Sava: Committed to Organizational Learning

Marius Janson University of Missouri-St. Louis

8001 Natural Bridge Road St. Louis, MO 63121, USA

E-mail: mjanson@umslvma.umsl.edu

Joze Zupancic University of Maribor

Presernova 11, 4000 Kranj, Slovenia

E-mail: joze.zupancic@fov.uni-mb.si

Stanislaw Wrycza University of Gdansk

ul. Armil Krajowej 119/121 Sopot, Poland

E-mail: ekosw@halina.univ.gda.pl

Charles Kuehl University of Missouri-St. Louis

8001 Natural Bridge Road St. Louis, MO 63121, USA

E-mail: scrkueh@umslvma.umsl.edu

Sava: Committed to Organizational Learning Abstract

Organizational learning is essential to Eastern and Central European companies which are

transforming from command economies to free market economies. It is essential for the following

reasons - world-wide technological change necessitates quick reaction by business leaders, and a

changing business environment indicates a need for different norms, expectations, ways of

thinking, and strategies for action. Organizational learning requires the collection, interpretation,

and dissemination of vast quantities of information which originates both inside and outside the

organization. This case study demonstrates the use of computer-based information systems to

enhance organizational learning.

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1. Introduction

Organizational learning in Western industrial companies is the focus of intense interest

(Argyris 1992; DeGeus 1997; DiBella 1995; Fiol and Lyles 1985; Lipshitz, et al. 1996;

Macdonald 1996; Nevis, et al. 1995; Senge 1990; Stata 1989; Wishart et al. 1996). The decline

of well-known U.S. companies and a loss of competitive ability in certain U.S. industries are the

prime motivators of this interest in organizational learning. Stata (1989) suggests that U.S.

companies can be rejuvenated by organizational learning; in fact, he claims that the only

sustainable competitive edge arises from the rate of learning of individuals and organizations.

The importance of organizational learning is not limited to companies located in Western

industrialized countries. Indeed, organizational learning is particulary important to companies

that seek to survive in Central and Eastern European countries which are transforming from

command economies to free market economies. In a case study involving fourteen companies

located in the City of Chemnitz, Germany, Ladensack and Glotz (1997) report that only managers

with advanced self-learning skills (i.e., the individual?s ability to learn from his experiences) were

able to successfully make the transition to the demands of a free market system. Ladensack and

Glotz (1997) and Rudolf (1997) show that organizational learning takes place when the outcomes

of self-learning are codified in company operating procedures. This implies that as an individual

leaves the company his knowledge remains behind as organizational learning.

Ladensack and Glotz (1997) argue that organizational learning is essential in Central and

Eastern European countries for the following reasons: 1) world-wide technological change

demands quick reaction from managers so they can respond to change innovatively, and 2) the

changing business environment indicates a need for different norms, expectations, ways of

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thinking, and strategies for action.

Organizational learning in Western industrialized countries typically occurs in response to

a firm?s loss of competitive ability, but within the confines of familiar free market economic

conditions. In much of Eastern Europe, however, organizational learning typically occurs in

response to vast political changes, and it is characterized by a shift from a command to a free

market economy. This article investigates how Sava, a Slovenian rubber company, restructured

and evolved into a learning organization.

Sava?s need for restructuring arose from profound changes in political and economic

conditions. The political events during the early 1990s led to the loss of Sava?s traditional rubber

tire market in the republics which formed the former Yugoslavia, where Sava occupied a

monopoly position. High demand for its tires coupled with existing import barriers had ensured

the company a comfortable existence in its home. The loss of this market led Sava to focus its

efforts on the Western European and the Central and Eastern European tire markets where the

company faced stiff competition. New markets meant the introduction of a new management

style, with a focus on productivity and product quality, which in turn led to an emphasis on

organizational learning throughout the company. This article focuses on the role played by

computer-based communication in expediting Sava?s organizational learning.

2. Organizational Learning

Before evaluating Sava?s organizational learning experiences it is necessary to define this

concept. Following Huber (1996) organizational learning is defined as follows:

?An organization learns when, through its processing of information, it increases the

probability that its future actions will lead to improved performance.?

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Organizational learning is the codification, systematization and integration of individual

learning into standardized organizational practices and processes. Hence, organizational learning

is critical because it ensures that knowledge is not lost to the organization if an employee departs

(Mills and Friesen 1992; Rudolf 1997). Huber (1996) points out that organizations learn in

response to increasing rates of change, environmental complexity and turbulence. Common

responses to these challenges include creating nimble organizations, reengineering the firm, and

embarking on organizational learning. Organizations that adopt the latter option are characterized

by a commitment to renewal, to learning, and to an openness to the outside world.

These characteristics require that information acquisition focus on both internal and

external considerations (Figure 1). Internally focused information includes the company?s vision,

its interaction with employees, a dedication to learning, and a commitment to organizational

change and transformation (Table 1). Externally focused information includes the firm?s

interactions with its customers, suppliers, shareholders, partners, competitors, labor market, and

educational institutions (Table 1). Thus learning organizations must put in place information

systems which enable scanning of the internal and external environments. Organizations must also

motivate individual innovativeness and a positive attitude to change. This implies a need for a

well-established and highly-developed employee training program.

Figure 1 shows the two information streams concerning events both internal and external

to the organization. After acquisition the information streams are captured and processed by

information systems and stored in data bases. Next, these information streams are interpreted,

systematized, and codified into organizational practices and procedures which form the basis of

organizational learning (Mills and Friesen 1992; Rudolf 1997). Because learning organizations

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are committed to continuous learning and learning renewal, the lessons learned then motivate

further environmental scanning for new information through a feedback loop.

The traditional emphasis in information acquisition has been on internal data. The concern

is with operating and financial efficiencies as measured by cost accounting procedures. Successful

long-term strategy, however, requires that the field of emphasis be broadened considerably. As

Drucker (1997) puts it:

?We have concentrated...on improving traditional information ...90% or more of the

information any organization collects is about inside events...Increasingly, a winning

strategy will require information about events and conditions outside the

institution...technologies other than those currently used...markets not currently

served...The development of rigorous methods for gathering and analyzing outside

information will...become a major challenge.?

Huber (1996) posits that the increasing effectiveness of information technologies, in

particular communication and computing techniques, resulted in significant declines in

manufacturing employment in Western industrialized countries. More importantly, the increasing

rate at which new information technologies are introduced has resulted in greater environmental

complexity and environmental uncertainty. To cope with these trends organizations have a

greater need for organizational learning. Huber (1996) further shows that organizational learning

greatly depends on the storing and distributing of theoretical and experiential information. Thus,

paradoxically, even though the need for organizational learning arises indirectly from the ever

increasing effectiveness of information technologies, it is precisely these technologies which make

organizational learning possible. In short, what technology makes necessary it also makes

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possible.

3. The Sava Company

Sava is a large manufacturer of rubber products located in the City of Kranj, Slovenia.

Since the end of the Second World War Slovenia was part of the former Yugoslavia and it was

governed by communist principles. Communism in the former Yugoslavia was less dogmatic than

in other Central and Eastern European Countries. Consequently, even during the communist

period, Sava enjoyed a modest degree of economic liberalization and practiced a policy of self-

management. Because Slovenia?s secession caused the loss of this important market Sava was

forced to develop an international market strategy. Mr. Bohoric, Sava?s president commented:

?Today there are fewer than ten players in the worldwide [tire] market...We concluded

that it would be [unwise] to attack this market on our own...We decided to shop around

[for a joint venture partner]. We just completed a new joint venture arrangement with

Goodyear, an American company.?

Car tires are Sava?s most important products comprising 75% of the company?s annual

sales. Second in importance are bicycle, moped, and scooter tires which account for 6% of the

company?s annual sales. The company also manufactures a wide array of other innovative

rubber-based products: 1) blankets for offset printing, 2) skirts for containing oil spills, 3) fittings,

hoses, and other components used in the construction of home appliances and automobiles, 4)

components for use in the building industry such as slide bearings for bridge construction, 5)

conveyor belts for mining and construction industries, 6) medical products for packaging

pharmaceutical items, 7) insulator products for the transmission of electrical power, 8) rollers for

the paper industry, 9) forklift tires, and 10) adhesives and finishing components for the shoe-

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making industry.

The company is governed by an executive board consisting of five people - a president of

the board, vice-presidents for finance, accounting and information systems, manufacturing, and

research and development, and a worker director who represents the interests of Sava employees

at board meetings. Second line managers govern production, profit centers, business services,

trade, and utilities. These managers are quite independent in their decision making. Even though

Sava?s managerial structures are presently hierarchical, the company?s top management team

recognizes that fundamental organizational change is necessary to ensure corporate survival.

Members of top management are interested in organizational learning. Because each

employee is important to the company, his educational development is an important topic of

concern. The president commented:

?Stimulating [employee] innovation is one of our most important responsibilities. I think

that...delegation of responsibility itself helps develop creativity and stimulates people to be

innovative. We [also] systematically [encourage] people to be involved in different

learning processes. Each Sava employee has to complete a certain number of hours per

year in educational activities.?

In accordance with the company?s hierarchical structure, interpersonal communication

patterns typically follow the chain of command. Top management, however, has come to realize

that other forms of communication are essential to the company?s growth and survival. The

company?s president specifically mentioned his open-door policy whereby the last Friday of each

month is reserved for anyone who wishes to have a word with him.

To enhance the communicative capabilities of shop floor and managerial workers,

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information technology is being used in the form of a company-wide electronic mail (E-mail)

system. The current computer environment consists of one large mainframe with five hundred

terminals and five hundred PCs which serve the informational and communicative needs of

managerial and technical personnel. The company intends to serve the communicative needs of all

its employees by making E-mail accessible throughout the organization, including the company?s

shop floor. Top management realizes that the new E-mail system will profoundly change the

patterns of communication. The company?s president stated:

?[Employees] will be better informed. This will be a stimulus [for] seeking more

information yet and to be a better informed employee. So I see a [definite] relation

between information technology and more effective communication.?

Top management is also quite concerned with the company?s logistics. Presently the

logistics function is not well-developed - parts purchasing, bill of materials preparation,

warehousing, and distribution all take place independently. The E-mail system in conjunction with

a planned electronic data interchange (EDI) system will integrate the aforementioned operations.

Reflecting on the contribution that E-mail and EDI systems will have on the company the

president stated:

?Our vision is to fulfill four important goals - to 1) satisfy our customers, 2) workers, 3)

shareholders, and to 4) respect our environment. All these goals have to harmonize, [that

is to say] one should not be achieved at the expense of the others. The Internet is, perhaps,

one of the most important information systems [to achieve these goals].?

Customer satisfaction, defined by the company?s lexicon as, ?The customer comes back,

not the product,? is an important managerial concern. Sava tries to ensure customer satisfaction

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by conducting regular meetings with major customers during new product development.

Furthermore, many of Sava?s products are components in the production processes of other

companies. In these cases Sava engineers are in regular contact with the customer and this

constant communication better ensures customer satisfaction.

4. Organizational Learning at the Sava Company

Table 1 shows the type of organizational learning taking place at the Sava Company. A

company?s organizational learning draws on streams of information that provide insights into

events that occur internally or externally to the firm (Drucker, 1997). Internal events concern the

company?s vision, its employee relations, its views on employee learning, and its policies

pertaining to employee communication. External events involve the company?s alliances with

other organizations and its relations with customers, suppliers, market, educational institutions,

and competitors.

The company has extended its traditional market of manufacturing automobile tires to

include the manufacture, sale, and distribution of high quality tires for specialty vehicles, and other

rubber-based industrial products such as synthetic leather and components for the building,

chemical, and pharmaceutical industries (Table 1, Rubber Market). The company?s top managers

changed to this strategy in response to the vast political and economic changes of the early 1990s

described above. The political changes and the economic realities of stiff competition in the

global tire market necessitated a development of new tire designs especially for the Western

European automobile market and an expansion into new lines of rubber-based products (Sava,

1995, 1996). The company expanded into the competitive Western European tire market by

building on its long-term experience in production and on its innovative research and development

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department. Table 1 (Rubber Market) classifies these developments as organizational learning in

response to information which originated externally to the company.

4.1 Internal Events

The company?s top managers realized that meeting the challenges discussed above is

possible only with the full commitment of the employees. This conclusion was made clear during

our interview with Mr. Bohoric, President of the company?s Board of Directors (Bohorich,

1997). He stated:

?...Satisfied, knowledgeable, creative, and productive [employees] are key strategic

elements and are [essential elements] to the company?s strategic advantage.?

Mr. Bohoric (1997) underscored the importance of the employees? role in effecting the

company?s successful entry into the Western European automobile tire market and the emerging

market for new and innovative rubber-based products with the following statement:

?As we change [company] processes, programs, and products ...we also change the company?s culture and the nature of work...[Thus] we are developing new and innovative ways for active worker participation and this [we believe] will help [the company] realize its goals.? Because of these strongly held beliefs, employees are briefed extensively when first hired

by the Sava Company. These briefings are conducted in the form of seminars during which

employees are also provided with written materials concerning their employment, including

Sava?s Employee Handbook (1997). Topics include the company?s vision, organizational

culture and values, modes of employee communication, and its policy on worker participation in

managing the firm and worker rights to be informed about management issues. Table 1

(Employees) illustrates several insightful extracts from this handbook:

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?[Employees] are responsible for [the] company?s success or failure...[and] assume

responsibility for personal, departmental, and organizational development...[and for] the

quality of personal, the team?s, and the company?s work.?

Table 1 (Employees) shows that the firm?s cultural values and its beliefs concerning

worker rights, capabilities, and responsibilities are first codified in the company Employee

Handbook and then inculcated during a newly-hired?s briefing session. This mode of

organizational learning occurs thanks to information that originates from within the company.

Furthermore, the organizational learning just discussed is also aided by the information listed in

the company?s vision statement (Table 1, Company Vision).

Concerning employee learning, the Director of Human Resources stressed that the courses

are taught by her department and that these emphasize organizational culture, general and

interpersonal communication skills, team work skills, and managerial skills. Even though there is

a core of standard courses, many are taught at the request of the company?s divisions and

departments. The Human Resource Department analyzes every course being taught by requesting

that attendees complete an evaluative questionnaire. Divisional requests for special courses

together with course evaluation results are used by the Human Resources Department to

negotiate its annual budget with the Board of Directors.

Individual learning is central to the concept of organizational learning and the above

illustrates that it is taken seriously by the company?s top management (Table 1, Learning). In

fact, the President of the Board of Directors stated (Bohoric, 1997):

?Stimulating [employee] innovation is one of our most important responsibilities. I think that---delegation of responsibility itself helps develop creativity and stimulates people to be innovative. We systematically [encourage] people to be involved in different learning

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processes. Each Sava employee has to complete a certain number of hours per year of educational activities.?

4.2 External Events

The type of organization learning discussed above is primarily internally oriented (Table 1,

Communication). The need for effective and efficient computer-based communication is business-

driven but it also arises from the company-wide emphasis on gaining communicative competence.

Furthermore, the need to reduce paper-based modes of communication internal to the company

also motivates acting likewise concerning communication with, for example, suppliers (Table 1,

Suppliers). This, in fact, is organizational learning which is inspired by external events.

Yet a different form of organizational learning inspired by external events arises from the

company?s relations with its customers and competitors (Table 1, Customers and Competitors).

In the words of the President (BOHORIC, 1997):

?...many of our products are raw materials for other companies...Our engineers are in [continuous] contact with [the customer]...We invite the customer to share ...participate in the creation [and] development of our products...we have many meetings [with customers]...Organized by region [and] sometimes by product.?

\ Concerning competitors the President (Bohorich, 1997) stated:

?...The most important element of [organizational] learning is in our benchmarking [program]...We do our best to [find out] what others [i.e., our competitors] are making. Our competitors run fast...We have to measure...[Then] we run with them...If possible run faster...We now [can get] this information because of our joint ventures with other companies.?

The President expanded on the organizational learning just discussed by stating that the

information arising from alliances such as joint ventures with other rubber companies enables the

Sava Company to successfully restructure its operations (Table 1, Alliances).

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The several types of organizational learning discussed above enable the realization of the

company?s vision which is (Bohoric, 1997):

?...To make our customers satisfied...To make our workers satisfied...To make our shareholders satisfied...[and...To make our environment satisfied.?

5. Organization Learning and Information Technology

The company uses IT to support all its standard administrative functions - accounting,

finance, marketing, production, and logistics. Central to Sava?s IT system is an IBM PS 9000

mainframe computer, five hundred PCs, and twelve separate servers that are platforms with a

total of three to four hundred PC workstations. Sava is currently acquiring Oracle?s data base

system, it plans to introduce Oracle?s Tools and Oracle?s Office, and the company is

investigating the use of Lotus Notes.

Figure 1 shows that organizational learning is enabled most directly by flows of

information about events which occur internally and externally to the company (Drucker, 1997).

IT supports organizational learning because it makes possible efficient and effective information

collection, dissemination, and interpretation. In short, organizational learning is a top

management policy and is guided by the information delivered in the proper format by IT systems.

An example of an IT-enabled organizational program is a current internal campaign

entitled ?A Thousand Ideas for a Better Tomorrow.? Employees throughout the company are

asked to participate in this campaign, but members of top management are particularly interested

in suggestions from production workers and operational management. The president stated:

?The proposals are sometimes very simple but no one had seen it before - how to save

material or energy [during production], make some machine run more efficiently, and how

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to improve product quality. [Ideas] which lower costs, improve product quality, increase

productivity, or enhance environmental protection, are welcome.?

The campaign led to one surprising result - the IT department proposed, designed, and

implemented a computer-based information system for capturing, storing, and evaluating

proposals in terms of technical and economic feasibility. This information system enables

classifying proposals by name of the originator, name of the department of origin, type of

technology involved, cost of implementation, economic benefit, and other factors.

The company?s president recognizes that company-wide communication is an essential

factor in organizational learning (Table 1). In the not so recent past mail boxes were placed

throughout the company in which employees would deposit letters that expressed their concerns,

complaints, and suggestions for improving the workplace. Sava?s president stated:

?[Employees] put their letters in the [boxes] when they...have something to say to top

management...also horizontal, diagonal, and radical communication [occurs]...Some

bosses don?t like this....They don?t prevent it because they [realize] free speech avoids

rumors and [ensures] honest communication...[The need] for open communication is

deeply ingrained in the corporate conscience.?

Table 1 shows that the company has an active policy for teaching employees to become

communicatively competent. However, to adequately support company-wide communication,

Sava recently replaced the box-based manual system with an extensive E-mail system. The

president explained:

?IT plays a big role...with it communication among individuals is on a more

[sophisticated] level...[Employees] are better informed...This is a stimulus [for] seeking

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still more information and [so] to be a better informed employee...I see a [definite] relation

between IT and the better informed employee.?

The company also actively seeks to reduce the amount of paperwork needed to run the

organization. The recently installed E-mail system is expected to substantially reduce paper-based

internal communication. Furthermore, Sava plans to reduce paper-based communication with its

North American partner Goodyear by bridging the E-mail systems of both companies.

Top management is also concerned with the company?s logistics because too often some

product shipments go awry. Sava?s logistics function is as yet not well-developed - parts

purchasing, bill preparation, warehousing, and distribution all occur independently. The

company?s E-mail system in conjunction with a planned electronic data interchange (EDI) system

will integrate these operations. Reflecting on the contribution that the E-mail and EDI systems

will have on company operations the president stated:

?Our vision is to fulfill four important goals - to 1) satisfy our customers, 2) workers, 3)

shareholders, and to 4) respect our environment. All these goals have to harmonize, one

should not be achieved at the expense of the others...The Internet is, perhaps, one of the

most important information systems [to achieve these goals].?

The aforementioned cases illustrate that Sava has a well established IT system for

supporting the company?s day-to-day activities. Furthermore, in recent years the company made

important strides toward informating functions which directly impact the company?s aim to

improve its operations and market position through organizational learning.

6. Conclusion

This case demonstrates that the need for organizational learning is not limited to

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companies located in Western industrialized countries. Rather, organizational learning is needed

as well in companies located in Eastern and Central Europe. Our findings are supported by Huber

(1996) who stated that the introduction of new information technologies has led to greater

environmental complexities and environmental uncertainties which in turn cause a need for

organizational learning.

In the case of Sava, IT-induced increases in complexities and environmental uncertainties

were made worse by vast economic, political, and ideological factors. In response to the

aforementioned pressures Sava embarked on an extensive organizational transformation which

was accompanied by a company-wide commitment to IT-supported organizational learning. The

various elements of organizational learning led to a complete organizational transformation of the

company. Sava developed from a rubber tire producing company with a relatively stable market

in the former Yugoslavia into a competitive player in the global automotive tire market.

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References

Argyris, C. (1992) On Organizational Learning, Cambridge, MA: Blackwell. Bohoric, J. Interview with the Authors, September, 1997. DeGeus, A. (March-April 1997) ?The Living Company,? Harvard Business Review, Vol.75, No.2, 51-59. DiBella, A. (1995) ?Developing Learning Organizations: A Matter of Perspective,? Academy of Management Journal Proceedings, 287-290. Drucker, P. (September-October 1997) ?The Future That Has Already Happened,? Harvard Business Review, Vol.75, No.5, 20-24. Fiol, C., and Lyles, M. (1985) ?Organization Learning,? Academy of Management Review, Vol.10, No.4, 803-813. Huber, G. (1996) ?Organizational Learning: A Guide For Executives In Technology-Critical Organizations,? International Journal On Technology Management, Vol.11, No.7/8, 821-832. Ladensack, K., and Glotz, P. (January/February, 1997) ?Managerial Self-Learning Processes,? Zeitschrift Fuehrung und Organisation, Vol.66, No.1, 11-13. Lipshitz, R., Popper, M., and Oz, S. (1996) ?Building Learning Organizations: The Design and Implementation of Organizational Learning Mechanisms,? Journal of Applied Behavioral Science, Vol.32, No.3, 292-305. Macdonald, S. (September-October 1995) ?Learning to Change: An Information Perspective on Learning in the Organization,? Organization Science, Vol.6, No.5, 557-568. Mills, D., and Friesen, B. (June 1992) ?The Learning Organization,? European Management Journal, Vol.10, No.2, 146-156. Nevis, E., DiBella, A., and Gould, J. (Winter 1995) ?Understanding Organizations as Learning Systems,? Sloan Management Review, Vol.36, No.2, 73-85. Pecjak, V. Interview with the authors, September 1997. Rudolf, H. (1997) ?How Does the Learning Organization Learn?? Zeitschrift Fuehrung und Organisation, Vol.66, No.4, 202-205. Sava Rubber and Chemical Company, 1995 Annual Report, Kranj, Slovenia.

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Sava Rubber and Chemical Company, 1996 Annual Report, Kranj, Slovenia. Sava Rubber and Chemical Company, 1997, Sava Employee Handbook, Kranj, Slovenia. Senge, P. (1990) The Fifth Discipline: The Art and Practice of The Learning Organization, New York, NY: Doubleday. Stata, R. (1989) ?Organizational Learning - The Key to Management Innovation,? Sloan Management Review, Vol.30, 63-74. Wishart, N., Elam, J., and Robey, D. (February 1996) ?Redrawing the Portrait of a Learning Organization: Inside Knight-Ridder, Incorporated,? Academy of Management Executive, Vol.10, No.1, 7-20.

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Dr. Janson received his B.S.E.E. degree from the Technische Hoge School, the Netherlands and his Ph.D. from the University of Minnesota. He has held full time positions with the Philips Gloeilampen Manufacturing Company, the Picker X-Ray Manufacturing Company, the Honeywell Manufacturing Company, the Research Incorporated Manufacturing Company, and the University of Missouri-St. Louis.

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Table 1 - Internally and Externally Focused Events

Internal Events External Events

?.....vision is to (1) satisfy our customer, (2) workers, (3) stockholders, and (4) respect the environment.?

?We decided to shop around for a new joint venture partner.?

?...parts purchasing, bill of materials preparation, warehousing, and distributuion. [Our] electronic data interchange system will integrate these operations.?

?...[Employees] are responsibility for company success and failure... assume responsibility for personal, departmental, and organizational development... assume responsibility for the quality of work, the team?s work, and the company?s work.?

?Stimulating employee innovations is a most important responsibility... Systematically encourage people to engage in learning processes... Every employee has to complete a set number of hours on educational activities.?

?...promising opportunities for manufacturing rubber tramsmission components, conveyor belts, and components for building and automotive components.?

?[The new] e-mail system will profoundly affect communication... Employees will be better informed [and] this will act as a stimulus to seek additional information... There is a definite relation between IT and more effective communication.?

?...middle and top level managers are required to spend fifteen hours per year on education which can be satisfied by taking classes offered by outside educational institutions.?

?...[scan market for products such as] rubber blankets for environmental spills, rubber parts for building, mining, pharmaceutical, and electrical industries.

?[We] practice benchmarking. [We have] information about the rubber industry. This is important because one should not go into [market] areas where one does not have competence.?