Sensemaking, Knowledge Creation,and Decision Making

Organizational Knowing as Emergent Strategy

Chun Wei Choo

This chapter introduces the perspective of strat-egy as the outcome of organizational sensemak-ing, knowledge creating, and decision making.The first three sections examine the processes bywhich an organization constructs meaning, cre-ates knowledge, and makes decisions that drivepatterns of action. The ensuing sections showhow the three processes are interconnected toform cycles of learning and adaptation. Throughthese cycles, the organization traces out a growthtrajectory that defines its strategic position.

An organization processes information tomake sense of its environment, to create newknowledge, and to make decisions (Choo 1998).Sensemaking constructs the shared meaningsthat define the organization's purpose and framethe perception of problems or opportunities thatthe organization needs to work on. Problems andopportunities become occasions for creatingknowledge and making decisions. An organiza-tion possesses three types of knowledge: tacitknowledge in the experience and expertise of in-dividuals; explicit knowledge codified as artifacts,rules, and routines; and cultural knowledge held

as assumptions, beliefs, and values. The creationof new knowledge involves the conversion, shar-ing, and combination of all three types of knowl-edge. The results of knowledge creation areinnovations or extensions of organizational ca-pabilities. Whereas new knowledge represents apotential for action, decision making transformsthis potential into a commitment to act. Decisionmaking is structured by rules and routines andguided by preferences that are based on inter-pretations of organizational purpose and priori-ties. Where new capabilities or innovations be-come available, they introduce new alternativesas well as new uncertainties. Decision making,then, selects courses of action that are expectedto perform well given the understanding of goalsand the conditions of uncertainty. Thus, the ca-pacity to develop organizational knowledge isdistributed over a network of information pro-cesses and participants. Rather than being cen-trally controlled and coordinated, the capacity todevelop knowledge emerges from the complex,unpredictable patchwork of processes in whichparticipants enact and negotiate their own mean-

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ings of what is going on, stumble upon and wres-tle with new knowledge to make it work, and cre-atively improvise and bend rules and routines tosolve tough problems.

Sensemaking

Weick (1979, 1995) presents a model of organi-zational sensemaking based on a conceptualiza-tion of organizations as "loosely coupled" sys-tems in which individual participants have greatlatitude in interpreting and implementing direc-tions. He stresses the autonomy of individualsand the looseness of the relations linking indi-viduals in an organization. The purpose of orga-nizational information processing is to reducethe equivocality of information about the envi-ronment. Weick summarizes his organizingmodel as follows:

The central argument is that any organiza-tion is the way it runs through the processesof organizing. . . . This means that we mustdefine organization in terms of organizing.Organizing consists of the resolving ofequivocality in an enacted environment bymeans of interlocked behaviors embedded inconditionally related processes. To summa-rize these components in a less terse man-ner, organizing is directed toward informa-tion processing in general, and morespecifically, toward removing equivocalityfrom informational inputs. (Weick 1979,pp. 90-91)

Weick (1995) describes how people enact or ac-tively construct the environment that they at-tend to by bracketing experience and by creatingnew features in the environment. Sensemakingis induced by changes in the environment thatcreate discontinuity in the flow of experience en-

gaging the people and activities of an organiza-tion (Weick 1979). These discontinuities consti-tute the raw data that have to be made sense of.The sensemaking recipe is to interpret the envi-ronment through connected sequences of enact-ment, selection, and retention (Weick 1979). Inenactment, people actively construct the envi-ronments that they attend to by bracketing, re-arranging, and labeling portions of the experi-ence, thereby converting raw data from theenvironment into equivocal data to be inter-preted. In selection, people choose meanings thatcan be imposed on the equivocal data by over-laying past interpretations as templates to thecurrent experience. Selection produces an enactedenvironment that provides cause-effect explana-tions of what is going on. In retention, the orga-nization stores the products of successful sense-making (enacted or meaningful interpretations)so that they may be retrieved in the future.

Organizational sensemaking can be driven bybeliefs or by actions (Weick 1995). In belief-driven processes, people start from an initial setof beliefs that are sufficiently clear and plausibleand use them as nodes to connect more and moreinformation into larger structures of meaning.People may use beliefs as expectations to guidethe choice of plausible interpretations, or theymay argue about beliefs and their relevancewhen these beliefs conflict with current infor-mation. In action-driven processes, people startfrom their actions and grow their structures ofmeaning around them, modifying the structuresin order to give significance to those actions. Peo-ple may create meaning to justify actions thatthey are already committed to, or they may cre-ate meaning to explain actions that have beentaken to manipulate the environment. Figure 5.1summarizes the sensemaking process.

An interesting corollary of Weick's model isthat organizational action often occurs first andis then interpreted or given meaning. The con-

Figure 5.1 Sensemaking.

CHAPTER 5 . SENSEMAKING, KNOWLEDG E CREATION, AND D E C I S I O N MAKING 81

nection between action and planning is thustopsy-turvy:

Our view of planning is that it can best beunderstood as thinking in the future perfecttense. It isn't the plan that gives coherenceto actions. ... It is the reflective glance, notthe plan per se, that permits the act to be ac-complished in an orderly way. A plan worksbecause it can be referred back to analogousactions in the past, not because it accuratelyanticipates future contingencies. . . . Actionsnever performed can hardly be made mean-ingful, since one has no idea what they are.They simply are performed and then madesensible; they then appear to be under thecontrol of the plan. (Weick 1979, p. 102)

While Weick emphasizes retrospective sense-making, Gioia and Mehra (1996) have suggestedan important role for prospective sensemaking:

If retrospective sense making is makingsense of the past, prospective sense makingis an attempt to make sense for the future.Retrospective sense making is targeted atevents that have transpired; prospectivesense making is aimed at creating meaning-ful opportunities for the future. In a loosesense, it is an attempt to structure the futureby imagining some desirable (albeit ill-defined) state. It is a means of propellingourselves forward—one that we conceptual-ize in the present but realize in the future,(p. 1229)

Sensemaking in strategy would then includeboth prospective "sense-giving" that articulatesa collective vision for the organization and ret-

rospective "sense-discovering" that notices andselects actions and outcomes that work well forthe organization.

Knowledge Creating

An organization has three kinds of knowledge:tacit knowledge in the expertise and experienceof individuals; explicit or rule-based knowledgein artifacts, rules, and routines; and culturalknowledge in the assumptions and beliefs usedby members to assign value and significance tonew information or knowledge. Knowledge cre-ating is precipitated by the recognition of gapsin the organization's existing knowledge. Suchknowledge gaps can stand in the way of solvinga problem, developing a new product, or takingadvantage of an opportunity. Organizations thencreate new knowledge by converting tacit to ex-plicit knowledge, integrating and combiningknowledge, and acquiring or transferring knowl-edge across boundaries (figure 5.2).

In knowledge conversion (Nonaka andTakeuchi 1995, Nonaka 1994, this volume), theorganization continuously creates new knowl-edge by converting the personal, tacit knowledgeof individuals who develop creative insight to theshared, explicit knowledge by which the organi-zation develops new products and innovations.Tacit knowledge is shared and externalizedthrough dialogue that uses metaphors and analo-gies. New concepts are created and the conceptsare justified and evaluated according to its fitwith organizational intention. Concepts aretested and elaborated by building archetypes orprototypes. Finally, concepts that have been cre-ated, justified, and modeled are moved to otherlevels of the organization to generate new cyclesof knowledge creation.

Figure 5.2 Knowledge creating.

82 PART I. KNOWLEDG E IN O R G A N I Z A T I O N S

Grant (1996, chap. 8 this vol.) sees organiza-tional capability as the outcome of knowledgeintegration—the result of the organization'sability to coordinate and integrate the knowledgeof many individual specialists. In Grant's view,knowledge creation is an individual activity, andthis means that the primary role of the organi-zation is to apply knowledge rather than to cre-ate it. More specifically, the organization existsas an institution that "can create conditions un-der which multiple individuals can integratetheir specialist knowledge" (p. 112). The funda-mental task of the organization is to integratethe knowledge and coordinate the efforts of itsmany specialized individuals. The key to efficientknowledge integration is to establish mecha-nisms that combine efficiency in knowledge cre-ation (which requires specialization) and effi-ciency in knowledge deployment (which requiresintegrating many types of knowledge).

Grant identifies four mechanisms for inte-grating specialized knowledge that economize oncommunication and coordination: rules and di-rectives, sequencing, routines, and group prob-lem solving and decision making. Rules and di-rectives regulate the actions among individualsand can provide a means by which tacit knowl-edge is converted into readily comprehensibleexplicit knowledge. Sequencing organizes pro-duction activities in a time sequence so that eachspecialist's input occurs independently in a pre-assigned time slot. Routines can support rela-tively complex patterns of behaviors and inter-actions among individuals without the need tospecify rules and directives. Group problem solv-ing and decision making, in contrast with theother mechanisms, rely on high levels of com-munication and nonstandard coordination meth-ods to deal with problems that are high in taskcomplexity and task uncertainty. All four mech-anisms depend upon the existence of commonknowledge for their operation. Common knowl-edge may take the form of: a common languagebetween organizational members, commonalityin the individuals' specialized knowledge, sharedmeanings and understandings among individu-als, and awareness and recognition of the indi-viduals' knowledge domains (Grant 1996, thisvolume).

An organization may be perceived as a repos-itory of capabilities, which are "determined bythe social knowledge embedded in enduring in-dividual relationships structured by organizingprinciples" (Kogut and Zander 1992, p. 396).These organizing principles establish a common

language and set of mechanisms through whichpeople in an organization cooperate, share, andtransfer knowledge. They enable sets of func-tional expertise to be communicated and com-bined so that the organization as a whole can ex-ist as integrated communities:

Creating new knowledge does not occur inabstraction from current abilities. Rather,new learning, such as innovations, are prod-ucts of a firm's combinative capabilities togenerate new applications from existingknowledge. By combinative capabilities, wemean the intersection of the capability ofthe firm to exploit its knowledge and theunexplored potential of the technology,(p. 390)

While Kogut and Zander (1992), Grant (1996),and others regard organizations as institutionsfor combining and integrating knowledge,Tsoukas (1996) suggests that there may be lim-its to the extent that organizational knowledgemay be integrated. Tsoukas views organizationsas "distributed knowledge systems in a strongsense: they are de-centered systems. A firm'sknowledge cannot be surveyed as a whole: it isnot self-contained; it is inherently indeterminateand continually reconfiguring" (p. 13). The uti-lization of organizational knowledge cannot beknown by a single agent—no single individualor agent can fully specify in advance what kindof knowledge is going to be relevant, when andwhere. There is no "master control room" whereknowledge may be centrally managed:

Organizations are seen as being in constantflux, out of which the potential for theemergence of novel practices is never ex-hausted—human action is inherently cre-ative. Organizational members do followrules but how they do so is an inescapablycontingent-cum-local matter. In organiza-tions, both rule-bound action and noveltyare present, as are continuity and change,regularity and creativity. Management,therefore, can be seen as an open-ended pro-cess of coordinating purposeful individuals,whose actions stem from applying theirunique interpretations to the local circum-stances confronting them. ... A necessarycondition for this to happen is to appreciatethe character of a firm as a discursive prac-tice: a form of life, a community, in whichindividuals come to share an unarticulated

CHAPTER 5. SENSEMAKING, K N O W L E D G E CREATION, AND D E C I S I O N MAKING 83

background of common understandings. Sus-taining a discursive practice is just as impor-tant as finding ways of integrating distrib-uted knowledge, (pp. 22-23)

Knowledge transfer across organizationalboundaries can involve tacit, explicit, and cul-tural knowledge to varying degrees. In a smallnumber of cases, the transfer is largely accom-plished through a movement of explicit knowl-edge (e.g., an algorithm, a protein sequence).Transfers of such well-defined packages of codi-fied knowledge typically require a substantialamount of collateral knowledge in the receivingorganization to decode and apply the new infor-mation. In a larger number of cases, the transferof explicit knowledge is accompanied and facili-tated by human experts from the source organi-zation. Experts interpret the meaning of the newinformation and deal with the detailed questionsarising from trying to use the new informationin its new setting. Thus, tacit knowledge is nec-essary to assimilate and apply new explicitknowledge effectively. There are important caseswhen the movement of explicit knowledge isnot enough, even when accompanied by tacitknowledge—cultural knowledge is also neces-sary. This is especially so when organizations aretrying to learn new practices or systems of workthat are woven into organizational networks ofroles, relationships, and shared meanings. Con-sider Toyota's production system, an example ofa tight integration of tacit, explicit, and culturalknowledge:

Toyota's knowledge of how to make cars liesembedded in highly specialized social andorganizational relationships that haveevolved through decades of common effort.It rests in routines, information flows, waysof making decisions, shared attitudes and ex-pectations, and specialized knowledge thatToyota managers, workers, suppliers andpurchasing agents, and others have aboutdifferent aspects of their business, abouteach other, and about how they can all worktogether. (Badaracco 1991, p. 87)

When General Motors wanted to learn theToyota production system, it established theNUMMI (New United Motor Manufacturing, Inc.)plant in 1984 as a joint venture with Toyota inorder to facilitate the learning of "intimate, em-bedded knowledge." The NUMMI group took overa General Motors facility at Fremont, California.

Work at NUMMI was organized based on Toyota'slean production system that seeks to utilize la-bor, materials, and facilities as efficiently as pos-sible. Although much has been published aboutToyota's production system, without the NUMMIexperience GM might have permanently missedthe essence of Toyota's management process. Co-practice to learn the system was necessary be-cause the capabilities were "tacit know-how inaction, embedded organizationally, systemic ininteraction and cultivated through learning bydoing" (Doz and Hamel 1997, p. 570). Badaracco(1991) concluded that, through NUMMI, GM hadthe chance to learn first-hand Toyota's collabo-rative approach to worker and supplier relation-sips, just-in-time inventory management, andefficient plant operations. For Toyota, the proj-ect helped it learn about managing U.S. workers,suppliers, and logistics and about cooperatingwith the unions and the state and local govern-ments.

Scores of GM managers and thousands ofworkers have worked at NUMMI or at leastvisited the operation. It would have beenmuch simpler for GM to buy from Toyotathe manual How to Create the Toyota Pro-duction System, but the document does notexist and, in a fundamental sense, could notbe written. Much of what Toyota "knows"resides in routines, company culture, andlong-established working relationships in theToyota Group. (Badaracco 1991, p. 100)

Many firms form alliances for the purpose ofsharing and transferring knowledge. Only re-cently has research begun to examine the condi-tions and processes by which knowledge is ex-changed in multifirm arrangements (Fischer etal., this volume). One finding is that the tacitnessof the knowledge can influence knowledge shar-ing outcomes. A critical factor in a firm's abilityto assimilate and utilize new knowledge is its "ab-sorptive capacity" (Cohen and Levinthal 1990),which is a function of the level of prior relatedknowledge that the firm already possesses. Theabsorptive capacity argument has been broadenedto include not only technical similarities (experi-ence in related technical areas and complemen-tary assets) but also nontechnical similarities (or-ganizational structures, compensation practices).The exchange of knowledge between organiza-tions involves both bringing in external knowl-edge and letting out (intendedly or inadvertently)internal knowledge. Thus, Appleyard (1996, chap.

84 PART I. K N O W L E D GE IN O R G A N I Z A T I O N S

30 this vol.) and Matusik (chap. 34 this vol.) ex-amine the costs and benefits of interfirm knowl-edge sharing. Costs are incurred as a result of po-tential knowledge losses, protecting intellectualproperty, partner selection, decline in profitabil-ity, and transaction costs of the knowledge trans-fer. We may generalize that there are two cate-gories of costs associated with interfirmknowledge transfer: those due to the loss ofknowledge by the focal firm, and those due tomanaging the process of knowledge transfer.

Decision Making

Completely rational decision making involvesidentifying alternatives, projecting the probabil-ities and outcomes of alternatives, and evaluatingthe outcomes according to known preferences.These information gathering and informationprocessing requirements are beyond the capabil-ities of any organization. In practice, organiza-tional decision making departs from the rationalideal in important ways depending on the con-tingencies of the decision context. At least twofeatures of the environment of decision makingwill be significant: (1) the structure and clarity oforganizational goals that impinge on preferencesand choices, and (2) the uncertainty or amountof information about the methods and processesby which the goals are to be attained. In a spe-cific decision situation, goals may be fuzzy, andorganizational groups may disagree about theirrelative importance. There is then goal ambigu-ity or conflict about which organizational goalsto pursue. Moreover, uncertainty may arise be-cause the specific problem is complex and thereis not enough information about cause-effect re-lationships or appropriate approaches to be con-sidered. Methods available to accomplish a taskare not immediately evident, and the search spacefor solutions is ill-defined. There is thereforetechnical or procedural uncertainty about howgoals are to be achieved.

Figure 5.3 positions four modes of decisionmaking along the two dimensions of goal ambi-guity/conflict and technical/procedural uncer-tainty that characterize a decision situation. Inthe boundedly rational mode, when goal andprocedural clarity are both high, choice is guidedby performance programs (March and Simon1958). Thus, people in organizations adopt anumber of reductionist strategies that allowthem to simplify their representation of theproblem situation by selectively including the

Figure 5.3 Four modes of organizational decisionmaking.

most salient features rather than attempting tomodel the objective reality in all its complexity(March and Simon 1993). During search, they"satisfice" rather than maximize; that is, theychoose an alternative that exceeds some criteriarather than the best alternative. They also fol-low "action programs" or routines that simplifythe decision-making process by reducing theneed for search, problem solving, or choice.

In the process mode (Mintzberg et al. 1976),when strategic goals are clear but the methodsto attain them are not, decision making becomesa process divided into three phases. The identifi-cation phase recognizes the need for decision anddevelops an understanding of the decision issues.The development phase activates search and de-sign routines to develop one or more solutionsto address a problem, crisis, or opportunity. Theselection phase evaluates the alternatives andchooses a solution for commitment to action. Theentire process is highly dynamic, with many fac-tors changing the tempo and direction of the de-cision process: "They delay it, stop it, restart it.They cause it to speed up, to branch to a newphase, to cycle within one or between two phases,and to recycle back to an earlier point in the pro-cess. . . . [T]he process is dynamic, operating inan open system where it is subjected to inter-ferences, feedback loops, dead ends, and otherfactors" (Mintzberg et al. 1976, p. 263).

In the political mode (Allison 1971, Allisonand Zelikow 1999), goals are contested by inter-est groups but procedural certainty is high

CHAPTER 5. SENSEMAKING, K N O W L E D G E CREATION, AND D E C I S I O N MAKING 85

Figure 5.4 Decision making.

within the groups: each group believes that itspreferred alternative is best for the organization.Decisions and actions are the results of the bar-gaining among players pursuing their own in-terests and manipulating their available instru-ments of influence. Political decision makingmay then be likened to game playing. Playerstake up positions, stands, and influence and maketheir moves according to rules and their bar-gaining strengths. In the political model, actionsand decisions are produced as political result-ants—political because decisions and actionsemerge from the bargaining by individual mem-bers along regularized action channels; and re-sultants because decisions and actions are out-comes of the compromise, conflict, and confusionof the players with diverse interests and unequalinfluence (Allison 1971, Allison and Zelikow1999).

In the anarchic mode (Cohen et al. 1972),when goal and procedural uncertainty are bothhigh, decision situations consist of relatively in-dependent streams of problems, solutions, par-ticipants, and choice opportunities arriving andleaving. A decision then happens when problems,solutions, participants, and choices coincide.When they do, solutions are attached to prob-lems and problems to choices by participantswho happen to have the time and energy to doit. Which solutions are attached to which prob-lems is a matter of chance and timing, depend-ing on which participants with which goals hap-pen to be on the scene, when the solutions andproblems are entered, and "the mix of choicesavailable at any one time, the mix of problemsthat have access to the organization, the mix ofsolutions looking for problems, and outside de-mands on the decision makers" (Cohen et al.1972, p. 16).

To be effective, organizations need to learn the

full repertoire of decision-making modes (figure5.4). Different choice situations call for differentdecision approaches. The (boundedly) rationalmode would economize time and effort by in-voking stored rules and routines for familiar,well structured situations. The dynamism and it-erativeness of the process mode would helpsearches or designs for new solutions in unfa-miliar but consequential situations. The politicalmode allows alternative points of view to beheard and may prevent complacency or parochi-alism. The anarchic mode is not dysfunctional,but rather is a way for organizations to discovergoals and find solutions in unfamiliar, unclearsituations.

The Organizational Knowing Cycle

Information flows continuously between sense-making, knowledge creating, and decision mak-ing, so that the outcome of information use inone mode provides the elaborated context andthe expanded resources for information use inthe other modes, as shown in figure 5.5. Throughsensemaking, organizational members enact andnegotiate beliefs and interpretations to constructshared meanings and common goals. Sharedmeanings and purpose (fig. 5.5) are the outcomeof sensemaking, and they set the framework forexplaining observed reality and for determiningsaliency and appropriateness. Shared meaningsand purpose help to articulate a shared organi-zational agenda, a set of issues that people in theorganization agree on as being important to thewell-being of the organization. While they maynot agree about the content of a particular issue,and they may adopt diverse positions on how itshould be resolved; nevertheless, there is collec-tive recognition that these issues are salient to

86 PART I. KNOWLEDGE IN O R G A N I Z A T I O N S

Figure 5.5 The organizational knowing cycle.

the organization. Shared meanings and purposealso help to define a collective organizationalidentity. Defining an organizational identity es-tablishes norms and expectations about the pro-priety, accountability, and legitimacy of the or-ganization's choices and behaviors. A frameworkof shared meanings and purpose is thereforeused by organizational members to assess con-sequentiality and appropriateness and to reduceinformation ambiguity and uncertainty to a levelthat enables dialogue, choice, and action making.Where messages from the external environmentare highly equivocal, shared meanings reduceambiguity by helping members to select plausi-ble interpretations. Where messages from theexternal environment are highly incomplete,shared meanings reduce uncertainty by supply-ing assumptions and expectations to fill in thevoids. Shared meanings need to be continuouslyupdated against new events and conditions. Byallowing ambiguity and diversity in interpreta-tions, an organization can constantly monitor itsshared meanings against the environment to en-sure that they are still valid.

Within the framework of its constructedmeaning, agenda, and identity, the organizationexploits current specializations or develops newcapabilities in order to move toward its visionand goals. Movement may be blocked by gaps in

the knowledge needed to bridge meaning and ac-tion. When the organization experiences gaps inits existing knowledge or limitations in its cur-rent capabilities, it initiates knowledge seekingand creating, set within parameters derived froman interpretation of the organization's goals,agendas, and priorities. Organizational membersindividually and collectively fabricate newknowledge by converting, sharing, and synthe-sizing their tacit and explicit knowledge, as wellas by cross-linking knowledge from external in-dividuals, groups, and institutions. The outcomeof knowledge creating are new capabilities andinnovations (fig. 5.5) that enhance existing com-petencies or build new ones; generate new prod-ucts, services, or processes; or expand the reper-tory of viable organizational responses. Thevalue of new knowledge is assessed locally by itsability to solve the problem at hand, as well asgenerally by its ability to enhance the organiza-tion's capabilities in the long run. New knowl-edge enables new forms of action but also intro-duces new forms of uncertainty. The risks andbenefits of untested innovations and unpracticedcapabilities are compared and evaluated by in-voking rules and preferences in the process oforganizational decision making.

Shared meanings and purposes, as well as newknowledge and capabilities, converge on decision

CHAPTER 5. SENSEMAKING, KNOWLEDGE CREATION, AND DECISION MAKING 87

making as the activity leading to the selectionand initiation of action. Shared meanings, agen-das, and identities select the premises, rules, androutines that structure decision making. Newknowledge and capabilities make possible new al-ternatives and outcomes, expanding the range ofavailable organizational responses. By structur-ing choice behavior through roles and scripts,rules and routines, the organization simplifiesdecision making, codifies and transmits pastlearning, and proclaims competence and ac-countability. Rules and routines specify "ra-tional" criteria for the evaluation of alternatives,"legitimate" methods for the allocation of re-sources, and "objective" conditions for distin-guishing between normal states and novel situ-ations that may necessitate the search for newrules.

Over time, the organization has learned andcodified a large number of rules and routines, sochoosing which rules to activate for a specific de-cision situation is itself problematic. Sharedmeanings and understandings about the natureand needs of a particular situation are used toguide rule activation. Shared interpretations helpselect which rules to apply by answering thequestions, What kind of situation is this? Whatrules do we have for dealing with this type ofsituation? Shared interpretations may also selectrules according to the criterion of appropriate-ness—What kind of organization are we? Whatwould be appropriate behavior for an organiza-tion like ours in a situation like this one? (Marchet al. 2000). Sometimes shared interpretationsindicate that the situation is novel, where noneof the learned rules seems to apply. When rulesbreak down, the organization attempts to makenew meaning in time to initiate action, effec-tively prototyping new rules to prompt choicemaking. The end result of this interaction be-tween shared meaning (in interpretations andunderstandings) and shared learning (in rulesand routines) is the execution of a pattern of ac-tions that allows the organization to move to-ward current goals while at the same time adapt-ing to changed conditions in the environment.In this sense, the outcome of decision making isbehavior that is both goal directed and adaptive.

While each organization adjusts its behaviorto perceived changes in the environment, its re-sponses are deflected and diffracted by the con-current actions of other actors that participate inthe same arena. Thus each organization is react-ing to the actions of other organizations that arealso reacting to it. The resultant meshwork of in-

teractions configures new patterns and new con-ditions that pose fresh ambiguities and uncer-tainties. A continuous stream of new events andequivocal cues necessitates iterative cycles of in-formation processing. Where meanings or pur-pose change as a result of reinterpreting the en-vironment, or where rules or routines are alteredas a result of acquiring knowledge and under-standing, the organization is adapting to varia-tion and feedback in its environment.

Organizational Knowingas Strategy Finding

Cycles of organizational knowing lead to the it-erative development of organizational strategy.Strategies are patterns of actions that often ap-pear to be rational or goal directed after the fact,with the benefit of hindsight. An organizational-knowing view of strategy suggests that an orga-nizational "strategy" does not emerge fullyformed. Rather, it is traced out through cumula-tive cycles of sensemaking, knowledge creation,and decision making. As described in the pre-ceding section, the organization's initial beliefsprime it to notice and bracket certain events andsignals. They also predispose the organization tobe drawn to and consider certain actions. Thepursuance of patterns of action involve creatingknowledge to fill knowledge and capability gaps,as well as making operational and strategic de-cisions to commit resources and effort. The out-comes of organizational action generate new cy-cles of sensemaking, knowledge creating, anddecision making.

The implication for an organization thrivingin dynamic environments is that it would needto manage each of the three information pro-cesses effectively. In sensemaking, the organiza-tion would scan broadly (sensing), develop plau-sible interpretations quickly that enable action(sensemaking), and communicate purpose andvision to members (sense-giving). In knowledgemaking, tacit, explicit, and cultural knowledgeare engaged simultaneously in the generationand utilization of knowledge. The more tightlyintegrated the three forms of knowledge, themore valuable, unique, and inimitable the orga-nizational advantage. In decision making, rulesand routines encode learning, economize effort,and add to the organization's tradable stocks ofknowledge. At the same time, the organizationmust be able to recognize situations when exist-ing rules are inadequate or irrelevant and be pre-

88 PART I. KNOWLEDG E IN O R G A N I Z A T I O N S

pared to abandon them while inventing newrules.

The model also implies that the greater the in-terplay between the processes of sensemaking,knowledge creating, and decision making, thegreater the organization's capacity to detectthreats and opportunities, create valuable knowl-edge, and act on new knowledge. This interplayis necessarily fluid and open-ended, but it is notentirely random or without structure. The in-terplay is given coherence and direction throughstrong leadership (Crossan and Hulland, this vol-ume), shared understandings about identity andpurpose (Grant, this volume; Sole and Edmond-son, this volume), and community norms andvalues (Adler 2001, Nahapiet and Ghoshal 1998,this volume). What drives the cycles of strategiclearning is an inner logic and discipline that es-tablishes a culture and a set of practices for re-vising and updating assumptions and beliefs, andfor noticing, figuring, and trying things out.

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