, which made many farmers prefer diesel pumps.

Two CWD models, smaller than the Kijito, were intro-duced later in 1990 after contact with CWD, a Dutch wind pump manufacturer. BHEL produced a prototype and modi-fied a few specifications, such as doubling the number of rotor blades. This was done in cooperation with CWD whosent 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, theGTZ the German aid agency responsible for technicalcooperation had a special energy program in Kenyainvolving several Ministries. GTZ funded a few wind pump projects on Lamu Island off the coast. A number of aiddonors 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 unitsa year was achieved for just 2 years. The main problem wasthe low awareness among potential customers, who hadlittle faith in wind pump technology. Very few were awareof the fact that wind pumps work even during wind speedsas 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 work-

shop is functionally organized into machining, fabrication, paint, and assembly sections. The layout evolved more byaccident than proper planning. Fabrication and machiningactivities are parallel processes followed by painting andfinal assembly. Certain parts, such as the tower, are pre-assembled, due to their weight and robust construction, andfinally assembled on site. The machining section isequipped with four lathes and a Bridgeport milling machineand is by far the most demanding in terms of workers skillsand know-how. The workers in machining section rotate

less than the rest of the workforce, being basically speci-

Fig. 3. BHELs network of exchanges in 19801986.



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alized in the production of rotor shafts, bearing beds, and pump cylinders. The fabrication section uses metal pipecutting, drilling, and welding machines for the manufactureof rotors with blades, blade spurs, and the hub, the transmis-sion 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 con-straint for the present rate of production of 25 units a year.Interdependence of activities can be examined by taking acloser look at their subdivision. For instance, the pumpsystem is made up of a bronze cylinder worked on alathe and milling machine, fabricated pump rods, and leather bushes (standard item bought), which calls for coordinationover 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 atrial and error process over many years, was the capacity toevaluate different sites for wind pump installations. The

output of a pump depends on several parameters, which canonly 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 dohowever already have boreholes, which gives little choicefor BHEL other than trying to fit the wind pump to theexisting 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. Aneven distribution of wind speed over time is helpful; gustyhigh winds can damage the tower section. Wind speedmeasurements have to be done at repeated intervals andBHELs relies on data supplied by the Kenyan Meteoro-logical Services for this purpose. Unfortunately, their pub-

lications stopped in the mid-1980s.Many of the workers employed by BHEL were initially

unskilled and had to be trained in-house. BHELs location inthe bush made the men bring along their families, and inmany cases, stay permanently at the farm. The farm is ableto provide for all their needs; it has a church, a school, andeven a store.

The upgrading of workers skills was the result of BHELsstrategy 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 AlfieReynolds who in 1983, through knowing the general man-

ager, Mr. Challoner, ended up working for 10 years at the

Fig. 4. BHEL linkages in 19871993.

Fig. 5. BHELs internal activity structure.



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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, theresult of Mike Harries ambition and efforts to organize production and involve external capability at critical junc-tures. Mike did not have any prior knowledge of either wind pump technology or how to organize an engineering work-shop: 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. Consideringthe initial investment in machinery and years of low sales,the dependence on the coffee farm for funding the devel-opment of the Kijito has been high. Up to 1994, the farm hadtransferred around KShs 15 millions (US$1 equivalent toKShs 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 thecontext within which BHEL operated shaped the nature of its learning processes. If we analyze the evolution of thedirect capabilities of BHEL since its inception in 1977, it isa remarkable case of learning. The firm went from arudimentary workshop to repair agricultural implements,to an operation that could specify, manufacture and installwind-powered water pumps. A quick glance at the activitystructure, depicted summarily in Fig. 5, invites the reader to appreciate the range of capabilities involved in sustain-ing it. It is a mixture of skills embodied in teams of workers, learned through socialization and practice, inmachines and technical artifacts, in the plant layout, andin higher-order skills to direct and coordinate these acti-vities 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 learn-ing-by-interacting. This has been seen over time, whereBHEL got better and faster at learning. 15 However, thestory of the evolution of direct capabilities in manufactur-

ing cannot be disentangled from a parallel story of thedevelopment of indirect capabilities.

Having acquired the prototype design from ITDG, Mike Neill spent years adapting the design to the local conditionsfaced by Kenyan end-users, as well as setting up a manu-facturing and supply infrastructure to manufacture an indi-genous model, the Kijito. The development of direct capabilities in this phase is inextricably linked to the de-

velopment of indirect capabilities. The development of indirect capabilities in the Kenyan context was restrictedto know-how regarding reliable sources of standardizeditems. The concentration of purchases on Koimu simplifiedthis process. BHELs relationship with Koimu was strong onsocial content but, otherwise, could be characterized as anarms-length market interface, involving few or no adapta-tions on either side. Only the choice of a source of supplyfor bearings presented a more complex problem.

The delivery of the first unit in 1979 provided BHELwith another challenge. Moving from drawing boards andmanufacturing prototypes to field tests and installing aworking unit at the Ol Pejeta ranch was hardly a smoothtransition. For more than 6 years, BHEL struggled withunforeseen problems. Failures and breakdowns lead todesign changes and new field tests. The locus of problemsolving shifted between the drawing board and the test siteand involved several iterative loops between Ol Pejetas site

and BHELs workshop.16

The secondment of Paul Dawsonto BHEL, in 1982, and his subsequent proposals for designimprovements played a key role in this process.

During the years of product development (19801986),the evolution of BHELs direct capabilities to adapt thetechnology to local end-users is inextricably linked to itsaccess to external capabilities. Learning-by-doing at thesite of the first customer is thus complemented with learn-ing-by-interacting with third parties, but, as Fig. 4 illus-trates, these parties are mostly disembedded from theKenyan context. Interaction with local parties is limited tothe supply of standardized components, mainly via Koimuand SKF Kenya, and a few local customers.

Finally, when BHEL developed all the know-how tospecify, design, manufacture, and install wind pumps, it found it equally hard to develop the indirect capabilities tomarket the product to its intended user community. Localfarmers 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 end-result is disappointing; BHELs survival continues to besubsidized by the coffee farm.

At another level, BHEL presents a typical illustration of the challenges of industrialization and acquisition of cap-abilities in developing countries. A seemingly simple

technology cannot be transferred into a new context andmade to work instantly. As Bell and Albu (1999) arguevery few components of production technology are simply acquired ready-made and then brought to use accord-ing to standard recipes which are identical to, andreplicated from, previous applications. Even in cases wherethe introduction of some element of new technology in the

15 Stiglitz (1987) argues that: Just as experience in productionincreases ones productivity in producing, so experience in learning mayincrease ones productivity in learning. One learns to learn at least partly, inthe process of learning itself (p. 130).

16 The Tyre and Von Hippel (1997) notion of situated learning stressesthe dynamic quality of learning, requiring different arrangements of socialand material resources within the same physical setting but also alternation between different physical settings e.g. the customers site and thesuppliers workshop.



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production system typically involves a close approximationto such noncreative technology adoption, the interactionwith other elements of technology in the production systemtypically requires creative problem-solving and innovativere-configuration of at least some elements in the overall production system (p. 1717).

In the Kijito case, the problem is further compounded bythe 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 technologiesis rooted in the set of direct capabilities of the absorbingfirm (Bell and Albu, 1999), then this case illustrates how theadaptation of technology and the firm with a set of capabil-ities to absorb it, are constructed simultaneously.

Governance structures play a key role here in shaping thelearning process. The Kenyan context provides only oppor-

tunities for market-based exchanges and affords very fewopportunities to learn. Business relationships with foreignactors provide valuable opportunities for learning-by-inter-acting, 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 betweengovernance structures and learning. Our focus on capabil-ities emphasizes the situated and distributed aspect of learning in industrial systems. At the same time, we stressedthat the governance structures underpinning the organizationof capabilities play an important role in shaping the evolu-tion of those capabilities.

As we have seen, the governance structures used for producing wind pumps in Kenya were influenced by boththe strategy followed by BHEL and its founder, as well asthe opportunity structures afforded by the local environ-ment. In BHELs case, the three governance structuresthat we outlined earlier hierarchy, market, and businessrelationships 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-usingafforded by arms-length market transactions with localsuppliers and the learning-by-interacting with other actors external to the Kenyan context.

In the Kenyan context, as in other developing countries, asharp division between markets and hierarchies underscoresa feeble division of labor and a low degree of specialization.Markets and hierarchies restrict learning to learning-by-using through the purchase of largely standardized itemsand 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 dis-embedded from the local context who have the requisitecomplementary capabilities (e.g. drawings, prototypes) pro-vided a viable route to acquire the necessary capabilities toadapt the technology to local conditions and set up amanufacturing infrastructure. Whereas the benefits of con-necting learning-by-doing in Kenya with learning-by-interacting with parties disembedded from the local context are easy to see by all accounts BHELs learning isimpressive the outcome still proved disappointing.

BHELs achievements occurred while temporarilyremoving users and potential customers from the picture.All energies were devoted to learning how to translatespecifications and designs to the Kenyan context anddevelop the direct capabilities to convert general purposeinputs into working wind pumps. This, as we have describedin detail, involved a long and winding process that culmi-nated 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 translatesite conditions (e.g. depth of ground water, wind speedconditions) into wind pump specifications. When this learn-ing process was finally completed, the putative users whohad been temporarily forgotten did not behave according tothe script that Mike Harries had envisioned.

Two tentative conclusions emerge from the precedinganalysis. To kick-start processes of firm-based learning, inthe absence of structural conditions that provide opportu-nities to connect direct capabilities to other actors in the localenvironment, is problematic. A strict division of labor inindustrial systems between firms and markets limits learningopportunities to learning-by-doing and learning-by-using. The absence of relationships, in the local envir-onment 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-basedlearning generates important externalities and an explorationof learning processes within firms has to take into account the connections and relationships within which learningtakes place. The dense and varied connections that makeup Western modern industrial systems and provide a fertilecross-firm economy of learning are simply absent from a

Third World context, as some authors in the development literature have acknowledged (Lall, 1993). However, weshould 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, asthe business history literature shows (Chandler, 1990).

The other brief conclusion that we offer connects theresults of this study to wider policy concerns in the deve-lopment literature concerning the role of learning in promot-ing industrialization in theThird World. When thesuccess of atechnology depends on a set of linkages to factor andcustomer markets and these linkages prove to be difficult or

impossible to put in place, there is a case to be made for



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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 suchinstitutional support, achievements such as the one docu-mented in this paper will make little difference to promoteindustrialization and growth in Third World economies.

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