strategic learning: the continuous side of discontinuous strategic change

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Strategic Learning: The Continuous Side of DiscontinuousStrategic ChangeKotaro Kuwada,

To cite this article:Kotaro Kuwada, (1998) Strategic Learning: The Continuous Side of Discontinuous Strategic Change. Organization Science9(6):719-736. http://dx.doi.org/10.1287/orsc.9.6.719

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1047-7039/98/0906/0719/$05.00Copyright q 1998, Institute for Operations Researchand the Management Sciences ORGANIZATION SCIENCE/Vol. 9, No. 6, November–December 1998 719

Strategic Learning: The Continuous Side ofDiscontinuous Strategic Change

Kotaro KuwadaFaculty of Economics, Tokyo Metropolitan University, 1-1 Minami Ohsawa, Hachiohji-shi, Tokyo, Japan 192-0397

AbstractThe author introduces the concept of strategic learning to ex-plain long-run dynamics of strategic behaviors and organiza-tions. Because a firm’s long-run adaptation is realized througha series of strategic behaviors and organizational innovations,organizational capability to design effective strategic behaviorsand organizational structure is critical for a firm’s growth andsurvival. A series of strategic behaviors is shaped through thestable generation mechanism. Strategic learning is organiza-tional learning that improves the strategic capability of the or-ganization and changes the basic assumptions underlying thestable generation mechanism that structures the strategic be-havior design process. Organizations have various levels ofknowledge and learn at all levels. The levels of organizationallearning interact, making higher order learning such as strategiclearning problematic. Distinguishing characteristics of strategiclearning are that it is learning without questioning and withoutunlearning in advance. It starts from a current set of basic as-sumptions and ends with a new set of basic assumptions. Re-ferring to related literature and a case study, the author describesthe process of strategic learning as an intraorganizational eco-logical process, integrating various levels of learning in orga-nizations and including processes of both strategic knowledgecreation and strategic knowledge distillation. He also discussestheoretical and practical implications derived from the strategiclearning model.(Organizational Learning; Strategic Reorientation; Stra-tegic Learning; Knowledge Distillation)

Because a firm’s long-run adaptation is realized througha series of strategic behaviors and organizational inno-vations, organizational capability to design effective stra-tegic behaviors and organizational structures is critical fora firm’s growth and survival (e.g., Chandler 1963, 1990).A series of strategic behaviors is shaped through the sta-ble generation mechanism. However, most literature onstrategic change suggests that strategic reorientation ac-companied by change in strategic capability is difficult to

achieve (Kuwada 1991, Lant and Mezias 1992, Nadlerand Tushman 1986, Tushman and Romanelli 1985,Tushman et al. 1986). This article illustrates a model ofhow firms acquire, change, and modify strategic capabil-ity to design and implement effective strategic behaviors.

The strategic behavior design process consists of in-formation interpretation and processing. It is structuredby the corporate-level knowledge that constrains the waythe organization perceives strategic capability. Strategiclearning is organizational learning whereby basic as-sumptions underlying corporate-level knowledge are re-framed and lead to a renewal of the organization’s stra-tegic capability. This article examines how strategiclearning occurs and conceptualizes the process of strate-gic learning as an intraorganizational ecological process,integrating various levels of learning in organizations andincluding processes of both strategic knowledge creationand strategic knowledge distillation (Glynn et al. 1994).

In the following section, a conceptual framework isintroduced to show the importance of strategic learningto the dynamic evolution of strategic behaviors and or-ganizations. On the basis of the framework, two levels oforganizational knowledge that constitute the strategic be-havior generation mechanism are explored. Then, theconcept of strategic learning is defined and characteristicsthat make strategic learning problematic and differentfrom learning through trial and error or learning fromdirect experiences are discussed. Organizations have vari-ous levels of knowledge and learn at all levels. The levelsof organizational learning at each level interact, makinghigher order learning such as strategic learning problem-atic (Fiol and Lyles 1985, Lant et al. 1992, Levitt andMarch 1988). Why strategic learning is difficult and howsuccessful strategic learning is conducted are discussed.How strategic learning occurs is examined and related toprevious research findings by means of a case study il-lustrating strategic learning in a Japanese company. Fi-nally, implications for further research and managementpractice are discussed.

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KOTARO KUWADA Strategic Learning

720 ORGANIZATION SCIENCE/Vol. 9, No. 6, November–December 1998

Strategic Reorientation andOrganizational KnowledgeDynamics of Strategic Behaviors and StrategicReorientationA firm’s longitudinal development is shaped through aseries of strategic behaviors. Research indicates that un-derlying an organization’s observed variety of strategicbehaviors is a very stable generation mechanism, thestrategy-making process. Recent studies on the long-runadaptation of organizations have identified two types ofstrategic change (e.g., Lant and Mezias 1992) known asconvergence and reorientation (Tushman and Romanelli1985), frame-bending and frame-breaking (Nadler andTushman 1986), and persistence and change (March1981). The longitudinal development of a firm’s strategicbehaviors can be viewed as beginning with a series ofstrategic behaviors under a given stable generation mech-anism that undergo a strategic change with a shift of gen-eration mechanism (Kuwada 1991, Lant and Mezias1992, Nadler and Tushman 1986, Tushman andRomanelli 1985, Tushman et al. 1986). Therefore, to un-derstand the dynamic developments of strategic behav-iors, we need to examine observed varieties of strategicbehaviors, the underlying stable generation mechanism ofstrategic behaviors, and the change process of strategiccapabilities.

From the interpretive perspective of strategic manage-ment, the strategic behavior design process can be ex-plained as follows. First, the organization creates a uni-verse of discourse or an enacted environment (Spender1992, Weick 1979). In that enacted environment, the ba-sic assumptions are used to define the framework of facts,perceptions, and meaning by which the firm operates.Second, the organization defines the problem space orsituation. The organization has rules, procedures, andheuristics to specify environmental factors, and the causalrelationship among those factors (Pentland and Rueter1994). Third, the organization generates a rational plan-ning process within the problem space, and implementsstrategic behavior in the environment. Finally, the orga-nization observes performance and interprets the results.

The overall process of strategic behavior design (Fig-ure 1) is not predetermined but shaped by the knowledgeand information acquired in each stage, as strategic de-cisions are made under conditions of limited rationality,uncertainty, and ambiguity (Ansoff 1965, March 1978,March and Olsen 1976). Such information is brought intothe design process through scanning and interpretationefforts at each stage (Daft and Weick 1984, March andSimon 1958, Simon 1947). Recent descriptive studies ofthe strategy formulation process have suggested that the

process is ill-structured and is affected by various orga-nizational factors such as cognitive and political factors(Allison 1971, Bower and Doz 1979, Burgelman 1988,Eisenhardt and Zbaracki 1992, Mintzberg et al. 1976,Pfeffer 1987, Schwenk 1989). Organizations have knowl-edge that is embodied in procedures and routines to copewith ill-structured and social aspects of the strategic be-havior design process.

Organizational Knowledge StructureWe can identify two types of strategic knowledge (Asabaand Kuwada 1989). Routines and underlying basic as-sumptions that structure the strategic behavior design pro-cess are known as corporate-level knowledge, whereasknowledge of causal relationships in a specific problemarea that is applied in the rational planning process isknown as business-level knowledge. It is corporate-levelknowledge that constitutes the stable generation mecha-nism of strategic behaviors. In contrast, a variety of stra-tegic behaviors under a given generation mechanism re-flect business-level knowledge and the environmentalcondition. The two types of knowledge are assumed tochange through different types of organizational learningprocesses.

Business-Level Knowledge. The firm has variousknowledge, know-how, and beliefs that are useful andvalid in problem spaces of a specific business. Suchbusiness-level knowledge includes technological knowl-edge about products and the manufacturing process,knowledge of how to defeat or coexist and prosper withcompetitors, beliefs about patterns and changing trendsof consumer behavior, and knowledge about gaining im-portant resources.

Business-level knowledge is technical and has a causalrelationship to the performance of each strategic behavior(Duncan and Weiss 1979). The logical and rational plan-ning aspects of the strategy-making process depend onthis type of organizational knowledge. Business-levelknowledge shapes a schema or industry recipe that guidesmanagers in defining problem spaces, identifying possi-ble solutions, and predicting the performance of alterna-tive strategic behaviors in a specific business area (Harris1994, Lord and Foti 1986, Spender 1989).

Included in business-level knowledge are business-specific knowledge, which is valid only in a specific busi-ness field, and synergetic knowledge, which can be ap-plied to the same kinds of problems in other businessfields (e.g., Ansoff 1965). The more important knowledgeis the synergetic knowledge that is idiosyncratic to thefirm. Such knowledge is difficult to imitate, and providesand sustains the firm’s competitive advantage in variousbusinesses. It shapes the core competence of the firm

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ORGANIZATION SCIENCE/Vol. 9, No. 6, November–December 1998 721

Figure 1 Design Perspective of Strategic Behavior

(Itami 1987, Prahalad and Hamel 1990, Teece et al.1990). It also shapes the absorptive capacity that enablesthe firm to evaluate correctly the strategic value of tech-nology outside the firm (Barney 1986, Cohen andLevinthal 1990).

Corporate-Level Knowledge. Corporate-level knowl-edge is not business-specific, but is applied to the designof all strategic behaviors. It consists of procedural rou-tines and underlying basic assumptions. Procedural rou-tines are used to interpret information and structure thestrategic behavior design process (Cohen and Bacdayan1994, March and Simon 1958, Mintzberg et al. 1976,Nelson and Winter 1982). They are based on assumptionsabout the organization’s relationship to its environment,the nature of reality and truth, and the nature of humannature, activity, and relationships (Donaldson and Lorsch1983; Dyer 1985; Schein 1984, 1985).

Core routines at the corporate level are related to theallocation of attention or interpretation, because the cog-nitive aspect of the design process depends on the inter-pretation mode of the organization (Daft and Weick 1984,Dutton et al. 1983, Smircich and Stubbart 1985, Thomasand McDaniel 1990). Daft and Weick (1984) introducefour interpretation modes: conditioned viewing, undi-rected viewing, discovering, and enacting. The fourmodes are based on two dimensions: management’s be-liefs about the analyzability of the external environmentand the extent to which the organization intrudes on the

environment to understand it. Underlying those two di-mensions are two basic assumptions: the organization-environment relationship and the nature of reality. Basicassumptions serve as devices for sense-making or inter-pretation, determining the mode of interpretation and un-derlying the interpretation routines (Pfeffer 1981a, Schein1985, Schneider and Shrivastava 1988, Smircich 1983).

Organizations have certain rules that determine whattype of power is executed, who holds power, in what sit-uation, and in what manner the power is executed. Therules are institutionalized within the organization andconsidered social values based on agreement among par-ticipants (Cyert and March 1963, Pfeffer 1981b, Salancikand Pfeffer 1977). Political routines consist of such rules.Basic assumptions closely connected to political routinesare assumptions about the nature organizational partici-pants and their behavior, and assumptions about the re-lationship among participants (Schein 1985). The formerrestrict who should hold power, as they pertain to thefunction, capability, and role of the participants, andpower belongs to the participants who can control criticaland scarce resources. The latter constrain the pattern ofpower execution, as they determine the interaction pat-terns among participants through which power is exe-cuted (Pfeffer 1981b).

The organizational knowledge structure is not neces-sary coherent or logical, in contrast to paradigms in sci-ence (Kuhn 1962). Human and organizational knowledge

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Figure 2 Business Learning and Strategic Learning

includes interrelated but sometimes contradictory as-sumptions, beliefs, and value premises. Individuals oftenagree with a general principle, but disagree with specificaspects of it. Also, they may eventually agree with anaspect that they previously found objectionable. Suchcontradictory assumptions and routines within an orga-nization may be a function of the nature of experienceswhen they were learned (i.e., the time and the environ-ment in which the original experience was acquired andinterpreted) and the amount and nature of interdepen-dence with other departments or the external environ-ment.

The Concept and the Nature of StrategicLearningStrategic Learning and Business LearningThe long-run development of a firm’s strategic behaviorsis illustrated in Figure 2. Two types of organizationallearning are involved: business learning, whereby orga-nizations acquire business-level knowledge within agiven set of basic assumptions, and strategic learning,whereby organizations acquire corporate-level knowl-edge and reconstruct the strategic routines as a conse-quence (Kuwada 1991). Business learning leads directlyto changes in strategic behaviors at the observable level.

In contrast, strategic learning leads to changes in the stra-tegic orientation of the organization.

As shown in Figure 2, business learning is a type offirst-order or single-loop learning (Argyris and Schon1978, Bartunek and Moch 1987). Given a set of basicassumptions A, a variety of strategic behaviors can bedesigned (SA1, SA2, SA3). Even though the strategic be-haviors differ, the basic assumptions of organizationalculture A are common to all of them.

Through business learning, the organization acquiresand accumulates business-level knowledge (Helleloidand Simonin 1994). However, the characteristics of thedesign process and the strategic orientation of the orga-nization are not changed. Observed differences in stra-tegic behavior reflect the business-level knowledge andthe environmental factors at the time of the decision. AsMarch (1981) pointed out, most changes in organizationsreflect simple responses to demographic, economic, so-cial, and political forces through the basic stable pro-cesses by which organizations act, respond to the envi-ronment, and learn. Business learning occursindependently among the design processes of differentstrategic behaviors.

The basic assumptions are strengthened through busi-ness learning applied in the strategic behavior design pro-cess, and not necessarily from strategic behavior experi-ence.

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In contrast, strategic learning is shown in Figure 2 asthe transition from a set of corporate-level knowledge Ato a new set of corporate-level knowledge B. When stra-tegic learning occurs, some of the basic assumptionschange and the organization acquires a new frame of ref-erence, or strategic orientation. Under the new set ofcorporate-level knowledge, the firm has a different modeof interpretation. Strategic learning is a type of higherlevel or second-order learning in organizations (Fiol andLyles 1985).

Strategic behavior SA4 seems to play a critical role inthe transition, as strategic behaviors are the meansthrough which the organization engages in reality(Morgan and Ramirez 1983, Weick 1979). The kind ofknowledge we learn about the world is closely relatedwith the way one chooses to deal with reality. Strategicbehavior SA4 provides the context in which strategiclearning occurs. Barr et al. (1992, p. 15) pointed out that“in the successful company, organizational renewal is acontinuous process of first order and second orderchanges in cognitive maps.” However, under what con-ditions does the specific strategic behavior provide thecontext for strategic learning? What makes SA4 differfrom SA1, SA2, and SA3? Before we consider those issues,it is useful to examine the characteristics that distinguishstrategic learning from circular learning.

The Characteristics of Strategic LearningStrategic learning differs from business learning (orga-nizational learning based on direct experiences) in twoways. First, strategic learning tends to be learning withoutquestioning of the validity of assumptions rather thanlearning through trial and error. Second, strategic learningincludes the process of distilling corporate-level knowl-edge from business-level knowledge. It is learning fromindirect experiences.

Learning Without Questioning. One of the importantcharacteristics of strategic learning is that it may occurwithout questioning of the validity of knowledge or with-out unlearning in advance (Kuwada 1991). The lack ofquestioning may be due to (1) the absence of criteria withwhich to evaluate basic assumptions, (2) the complexityof the design process and ambiguity of the learning sit-uation, and (3) the deep-seated nature of basic assump-tions.

In most research on cognitive change in organizations,the breakdown of an organization’s basic assumptions isattributed to poor performance of organizational behav-iors (e.g., Dyer 1985, Hedberg 1981, Lant and Mezias1992). The implication is that organizations have the cri-teria for evaluating the validity of knowledge. However,because basic assumptions are actually basic in the sense

that an environment is enacted, and value premises aregenerated and evaluated according to those assumptions(Schein 1985), we cannot assume the presence of criteriafor evaluating basic assumptions. The rational positivistparadigm may not be appropriate in explaining suchdifficult-to-measure phenomena (Schneider andShrivastava 1988).

In strategic learning, data on performance of strategicbehaviors may be useless for evaluating the validity ofbasic assumptions. The reason is that, under conditionsof uncertainty and ambiguity, organizations tend to inter-pret the performance data to legitimize their decisionsfrom the viewpoint of current assumptions (Glynn et al.1994, Milliken and Lant 1991, Weick 1979, Wilson et al.1986). The performance data on strategic behaviors arehighly equivocal. A series of results takes a long time tobecome known to the organization after implementationof a strategic behavior. Organizational attention is likelyto be allocated to information that is easily interpretedwithin the current frame of reference in day-to-day situ-ations. It is unlikely to shift to a new stimulus that is notproximate in time and space (Huber 1991, Louis andSutton 1991). Organizations tend to seek information thatsupports the current frame of reference, because they liketo avoid the cognitive dissonance that occurs when theyreceive information contrary to that frame of reference(Festinger 1957, Weick 1979).

Although organizations obtain critical performancedata, identifying which basic assumptions are valid is al-most impossible because of the complexity of the designprocess and the deeply rooted basic assumptions in hu-man memory. The strategic behavior design process isvery complex and ill-structured, because a great amountof information and knowledge is incorporated, and manypeople in and out of the organization contribute to it(Mintzberg et al. 1976, Pfeffer and Salancik 1978). Thebasic assumptions are very abstract and generally applyto almost every interpretation of information. In contrast,performance data are very concrete and specific to thebusiness. Organizations are likely to attribute perfor-mance to objects that are concrete and proximate in timeand space (Gardner 1985, Milliken and Lant 1991,Schwenk 1984). Organizations tend to attribute perfor-mance not to corporate-level knowledge, but to business-level knowledge. The outcome of strategic behavior is notconnected to a specific assumption, and consequently or-ganizational learning becomes superstitious (Levitt andMarch 1988, March and Olsen 1976).

Organization members hold basic assumptions implic-itly and unconsciously (Cohen and Bacdayan 1994,Rounds 1984, Schein 1985). Whether knowledge can bejudged on the basis of performance data depends on the

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possibility that the knowledge is compared with the per-formance data at the conscious level (Lorsch 1986). How-ever, organizations have developed routines based onconsensus on the remedial or repair strategies neededwhen performance is poor, as well as on the criteria to beused in measuring the performance of strategic behaviors(Schein 1985). Therefore, through the routines, most poorperformance problems are resolved automatically. It israre for the basic assumptions to be questioned con-sciously (Louis and Sutton 1991).

Strategic Knowledge Distillation. The other impor-tant characteristic of strategic learning concerns the dif-ference in the levels of learning (Asaba and Kuwada1989, Kuwada 1991). Organizations learn through stra-tegic behaviors, given that such behaviors are ways forthe organization to construct, realize, and maintain con-tact with reality (Morgan and Ramirez 1983, Weick1979). All materials for learning are business-specific ex-periences that occurred in the inner or outer environment.Organizations are not likely to learn basic assumptionsdirectly from experiences, as that would constitute learn-ing without questioning. Therefore, the only way to learnbasic assumptions is to convert business-level knowledgeinto corporate-level knowledge, and then into basic as-sumptions (Barr et al. 1992, Schein 1985).

In this article, the conversion of business-level knowl-edge into basic assumptions through corporate-levelknowledge is called the strategic knowledge distillationprocess. Strategic knowledge distillation is related to butdifferent from generalization or abstraction of knowl-edge. Generalization is the application of specific knowl-edge to varied situations, whereas abstraction is the con-struction of higher concepts to include lower concepts.However, strategic knowledge distillation is a mechanismthat converts knowledge about cause-effect relationships,or procedural knowledge, into declarative knowledge. Itis conversion between different types as well as differentlevels of knowledge. Therefore, how strategic knowledgedistillation occurs is a critical problem in investigatingstrategic learning.

Most literature on organizational learning does not treatthe strategic knowledge distillation process explicitly.However, a few studies on organizational knowledgecreation recognize the importance of knowledge distilla-tion in organizational learning (Nonaka 1990, 1994).

From the preceding discussion, we can conclude thatstrategic learning occurs differently from organizationallearning, in which some criterion is used to judge ration-ally the validity of the knowledge and learning from di-rect experiences. To realize strategic learning, basic as-sumptions must change without questioning of their

validity through the process of strategic knowledge dis-tillation. Therefore, a learning theory that is differentfrom the current theories of organizational learning isneeded.

A Process Model of Strategic LearningIf strategic learning accompanied by the characteristicsmentioned above occurs, we can conceptualize it as anintraorganizational ecological process rather than aplanned change of basic assumptions (Burgelman 1991).First, variations from the current context create the spacein which strategic learning occurs. Strategic learningstarts within the current set of basic assumptions and re-sults in a new set of basic assumptions. Second, in theprocess of business learning, the organization acquiresand creates new business-level knowledge accompaniedby tacit knowledge that will be the materials for knowl-edge distillation. Third, business-level knowledge learnedfrom business-specific experience is distilled into new ba-sic assumptions at the corporate level. Finally, the newassumptions override the old assumptions. At that stage,old assumptions are less likely to be evoked. Major stra-tegic change follows strategic learning, and is supportedby new basic assumptions, which in turn are legitimized.As a result, a new set of basic assumptions is retainedthrough formal redefinition of the concept of strategy.

In the Natural Stream of the ProcessIf strategic learning occurs at all, most organization mem-bers are unlikely to be aware of such change (Bartunek1988, Burgelman 1991, Donaldson and Lorsch 1983).Much research on paradigm shift or cultural change hasfound strong resistance in organizations to change in ba-sic assumptions, as such change would lead to a changeof power distribution in the organization as well as tocognitive dissonance (Argyris and Schon 1978, Hedberg1981, Pfeffer 1982, Rounds 1984, Schein 1985). There-fore, the basic assumptions are not questioned and over-thrown all at once. If innovative units explicitly adoptstrategic behaviors that are viewed as being in oppositionto those of the dominant part of the organization, suchbehaviors will be difficult to implement because of thestrong resistance (Mezias and Glynn 1993). At the least,it is necessary for most members of the organization toconsider the process of strategic learning as a naturalstream.

Early actions in the strategic behavior design processare taken within the established frame of reference, at thelower or operational level of the organization. Actiontaken in a peripheral part of the organization is not con-sidered a critical challenge to the establishment (Rounds

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1984). Through such actions, the organizational unit ac-quires some new knowledge, which enables the unit tobecome aware of the next problems and possible actions(Morgan and Ramirez 1983). That business learning pro-cess is guided not by corporate-level knowledge, but byenvironmental factors, because learning is biased byproximity and concreteness of experiences. Through theaccumulation of actions and knowledge, the organiza-tional unit ends up far from the starting point. Thus, stra-tegic learning is likely to start from learning at the busi-ness level (Pfeffer 1982, Rounds 1984).

Learning from Rich ExperiencesFor a current cognitive framework to break down, theusual assumption that the organizational unit must faceunusual experiences that would contribute to breaking thebounds of the current power distribution based on thecurrent set of basic assumptions. Characteristics of suchexperiences could be, for example, data in unaccustomedform, conflicts among stakeholders, novel topics for de-cision making, and an unusual or unexpected locus ofissue generation that is outside the current frame of ref-erence (Wilson et al. 1986). However, such characteris-tics do not belong to the experience a priori. Rather,whether the organization recognizes an experience as un-usual depends on how the experience is interpreted byindividuals.

For strategic learning, the unusual experiences are notinterpreted as single datapoints within the current frameof reference, but as detailed and rich stories (March et al.1991). Rich experiences can provide tacit knowledge thatcan be distilled into corporate-level knowledge. Inter-preting within the current frame of reference results insuperstitious learning at the corporate level of organiza-tional knowledge (March and Olsen 1976).

Rich Experience. In strategic learning, organizationmembers operate in a situation characterized by “rich ex-perience.” The potential of information to change the pat-tern of interpretation is called “information richness” incontrast to the information amount, which represents thepotential of information to reduce uncertainty (Daft andHuber 1987; Daft and Lengel 1984, 1986). Richness ofexperience has the potential for varieties of meaning tobe interpreted from the experience, given that it accom-panies tacit knowledge. There are two different types ofexperiencing: one is to treat each incident as a single da-tapoint and the other is to treat it as a rich and detailedstory (March et al. 1991). The former is appropriate forshort-run adaptation or correcting actions to attain givengoals. The latter is appropriate for inducing new lessonsfrom the experience. If the organization is to acquire newbasic assumptions for strategic learning, it must elaborate

experience by discovering more aspects of experience,more interpretations of experience, and more preferencesby which to evaluate experience (March et al. 1991).

For an organizational unit to develop new basic as-sumptions, it must have (1) access and commitment toraw data about incidents, (2) enough slack or unused re-sources, and (3) autonomy from other parts of the orga-nization and short-run operation.

Access and Commitment to Raw Data. For organi-zation members to acquire rich information, they mustaccess and commit to raw data. Variety or equivocalityas a source of insight and innovation can be conveyed bythe raw data (Morgan and Ramirez 1983; Nonaka 1990,1994; Weick 1979). Such data have not been processedby the current routines for reducing uncertainty and in-terpreted to legitimize the current frame of reference.Therefore, direct confrontation with the raw data isneeded for strategic learning.

The organizational unit must have requisite variety toprocess such rich information (Ashby 1956, Van de Ven1986). It is the peer group that is appropriate for pro-cessing rich information including tacit knowledge. In-teractions among members are essential for sense makingor new knowledge creation (Barturnek 1988, Berger andLuckmann 1966, Lewis 1988, Weick 1979). Face-to-facecommunication is the most powerful way of exchangingand processing rich information. It enables members toresolve equivocality and change their mental representa-tion (Daft and Huber 1987; Daft and Lengel 1984, 1986).Dialogue within a community of practice enables itsmembers to confront their own and others’ assumptionsand real feelings, and then build new assumptions (Schein1992). Consequently, the peer group and peer discussionfacilitate strategic learning.

Slack or Unused Resources. Slack or unused re-sources are necessary for strategic learning for at leasttwo reasons. One is related to innovation and the other tothe risk preference of the organization. An organizationneeds to initiate innovation in some sense to experiencenew incidents for strategic learning. To initiate innova-tion, the organization must have unused resources avail-able (Chandler 1963, March and Simon 1958, Penrose1956).

Whether an organization obtains and interprets rich in-formation depends on its mode of information search, es-pecially its preference for risk taking, which is deter-mined by the amount of organizational slack. Levinthaland March (1981) posit two modes of organizationalsearch: problematic search and slack search. Problematicsearch is goal-directed search to reduce the gap betweenaspiration level and performance when performance fallsshort of aspiration level. Slack search is open-ended

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search conducted by slack resources when performanceexceeds the aspiration level. Needless to say, an organi-zation accepts higher risk in slack search than in problem-atic search (Singh 1986). The presence of slack resourcesfosters risk-taking behaviors and increases the possibilitythat organization members will face and act on unantic-ipated incidents. To receive and interpret rich and newinformation, an organization adopts an enacting modethat requires taking higher risk in searching for hands-oninformation.

Autonomy. For strategic learning, the organizationalunit must have autonomy that enables it to think and be-have freely. Autonomy implies two closely related free-doms: freedom to determine goals, means, and criteria;and freedom from the scope of current strategy.

Members of the organization can be intrinsically mo-tivated if they have the autonomy to determine goals,means, and criteria. Intrinsically motivated members arelikely to commit to the process and play with informationto form multiple and creative responses, and therefore todevelop new ways of understanding (Bartunek 1988,Salancik 1977). When they tend to act proactively, theyare able to enact reality (Daft and Weick 1984, Morganand Ramirez 1983).

Strategic behavior initiated outside the scope of currentstrategy is called “autonomous strategic behavior” byBurgelman (1983). Such strategic behavior may definethe strategic context in which strategic learning occursand the concept of strategy is redefined. As an autono-mous strategic behavior is initiated by operational-levelmanagers, the top management team or the dominant co-alition closely tied to the current power distribution is notaware of its meaning in the beginning. Therefore, inter-vention from the dominant power holders is rare, andmembers committed to the autonomous strategic behaviorcan interpret equivocal stimuli in the new strategic con-text (Rounds 1984).

Available slack resources support the autonomous stra-tegic behavior (Burgelman 1991, Singh 1986). If the or-ganizational unit depends on other units for critical re-sources, intervention from the outside is likely toincrease, and autonomy of the focal organization will de-crease (Pfeffer and Salancik 1978). As a result, the or-ganizational capability to self-organize will be dimin-ished by the current dominant power structure (Van deVen 1986).

Strategic Knowledge DistillationThe strategic knowledge distillation process, throughwhich business-level knowledge is converted intocorporate-level knowledge and further into the basic as-sumptions, is the core process in strategic learning. It is

a type of knowledge creation process through which tacitknowledge accompanied by business-specific knowledgeis transformed into corporate-level knowledge such as ba-sic assumptions (Nonaka 1990, 1994). However, as it isdifficult for researchers and organization members to ob-serve the knowledge distillation process directly, it is in-ferred from indirect and related evidence.

The strategic knowledge distillation process is logicallysubdivided into two steps: (1) conversion of business-level knowledge into corporate-level knowledge and (2)conversion of corporate-level knowledge into basic as-sumptions.

Conversion of Business-Level Knowledge intoCorporate-Level Knowledge. The strategic knowledgedistillation process is a type of social learning process inwhich business-specific experiences of an organizationalunit come to be shared by other organizational units, es-pecially upper-level ones.

Nonaka (1990, 1994) refers to the transformation oftacit knowledge to explicit knowledge as knowledge crea-tion. Only action can provide the materials for learning.Through implementing strategic behavior, individualslearn tacit knowledge as material for basic assumptionsat the corporate level, as well as learning business-levelknowledge. Such tacit knowledge may be personal orshared among group members through common experi-ences. When individuals are promoted up the corporateladder, they have occasion to interact with people in otherdepartments and other levels of the organization. Throughsuch experience, the individual gradually recognizes themeaning of the tacit knowledge in the interdepartmentalcontext. Further, when the individual is promoted to top-level management, such tacit knowledge is transformedinto explicit knowledge and crystallized as other routinesat the corporate level.

Burgelman’s (1988) study of autonomous strategic be-haviors provides insight about the first step of strategicknowledge distillation. Burgelman studied strategicknowledge distillation as a social learning process inwhich action and cognition are intertwined. At the begin-ning, an opportunistic search in the stream of ongoingwork generates a new concept of business opportunity.That concept facilitates strategic forcing in the market. Ifthe strategic forcing produces enough performance to getfurther internal support, it leads to the concept of arenastrategy at the middle-management level. A successfularena strategy stimulates the manager to undergo strategicbuilding activities, and later to recognize the broader im-plication of the project to related business. Through learn-ing from strategic building activities, the middle manager

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can understand the meaning of the business and the rea-son for its success. Such understanding enables the man-ager to construct the concept of field strategy. The emer-gence of a well-articulated strategy for a new field ofbusiness sets the stage for top management involvement.The change in the concept of strategy is derived throughthe top manager’s retroactive rationalization of the newfield strategy in relation to the other fields of businesses.We can expect strategic knowledge distillation to be ac-companied by this social learning process. Business-levelknowledge will become more or less reflected in thecorporate-level knowledge.

In the conversion process, middle managers play acritical role (Nonaka 1994). Only middle managers are ina position to access raw data about business-level expe-riences and interpret them from the viewpoints of bothlower and top managers. Tacit knowledge is by definitiondifficult to convey even through face-to-face communi-cation (Polanyi 1966). One way to combine such knowl-edge with upper-management-level experience is to pro-mote a middle manager to the higher managementposition (Schein 1992).

Conversion of Corporate-Level Knowledge into BasicAssumptions. We know little about the conversion ofcorporate-level knowledge into basic assumptions.Schein (1984, 1992) referred to the process as “cognitivetransformation”. It occurs only if the proposed solutionscontinue to work, thus implying that they are in somesense “correct” and reflect an accurate picture of reality.Through that process, managers will tend to forget thatoriginally they were not sure and that such solutions werebrought through specific business learning at an earlystage. Finally, the knowledge comes to be taken forgranted and deposited into the unconscious level of themind. In that sense the cognitive transformation processactually extends into the retention process, even if distil-lation and retention processes are logically distinguished.

At least two closely related factors affect the process:environmental support and repetition. The mortality ofnew knowledge depends on the selection mechanism ofthe environment. If the strategic behavior based on thatknowledge succeeds, the likelihood that the knowledgewill be used in the following design process will increase.If the knowledge can get enough support from the internalenvironment, it will be used frequently. That situationmay be possible if the organization members who haveshared the same type of experiences but did not under-stand the meaning learn the meaning though communi-cation. Through such communication, the knowledgemay become conscious and legitimized.

If the environment requires the organization to designstrategic behaviors on the basis of the new knowledge,

the knowledge may be used repeatedly. Through frequentuse, the knowledge begins to be taken as a fact and takenfor granted. Consequently, the knowledge is positivelyreinforced and enters the unconscious level (Schein1985).

That process resembles culture creation. However, thedifference is that old assumptions are present in the pro-cess of strategic learning. In our model of strategic learn-ing, old assumptions are not unlearned and still persist.In the short run, new and old assumptions coexist in theorganization. The coexistence of contradictory knowl-edge is possible because strategic behaviors are designedsequentially and independently; therefore, interrelation-ships between new and old ones are not likely to be ques-tioned. Most members are not aware of both old and newassumptions immediately after strategic knowledge dis-tillation.

For new assumptions to become dominant in the or-ganization, environmental support is critical. Because ba-sic assumptions are difficult to assess, the strategic be-havior of a project must be connected strongly to the newset of basic assumptions to be important for the organi-zation in some sense. If the new strategic business growsto be a dominant business that is more profitable than atraditional one for the company, the new assumptions arelikely to become dominant. The other possibility is thatnew assumptions are to be used in the design processesof subsequent strategic behaviors. In that case, the envi-ronment requires a business development that is designedunder new basic assumptions. Through the design of suchstrategic behaviors, newly acquired assumptions arestrengthened and play an important role in the company’sstrategic development. If a crisis occurs in a dominantbusiness, however, the old assumptions may be evokedand the new assumptions might be discarded. In such asituation, top management attention is likely to focus onthe crisis of the major business rather than new strategicbehaviors.

Retention of New AssumptionsThe final step of strategic learning is formal institution-alization of the new basic assumptions. It is achievedthrough retrospective interpretation of past strategic be-haviors and the redefinition of the concept of strategy(Burgelman 1983, 1988, 1991). It leads to a new concep-tualization of the relationship between the company andthe environment. Strategic behaviors will be designed onthe basis of the new set of basic assumptions. Strategiclearning leads to strategic reorientation, that is, majorchange in organizational strategy preceded by new stra-tegic behaviors.

After the first strategic behavior through which they

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are acquired, new assumptions take a long time to beincorporated formally in the corporate-level knowledge(Burgelman 1991, Donaldson and Lorsch 1983). The rea-son is that people become aware of the meaning of stra-tegic behavior only through retrospective interpretationof its consequence (Weick 1979).

A set of basic assumptions drifts through the strategicknowledge distillation process. Then it is deposited at thebottom of consciousness, forming layers on the currentbasic assumptions. New assumptions will be used fre-quently in the subsequent strategic behavior design pro-cess if the environmental condition does not eliminatethem. As a result, old assumptions will be unused andunlearned as time goes by, and eventually will be for-gotten.

A Case Study of Strategic LearningA case study of Asahi Glass Company, Ltd., illustratesthe proposed theory of strategic learning.

A Field Study of Asahi Glass Company, Ltd.Asahi Glass Company, Ltd., was founded in 1907 byToshiya Iwasaki, a cousin of Yataro Iwasaki, the founderof Mitsubishi Zaibatsu to produce window glass in Japan.At that time, the supply of window glass in Japan de-pended on imports from Western countries. Since then,the company has grown to be a leading international sup-plier of glass and related products, chemicals, and ceram-ics. Asahi defined itself as a material supplier until 1984,when it undertook a major strategic reorientation. Thecompany decided to make electronics-related business itsfourth main business, and chose three areas to develop:electronic devices related to ICs, optoelectronics, and dis-plays. Asahi thus positioned itself as material and devicesupplier. The field study focused on how that strategicchange was possible. A more detailed case study is re-ported by Asaba and Kuwada (1989).

The first stage of the field study was an analysis of thehistorical development of Asahi’s strategic behaviors. Af-ter initial interviews with Dr. E. Kanai, a technologicaladvisor, and other managers, major strategic behaviors inthe company since its founding were investigated by ex-amining the company history and published materials.Table 1 is a chronological list of some of Asahi’s majorstrategic behaviors and the characteristics of the designprocess of each strategic behavior. The following factorswere investigated for each strategic behavior.

1. Business field to which the new business belonged.2. Type of relation the new business had with the cur-

rent businesses: vertical integration (new business sup-plied materials or facilities for current business), varia-tions (introduced through byproducts or effective use of

current resources), or new products (distinguished fromcurrent products.)

3. Source of the perceived business opportunity:proactive search (development based on the strategic be-havior itself) or reactive perception (opportunity broughtfrom another company or by accident.)

4. Whether the product had already been produced inforeign countries.

5. Type of outputs: materials or devices.6. Source of technology: licensed by other companies,

cooperative development with other companies, reverseengineering of foreign-made products, or original devel-opment.

Asahi’s three major businesses—glass, chemicals, andceramics—had originated by 1917. The chemicals andceramics businesses originated from businesses that hadbeen realized when World War I prevented importationof soda ash (a material of glass) and bonded refractory(needed for production of glass). Subsequent businesseswere variations of those businesses or reactions to therequests of the external user companies. Like other com-panies in Japan, Asahi sought to catch up with companiesin more advanced countries. Before it entered the LCD(liquid crystal displays) business, Asahi’s attention wasfocused on overseas technological innovations. The rela-tive status of the R&D department in the company wasrelatively low, however, as R&D’s major role was to in-troduce advanced technology from abroad, improve on it,and support the manufacturing department. The companyacquired technical knowledge through license contractswith foreign companies. The interpretation mode wasconditioned viewing (Daft and Weick 1984). In general,Asahi’s strategic orientation was that of a reactor (Milesand Snow 1978). The role of the marketing departmentwas to receive orders and deliver products to manufac-turers.

Since the development of the LCD business, the centralrole of the R&D department has been to develop newtechnologies and new businesses. Asahi founded theElectronic Products Development Center to enrich theR&D function in 1985. The role of the marketing de-partment is to identify market needs for new products. In1983, marketing departments were established in both theCorporate Planning Division and main business divisions.Interchange of personnel between the sales and the R&Ddepartments became more frequent. The mode of atten-tion changed from conditioned viewing to enacting anddiscovering. The company tries to recognize what typesof materials should be used and what would be demandedfrom the end user’s point of view. Asahi changed to an-alyzer or prospector.

Clearly, Asahi’s strategic capability changed after the

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development of LCDs, making possible the major stra-tegic change in 1984. As Dr. Kanai stated, in a researchinterview, “The development of LCDs was the turningpoint for the R&D department and Asahi Glass in manyrespects.”

Development of LCD BusinessThe second stage of the study was a detailed investigationon the process of LCD business development and whatand how Asahi learned in the process. The followingsummary of Asahi’s development of LCDs shows howthe R&D personnel thought and acted from their subjec-tive viewpoints. The information is based on publishedmaterials, company documents, the company history, andinterviews with some managers.

Turning Point: Choice of Liquid Crystal Display(LCD). Asahi had grown into a firm making a stableprofit by the 1960s. The Japanese economy was growingrapidly in that decade, and the goal of management forevery company was to expand its manufacturing force.Asahi’s managerial attention was focused particularly onthe manufacturing and engineering departments.

In contrast, the R&D department had no emergent taskand was in a free position. Its role in the 1940s had beento rearrange equipment damaged during the war, and itsrole in the 1950s had been to introduce advanced tech-nologies from abroad and improve them to catch up withforeign competing firms. One of those technologies, thefloat process introduced from Pilkington Brothers PLC inEngland, had a significant impact on Asahi, enabling pro-ductivity to rise rapidly. The process technology of flatglass had reached the maturation stage (Abernathy 1978).Although the R&D department had a personnel surplus,personnel were not reduced because of favorable businessconditions.

The surplus “energy,” or slack resources with auton-omy, triggered the design process of new strategic be-havior. The R&D department began to seek new businessopportunities to utilize slack resources. The researcherssaw a need to focus on areas other than glass, becauseglass technology was perceived to have reached a maturelevel and would not progress rapidly in the future.

The decision to enter the LCD business was based ontraditional criteria and assumptions about the relationshipto the environment. Attention was directed to a search forgrowing industries to which Asahi could supply materi-als. Underlying that mode of attention were the basic as-sumptions, derived from retrospective interpretation ofpast successes, that Asahi belonged to a materials indus-try.

First, Asahi analyzed how and why its past successeshad been realized. The company learned that its main

operations, such as window glass, automotive glass, glassbulb for TV tubes, and glass delay line, were able to growbecause the end users, such as the construction, auto-mobile, and television industries, were growing and de-veloping large markets. Asahi concluded that if it con-tributed to growing industries as a material supplier, itwould also stimulate its own growth as such industriesgrew.

The researchers began to search for a fourth main busi-ness that would be related to growing industries. Giventhat Asahi had no special scanning department, the re-searchers based their search on information from outsidepublic sources and general perception through undirectedviewing. They finally decided to focus on the electronicsindustry, which was widely recognized to be the leadingindustry of the future.

Researchers discussed possible opportunities for acompany venture in the electronics industry. As the com-pany lacked knowledge about electronics, the researchersbegan to examine the industry in detail. They dissectedan electronic appliance and examined its components interms of their business size and relatedness to Asahi’scurrent businesses. They divided the electronics industryaccording to three elements of an electronic appliance—sensor, processor and memory—and recorder and dis-play. Among the three alternatives, a display was relatedmost closely to the company’s current business as bothglass and a display are transparent. In view of limitedresources, display production was chosen as a new busi-ness because of its relation to the company’s current busi-ness and the expected large market size.

Next, Asahi decided to focus on LCDs. When Dr.Kanai, the leader of the research group, attended the IEEEconference in 1971, he saw an exhibition of the next-generation displays. He had several reasons for choosingLCDs instead of VFDs (vacuum fluorescent displays) orLED (light emitting diode) displays. One was that Asahihad a chance to be a front runner in the LCD business,because few makers had started to work on LCDs. An-other was that the company believed it should develop a“champion” product of technological excellence in eachfield it entered. The glass bulb for CRTs (cathode raytubes), a champion product of active displays, had beena main line for Asahi. Dr. Kanai decided that the cham-pion product of passive display, namely LCDs, should bedeveloped. A third reason was that LCDs had superiorcharacteristics of low voltage and low power. Low powerfor extended life and low voltage favorable for electronicdevices made LCDs outstanding displays for the elec-tronics age. Finally, production of LCDs was related tothe current businesses. LCDs are composed of liquid

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crystal, a fine chemical, and electroconductive glasswhich had been studied since the 1940s by Asahi.

Thus, Asahi naturally decided to develop LCDs in1971, even though it lacked detailed knowledge about themarket, technology, and competitors. Dr. Kanai recalledthe decision situation by stating, “we made an awfullyreckless decision. . . . However, the situation then al-lowed us to do so.”

Business Learning in Development of LCDs. Throughbusiness learning in three stages of LCD development,which started within an existing set of basic assumptions,Asahi learned new knowledge that was not consistentwith current knowledge. Most of the data about the de-velopment of LCDs was acquired through the enactingmode of scanning, which was the first experience for theengineers. New and unanticipated subproblems were gen-erated through the development process, as were the goalsand constraints of the second and third stages. By copingwith the business-level subproblems generated in the de-velopment process, the R&D engineers reached new andunexpected stages of learning, even though they hadstarted from the accustomed way of thinking. That is howAsahi got into device business from the material business.The problem spaces generated sequentially at the busi-ness level acted as a mold in which organizational learn-ing was shaped.

Asahi’s R&D researchers had enough autonomy to setgoals, criteria, and alternatives. Top management atten-tion was directed to the expansion of the current busi-nesses, whose demands were increasing rapidly becauseof the high growth rate of the Japanese economy. Withoutformal support from top managers, researchers could useunabsorbed slack resources for their strategic behaviors.

The first generation LCD, an alphanumeric display thatcould express only letters and numbers, was used for elec-tronic calculators and digital watches. In 1973, Sharp wasfirst company in the world to use DSM-LCDs for elec-tronic calculators (EL805). Also in 1973, Asahi stoppeddeveloping DSM-LCDs because of their low reliability,started researching TNM-LCDs, and organized the firstproject team. In 1974, through joint research with Mit-subishi Electric Company, Ltd. on mass production tech-nology, Asahi produced and shipped the first LCD panelsfor electronic calculators. Through its Specialty ProductsDivision, Asahi supplied LCDs to Casio, the biggest userof LCDs after Sharp, which produced LCDs in house. Thedivision handled products that did not belong to the com-pany’s current main categories of operations.

During the development of the first-generation LCD,four key success factors become clear. One was the de-velopment of materials. The elements of LCDs are elec-troconductive glass and LCs. Electroconductive glass was

available in house and LCs were procured through LCmakers. The company also had the technology to workwith chemical products. A second factor was producttechnology, which the R&D department had been pur-suing all along. Asahi therefore was able to take care oftwo key factors in house. However, the company lackedthe other two factors, high accuracy mass productiontechnology to improve yields and electronic circuit tech-nology. LCDs could be sold in the form of panels; how-ever, in the near future, LCDs would be sold in the formof modules. Making modules with LCDs required elec-tronic circuit technology that Asahi did not have. There-fore, in 1976, Asahi established Optrex, a joint venturecompany with Mitsubishi Electric which had high accu-racy mass production technology and electronic circuittechnology. Optrex produced and sold LCDs and devel-oped new products under the current technologies,whereas Asahi researched new technologies for LCDs. Aselectronic calculators with LCDs increased rapidly andcame to dominate the calculator market, Optrex also grewrapidly to become a major LCD manufacturer.

While Optrex increasingly expanded the variety ofproducts based on the current technology, Asahi began todevelop the second-generation LCD, challenging newtechnologies. During the development of the first-generation LCD, three technological themes for the nextdevelopment had been identified: high information den-sity, wide mesomorphic range, and large size. To realizehigh information density, the driving method had to bechanged from a static to a multiplexing drive, for whichelectronic circuit technology was essential. As Asahi didnot have that technology, the company decided to giveup on high information density and tackle the other twothemes.

In 1976, Asahi established the goal to develop “a largeand highly stable display.” The company recognized thatautomotive instrument panels were the focus of second-generation LCD development. The idea of applyingLCDs to instrument panels did not originate from auto-mobile manufacturers, but was proposed by one ofAsahi’s researchers. The company believed the automo-bile industry, especially firms making automobiles withelectronic appliances, would become a growing marketarea, and that LCDs were superior to other displays forautomotive instrument panels in terms of low voltage andvisibility. Further, Asahi had marketing channels to theautomobile makers because it supplied automotive glassto them, and hence could dominate the market. In con-trast, Asahi was not familiar with the office automation(OA) industry, and faced many competing firms that pro-duced OA appliances in the information display market.

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In 1978, Asahi succeeded in the development of au-tomotive LCDs. However, automobile makers did notadopt the technology immediately. After two years ofmarketing by the R&D engineers themselves, LCDs werefinally used for the first time for an automobile clock inthe Toyota Cresta in 1980. In 1982, the LCD for auto-mobile instrument panels was used on a large scale forthe first time in the Mitsubishi Cordia and Honda City-Turbo. To sell the LCD technology to American auto-mobile manufacturers and acquire the know-how to mar-ket in the United States, the leader of Asahi’s LCDresearch team attended the Society of Automotive Engi-neers (SAE) meeting in 1980. Since then, the company’sresearchers have been contributing works for publication.Consequently, the company has established a “network”with American automobile manufacturers. As of 1986,Optrex held 90% of the world automotive LCD market.

Asahi’s LCD project team usually consisted of approx-imately 10 researchers and at most about 30. They ob-tained raw data through marketing activity directed tocustomers such as electronic calculator makers and carmanufacturers. For the first time, Asahi’s R&D research-ers conducted marketing activities and tried to reach de-manding customers.

In 1984, Asahi began developing the third-generationLCD (character-graphic-display), which was used in OAappliances. The company had decided not to venture intothat area when it began developing the second-generationLCD, mainly because it was not familiar with the OAmarket and did not have enough electronic circuit tech-nology for information displays. However, the market forinformation displays became so large that Asahi couldnot overlook it.

Further, the company was able to acquire the necessaryelectronic circuit technology through cooperation withMitsubishi Electric Company. Information displays weresold in a module form, not as a panel, so electronic circuittechnology was essential for their development. In addi-tion, Asahi realized that it had acquired electronic circuittechnology through its non-LCD business. For example,in 1966, Asahi began importing and selling ICs producedby Signetics Corporation, a subsidiary of Corning GlassWorks. In marketing ICs, Asahi developed semifinishedIC products and presented them to prospective customers.A glass delay line developed in 1974 was produced andsold in a module form.

Another technological problem for third-generationLCDs was improving the duty ratio of the multiplexingdrive. The duty ratio of the third-generation LCD had tobe at least 1/16, whereas that of the first-generation LCDfor electronic calculators was 1/2 or 1/4. The higher theratio, the less legible LCDs are. Consequently, a new type

of LC and mode was researched. Brown, Boveri andCompany (BBC), a Swiss LC maker, had developed anew twisted nematic mode (NTN). Asahi studied themode and succeeded in producing NTN-LCDs at a lowercost. Although high-duty LCDs required high voltage tobe operative, the company solved the problem by usingICs developed by domestic IC manufacturers.

Asahi’s knowledge about LCD technology and marketswas acquired through business learning. The company’smode of attention shifted to enacting. In the early stageof LCD development, both corporate and business levelsof knowledge guided strategic behaviors. However, dur-ing the late stages, business-level knowledge was moreinfluential than corporate-level knowledge.

Strategic Reorientation in Asahi. Although the pro-cess of strategic knowledge distillation is difficult to ob-serve, we can infer from several types of evidence thatAsahi’s corporate-level knowledge changed. During thedevelopment of the LCD business, Asahi changed its or-ganizational design and behavioral routines. First, theR&D department’s role changed. As perceived initially,the role of the R&D department was to introduce ad-vanced technologies from abroad, improve on them, andsupport the manufacturing department. However, theR&D department proposed the venture into the LCDbusiness and came to be regarded as an important de-partment in creating new business for the firm. Since thechange of organizational design in 1973, the perceivedrole of the R&D department has been not only to improveand expand current businesses, but also to develop newtechnologies and new businesses. The change of role per-ception caused some changes of organizational design,such as “Theme X,” which allowed researchers to spend10% of their working hours researching their own areasof interest.

Second, Asahi’s perception of its business fieldchanged. Asahi had regarded itself as a firm that suppliedmaterials, improving or developing them in response torequests from the end users. The company discovered theend user’s point of view about what types of materialswere used and would be demanded by supplying devicessuch as IC modules, glass delay line, and LCDs and there-fore recognized that a device was an important businessarea. Asahi entered the device field by cooperating withother firms. The formal strategic reorientation was ac-knowledged by the top management in 1984, 13 yearsafter the start of LCD development.

Third, supplying modules caused a change of percep-tion of the marketing department. The role of the mar-keting department had been to receive orders and deliverproducts to manufacturers. However, Asahi recognizedthat the marketing department’s essential role is to reflect

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Table 1 Development of Strategic Behaviors of Asahi Glass Co.

Relation Opportunity Type of Output Source of Technology

Strategic BehaviorBusiness

Field Year V.I. Var. New. Proact. React Materials Devices Licence Coop. R. E. OriginalHomeProd.c

Window glass Glass 1909 * * * * *Bonded refractory Ceramics 1914 * * * * *Soda ash Chemical 1916 * * * * *Dry-plate thin glass Glass 1917 * * * * *Caustic soda Chemical 1931 * * * * *Flat glassa Glass 1932 * * * * *Safety glass Glass 1935 * * * * *Glass bulb for TV tube Glass 1938 * * * * *Flon gas Chemical 1955 * * * * *Marketing of ICb Electronics 1964 * *Glass delay line Glass 1966 * * * * *Ion-exchange membrane Chemical 1974 * * * *

Liquid crystal display Electronics 1975 * * * * *

Quartz crystal Other 1976 * * * *Substrate for photomask Electronics 1984 * * * *Solar-photobaltic glass Glass 1984 * * * * *Assembly board Electronics 1984 * * * *Artificial crown Other 1985 * * * *Electrochromic display Electronics 1985 * * * *Semi-custom LSIb Electronics 1985 * * *Prostaglandin Other 1986 * * * *Thin-film magnetic disk Electronics 1987 * * * *

aFor mirrors, automobiles, and buildings.bAgency marketing contract.cManufacturing products that have been commercialized in a foreign country.

market needs in developing new products. In 1983, mar-keting departments were established in both the Corpo-rate Planning General Division and main business divi-sions. In 1987, the company’s business policy stated thatit was necessary to fortify the salesforce to provide feed-back information and reflect market needs for the manu-facturing and development processes. Interchanging per-sonnel between the sales and the R&D departmentsbecame more frequent.

Finally, the mode of attention changed. As morebusiness-level knowledge was accumulated in the devel-opment of LCD business, the mode of attention changedfrom undirected viewing to enacting or discovering.Asahi established new organizations (Electronic ProductsDepartment in 1983 and Electronic Product DevelopmentCenter in 1985) to study the environment systematically.From that change, Asahi realized that a different mode ofattention was appropriate for each different stage of busi-

ness development. Knowledge acquired during the de-velopment of the LCD business was accumulated asbusiness-level knowledge and came to be utilized in for-mulating corporate strategies.

Asahi’s conversion of business-level knowledge intocorporate-level knowledge seemed to coincide with thepromotion of Dr. Kanai, who spoke for the R&D depart-ment and tried to construct relationships with other de-partments. Through his interactions with other boardmembers, business-specific knowledge was convertedinto corporate-level knowledge and shared among the topmanagers.

The LCD business did not become a dominant businessfor Asahi and was transferred to a subsidiary company,Optrex. However, most subsequently developed busi-nesses involved devices or electronics-related and re-quired that the new basic assumptions be realized (Table1). Those strategic behaviors stimulated retention of the

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new set of basic assumptions, not because the assump-tions were valid but because they were used frequently.That process might be called “learning by using”.

Discussion and ImplicationsThis article introduces the concept of strategic learningto explain the long-run dynamics of strategic behaviorsand organizations that undergo strategic reorientation.The process of strategic learning is described as an in-traorganizational ecological process (Burgelman 1991). Itis an integrating process of knowledge creation and ac-quisition, information interpretation, information trans-formation and distribution, and retention of knowledge inthe organizational memory (Huber 1991).

Organizational learning is myopic (Levinthal andMarch 1993, Levitt and March 1988). Lower level learn-ing has been posited to preclude higher level learning(e.g., Argyris and Schon 1978). In contrast, the study re-ported here shows how, in strategic learning, accumula-tion of myopic learning or lower level learning leads tohigher level learning. Strategic learning occurs as the cul-mination of a series of incremental changes through acontinuous process of first-order and second-orderchanges in cognitive maps (Barr et al. 1992). However,we are just beginning to understand the process of stra-tegic learning. Additional theoretical and field studiesshould be done to explore further the long-run adaptationand growth of the firm.

Several theoretical and practical implications can bederived from the strategic learning model. First, the dis-tinct characteristic of strategic learning is that it occurs ina natural way without questioning and strategic knowl-edge distillation. Unlearning is often said to be importantfor changing an organization strategically (e.g., Hedberg1981, Nystrom and Starbuck 1984). Here, however, un-learning was not assumed to precede strategic learning.It is through strategic knowledge distillation that the or-ganization takes long strides, maintaining and using itsstrength and prospering in the long run. A firm can reapbenefits from tacit knowledge accompanied by business-level knowledge accumulated through strategic behaviors(Nonaka 1990, 1994). Through accumulated learning andstrategic knowledge distillation, organizations can sur-vive in the long run.

Because strategic learning requires a lead time and newassumptions are acquired through strategic behaviorbased on the old frame of reference, the new set of basicassumptions is likely to be somewhat similar to the oldone. Some old assumptions will survive and be incorpo-rated with new ones. Hence, after strategic learning, thecompany is not a completely different company, butrather maintains its identity.

Second, the concept of strategic learning directs re-search attention to the difference between a change instrategic behaviors under a current generation mechanismand a change in the generation mechanism. In organiza-tion theory, long-run adaptation is clearly distinguishedfrom the short-run adaptation. March and Simon (1958,p. 170) stated that “short-run adaptiveness corresponds towhat we ordinarily call problem-solving, long-run adap-tiveness to learning.” The concept of strategic learningrepresents how organizations realize long-run adaptation.Through strategic learning, organizations change the pro-cedural routines that govern their innovation process atthe corporate level. Lant and Mezias (1992) suggest thesame internal process generates convergence and reori-entation. In our framework, business learning dominatesin convergence in strategic behaviors under a given setof corporate-level knowledge, whereas strategic learningprecedes major strategic reorientation that leads the or-ganization to new patterns of strategic capability with anew set of corporate-level knowledge.

The concept of strategic learning contributes to ex-plaining the process of change of strategic orientation,such as from defender to prospector (Miles and Snow1978). The differences in strategic orientation to strategicissues among organizations reflect the differences in in-terpretation modes of organizations (Daft and Weick1984).

Third, strategic learning has important implications forplanned change. Among the four types of strategic changenoted by Allaire and Firsirotu (1985), strategic learningis most likely to involve transformation or reorientationin which a firm, well adjusted to its present environment,undergoes a fundamental change to adapt to a future en-vironment. However, the concept of strategic learning canbe applied to planned strategic change.

Planned strategic change must follow the naturalstream of an organization’s development, like an artificialairplane that flies by obeying the natural law of gravity(Simon 1981). A theory of strategic learning plays thesame role in planned strategic change as learning theoryplays in education. If the organization has experiencedstrategic learning, the role of planned change is to clarifyits meaning and move in the direction of strategic change.For that purpose, the change agents must be able to assessthe strategic learning in the organization.

If the organization has not experienced strategic learn-ing, the role of planned change is to facilitate strategiclearning through organizational design by supplyingother conditions. For that purpose, further research mustbe done to design the learning organization. Experimentplays critical role in innovation (March 1991). However,if the knowledge learned through a specific experiment is

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not distilled into corporate-level knowledge, learning re-mains at the business-specific level. Therefore, the keyfactor to be investigated further is the process of strategicknowledge distillation, and how and when the organiza-tion shifts from business learning to strategic learning(Louis and Sutton 1991).

Fourth, many researchers insist that strong leadershipis important for strategic change (e.g., Lorsch 1986,Schein 1985, Tushman and Romanelli 1985). However,even a strong leader is unlikely to execute major strategicchange in an organization without any preconditions un-der which organization members can accept such majorchange. The study reported here suggests that strategiclearning may provide such preconditions before thestrong leadership appears. Strategic behavior that leads tostrategic learning precedes strategic reorientation(Starbuck 1985). The critical role of the leader is to in-terpret previous strategic learning and lead the organiza-tion in the direction indicated by new basic assumptions(Burgelman 1991, 1994). A strong leader who formallydeclares the unlearning of old assumptions has symbolicimportance for the organization’s recognition of new as-sumptions (Pfeffer 1981a). Therefore, strong leadershipis needed in the retention stage.

Fifth, top managers can stimulate strategic learning bybringing innovative managers into jobs below the toplevel and allowing them to distill their business-levelknowledge gradually into corporate-level knowledge.Strategic learning is critical if a mature multidivisionalfirm is to survive in the long run. However, because suchfirms consist of loosely coupled suborganizations,corporate-level reorientation is difficult. To reorient thetotal organization, top managers must create tightly cou-pled system (Spender and Grinyer 1995). One way tocreate tight coupling is by promotion of creative man-agers to evoke different sets of basic assumptions andreflect their opinions in the top decision-making process(Huber 1991). According to Schein (1992, p. 325),

probably the common version of this process occurs when astrong outsider or an innovative insider is brought in to manageone of the more autonomous divisions of a multidivisional or-ganization. If the division becomes successful, it generates notonly a new model for others to identify with but creates a cadreof managers who can be promoted into more senior positionsand thereby influence the main part of the organization.

Sixth, organizational innovation, another form of long-run adaptation, should be investigated. The study reportedhere focused mainly on the change in the design processof strategic behaviors. However, strategic change withoutcorresponding changes in the organizational structure andprocess is not sufficient if the firm is to grow in the longrun (Chandler 1963). Some basic assumptions of orga-

nizational culture pertain to the design of the organiza-tional structure and process (Schein 1985, 1992). There-fore, how organizational learning of the basicassumptions affects organizational innovation is an im-portant topic for future research.

We should expect further studies of organizational in-novation to find the same type of learning process re-ported here. At the beginning, a small change or adjust-ment of organizational structure occurs within the currentframe of reference to adapt to the specific business en-vironment. Such local changes in the structure facilitatenew types of organizational behaviors, which bring newexperiences into the organization. Those experiences areinterpreted as business-level knowledge for organiza-tional design. The accumulation of small changes in theorganization triggers structural change in the overallstructure at the corporate level. Through those stages ofthe learning process, the firm learns new assumptionsabout organizational innovation.

Finally, the most challenging theme for future researchis what Gardner (1985) calls “computational paradox.” Inthis article, strategic learning is learning without ques-tioning the validity of knowledge, organizational knowl-edge includes contradictory assumptions, beliefs, and val-ues, and the knowledge-distillation process does notnecessarily rely on logical or causal relationships. How-ever, a logical explanation for those nonlogical phenom-ena can be found through further research.

AcknowledgmentsThe author thanks Shigeru Asaba, Robert A. Burgelman, MotokichiInaba, James G. March, Edgar Schein, Ikujiro Nonaka, and KennethWooden for their help in sharpening his research, thinking, and writing.The suggestions made by the anonymous OS reviewers and Arie Lewinwere very helpful in revision of the manuscript.

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Accepted by Ikujiro Nonaka and Arie Y. Lewin, received February 1996. This paper has been with the author for one revision.

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strategic learning: the continuous side of discontinuous strategic change

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