Global organizational learning capacity in purchasing: Construct and measurement

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Global Organizational Learning Capacity in Purchasing: Construct and Measurement G. Tomas M. Hult FLORIDASTATEUNIVERSITY

O. C. Ferrell UN~VERS,TYOF MEMPHIS i

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This study develops and tests a measure ~ organizational learning capacity (OL© using the purchasing process of a Fortune 500 multinational corporation. The focus is on the activities and relationships between the strategic business units (5BUs) and the buying center of the organization. Based on a domestic sample of 179 SBUs used for the initial item and purification analysis and an international sample of 167 SBUs used for the reliability and validity analysis, the results indicate that the covariation among the proposed 17 items of the OLC scale can be explained by a correlated jbur-factor measurement model including team, systems, learning, and memory orientations, j BUSN~ES 1997. 4-0.97-111. © 1997 Elsevier Science Inc.

n the past few years, the discipline of marketing has expressed a renewed interest in the organizational learning concept (e.g., kukas, Hult, and Ferrell, 1996; Marketing Science Institute, 1992, 1993; Sinkula, 1994a; Slater and Narver, 1994, 1995). Several organizations such as Xerox, General Motors, Federal Express, Intel, Asea Brown Boveri, to mention a few, are also transforming their organizations in ways that favor organizational learning to create a competitive advantage. For example, Federal Express found that becoming a learning organization helped to boost the intellectual capital, agility, and resourcefulness of its sales force (Dumaine, 1994). Major Federal Express customers say that the organization's salespeople are much more attuned to customer needs. Employees do not jump to conclusions so readily, are more willing to hear a customer out, and understand customers' dilemmas better after attending seminars and workshops on organizational learning. In the academic marketing field, organizational learning has been linked to market orientation. For example, Slater

Address correspondence to G. Tomas M. Hult, College of Business, Florida State University, Tallahassee, FL 32306-1042 Journal of Business Research 40, 97-111 (1997) © 1997 Elsevier Science Inc. All rights reserved. 655 Avenue of the Americas, New York, NY 10010

and Narver (1994, p. 1) state that "market orientation is only one facet of a more comprehensive theory of organization, the learning organization." Similarly, Sinkula (1994a, p. 35) argues that "it would seem that the degree to which an organization uses market information is a function of what it has learned already." Stressing the outcomes of the market-oriented organization, Day (1994, p. 1) argues that "organizations can become more market oriented by identifying and building the special capabilities that set organizations a p a r t . . , companies that respond to market requirements and anticipate changing conditions, everyone agrees, can expect to enjoy long-ran competitive advantage and superior profitability." In this regard~ Slater and Narver (1995, p. 72) state that Jaworski and Kohli's (1993) measures or market orientation (i.e., information acquisition, information dissemination, and organizational responsiveness) are "themselves measures of intermediate outcomes" of organizational performance such as competitive advantage and profitability. Thus, a critical challenge for any business is to create the combination of culture and climate that maximizes organizational learning on how to achieve a competitive advantage in dynamic and turbulent markets (Slater and Narver, 1995). Despite the acknowledged interest in organizational learning and its importance to achieving a competitive advantage, no systematic effort has been devoted to developing a valid measure of the construct (Lukas, Hult, and Ferrell, 1996; Sinkula, 1994a; Slater and Narver, 1995). Therefore, the objective of this study is to develop and test a measure of organizational learning capacity and assess its psychometric properties. The examination focuses on how learning emerges in dyadic relationships (i.e., purchasing units) between a corporate "buying center" and the various operating units it represents and, as such, constitutes a unique approach to the study of organizational learning. Purchasing processes are becoming more complex in scope and thus representative of a functional area where optimizing activities can yield considerable synerISSN 0148-2963/97/$17.00 PII S0148-2963(96)00232-9

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gies and resulting competitive advantage (McCabe, 1987). Thus, the overall quality of an organization's ability to provide superior value to customers can be severely impeded b y a dysfunctional purchasing system (Venkatesh, Kohli, and Zaltman, 1995), especially in global enterprises where effective interfacing between corporate buying centers and operating units is generally constrained by a diverse set of cultural and functional barriers that impede the flow of information (Kale, 1986). The purchasing setting also represents an ideal learning system to study, given the existence of formal and informal processes and structures for the acquisition, sharing, and utilization of knowledge and skills. The paper is organized into six sections. First, a brief review of the literature on organizational learning is provided to specify the domain of the construct. Second, we present the conceptual paradigm for operationalizing organizational learning capacity (OLC) in purchasing processes. Third, the procedures for generating the scale items are discussed. Fourth, the data collection process is outlined, including the domestic and international samples. Fifth, the results of the domestic purification analysis and the international reliability and validity analysis are presented along with the validation (criterion and construct validity) assessment of the scale properties. The paper concludes with a discussion of the components of the scale, including substantive and application issues.

Domain Specification At its most basic level, organizational learning in purchasing is the development of new purchasing knowledge or insights that have the potential to influence purchasing behavior (cf. Slater and Narver, 1995). As such, organizational learning is a behavior-based process functioning within the structure of the learning organization. A learning organization is "an organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights" (Garvin, 1993, p. 80). The structure of the learning organization is determined by the strategic organizational climate and culture factors that provide the architecture for the process of organizational learning to occur (see Slater and Narver, 1995, for a discussion of the climate and culture factors related to organizational learning capacity). Consequently, in our study, the process of global organizational learning refers to the ability of an organization to transfer and integrate the information and expertise developed in various parts of the purchasing network to all other parts worldwide so it is broadly available and can be generalized to new purchasing situations (cf. Kim and Mauborgne, 1993; Nevis, DiBella, and Gould, 1993). Slater and Narver (1994, p. 2) argue that this type of learning "eliminates organizations that are adept at creating or acquiring new knowledge but unable to apply that knowledge to their own activities, as well as organizations whose behavior may be influenced indirectly by new knowledge." Thus, true learning organizations learn

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and then behave accordingly, by that realizing the potential of their learning capacity by applying the knowledge gained in their learning endeavors to new purchasing situations. From a conceptual standpoint, "organizational learning is a complex, multidimensional construct occurring at different cognitive levels.., and encompassing multiple subprocesses" (Slater and Narver, 1994, p. 2). Based on Sinkula (1994a) and Slater and Narver (1994, 1995), the subprocesses include: (1) information acquisition, (2) information dissemination, and (3) shared interpretation (see Sinkula, 1994a, Slater and Narver, 1995, for a discussion of these concepts related to OLC). This means that organizational learning in a purchasing unit refers to a three-stage process that includes (1) acquisition of purchasing information from participants in the purchasing unit, (2) dissemination of purchasing information to participants in the purchasing network, and (3) the sharing and collective interpretation of the processed purchasing information. These three learning subprocesses take place to various degrees and, thus, an organization can learn and behave at various degrees. In addition, each subprocess of learning takes place on a continuum from adaptive (reactive) to generative (proactive) cognitive learning levels (see Slater and Narver, 1995, for a discussion of these concepts). Adaptive learning represents no change in the criteria of effective performance while generative learning represents a change in the criteria of evaluation (Argyris and Sch0n, 1978, 1996). Thus, to capture the OLC of a purchasing unit, one must identify the factors that incorporate the activities and relationships inherent in the three subprocesses of learning (i.e., intermediate outcomes) at either oF the two cognitive levels of learning.

Operationalizing OLC in Purchasing Figure 1 illustrates the OLC "orientations" (i.e., team orientation, systems orientation, learning orientation, and memory orientation) that have to be present for organizational learning to occur in a purchasing process. These "orientations" synthesize the various means for operationalizing the OLC construct, incorporating the encompassed subprocesses of learning and the cognitive levels of learning.

Synthesizing the Orientations The idea of organizational learning was popularized by Senge (1990), who argued that organizational learning incorporates the five "disciplines" of systems thinking, personal mastery, mental models, shared vision, and team learning. Within the marketing literature, Day (1991, 1994) introduced four learning "capabilities" (i.e., open-minded inquiry, synergistic information distribution, mutually informed interpretations, and accessible memory) as the basis for organizational learning. Further, Sinkula (1994b) argues that organizational learning is composed of a set of learning "foundations" (i.e., shared vision, learning axioms, cross-functional teamwork, open

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Figure 1. Organizational Learning Capacity

mindedness, and experience sharing). Similarly, Tobin (1993) proposed a set of different "foundations" as the criteria for organizational learning (i.e., visible leadership, thinking literacy, functional myopia, learning teams, and managers as enablers). Careful inspection of Table 1 reveals that Day's (1991, 1994) learning capabilities and the separate sets of learning foundations proposed by Sinkula (1994b) and Tobin (1993) are quite similar, and concur in theory, to the disciplines proposed by Senge (1990). Other scholars have conceptualized the organizational learning construct similarly, introducing different yet related elements that compose some broader organizational learning construct (Table 1). While the terms vary, the common thread is that organizational learning is multifarious and involves mechanisms in a number of unique, yet related, areas. In synthesizing the orientations of OLC, the approach in this study was to first examine carefully the conceptualizations of organizational learning (Table 1) in conjunction with the subprocesses of learning and the cognitive levels of learning which characterize it as a multidimensional construct. At the same time, given the diverse perspectives and limitations associated with a specific characterization of organizational learning, efforts were undertaken to provide field support for the organizational learning construct by conducting a series of personal in-depth (one to two hours), on site interviews and case studies with thirty-five managers of twenty SBUs of the Fortune 500 corporation under study. This organization is widely acknowledged in the trade literature as a "learning organization." Eleven SBUs were interviewed in the context of OLC in the purchasing process of the corporation and nine SBUs were interviewed regarding OLC in the new product development process. The principal goal of this "synthesis process" was to corroborate theory with practice and further validate the OLC con-

struct. The various organizational learning conceptualizations were then examined for similarities. In specifying and synthesizing the organizational learning orientations, this study trimmed redundant elements, elements that are not well established in the literature, or elements that are not viewed as meaningful in practice. This process led to an organizational learning capacity construct that includes four distinct, yet related, "orientations" that have to be present for learning to occur at the organizational level, including: team orientation, systems orientation, learning orientation, and memory orientation (Figure 1). Each orientation is discussed in the following paragraphs.

Team Orientation Team orientation is defined as the degree to which the corporate buying center and the SBU field manager in the focal purchasing unit stress collaboration and cooperation in performing purchasing activities and in making purchasing decisions. From a long-term perspective, the general principle is that the purchasing unit should be able to produce better purchasing results than the individual members of the purchasing unit by stressing team orientation. However, often it seems that teams made up of highly intelligent employees do not "live up to the expectations." The reason is that they have not really learned to work together. In order for the purchasing team to function effectively, a dialogue must exist among members focused on sharing assurnptions, thinking together to solve problems, and charting the future operations of the organization (Senge, 1990). Thinking together fosters a climate focused on creating a genuine vision, subsequently leading to excellence and learning because the employees feel that they are pursuing their own goals (Argyris and Schon, 1978; Sinkula, 1994a). As such, each organizational member has an

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G. T. M. Hult and O. C. Ferrell

Table 1. Organizational Learning Orientations

Author(s)

Depiction

Learning Orientation

Day (1991, 1994)

Learning processes

Galer and Van Der Heijden (1992)

Learning checklist

1. 2. 3. 1. 2. 3. 4. 5. 6. 7. 8.

Open-minded inquiry Interpretation capability Accessible memory Learning culture Openness Freedom to experience Commitment to learning Closeness in planning and action Capture of lessons learned Mutual trust Coordination of activities

McKee (1992) Norman (1985)

Learning skills

l. 2. 3. 4.

Interpersonal skills Analytical skills Organizational skills Ecological skills

Senge (1990)

Learning disciplines

1. 2. 3. 4. 5.

Personal mastery Mental models Shared vision Team learning Systems thinking

Sinkula (1994b)

Learning foundations

1. 2. 3. 4. 5.

Shared vision Learning axioms Cross-functional teamwork Open-mindedness Experience sharing

Slater and Narver (1994, 1995)

Learning elements

1. 2. 3. 4. 5.

Entrepreneurship Facilitative leadership Organic structure Decentralized strategic planning Market Orientation

Tobin (1993)

Learning foundations

1. 2. 3. 4. 5.

Visible leadership Thinking literacy Functional myopia Learning teams Managers as enablers

Wick and Leon (1993)

Learning elements

1. 2. 3. 4. 5.

Defined vision Measurable action plan Sharing of information Inventiveness Implementation ability

input in the process of creating, developing, and implementing a team orientation that leads to a commonality of direction and the harmonization of individuals' energies. Team orientation builds on the idea of the subprocess of shared interpretation (Sinkula, 1994a; Slater and Narver, 1994, 1995). The focus of team orientation in this study is on the purchasing unit composed of SBU users and corporate buying center representatives.

Systems Orientation Systems orientation is defined as the degree to which the corporate buying center and the SBU field manager in the focal purchasing unit stress the broad picture of the activities

in the purchasing process and thus a reason certain activities exist: "systems thinking is a discipline for seeing wholes" (Senge, 1990, p. 68). For example, individuals who can predict the consequences of an action arguably make the best problem solvers, leading to an increase in the individual's effectiveness. A systems orientation focuses on structuring and making sense of the multiple purchasing inputs from the environment, the organization, the immediate work group, the task, relationships with colleagues, and outputs in terms of performance and satisfaction in relation to the broad "picture" created by these multiple inputs. In addition, a systems orientation fuses the other three orientations into a coherent whole identified as the "fifth discipline" by Senge (1990) that keep

Global Organizational Learning Capacity in Purchasing

them from turning into "fads" or "gimmicks." This means that a systems orientation is a crucial component of organizational learning because it guides the organization's cognitive levels of learning, by that helping to identify market patterns and the reinforcement or changing of these patterns at the adaptive to generative learning levels (Senge, 1990; Slater and Narver, 1995).

Learning Orientation Learning orientation is defined as the degree to which the corporate buying center and the SBU field manager in the focal purchasing unit stress the value of organizational learning for the long-term benefits of the purchasing process and the specific purchasing unit. Thus, an important component of organization learning is the set of fundamental axioms or truths that the organization holds regarding the value it places on learning (i.e., learning orientation). Norman (1985, p. 231) notes that "every organization learns, and every organization has a set of dominating ideas . . . they may be more or less consciously formulated and more or less visible, and they may represent good or bad interpretations of what has led to success or failure, but they are always there." Similarly, Senge (1990) talks about "mental models" as potentially inhibiting an organization's degree of learning. For example, a common problem with organizations is that many of the best ideas are never implemented. Often great marketing strategies fail to be translated into organized actions. Senge (1990) states that this is due to the concept of mental models. Developing an organization's capacity to work within the environment of a high degree of learning orientation requires both learning new skills and implementing an institutional climate that helps bring these skills into a regular practice (Diamond, 1986; Sackmann, 1991; Slater and Narver, 1995). As such, learning orientation relates, in part, to the subprocess of information dissemination (Sinkula, 1994a; Slater and Narver, 1994, 1995). Thus, learning orientation builds on the notion that a learning organization improves its understanding of the environment over time, a prerequisite of which is "a culture amenable to learning" (Galer and Van Der Heijden, 1992, p. 11). This includes the ability to think and reason and to disseminate the subsequent thoughts to the organizational members (Tobin, 1993).

Memory Orientation Memory orientation is defined as the degree to which the corporate buying center and the SBU field manager in the focal purchasing unit stress communication and distribution of purchasing knowledge. The means of achieving a climate where organizational memory is readily accessible vary. For example, though it is a natural tendency to trivialize routine learning activities because they arise so frequently, routines are a critical part of "communicating learning beyond the individual who discovers it" (Jelinik, 1979, p. 37). Related to this notion, Cohen (1991, p. 36) explores organizations as

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"processing information to learn and apply skilled routines." However, once the routine is in place, substantial barriers to information could contradict it, the very information Siegler (1983) considers the most crucial to learning. In this regard, a memory orientation is identified largely with the subprocess of information acquisition (Sinkula, 1994a; Slater and Narver, 1994, 1995). A memory orientation incorporates the idea that by repeatedly performing a set of activities, organizational members develop a knowledge base of those activities and a means for performing better the next time. The individual member's experience leads to the modification of organizational knowledge, and thus, to a better understanding of the interactions between the organizational systems and the environment (Kerin, Mahajan, and Varadarajan, 1990).

Generation of Scale Items The next step entailed the generation of a set of items to capture the domain of OLC as defined in this study. The item generation process followed a two-step approach. First, a set of items was generated based primarily on the works by Day (1991, 1994), Hedberg (1981), Narver, Jacobson, and Slater (1993), Narver and Slater (1990), Senge (1990), Sinkula (1994a, 1994b), and Slater and Narver (1994, 1995). The items from these studies were developed to represent theoretical and conceptual components of OLC pertaining to purchasing processes. Next, in conjunction with the series of twenty case studies (ocusing on managerial issues of organizational learning, a separate set of items was generated (cf. Kohli, Jaworski, and Kumar, 1993). The items from the case studies were developed to represent practical and managerial components of organizational learning. From these efforts, 60 items were initially selected for their appropriateness, uniqueness, ability to convey to informants "different shades of meaning" (Churchill, 1979), face and content validity, and ability to provide a means for the informants to function as "learning agents" (Senge, 1990). This list included fifteen items each for team orientation, systems orientation, learning orientation, and memory orientation.

First Pretest Two pretests were conducted to assess the quality, face validity, and content validity of the measurement items. In the first, a questionnaire containing the measure's properties was administered to a total of fifteen expert judges (eight academics and seven executives) with knowledge of or working experience with organizational learning and purchasing concepts. They were asked to complete the questionnaire and point out any item that was either ambiguous or otherwise difficult to answer. A stringent a priori decision rule specified retaining an item only if all the judges considered the item to be easily understandable and capturing the specific OLC construct. Based on the detailed comments, some items were modified

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and others were eliminated. This resulted in a pretested scale of 36 items.

Second Pretest After completing the initial pretest, we obtained input from thirty-six marketing and nonmarketing executives, representing a select set of SBUs of the corporation worldwide. In this phase, the scales for all the constructs were clearly marked and the experts were asked to critically evaluate each item relative to its assigned OLC orientation to provide a verification of the content validity of the scale items. Again, the respondents were also asked to identify any item that was ambiguous or difficult to answer. At this phase of the process, very few concerns were noted and only minor modifications were suggested. Based on the detailed comments, some items were modified, but none of the items were eliminated. This resulted in all the 36 items being retained for the full-scale test of the OLC scale, including: eleven items representing team orientation, eleven items representing systems orientation, seven items representing learning orientation, and seven items representing memory orientation.

Data Collection Domestic Sample After the pretests, the refined survey was administered to a sample of SBU purchasing representatives of the Fortune 500 "learning organization." As such, the study focused on examining the emergence of organizational learning capacity, specific to purchasing processes, in the organization's strategic purchasing subunits. Each organizational subunit involved a dyadic relationship between a corporate buying center manager and an assigned SBU user, a field manager charged with the responsibility of acquisition for the focal SBU. Each survey packet contained a cover letter, an instruction letter, and a questionnaire. The cover letter included with the survey came from the senior vice president of marketing. The cover letter notified the purchasing representatives of the SBUs of the impeding study, indicated the organization's endorsement of the project, and noted the importance of the study for the future operations of the organization. The cover letter also communicated the importance of both participating in the study and making of a timely response. The instruction letter, which came from the research team, provided the respondents with details for the completion of the survey and thanked them for their time. Since the study was an important one for the corporation, including some time constraints, the instruction letter also asked the respondents to return the questionnaire by a preset date. Two and a half weeks were allowed for the domestic sample mailout. This response time was considered sufficient because of the nature of the study and the internal mailing system used to distribute and collect the surveys. The time also corresponds with the

G . T . M . Hult and O. C. Ferrell

response time suggested by the organization. All respondents were assured anonymity in their responses. However, the respondents were made aware of the fact that a code included on each questionnaire was used to verify their responses to the survey. The survey targeted the primary purchasing representative for each of the SBUs and included managing directors, senior managers, and managers. The management level for the specific SBU depended on who was responsible for the purchasing activities in that particular SBU. The respondents were asked to assess the level of organizational learning operating in the purchasing process of the organization at the SBU level. As such, the respondents were asked and instructed to answer the questions in a way that represented their specific SBU rather than that of the individual respondent. The three management levels were determined through the personal interviews to be the ones responsible for the purchasing activities for the organization. Employees below the manager level in the organizational hierarchy do not have the authority to purchase items or to place purchase requests. The vice presidents and the CEO of the corporation-employees above the three management levels used in this study--do not generally engage in the purchasing activities. An overall response rate of 82.9 % (179/216) was obtained for the domestic SBU sample, including 50 (27.9%), 29 (16.2%), and 100 (55.9%) SBU purchasing representatives at the managing director, senior manager, and manager levels, respectively. To examine the potential effects of nonresponse bias, the procedure outlined by Armstrong and Overton (1977) was used. This procedure involves comparing the first quartile with the last quartile of the respondents to determine if significant differences exist between the two groups. A series of SBU and individual-level demographics was used to test for nonresponse bias, including: number of people in the SBU, frequency of purchasing activity in the SBU, management level, tenure with the organization, and gender. The test revealed statistical equivalence between early and late returns, thereby indicating that nonresponse bias was not an inhibiting factor.

International Sample The second test of the instrument used an international sampling frame drawn from the same organization used in the first test, targeting the purchasing representatives in each of the organization's international SBUs. This sample included the appropriate purchasing representatives at the managing director, senior manager, or manager level from the 184 countries in which the organization is currently operating under the SBU format. The questionnaire items were not translated to the individual languages since the common business language in the organization is English. In addition, in their own in-house research, the global marketing department within the organization uses English-based questionnaires for all of the organization's SBUs worldwide.

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The international sample was collected using the same procedures used for the domestic sample, including a cover letter from the senior vice president of marketing, an instruction letter from the research team, and the survey instrument. The questionnaire was identical to that of the domestic sample and the cover and instruction letters communicated similar information to that used in the domestic sample data collection. For the international sample, three weeks were allowed for the data collection. Again, this response time was believed to be sufficient because of the nature of the study, the internal mailing system used, and the response time suggested by the organization. In addition, similar studies conducted by the organization's global marketing department ask the respondents to respond within the three-week time frame, resulting in acceptable response rates. An overall usable response rate of 90.7% (167/184) was obtained for the international sampling frame, including 22 (13.2%), 69 (41.3%), and 76 (45.5%) SBU purchasing representatives at the managing director, senior manager, and manager levels, respectively. Again, nonresponse bias was not an inhibiting factor based on a statistical significance test with the same procedures used in the first sample (Armstrong and Overton, 1977).

Analysis The analysis was done in three phases. In the first phase, the domestic sample was used to eliminate items from the 36-item scale that did not adequately reflect theoretical components of the OLC construct. Several alternative factor structure specifications (i.e., competing models) were also tested. The international sample was then used to test the reduced set of organizational learning items. This test was performed to validate the findings in the first test and to potentially trim some of the poorer fitting items. Lastly, the derived components of the organizational learning scale were correlated with selected managerially relevant constructs to assess the criterion and construct validities of the OLC orientations (cf. Kohli, Jaworski, and Kumar, 1993). The reduced set of scale items, based on the analyses of the two samples, is reported in the Appendix, including means and standard deviations. A seven-point Likert-type scale was used ranging from "Strongly Disagree" to "Strongly Agree."

Domestic Sample Purification Analysis The synthesis of prior conceptualizations of the OLC construct proposed in this study suggest that OLC should encompass the four conceptually distinct, yet related, components of team orientation, systems orientation, learning orientation, and memory orientation. From a measurement standpoint, the theoretical construct of OLC dictates a measurement model composed of four distinct but correlated dimensions. Stated formally: HI: The covariation among the 36 organizational learning

items can be accounted for by a correlated four-factor model where each factor represents a specific concep tual orientation of organizational learning and each item is reflective of only one single component (MOD1). Similar to Kohli, Jaworski, and Kumar (1993), several potentially plausible competing measurement models were also tested following the evaluation and elimination of items based on model MOD1. The following a priori hypotheses are made regarding the competing models: H2: The covariation among the set of organizational learn-

ing items can be accounted for by a general organizational learning factor even though the construct is conceptualized as consisting of four distinct orientations (MOD2). H3: The covariation among the set of organizational learn-

ing items can be accounted for by a correlated threefactor model where each factor represents a specific conceptual orientation of organizational learning and each item is reflective of only one single component (MOD3 through MOD8). Six different models were tested to assess H3. Each of the models, MOD2 to MODS, combined two of the orientations of the theoretically developed measurement model (Table 2). The null model (MOD9) is included for comparison purposes. The model fits were evaluated using the DELTA2 index (Bollen, 1989) and the relative noncentrality index (RNI)(McDonald and Marsh, 1990), which have been shown to be the two most stable fit indices (Gerbing and Anderson, 1992). The chi-square goodness-of-fit statistic and the goodness-offit index (Joreskog and S~)rbom, 1993) are included for comparison purposes. We used several criteria to evaluate the OLC items, including the items error variance, modification index, and residual covariation (Anderson and Gerbing, 1988; Fornell and Larcker, 1981;J0reskog and S0rbom, 1993). To construct a practical OLC scale with managerial implications, we opted to develop a scale consisting of single-component items (cf. Kohli, Jaworski, and Kumar, 1993). Thus, an item was only allowed to load on one factor and could not cross-load on any other factors. As such, the diagnosis for MOD1, in conjunction with theo U and content considerations (Anderson and Gerbing, 1988), led us to eliminate 13 items. This left 23 items for subsequent analysis, including eight items for team orientation, five items for systems orientation, six items for learning orientation, and four items for memo W orientation. Respecilying MOD1 to the reduced set of 23 items resulted in a considerable improvement in fit (DELTA2 = .85, RNI = .85) compared with the initial 36-item solution (DELTA2 = .65, RNI = .65). The construct reliabilities for the organizational learning measures are .82, .84, .82, and .70 for the four dimensions of team orientation, systems orientation, learning

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orientation, and memory orientation, respectively (Fornell and Larcker, 1981). Table 3 summarizes the models fits for theory-driven MOD1, the competing models of MOD2, MOD3, MOD4, MODS, MOD6, MOD7, MOD8, and the null model (MODg) to the 23 items. The difference between MOD1 and each of the competing models (MOD2 through MOD8) was determined by comparing the difference in X2 values for each of the different sets of models (Anderson and Gerbing, 1988). Anderson and Gerbing (1988) state that the X2 differences can then be tested for statistical significance with the appropriate degrees of freedom being the difference in the number of estimated coefficients for the two models with the assumption that they are nested models. The results of the competing model analyses indicate that the proposed MODI represents the "best" measurement model available. The X2 differences range from 338.93 (dr = 6) for MOD1 compared with MOD2 (p < .01) to 41.65 (df = 3) for MOD1 compared with MOD7

(p < .01). After the model fit for MOD1 had been established and tested vis-a-vis the competing models (MOD2 through MODS), an initial test of convergent validity was established by the examination of parameter estimates and their associated t-values based on MOD1 (Anderson and Gerbing, 1988; Bagozzi, 1981; Bagozzi and Yi, 1988). The parameter estimates range from .26 to .85 (p < .01). Further analysis of convergent validity was established by assessing the average variance extracted for each construct (Fornell and Larcker, 1981). The average variances extracted are 38%, 53%, 44%, and 38% for the four dimensions of team orientation, systems orientation, learning orientation, and memory orientation. In addition, the within-construct correlations are generally high and consistent for each of the four OLC orientations (Campbell and Fiske, 1959~ Churchill, 1979). Discriminant validity for the MOD1 was also established using the criteria proposed by Fornell and Larcker (1981). These authors recommend that the shared variance between two dimensions of a construct should be less than the average variance extracted by either of the individual dimensions (cf. Anderson and Gerbing, 1988). For the domestic sample, the shared variances between the dimensions are 26%, 17%, 18%, 16%, 30%, and 8% for the combinations of team orientation/systems orientation, team orientation/learning orientation, team orientation/memory orientation, systems orientation/ learning orientation, systems orientation/memory orientation, and learning orientation/memory orientation, respectively. In each instance, the shared variances are lower than the average variances extracted. Thus, discriminant validity exists between the organizational learning dimensions (Fornell and Larcker, 1981). The summated between-construct correlations range from .36 to .56 (p < .01), which, for the most part, was lower than for the within-construct correlations (Campbell and Fiske, 1959; Churchill, 1979).

G . T . M . Hult and O. C. Ferrell

International Sample Reliability and Validity Analysis Based on the statistical analysis in the first domestic sample purification test, in conjunction with theory and content considerations (Anderson and Gerbing, 1988), the a priori MOD1 was used for the international sample analysis of the reduced OLC scale. Thus, the 23 items were specified in a way that the covariation among the 23 items can be accounted for by a correlated four-factor model and where each item is reflective of only one single component. This resulted in a moderate model fit (Hair et al., 1995) of X2 = 546.70 with 224 degrees of freedom (DELTA2 = .80, RNI = .80). While we have theoretical and previous statistical justification to retain all items in the scale (Anderson and Gerbing, 1988), we believe that from a generalizability standpoint eliminating items that performed poorly in the second test is desirable. The diagnosis for MOD1 in the international sample analysis led us to eliminate items OLC1, OLC2, OLC5, OLC13, OLC14, and OLC19 (Appendix). This left 17 items for subsequent analysis: five for team orientation, four for systems orientation, four for learning orientation, and four for memory orientation. Refitting the MOD1 to the reduced set of 17 items resulted in substantial improvement in fit where X2 = 262.56 (df = 113), DELTA2 = .88, and RN[ = .88. Table 4 summarizes the results of the analysis of the 17 items. Convergent validity for the 17-item MOD 1 was then established by examining the parameter estimates, and their associated t-values, and by calculating the average variance extracted for each dimension (Anderson and Gerbing, 1988; Bagozzi, 1981; Bagozzi and Yi, 1988; Fornell and Larcker, 1981). The parameter estimates are all significant at the p < .01 level and range from .62 to .74 for team orientation, .77 to .86 for systems orientation, .64 to .73 for learning orientation, and .51 to .70 for memory orientation. The average variances extracted are 47%, 67%, 49%, and 40% for team orientation, systems orientation, learning orientation, and memory orientation respectively. In addition, the within construct correlations are generally high and consistent for each of the four dimensions (Campbell and Fiske, 1959; Churchill, 1979). The within correlations range from .35 to .65 for team orientation, .62 to .74 for systems orientation, .36 to .52 for learning orientation, and .33 to .76 for memory orientation. All the within-construct correlations are significant at the /0 < .01 level. Discriminant validity was again established by calculating the shared variances between the dimensions and comparing them with the average variances extracted. The shared variances between specific pairs (Anderson and Gerbing, 1988) of the OLC dimensions in the international sample were 39%, 26%, 31%, 7%, 36%, and 15% for the combinations of team orientation/systems orientation, team orientation/learning orientation, team orientation/memory orientation, systems ori-

Global Organizational Learning Capacity in Purchasing

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105

Table 2. Summary Results for the Domestic Sample Analysis Model

Content

X2

df

GFI

DELTA2

RNI

MOD1

Four Correlated Factors

462.54

224

.82

.85

.85

MOD2

One General Factor

801.47

230

.67

.64

.63

MOD3

Three Correlated Factors of Team Orientation/Systems Orientation Learning Orientation and Memory Orientation

542.45

277

.79

.80

.80

MOD4

Three Correlated Factors of Team Orientation/Learning Orientation Systems Orientation and Memory Orientation

622.89

227

.74

.75

.75

MOD5

Three Correlated Factors of Team Orientation/Memory Orientation Systems Orientation and Learning Orientation

526.36

227

.79

.81

.81

MOD6

Three Correlated Factors of Systems Orientation/Learning Orientation Team Orientation and Memory Orientation Three Correlated Factors of Systems Orientation/Memory Orientation Team Orientation and Learning Orientation

641.06

227

.73

.74

.73

504.19

227

.80

.82

.82

MOD8

Three Correlated Factors of Learning Orientation/Memory Orientation Team Orientation and Systems Orientation

583.44

227

.77

.77

.77

MOD9

Null Model

1805.53

253

.34

MOD7

entation/learning orientation, systems orientation/memory orientation, and learning orientation/memory orientation respectively. Evidence of discriminant validity exists between the orientations of the OLC scale because the shared variances between any combination of a pair of dimensions in the scale are lower than the average variances extracted for the four dimensions individually (Fornell and Larcker, 1981). The individual item correlations between constructs range from .10 to .57 (p < .05), with most of them being below the .25 level (Campbell and Fiske, 1959; Churchill, 1979). The summated between construct correlations range from .26 to .63 (p < .01)(Campbell and Eiske, 1959; Churchill, 1979).

Validation Analysis The validation analysis for the OLC scale follows the format used by Kohli, Jaworski, and Kumar (1993) in their development and testing of the MARKOR scale (a scale used to assess a SBU's degree of market orientation) and provides an initial test of the criterion validity and the construct validity of the OLC scale (Table 4). The validation analysis builds on the notion that "organizations learn only through individuals who learn.., individual learning does not guarantee organizational learning.., but without it no organizational learning occurs" (Senge, 1990, p. 139). Thus, organizational learning is a process that evolves through individual learning. As such, organizational learning is mediated by the collaborative inquiry of individual actors (Argyris and Schon, 1978). The primary difference between individual and organizational learning is

the social requirement of organizational learning (Meyer, 1993). Thus, learning organizations conduct continuous evaluation on development programs to capture learning before the team disbands. This creates a public forum where employees' thoughts regarding what works and what does not work are exposed and possibly contested and criticized. A distinguishing feature of this organizational learning orientation is that it provides a forum that makes publicly discussing mistakes legitimate. The fact that all employees recognize mistakes is a part of the operating policies of the organization and the basis for learning. A formal means for providing and enhancing OLC within an organization is to conduct seminars and workshops dealing with the components, activities, and relationships involved in the OLC orientations. The logical deduction of this reasoning is that each of the OLC orientations should be positively correlated with the number of times a respondent has attended learning seminars and workshops. Therefore, to validate and provide an initial assessment of criterion validity of the OLC scale, we asked the respondents to provide us with the number of organizational learning seminars that they had attended during the last two years. The following question was asked:

QI: How many learning seminars dealing with the purchasing process have you as a representative of your SBU attended? When was the last time you attended? The qualifier of "when was the last time you attended?" was used to limit the sample to those respondents that had

106

J Busn Res 1997:40:97-111

participated in organizational learning seminars or workshops during the last two years. The cutoff date was chosen because we believe that the effect of the learning seminars and work shops is minimized after a two-year period. Additionally, the four OLC orientations were correlated with an open-ended measure assessing the cycle time of the purchasing process. Cycle time, in this study, is the time it takes from initiation to completion of the purchasing process (cf. Meyer, 1993; Wetherbe, 1995). The unit of measure for the purchasing cycle time item is number of weeks. The average cycle time for the purchasing process in this study was seven weeks. The logic for using cycle time as a correlate with organizational learning stems from Meyer (1993), who argues that organizational learning is the foundation for "fast cycle time." Thus, to provide an initial assessment of construct validity, each component of the organizational learning scale should be negatively correlated with the purchasing process' cycle time measure. The following question was asked:

Q2: Based on the experiences of our SBU, the average length of the purchasing process from initiation to completion is? Table 4 provides the results of the correlation analysis. The four orientations of organizational learning were simultaneously correlated with the responses to the organizational learning seminar question and the cycle time measure. The correlations range between .13 and .19 for the four orientations of the organizational learning orientation and the number of attended organizational learning seminars, with the t-values being greater than two in absolute terms. Correspondingly, the correlations between the cycle time measure and the four organizational learning orientations range between - . 14 and - . 2 3 , with the t-values being greater than two in absolute terms. Overall, the findings of the correlation analysis are supportive of the criterion validity and the construct validity of the OLC orientations.

Discussion The organizational learning capacity (OLC) scale assesses the degree to which the organization (1) engages in cross-functional organizational learning activities and relationships with the idea of creating shared organizational understanding (team orientation), (2) provides an understanding of its activities and relationships with the overall mission of the organization (systems orientation), (3) values organizational learning (learning orientation), and (4) operates a climate where previous and current knowledge and information are accessible (memory orientation). Key attributes of the measurement include: (1) a focus on the customers (in our study we focused on the internal customers of the SBUs) and the forces that drive their needs and preferences in the purchasing process and (2) a focus on activity and relationship-based items, not just business philosophy.

G . T . M . Hult and O. C. Ferrell

The OLC scale builds on the idea that organizational learning is an action concept. Thus, organizational learning involves taking effective action based on the process of detecting and correcting the inefficiencies in current marketing operations. The function of organizational learning means that people within the SBU put aside their old ways of thinking about details (learning orientation), adopt a broader perspective of how the organization really works (systems orientation), learn to be open with each other (memory orientation), and work together to form and implement a strategy upon which everyone can agree (team orientation). Though the OLC scale represents a significant step forward, several substantive and application implications warrant consideration and avenues for future research.

Substantive Issues On the substantive side, there is always the question concerning the scale items. One potential limitation or confounding factor in the analysis may be the wording of eight of the twenty-three scale items (see Appendix). The respondents were asked to base their assessment of organizational learning from the viewpoint of their specific SBU as one entity (i.e., "as a representative of our SBU . . ."). In this regard, the respondents act as "key informants" or "representatives" of their specific SBU. As such, following the logic of Senge (1990), the eight OLC scale items incorporate the concept of "learning agents," which is a crucial component of organizational learning, into the measure of organizational learning capacity. Thus, the OLC scale focuses on SBU relationships and activities targeted at creating organizational learning, assessed by a "key informant" representing the specific SBU. Although we included the concept of "learning agents" in the OLC scale by design, future studies may want to adapt the eight scale items to stay consistent with the other 15 scale items in the OLC scale (i.e., use "we" rather than "as a representative of our SBU. . . . "). Second, the OLC measure was developed and tested in the context of a purchasing process. Since the organizational learning concept is proposed to operate based on three subprocesses of learning and in the context of two cognitive levels of learning, the testing of the OLC scale in a purchasing process may potentially provide confounding results. In other words, a purchasing process is process-oriented by the nature of the process itself. Thus, a certain degree of organizational learning is bound to exist in the process at all times. Though the qualitative interviews and case studies addressed organizational learning activities and relationships in both purchasing and new product development processes, in the interest of pursuing the boundaries of the concept, additional testing is needed to validate the OLC scale in different settings. Several marketing processes and activities can be targeted in such a validation analysis. Since the qualitative interviews and case studies in this study focused on purchasing and new product development

Global Organizational Learning Capacity in Purchasing

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Table 3. Summary Results for the International Sample Analysis X~ = 262.56 df = 113 p < .01

Scale I t e m s

Team Orientation L03 LO4 LO6 LO7 L08 Systems Orientation Log LO10 LOll LO12 Learning Orientation LOI5 LO16 LO17 LOI8 Memory Orientation LO20 LO21 LO22 LO23

n = 167

GFI = .85 DELTA2 = .88 RNI = .88

Paramete# Estimate

T-Value a

Construct Reliability b

Average Variance Extracted b

.62 .67 .71 .67 .74

8.34 9.26 0.85 9.22 10.59

.81

47.0%

.83 .77 .81 .86

12.65 11.41 12.26 13.50

.89

67.4%

.64 .72 .70 .73

8.37 9.62 9.28 9.81

.79

48.9%

.70 .68 .51 .59

9.16 8.93 6.34 7.53

.72

40.0%

"p < .01 [or all of the parameter estimates

~'Construct reliabilities and average variances extracted were calculated using the procedures outlined by Fornell and Larcker (19813.

processes in the item generation and pretest phases, the context of a new product development process should provide insightful implications. New product development processes provide an excellent opportunity for an OLC analysis. Thus, since the global rate of change continues to accelerate, the organization that not only recognizes the change but acts on it in the form of time-to-market of new products can achieve a competitive advantage. The implication is that a competitive advantage can be achieved by focusing on marketing tactics that are learning oriented in the truest sense of organizational

learning. Thus, an important research question to be addressed here is: Does organizational learning always enhance new product development success? The implication may be that organizations start seeing a diminishing return on their learning endeavors after achieving a certain level of implemented organizational learning capacity. Thus, future research should address degrees of organizational learning needed to achieve a competitive advantage under varied conditions. In addition, as mentioned earlier, the OLC measure also needs to be tested outside the context of marketing processes. Other settings for

Table 4. Summa U Results for the Validation Analysis Organizational Learnin~ Orientations Validity Measure

Organizational Learning Seminars and Workshops Attended Related to the Purchasing Process and Function (Criterion Validity) Cycle Time of the Purchasing Process (Construct Validity)

Team Orientation

Systems Orientation

Learning Orientation

• 17 ~'

.19 ~

.18 ~'

-.23 ~,

-.21 ~

-.14~,

Accessible Orientation

.13 ~

-.17 ~,

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J Busn Res 1997:40:97-I 11

future testing may include the activities and relationships within and between individual specialized entities such as corporate marketing departments, global marketing departments, advertising functions, sales functions, research and development functions, and complex marketing systems such as marketing channels. Lastly, the role of organizational memory in the context of organizational learning capacity provides an area for future research. While the OLC scale incorporates the degree of "memory orientation" in the marketing process, future research needs to address the function of organizational learning-specific organizational memory. The OLC scale simply assesses the degree to which memory is accessible. As such, the orientations for storing organizational memory are not reflected in the scale properties. The issue then becomes: Should organizational learning incorporate the properties of organizational memory or is memory orientation the learningrelated component? If the assumption that memory orientation is the learning-related component is true, then, the physical component of organizational memory storage bins is a conceptually different construct, as suggested by the theoretical framework presented herein. Nevertheless, assuming that organizational memory is the lasting physical representation of the learning outcome from which all organizational members can subsequently act, organizational memory is a crucial factor in the learning process. In essence, organizational memory has a dual function of storing information and knowledge and also serving as a reference for future learning activities and relationships. In addition, we propose that the focus of organizational memory is distributional and thus not confined to one location in the organization. Thus, we suggest that organizational memory is a direct functional extension of organizational learning. However, further investigation is required and should include efforts to understand the relationship between memory orientation as a component of organizational learning and organizational memory.

Application Issues The proposed 17-item OLC measure is intended to be used to establish the degree of organizational learning capacity within an organization or the specific purchasing process. As organizational learning programs are implemented, the organization could assess its progress by using the OLC scale. The OLC measure allows the organization to assess its different functions, SBUs, and purchasing processes in a comparative manner for the purposes of locating problem areas related to one or more of the components of organizational learning. These problems or concerns can then be addressed in future learning endeavors. To aid in implementing organizational learning in the purchasing organization, one can target the areas of organizational learning capacity reflected in the OLC scale. The OLC scale is modeled on general philosophical adherence to certain organizational learning relationships and activities - - specifically

G . T . M . Hult and O. C. Ferrell

in purchasing processes - - derived from both the organizational learning literature and a series of qualitative interviews and case studies. As such, interventions can be targeted to certain areas reflected in the individual scale indicators. Thus, a managerial implication of the scale properties is the focus on the activities that need to take place and the relationships that need to be present for the organization to be considered a learning organization in a marketing context. For example, if the organization or SBU scores poorly on some part of the scale, further analysis may reveal the underlying causes for the problems and specific areas for improvement. The focus on theoretically and managerially sound activities and relationships required for organizational learning to exist reinforces the validity of the OLC scale. For example, the implementation of organizational learning within organizations creates a unique problem. The greater one's need is to become a learning organization, the more one wants to get started quickly. The faster one wants to start, the more one is tempted to focus on easy-toqearn tactics and techniques of a new discipline instead of taking the time to integrate the concepts behind the techniques. In this case, change will not be long-lasting. This form of organizational "change" has two serious consequences (cf. Meyer, 1993). First, when time is devoted to learn specific organizational tactics, not enough time will be left to internalize the conceptual foundation required to support the tactics in the long term. Second, the more amenable a tactic is for instant use, the more likely it is that it is not very different from something that employees are already doing, or else it would not be possible to adopt so quickly. In an organization's quest for improvement, it often creates the "flavor-of-the-month," where organizational learning remains confined to one or two projects without challenging the organization's fundamental operating behaviors. Thus, becoming a learning organization requires a fundamental change in the organization's culture and climate and a means for measuring the progress of this organizational learning over time. The OLC scale is proposed as a measurement tool to be used to assess the organizational learning progress of an organization over time. In addition, the OLC scale can be used as a measurement tool to assess organizational learning capacity in theory development and testing for the purposes of developing marketing knowledge and achieving a high level of market information processing. Thus, the OLC scale could be used in frameworks that empirically test the influence on marketing outcomes where team orientation, systems orientation, learning orientation, and memory orientation play a role in decision making and market information processing. Organizational learning may play a role in product development, distribution, pricing, and promotion decisions. For example, market orientation, market information processing, new product success, customer satisfaction, service quality, marketing channels, sales orientation, sales growth, and ethical climate have all been linked to organizational learning.

Global Organizational Learning Capacity in Purchasing

This research was funded by the Federal Express Corporation and the FedEx Center for CycleTime Research. The authors are gratefulto James M. Sinkula, Patrick L. Schul, and Thomas N. Ingrain for their valuable input at various stages of this research, and to Stephen J. Arnold, Michel Laroche, and two anonymous reviewers for their suggestionson how to prepare and revise this article.

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Appendix A. The Organizational Learning Capacity (OLC) Scale

Team Orientation OLC1. OLC2. OLC3. OLC4. OLCS. OLC6. OLC7. OLC8. Systems Orientation OLCg. OLCIO. OLCI 1. OLC 12. OLC 13. Learning Orientation OLC14. OLC15. OLC16. OLC17. OLC18. OLC19. Memory Orientation OLC20.

OLC21. OLC22. OLC23.

Scale Item

Mean

Standard Deviation

Cross-functional teamwork is not a common practice here) Individuals in teams are often defensive about their particular functional specialty? • A team spirit pervades our ranks. Around here, cross-functional teamwork is the common way of working rather than an exception to the norm. Measurement and reward systems are linked to team achievements, not .just individual achievements# There is a commonality of purpose in the purchasing process. There is total agreement on our organizational vision across all levels, functions and divisions of the purchasing process. The purchasing department is committed to sharing their vision for the purchasing process with our SBU.

2.95

1.25

2.78 4.15

1.20 1.56

4.04

1.48

4.13 3.91

1.52 1.41

3.42

1.38

3.71

1.53

3.73

1.61

3.89

1.65

3.10

1.50

3.28

1.47

4.50

1.59

5.51

1.15

4.78

1.36

4.73

1.43

5.05

1.38

5.01

1.31

4.57

1.31

3.80

1.50

3.98

1.50

3.68

1.58

3.42

1.62

As our SBU representative, I have a good sense of the interconnectedness of all parts of the purchasing process:' As our SBU representative, I understand the purchasing process' basic value chain and how my work fits into that chain) All activities that take place in the purchasing process are clearly defined. As our SBU representative, 1 understand where all activities fit-in in the purchasing process# As our SBU representative, l am always attempting to develop new ways of looking at the purchasing process# • As our SBU representative, I am committed to the goals of this purchasing process# As our SBU representative, I basically agree that our ability to learn is the key to improvement in the purchasing process." The basic values of this purchasing process include learning as a key to improvement. The collective wisdom involved in the purchasing process is that once we quit learning, we endanger our future. The sense around here is that employee learning is an investment, not an expense. Learning in my SBU is seen as a key commodity necessary to guarantee efficiency of the purchasing process# As our SBU representative, I have specific mechanisms for sharing lessons learned in the purchasing process from project to project (unit to unit, team to team)# As our SBU representative, I always audit unsuccessful purchasing endeavors and communicate the lessons learned widely2 There is a good deal of organizational conversation which keeps alive the lessons learned from history. We have formal routines that we use to uncover faulty assumptions that we may have made about the purchasing process.

'Following ~he logic of Senge (1990), these items in the OLC scale reflect the concept of "learning agents" into the measure of organizational learning capacity. The respondents were used as key informants and asked to assess the level of organizational learning in their specific SBU ~'ltem is reverse coded, qtem was eliminated in the first phase of the international sample analysis