Jawad Hussain,
Assistant Professor, University of Malakand. Email: jawadhussain79@gmail.com)
Fayaz Ali Shah, 2Assistant
Professor, Islamia College University Peshawar
Muhammad Ayub Khan,
PhD Scholar, Dongbei University of Finance &
Economics, Dalian, China
Abstract. The purpose of this study was to conduct an
investigation into the link between organizational learning orientation and
business performance in small and medium sized enterprises (SMEs). Data were analysed using sample of 213 SMEs
belonging to the manufacturing sector in Sialkot, Pakistan. The findings
indicated that learning orientation is positively and significantly associated
with the organizational performance of SMEs. The implications and limitations
of the study are discussed and possible future research directions are
provided.
Key words: Learning
orientation, Performance, SMEs, Sialkot, Pakistan
Introduction
Business organizations
are in continuous search to embrace and practice those strategies that could
enable them to obtain greater performance and sustainable competitive
advantage. Learning orientation is one of the key strategies that affects the
creation of knowledge and results in shaping the behaviour of employees and
improved performance (Dada & Fogg,
2014; Spicer &
Sadler-Smith, 2006). According to Argyris and Schön (1978)
organizational members are the main learning agents who dessiminate the
accumulated knowledge in the organization. This shared knowledge makes the
organization effective in responding to the external and internal environmental
changes. Learning orientation
refers to the willingness and acceptance of learning by the members of an
organisation (Rhee, Park, &
Lee, 2010). In order to rapidly
respond to the challenges posed by external environment, organisations are
required to continuously learn new ideas, skills and processes (Kim &
Atuahene-Gima, 2010). Embracing learning
capabilities are crucial for ensuring long term survival and growth of the
organisation (Bharadwaj,
Varadarajan, & Fahy, 1993). Understanding these
learning capabilities helps organisations in interpreting the effects of
environmental changes and providing an insight to organisations to better deal
with these changes (Daft & Weick,
1984). Learning has been
highlighted in the strategic management literature as a fundamental strategic
factor that improves the company performance and results in competitive
advantage (Real, Roldán,
& Leal, 2014).
Nevertheless, majority
of the empirical studies on learning orientation-performance relationship have
focused on the large-scale organizations in developed countries (Fang, Chang, Ou,
& Chou, 2014; Wang, 2008). The SME sector has
been paid less attention by the scholars in terms of learning orientation (Dada & Fogg,
2014; Sanzo, Santos,
García, & Trespalacios, 2012). Moreover, research
focusing on the learning oriented behaviour of SMEs in developing countries is
scant. Thus, the present study fills the gap in the literature by examining the
relationship between learning orientation and organizational performance in the
context of SMEs in Pakistan being a developing country.
Literature Review
Learning orientation
Organizational learning has been considered vital for
attaining greater organizational performance and sustainable competitive
advantage for large organizations (Choi, 2012; Lukas & Maignan,
1996) and SMEs in particular
(Dada & Fogg,
2014). Organizational
learning is clearly linked to learning orientation in order to indirectly
measure organizational learning. An organization is said to have learning
orientation if it has a set of values that encourages its employees to create
and use new knowledge and also promote a culture wherein proactive learning
occurs (Sinkula, Baker,
& Noordewier, 1997). Organisations
undertake learning activities to increase their ability to effectively compete
in the changing market through creation of knowledge. Leaning orientation has
been highlighted in the research as a
mean for collection, interpretation, evaluation and dissemination of
information for organizations (Moorman & Miner,
1998). Prior research has
highlighted that an organisation’s quest to obtain new knowledge reflects the
presence of learning orientation (Sinkula et al., 1997).
Notably, learning orientation is the basic mechanism
to share the knowledge about the past experiences among the organisational
members (Lipshitz, Popper,
& Oz, 1996). The attitude and
inclination of the individuals toward the process of learning play an important
role in its effectiveness. According to Slater and Narver (2000), the organisation may
change the attitude of the employees by taking steps like directing employees
towards learning through introducing new mental models, ingenuousness,
knowledge sharing, supporting the workers to try innovative methods to get
their work done and discarding the obsolete methods.
A culture which is conducive to generative learning is
developed when a particular organisation motivates and creates such an
atmosphere wherein employees learn and enable them to think creatively or out
of box (Baker & Sinkula,
1999; Fang et al., 2014; Sinkula et al., 1997). Here organisation is
required to raise the learning level of internal employees either through
counselling by senior employees or hiring experts with updated knowledge (Simon, 1991). According to Celuch et al. (2002), learning at
individual level is required to make the firm market oriented. Learning
orientation and market orientation jointly improve the capabilities of a firm
and create superior performance (Eris & Ozmen,
2012). It is the learning
orientation aspect of an organization that causes the creation of new knowledge
and insights enabling the organisation to behave as the market demands and
ensures its due share in the available market opportunities (Fang et al., 2014).
Learning orientation consists of commitment to
learning, open-mindedness and shared vision (Baker and Sinkula, 1999). “Commitment to learning is the readiness of
the organization to change the way it does things by combining existing
knowledge or incorporating new knowledge. It includes the acquisition,
communication, acceptation and assimilation of the knowledge in the
organization” (Jolly
& Thérin, 2007, p. 237).
Committed organizations consider learning as an important factor for the
survival and growth of the organization. Open mindedness refers to questioning the traditional ways of viewing
market information and seeking the new ways of looking at market phenomena (Troy,
Szymanski, & Varadarajan, 2001).
Open-mindedness injects new ideas into the firms, strengthens creativity and
ability to yield new opportunities that favor product innovation (Calisir,
Gumussoy, & Guzelsoy, 2013). Open-mindedness promotes firms to achieve
competitive advantage and gain great organizational performance (Usaahawanitchakit, 2011).
Shared vision refers to an organisation-wide focus on
learning (Sinkula et al., 1997).
Shared vision provides direction to organisational learning. It encourages the
organisational members to use their potential and exhibit commitment to make
the learning process successful (Day, 1994). Shared vision brings
employees at a similar level of understanding. This commonness in understanding
creates commitment and alignment with the learning direction taken by the
organisation. This alignment is necessary for creating motivation and a sense
of responsibility to learn among the employees (McKee, 1992).
Performance is the
difference between the actual and the expected outcomes. Researchers generally
use two methods to measure the organisational performance. One is subjective
method and the other is objective methods. Generally, objective method measures
the performance by three main indicators, i.e. growth, profitability and market
share. These indicators can also be measured as non financial indicators. it is
more appropriate to use non-financial indicators to bridge the gap created by
the insufficiency of information (Dess & Robinson,
1984). Jantunen et al. (2008) recommend using
subjective measures of performance because the collection of data becomes
easier using subjective approach. Generally the managers/ owners of the firms
hide the financial data and are reluctant to disclose the information to
outsiders. Apart from this, subjective measures provide reliable, correct,
and accurate measure while measuring the organizational performance from the
perspective of SMEs (Escribá-Esteve, Sánchez-Peinado, &
Sánchez-Peinado, 2008; Khan
& Khalique, 2014). Moreover, a positive correlation exists between the
outcomes obtained from objective and subjective measures in the previous
studies (Love, Priem, &
Lumpkin, 2002). The study of Kirca et al. (2005) have identified four
types of performance outcomes that are “organisational (financial) performance,
customer related outcomes (customer satisfaction), innovative outcomes
(innovation) and employee related outcomes (employee satisfaction). The current
study is confined to only non-financial performance of the organisations, that
are customer satisfaction, employees’ satisfaction, service quality, growth and
innovation respectively” (p. 27) .
Learning Orientation and Organisational Performance
Learning orientation facilitates the organizations to
acquire knowledge to enhance organizational performance and gain sustainable
competitive advantage (Baker & Sinkula,
1999; Bing &
Zhengping, 2011; Celuch et al., 2002; Kaya & Patton,
2011; Slater & Narver,
1995; Suliyanto &
Rahab, 2012). Organizations that
are prone to accepting new ideas, skills and process are better able to
efficiently respond to market environment changes (Baker & Sinkula,
1999; Calantone, Cavusgil,
& Zhao, 2002; Fang et al., 2014) and results in
maintaining greater firm performance and sustained competitive advantage in the
long run (Alegre & Chiva,
2013; Hussain, Ismail,
& Akhtar, 2015; Jiménez-Jiménez
& Sanz-Valle, 2011). Organization that
adopt and practice learning orientation are better able to adapt to the
evolving business environment by developing new products that meet the emerging
consumer needs (Lonial & Carter,
2015; Wang, 2008).
Some studies provide evidence on a positive
relationship exists between learning and firm’s performance. For example, Spicer and Sadler-Smith,
(2006) reported that the relationship of the learning orientation on firm
performance is positive. Keskin (2006) found
a positive impact of
learning orientation on innovation and firm performance in developing
countries. Baker and Sinkula (1999) indicated that
learning orientation has a direct effect on organizational performance.
However, few studies reported the indirect relationship between learning
orientation and performance. Frank et al.
(2012) found that high level
of learning orientation results in higher organizational performance. However,
both highly dynamic environments as well as hostile environments absorb
possible performance effects of a high learning orientation in SMEs. Rhee et al. (2010)
indicated indirect relationship between learning orientation and performance.
They found that learning orientation
influences innovation performance,
which in turn improves organizational performance. Lee and Tsai (2005) found that learning
orientation effect market orientation positively that in turn has significant
impact on innovativeness and performance. Lonial and Carter (2015) found learning
orientation of SMEs as indicator of positional advantage which in turn is
linked to firm performance. The literature presented above leads to the
development of the following hypothesis:
H1: Organization’s
learning orientation is positively and directly related to organizational
performance of SMEs
Methodology
This
study is a survey type study wherein the researchers have used a questionnaire
for data collection from the target population. The questionnaire developed for
this study has been administered personally to the 367 respondents through mail
and self-visitations. The respondents of the study were the top management such
as CEO, Director, and Managing Directors of the SMEs belonging to manufacturing
sector of the Sialkot region, Province of Punjab, Pakistan.
This
study used already tested, reliable and validated self administered questionnaires
for data collection. For learning orientation 15 item scale developed by
Sinkula et al. (1997) was
adapted to measure the construct. The scale had been previously validated by
several studies (Hakala,
2013; Nasution,
Mavondo, Matanda, & Ndubisi, 2011; Real,
Roldán, & Leal, 2012; Wang,
2008).
Non-financial measures like employee satisfaction, innovation, customer
satisfaction, service quality, and growth were used for measuring
organizational performance and were adapted from Kirca et al. (2005).
Non-financial measures were used for organizational performance because often managers or owners of the SMEs are reluctant to
provide the financial data. Moreover, subjective measures provide correct, reliable
and accurate information than objective measures (Escribá-Esteve et al., 2008; Khan
& Khalique, 2014). The
survey instrument was based on 5-point Likert scale for the data collection.
Recent studies on the Likert scale have shown that the optimal option for
Likert scale is 5-points. The survey also consisted of demographic profiles of
the respondents including gender, age of the firm, number of employees and
sector of the organization (leather, surgical goods, sports etc). A total of
239 questionnaires were returned. Out of them, 26 questionnaires were discarded
because those were found to be incorrectly filled. Thus, analysis has been
conducted on the remaining 213 questionnaires. This constituted 58% response
rate which is generally considered good for analysis.
Cronbach
alpha reliability test was performed to check
the reliability and internal consistency of the instrument. Researchers
highlight that if the
value of Cronbach alpha is more than 0.6 then it is considered good and all
items of a construct can be analyzed by summing them up as one measurement. It
was necessary to check for the reliability and internal consistency because
though validated questionnaires were used, adaptation was made according to the
cultural context. The reliability results indicate that the composite
constructs (learning orientation, 0.768 and organizational performance, 0.926)
are reliable and there is internal consistency in the items. Thus, the survey
instrument was reliable and could be used in Pakistani context. The Cronbach
alpha values were generated after the principal component analysis was
performed.
Analysis and Results
Sample profile
The profile of
respondent SMEs is provided in Table 1. The gender distribution indicates that
88 percent of respondents were male and only 12 percent were female.
Table 1 Demographic
of the Firms (N=213)
Gender
of Respondents |
||
Frequency |
Percent |
|
Male |
188 |
88.3 |
Female |
25 |
11.7 |
Total |
213 |
100 |
Line
of Business |
||
Surgical
Goods |
12 |
5.6 |
Leather
Goods |
43 |
20.2 |
Electrical
Appliances |
50 |
23.5 |
Earthenware
|
26 |
12.2 |
Silver
Ware |
17 |
8.0 |
Garments
and Apparels |
47 |
22.1 |
Sports |
18 |
8.5 |
Total |
213 |
100.0 |
Number
of employees |
||
Less
than 25 |
30 |
14.1 |
25-50 |
63 |
29.6 |
51-75 |
65 |
30.5 |
76-100 |
37 |
17.4 |
More
than 100 |
18 |
8.5 |
Total |
213 |
100.0 |
Firm
Age |
||
Less
than 3 years |
32 |
15.0 |
3 to 5
years |
51 |
23.9 |
5 to 7
years |
48 |
22.5 |
7 to
10 years |
56 |
26.3 |
More
than 10 years |
26 |
12.2 |
Total |
213 |
100.0 |
Majority of the respondent firms were from the
Electrical Appliances manufacturers having frequency of 50 (23.5%). Garments
and Apparels manufacturer firms are at second highest frequency with 22.1
percent of the respondents. Leather products manufacturer SMEs are at third
highest participators with the frequency of the 43 (20.2%). In the firm age
category, it was found that most of the firms were 7 to 10 years old (26.3%).
The respondent SMEs were asked to indicate the number of full time employees
working in their businesses. The results indicate that 93 enterprises (43.7%)
employee up to 50 employees; while 65 enterprises (30.5 %) employ between 50 to
75 employees. The results further indicate that 37 enterprises (17.4%) have an
employee strength of more than 75 but less than 100 employees; whereas, only 18
enterprises (8.5%) has more than 100 full time employees. The employment trend
indicates that majority of the enterprises can be categorized as small
enterprises.
Correlation
Pearson correlation was calculated to ascertain the
relationship between the variables. The results are provided in Table 2. The
results indicate that there exists a strong and statistically significant
relationship between the variables of the study.
Table 2: Correlation Matrix (N=213)
No. |
Variables |
Learning
orientation |
Organizational
Performance |
1 |
Learning
Orientation |
1 |
|
2 |
Organizational
Performance |
.875** |
1 |
Note: P<
0.01 level (2 tailed)
Hypothesis Testing
To test the
hypothesis of the study, regression analysis was performed to find the direct
effect of predicting
variable (IV) learning orientation on the
criterion variable (DV) of organizational performance. Table 3 provides the results of
the subject analysis. These results demonstrate that learning orientation
(β = 0.608, t = 12.431, p < 0.001) has positive and significant
relationship with the performance of the organization. Hence, these results
support the current study hypothesis. It means these results validate such
results in the previous studies (Sinkula et
al., 1997; Keskin, 2006; Spicer and
Sadler-Smith, 2006; Michna, 2009; Rhee et al., 2010; Frank et al., 2012; Hakala, 2013).
Table 3 Regression of Learning
Orientation-Performance (N=213)
Variables |
Adjusted R-square |
Beta |
t-statistic |
Sig. |
Learning
Orientation |
0.420 |
0.608 |
12.431 |
0.000 |
Sig p < 0.001
Discussion and Conclusion
This study
examines how learning orientation can affect the
organizational performance of
SMEs in Pakistan.
Significant conclusion from
this study is that
learning orientation has a
significant positive effect on
business performance. The results of the study conclude that with
increase in the level of learning orientation, the degree of organizational
performance also increases. The results of the study posit that strong learning
orientation facilitates the achievement of sustainable competitive advantage and
yields greater organizational performance. The study also highlights that when
organization stops learning; it may not able to absorb the external pressure
and would be badly affected. This study guides the owners/ managers of SMEs to
promote and encourage learning in organization in order to ensure improved
performance. The findings would also
help them to better
understand the effects of
organizational learning through commitment to learning, open mindedness
and shared vision of the employees on business
performance. The study has limited sample size belonging to only Sialkot
District of Punjab Pakistan. It is strongly advised that a larger sample size
from SMEs operating in various districts of Pakistan should be taken in order
to generalize the results of the study. Moreover, the longitudinal study is
suggested to be undertaken in future for the findings of the study to be
validated.
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